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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
Commission file number: 0-9788
RICHEY ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0594451
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
7441 Lincoln Way, Suite 100, Garden Grove, California 92641
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (714) 898-8288
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.001 PAR VALUE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of March 22, 1996, was $53,179,177 based
on the last sale price on the Nasdaq Stock Market ("Nasdaq") on that date.
As of March 22, 1996, 9,057,827 shares of the registrant's Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of Richey Electronics, Inc.'s (the "Company" or
"Richey Electronics") proxy statement for the annual meeting of
stockholders to be held on May 7, 1996, to be filed with the Securities and
Exchange Commission (the "Commission") no later than 120 days after the end
of the Company's fiscal year ended December 31, 1995, are incorporated by
reference into Part III of this Form 10-K (Items 10 through 13).
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PART I
ITEM 1. BUSINESS
GENERAL
Richey Electronics is a leading multi-regional, specialty distributor of
interconnect, electromechanical and passive electronic components and a
provider of value-added assembly services. The Company has been built through
a series of transactions beginning in December 1990 with RicheyImpact
Electronics, Inc.'s ("RicheyImpact") acquisition of the operations of
Richey/Impact Electronics, Inc. ("Old Richey") and recently through the
acquisitions of Inland Empire Interconnects in August, 1995 (the "IEI
Acquisition") and of Deanco, Inc. ("Deanco") and its parent holding
company, Electrical Distribution Acquisition Company ("EDAC"), in December
1995 (the "Deanco Acquisition"). Since the initial acquisition, the
Company's growth has been directed by one of the most experienced management
teams in its industry. Through acquisitions and internal growth that improved
the Company's operating leverage, Richey Electronics' sales and earnings have
increased from approximately $33.0 million and $700,000, respectively, in
1991 to $117.1 million and $2.9 million, respectively, in 1995. Giving pro
forma effect to the Deanco Acquisition, the Company's sales and earnings were
$217.0 million and $4.4 million, respectively, in 1995 and the Company would
have ranked as the fifth largest distributor in its market niche of
interconnect, electromechanical and passive components in the United States,
based on information presented in the April 1995 edition of ELECTRONIC
BUSINESS BUYER.
The Company distributes a broad line of connectors, switches, wire,
cable and heat shrinkable tubing and other interconnect, electromechanical
and passive electronic components used in the assembly and manufacturing of
electronic equipment. In 1995, Richey Electronics and Deanco distributed
electronic components for more than 120 component manufacturers. Richey
Electronics also provides a wide variety of value-added assembly services,
which typically generate higher gross margins than traditional component
distribution. The Company's customers are primarily small- and medium-sized
original equipment manufacturers ("OEMs") that produce electronic equipment
used in a wide variety of industries, including the telecommunications,
computer, medical, transportation and aerospace industries.
The Company completed the Deanco Acquisition on December 20, 1995.
Deanco is a multi-regional, specialty distributor of electronic components
and a provider of value-added assembly services with operations primarily
serving markets in the northeast and on the west coast. Deanco's sales and
EBITDA through December 19, 1995 were $99.9 million and $4.3 million,
respectively. Deanco's product offering is similar to that of Richey
Electronics, providing a variety of interconnect, electromechanical and
passive products primarily to small- and medium-sized OEMs. The Deanco
Acquisition provides the Company with certain product lines that it did not
previously carry, including heat shrinkable tubing supplied by Raychem, and
significantly enhances the Company's position in the passive components
market. Management believes that the Deanco Acquisition is consistent with
the Company's growth strategy, primarily due to the opportunities that the
Deanco Acquisition provides to increase operating leverage by expanding sales
in its existing and adjacent markets. Approximately $58.0 million, or 58%, of
Deanco's 1995 net sales were generated in or adjacent to markets served by
Richey Electronics in 1995. Management believes it can effectively integrate
these sales into the Company's operations and, by spreading these sales over
the Company's fixed cost base, improve the Company's operating leverage.
In April 1995 the Company issued 3,165,000 shares of the Company's
common stock, $0.001 par value, in a secondary offering. The Company and
certain stockholders of the Company, pursuant to an agreement with the
underwriters, sold an additional 450,000 shares of the Company's common stock
in that offering. The net proceeds to the Company from the secondary
offering were approximately $15.7 million. The Company used the net proceeds
to reduce the Company's existing indebtedness.
In February 1996, the Company sold through a private offering (the
"Note Offering") $50.0 million aggregate principal amount of 7% Convertible
Subordinated Notes due 2006 (the "Notes"). The Notes are convertible into
the Company's common stock at a conversion price of $14.125 per share
(subject to adjustment). In March 1996, the Company completed the Note
Offering by issuing an additional $5,755,000 aggregate principal amount of
Notes to cover over-allotments. The Company has agreed to file a shelf
registration statement with the Commission registering the Notes
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and the common stock issuable upon conversion. The net proceeds from the
Note Offering were approximately $53.8 million and were used to repay the
Company's $30.0 million term loan and to pay down its revolving line of
credit.
On March 19, 1996, the Company completed the acquisition of the assets
and business of MS Electronics, Inc. ("MS Electronics"). MS Electronics,
which is privately held, had sales of approximately $11.0 million in 1995. MS
Electronics specializes in the value-added distribution of interconnect,
electromechanical and passive electronic components in the
Baltimore\Washington marketplace. The addition of MS Electronics adds new
customers, complementary product lines and a strong sales organization, which
management expects to integrate into the Company.
The Company's principal executive offices are located at 7441 Lincoln
Way, Garden Grove, California 92641, and its telephone number is (714)
898-8288.
INDUSTRY OVERVIEW
Over the last 30 years, the electronics industry has grown significantly
as a result of increased demand for products incorporating sophisticated
electronic components, such as telecommunications and computer equipment.
This industry growth has been matched by an increase in the number of
products, component manufacturers and OEMs.
The electronics distribution industry has become an increasingly
important sales channel for the electronics industry because distributors can
market component manufacturers' products to a broader range of OEMs than
suppliers could economically serve with their direct sales forces.
Historically, manufacturers of electronic components have sold directly to
larger OEMs and relied upon distributors to serve smaller customers. Today,
distributors have become more of an extension of component manufacturers'
product delivery channel by providing value-added assembly services and
technical support to customers, stocking sufficient local inventory to ensure
timely delivery of components and managing customer credit. Distributors also
work with OEMs to ensure that component manufacturers' products are designed
into new products. This is particularly important because product innovations
in the electronics industry often come from smaller, entrepreneurial
companies.
As component manufacturers have increasingly focused their direct sales
efforts on the largest OEMs, and less on smaller customers, the distribution
segment has increased its share of the total United States connector market
from an estimated 22% in 1980 to an estimated 31% in 1995, according to the
August 28, 1995 edition of ELECTRONIC NEWS. The Company estimates that
approximately one-half of all electronic components are purchased by the top
100 customers who purchase many of their components directly from component
manufacturers. Approximately 100,000 other OEMs purchase products from both
distributors and manufacturers, with smaller customers purchasing a greater
proportion of their products from distributors.
MARKET SIZE. According to the December 4, 1995 edition of ELECTRONIC
NEWS, the electronics distribution industry recorded approximately $20
billion in sales in 1995. Of these sales, the Company estimates that
approximately $15 billion consisted of sales of semiconductors and computer
related peripherals, which management believes are generally characterized by
lower margins and are not sold by the Company. The remaining $5 billion
consisted of sales of interconnect (connectors, sockets), electromechanical
(relays, switches) and passive (resistors, capacitors) components, which are
marketed by the Company. Giving pro forma effect to the Deanco Acquisition,
the Company would have ranked as the 16th largest electronic components
distributor in the United States in 1995 and as the fifth largest distributor
within its market niche of interconnect, electromechanical and passive
components, based on information provided in industry publications. The
Company does not intend to directly compete in the semiconductor or computer
peripheral markets of the electronics distribution industry.
TRENDS. Consolidation is one of the most significant trends affecting
the electronic component distribution industry. Of the 25 largest electronics
distributors in 1985, only 13 remain independent today. The factors driving
consolidation among electronic component distributors include the desire of
manufacturers to sell through fewer distributors, the need for distributors
to increase operating leverage and the desire of OEMs to satisfy component
requirements with fewer vendors. A series of mergers and acquisitions over
the last ten years have created a number of very large distribution companies
that have increasingly focused on their larger customers and on expanding
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international operations. As a result of this large customer focus, regional
and specialty distributors such as the Company have gained market share among
small-and medium-sized OEMs. These smaller customers often require
value-added assembly services, detailed technical information about available
products, assistance in coordinating product design and engineering with
materials resource planning, fast response to inventory availability
inquiries, dependable on-time deliveries and other services.
In addition to the consolidation of distributors, manufacturers are
limiting the number of distributors through which they market their products
in an effort to improve operating efficiency. Regional distributors must
therefore demonstrate strong local market positions and client relationships
when competing to obtain or retain top manufacturer franchises. Many of these
distributors have made substantial efforts to expand local market share by
emphasizing customer services, such as value-added assembly, just-in-time
inventory management, automatic replenishment and in-plant stores.
Another key trend is the outsourcing of component assembly, which allows
OEMs to enhance profitability by concentrating resources on product design,
marketing and other core aspects of their business. By serving a number of
customers, distributors can often produce subassemblies more efficiently than
many small- and medium-sized OEMs. The September 12, 1994 edition of
OUTSOURCE MAGAZINE estimates that OEM outsourcing is now an $11 billion
industry growing at an estimated 14.5% per annum.
DISTRIBUTION AND SERVICES
The Company distributes interconnect, electromechanical and passive
electronic components used in the assembly and manufacturing of electronic
equipment. Richey Electronics also provides a wide variety of value-added
assembly services, which typically generate higher gross margins than
traditional component distribution. These value-added assembly services
consist of (i) component assembly, which is the assembly of components to
manufacturer specifications and (ii) contract assembly, which is the assembly
of cable assemblies, battery packs and mechanical assemblies to customer
specifications. The Company's value-added assembly services respond to an
industry trend toward outsourcing in which purchasing, manufacturing and
distribution functions are allocated to the most efficient provider. The
Company believes that outsourcing represents a significant opportunity to
expand sales, margins and operating profits.
COMPONENT DISTRIBUTION. The distribution of interconnect,
electromechanical and passive electronic components accounted for
approximately 71% of the Company's net sales in 1995, and pro forma for the
Deanco Acquisition, approximately 76% of net sales. These products include
connectors, wire, cable, relays, switches, motors, batteries, power supplies,
resistors, capacitors, transformers, heat shrinkable tubing and
potentiometers. The Company sources its products from such leading suppliers
as AMP, Burndy, C&K, Delta, Deutsch, Dialight, Eaton, Grayhill, MicroSwitch,
3M, Molex, Panasonic, Panduit, Power General, Precicontact, Samtec, Sullins,
TDK, TI Klixon and Wieland. The Deanco Acquisition expands the Company's line
card with the addition of a number of new product lines, including
Bentley-Harris, Berg, Dale, Emerson-Cummings, Raychem and Sprague. Moreover,
Richey Electronics and Deanco represented 18 common suppliers in 1995,
expanding the number of authorized locations in which the Company is
franchised.
VALUE-ADDED ASSEMBLY SERVICES. The electronics industry's trend toward
the use of outside vendors to provide value-added assembly services
represents a growth opportunity for the Company. Outsourcing offers OEMs the
opportunity to invest financial resources in areas with higher returns, such
as engineering and marketing. Additionally, the capital investment required
to stay current in manufacturing technologies is beyond the financial
capability of many smaller OEMs. By servicing a large number of such
customers, the Company spreads such costs over a larger business base.
Moreover, by integrating assembly services with extensive inventories, the
Company is able to eliminate a large amount of shipping, handling and
receiving costs from the process. For many OEMs, the Company is able to offer
assembly services at a lower cost to the customer while producing higher
margins for itself. The Company currently builds a variety of component
assemblies to customer or manufacturer specifications, including cable,
battery pack, switch and mechanical assemblies, wire harnesses, fan and motor
assemblies, and provides engraving and molding services. With the Deanco
Acquisition, Richey obtained the capability to encase its cable and harness
assemblies in heat shrinkable tubing, which was a significant portion of
Deanco's value-added assembly business. The Company has increased its
emphasis on higher-margin, value-added assembly services, which
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grew from $10.9 million, or 17% of net sales, in 1993 to $21.2 million, or
23.5% of net sales, in 1994 and to $33.0 million, or 29% of net sales, in
1995.
The Company currently provides value-added assembly services primarily
from its Los Angeles, California, Boston, Massachusetts and Portland, Oregon
facilities, having an aggregate of approximately 81,000 square feet dedicated
to value-added assembly services. In addition, the Company also provides
value-added assembly services from its San Diego and San Francisco Bay Area,
California facilities and from its Dallas, Texas facility.
SALES AND MARKETING
The Company provides its customers with a wide range of products from a
large number of electronic component manufacturers. The Company believes that
it has developed valuable long-term customer relationships and an in-depth
understanding of its customers' needs and purchasing patterns. Richey
Electronics serves a broad range of customers in a wide variety of
industries, including the telecommunications, computer, medical,
transportation and aerospace industries. In 1995, Richey Electronics and
Deanco together distributed electronic components to more than 15,000
customers, none of which represented more than 1.5% of net sales of the
Company on a pro forma basis.
The Company's sales representatives are trained to identify their
customers' electronic component requirements and to actively market the
Company's entire product line to satisfy these needs. During the design
process, sales representatives meet with the customers' engineers and
designers to discuss their component needs and any design or procurement
problems. The sales representatives suggest components that meet performance
criteria, are cost effective and focus on specific problems. Through this
approach, components carried by the Company are often incorporated into final
product specifications.
Including Deanco, the Company had approximately 215 sales
representatives as of December 31, 1995. Sales representatives are
compensated primarily by commission based on the gross profits obtained on
their sales. The Company now has sales offices in 20 of the 31 major
metropolitan distribution markets in the United States, which accounted for
80% of the total distribution market in 1995 according to the December 4,
1995 edition of ELECTRONIC NEWS. The Company's market positions are
particularly strong in the northeastern and western United States. Due to the
low level of overlap among Richey Electronics and Deanco customers, the
Company expects to retain most of Deanco's sales organization in order to
accommodate the expanded customer base. In addition, the Company believes
that the Deanco Acquisition has created an opportunity for the Company to
sell to the Company's new customers many product lines which Deanco did not
carry and to sell Deanco product lines to the Company's original customers.
The Company's local sales efforts are supported by central marketing
groups, located in Garden Grove and the San Francisco Bay Area, California
and in Boston, Massachusetts which are responsible for identifying new
suppliers and developing supplier relations, coordinating national
advertising, negotiating supplier agreements and promoting new and existing
product lines within the Company.
OPERATIONS
DISTRIBUTION. The principal focus of the Company's distribution
business is to provide OEM customers with rapid and reliable deliveries of
electronic components and a wide variety of related value-added assembly
services. The Company utilizes a computerized system of inventory control to
assist in marketing its products and to coordinate purchases from
manufacturers. Each sales office and warehouse (other than the Deanco
operations which are currently being integrated), as well as management, are
linked through the Company's computer system, providing detailed on-line
information regarding the price and availability of the Company's entire
stock of inventory, as well as on-line access to the inventories of several
of the Company's major suppliers. The Company also offers its customers a
number of operational services, including just-in-time delivery and
electrical data interchange programs.
After product price and availability are established, the Company's
system automatically places an order for shipment, or allocates inventory to
the assembly operations, if so required. The system then instructs warehouse
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personnel to pull products for shipment and, via its locator system, informs
them as to the location of the inventory. In order to optimize use of
available warehouse space, the Company uses a random-access, multi-bin system
whereby inventory is stored in the first available space.
If the order is scheduled for delivery over an extended period of time
or requires inventory purchases to fulfill all or part of the customer's
requirements, the system will inform the product management team, via a buy
action report, that action must be taken. The product manager makes the
appropriate buying decision which is forwarded, in most cases, by electronic
purchase order to component manufacturers.
Prior to the Deanco Acquisition, approximately 80% of the Company's
inventory was located at its centralized distribution facility in Los
Angeles, and 15% was stored in Boston. Pursuant to the Company's
consolidation plan, the Company expects to locate approximately 60% of its
inventory in Los Angeles and 30% in Boston. Management is considering,
however, retaining a warehouse in the San Francisco Bay Area for an
intermediate period of time. In the event such a facility is retained,
approximately 47% of the Company's inventory would be located in Los Angeles,
30% in Boston and 20% in the San Francisco Bay Area. The Company constantly
reviews inventories in an effort to maximize inventory turnover and customer
service. The Company believes its turnover ratio (5.0x for 1995) compares
favorably with those achieved by competitors for similar interconnect,
electromechanical and passive component inventories.
VALUE-ADDED ASSEMBLY SERVICES. The Company offers a wide variety of
value-added assembly services, including component assemblies, cable and
harness assemblies, battery packs, heat shrinkable tubing and other related
electromechanical subassemblies. After a customer's assembly order is taken,
the inventory requirements are automatically routed, via the computer system,
to the warehouse and assembly facilities. The system tracks the order
through the entire assembly process, including final inspection and shipment
to the customer. The Company conducts stringent quality control tests
in-line during assembly, and also conducts physical, mechanical and
electrical tests at the conclusion of the assembly process. A Company-wide
emphasis on quality is evidenced by the certification of its Garden Grove and
Los Angeles facilities to the ISO 9002 standard. The Company has met the
certification requirements of the International Standards Organization for
ISO 9002 certification by operating its Garden Grove and Los Angeles
facilities in accordance with established, written procedures.
DEANCO INTEGRATION PLAN
The Company has developed and begun to implement an operating plan
designed to integrate the operations of Richey Electronics and Deanco. The
Company expects to generate the majority of its cost savings from the
termination of redundant employees and the closing of duplicate facilities.
The most critical part of the integration is the conversion of Deanco's
computer data to the Company's system. This conversion is expected to be
completed during the second quarter of 1996. In 1995, Deanco's operating
expenses were 21.6% of net sales as compared to 17.9% of net sales for Richey
Electronics, excluding the restructuring reserve. The Company believes that
by integrating the operations, computer systems and facilities of Deanco into
Richey Electronics, it can reduce Deanco's operating expenses as a percentage
of net sales.
As a result of the integration, management expects that the Deanco
Acquisition will give the Company the opportunity to expand the coverage of
the Company's existing supplier franchises. Management believes that the
Company's expanded geographic scope gives it the potential to increase the
number of markets in which it is franchised by existing suppliers.
The Company believes that less than 25% of Deanco's customers in 1995
were also served by Richey Electronics prior to the Deanco Acquisition. Of
these, management believes that less than 10% were significant customers of
both Richey Electronics and Deanco. As a result, in the markets where Richey
Electronics and Deanco overlapped, including Boston, Denver, Los Angeles,
Phoenix, Portland, San Diego, the San Francisco Bay Area and Seattle,
management believes that the Company's sales force will be able to cross-sell
several of the new products available on its expanded line card. The Company
believes that cross-selling may lead to a significant increase in sales
volume. The Company has begun emphasizing cross-selling opportunities in
training programs for the integrated sales force; however, until the computer
conversion is completed, management does not expect to realize significant
sales from cross-selling.
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COMPONENT MANUFACTURERS
The Company's base of suppliers has increased significantly over the
past five years. With the addition of Deanco, the Company has non-exclusive
franchise (distribution) agreements with more than 100 component
manufacturers, including AMP, Bentley-Harris, Berg, C&K, Dale, Delta,
Deutsch, Dialight, Eaton, Emerson-Cummings, Kemet, Microswitch, 3M, Molex,
Papst, Raychem, Samtec, Sprague, Sullins and Wieland. Management believes
that it has one of the strongest product offerings, or line cards, in the
markets it serves. As a result of the Deanco Acquisition, the Company
believes that it is the only distributor to represent the world's seven
largest connector manufacturers. The Company is now the largest electronic
components distributor for many major national manufacturers, including
Deutsch, 3M, Raychem and Samtec. Based on information presented in the April
1995 edition of ELECTRONIC BUSINESS BUYER, the Company would have ranked as
the fifth largest distributor in the interconnect, electromechanical and
passive component markets in the United States if the acquisition of Deanco
had been consummated at that time.
For the year ended December 31, 1995, the Company's top five suppliers
accounted for approximately 39% of net sales, although no single manufacturer
accounted for more than 12% of net sales. Pro forma for the Deanco
Acquisition, the Company's top five suppliers accounted for approximately 42%
of net sales. As a result of the Deanco Acquisition, the Company's largest
supplier is now Raychem, which accounted for approximately 35% of Deanco's
net sales in 1995. On a pro forma basis, Raychem would have accounted for
approximately 17% of the Company's net sales in 1995.
The Company generally purchases products from manufacturers pursuant to
franchise agreements. Being a local authorized distributor is a valuable
marketing tool for the Company because customers receive warranty benefits
and support from the component manufacturer when they purchase products from
Richey Electronics. As an authorized distributor, the Company provides
customers a benefit from the marketing and engineering support available from
the Company's manufacturers, who assist the Company in closing sales and
attracting new customers. The Company expects that the Deanco Acquisition
will enable it to better address the desire of its suppliers to reduce the
number of distributors with which they deal.
Most of the Company's franchise agreements are cancelable by either
party, typically upon 30 to 90 days' notice. These agreements generally
provide for price protection, stock rotation privileges and the right to
return certain inventory if the agreement is canceled. Price protection is
usually in the form of a credit to the distributor for any inventory in the
distributor's possession for which the manufacturer reduces its prices. Stock
rotation privileges typically allow the Company to exchange inventory in an
amount up to 5% of a prior period's purchases. Upon termination of a
franchise agreement, the right of return generally requires the manufacturer
to repurchase the Company's inventory at the Company's adjusted purchase
price. If the Company terminates the franchise agreement, there is usually a
10% to 15% restocking charge. The Company believes that the provisions of
these franchise agreements should generally reduce the Company's exposure to
significant inventory losses, although there can be no assurance that the
Company will not experience significant inventory losses as a result of such
potential terminations or otherwise.
COMPETITION
The electronics distribution industry is highly competitive, primarily
with respect to price and product availability. The Company believes that
breadth of product line, level of technical expertise and quality of service
are also particularly important to small- and medium-sized OEMs. The Company
competes with large national distributors, as well as regional and specialty
distributors, many of whom distribute the same or competitive products. Many
of the Company's competitors have significantly greater assets, greater
financial and personnel resources and larger investments in technology and
infrastructure than the Company.
In 1995, total North American sales in the electronic components
distribution industry (including semiconductors and computer related
peripherals) were approximately $20 billion, of which the top 25 distributors
had sales of approximately $17 billion. Richey Electronics and Deanco were
ranked as the 22nd and 23rd, respectively, largest electronic components
distributors in the United States by ELECTRONIC NEWS in its December 4, 1995
edition. Pro forma for the Deanco Acquisition, the Company would have ranked
as the 16th largest electronic
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components distributor. Within the interconnect, electromechanical and
passive electronic components markets in which the Company competes, it is
ranked considerably higher.
EMPLOYEES
Including employees acquired from Deanco, the Company had approximately
1,080 employees as of December 31, 1995. Approximately 110 of the Company's
employees are corporate personnel involved in product management, finance,
quality control or senior management. Another 90 employees work in the
Company's Los Angeles, Boston and branch warehouses; 330 individuals are
employed in branch sales and marketing efforts and 550 persons are employed
on a full-time or on-call basis in value-added assembly services. As the
Company consolidates its operations with those of Deanco, the Company expects
to be able to reduce the total number of employees required to continue
business at current levels. There are no collective bargaining contracts
covering any of the Company's employees. The Company believes its
relationship with its employees is satisfactory.
BACKLOG
The Company believes that order backlog (confirmed orders from customers
for shipment within the next 12 months) generally averages two to three
months' sales in the electronics distribution industry. Order backlog grew
throughout 1995 and at year end was $53.0 million, up 166.0% from $19.9
million at December 31, 1994. Deanco contributed $21.5 million to backlog at
December 31, 1995. Excluding Deanco's contribution, the Company's backlog
grew 58% to $31.5 million in 1995. The Company believes that the increase in
order backlog is attributable to the general world-wide economic advance in
the telecommunications and computer industries, as well as to various sales,
marketing and operational programs implemented by management. Order backlog
is not necessarily indicative of future sales for any particular period.
Orders constituting the Company's backlog are subject to delivery
rescheduling, price negotiations and cancellation at the option of the buyer
without significant penalty.
WORKING CAPITAL
The Company must have sufficient inventories on hand to satisfy the
needs of its customers. For the quarter ended December 31, 1995, the
Company's inventory turnover (excluding the balance sheet effect of the
Deanco Acquisition) was 5.0x, compared to 4.9x for 1994 and 4.4x for 1993.
The Company believes it has sufficient working capital and borrowing capacity
available to maintain adequate levels of inventory for the foreseeable
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
ENVIRONMENTAL PROTECTION
The nature of the Company's operations do not present any significant
risks to the environment. Therefore, no material capital expenditures were
or are expected to be required for environmental protection.
ITEM 2. PROPERTIES
The Company leases all facilities used in its business. The following
table summarizes the principal properties occupied by the Company:
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<TABLE>
<CAPTION>
EXPIRATION DATE
LOCATION SQUARE FOOTAGE OF LEASE
-------- -------------- ---------------
<S> <C> <C>
ADMINISTRATIVE AND SALES OFFICE:
Garden Grove, California.............. 27,500 2001
WAREHOUSING, ASSEMBLY AND SALES:
Boston, Massachusetts................. 60,000 2004
Dallas, Texas......................... 15,300 2001
Los Angeles, California............... 55,000 2000
Portland, Oregon...................... 30,000 2001
San Jose, California.................. 13,400 1999
Santa Clara, California............... 42,200 2002
</TABLE>
The Company also leases sales offices in Arizona, California, Colorado,
Connecticut, Florida, Georgia, Illinois, Kansas, Maryland, Minnesota,
Missouri, New Jersey, New York and Washington which range in size from 600 to
6,000 square feet.
In consolidating Richey Electronics' and Deanco's businesses, management
is implementing its plan to close redundant facilities, including Deanco's
Ithaca, New York offices and Richey Electronics' Boston, Massachusetts
facility (which facilities are not reflected in the above table). The
Company is evaluating its options with respect to the Company's San Jose and
Deanco's Santa Clara, California facilities. The Company may close its San
Jose facility and retain Deanco's Santa Clara facility or close both
facilities and consolidate such operations into a new facility. Upon
completion of the Company's consolidation plan, Richey Electronics will have
21 facilities in 20 markets in 17 states, located predominantly in the major
western and northeastern markets.
The Company believes its facilities are suitable for their uses and are,
in general, adequate for the Company's current needs. The Company believes
that lease extensions or replacement space may be obtained for all of its
leased facilities upon the expiration of the current lease terms, in most
cases at rates which are not materially higher than those currently in
effect.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
On April 14, 1994, the Company's Common Stock began trading on the
Nasdaq Stock Market under the symbol "RCHY." From January 25, 1994 until
April 13, 1994, the Company's Common Stock traded on the Nasdaq Small-Cap
Market. Prior to January 25, 1994, the Company's Common Stock was traded in
the over-the-counter market on what is commonly referred to as the "bulletin
board."
The following table sets forth, for the periods indicated, certain high
and low bid information of the Common Stock as reported by IDD/Tradeline
until January 24, 1994 and certain high and low sale prices of the Common
Stock as reported by Nasdaq beginning January 25, 1994. High and low bid
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and may not necessarily reflect actual transactions.
8
<PAGE>
<TABLE>
<CAPTION>
STOCK PRICE
-------------------
HIGH LOW
------ ------
<S> <C> <C>
CALENDAR YEAR 1994:
First quarter............................. $10 $5
Second quarter............................ 9 1/2 5 1/2
Third quarter............................. 7 1/2 6
Fourth quarter............................ 7 1/2 6
CALENDAR YEAR 1995:
First quarter............................. $7 3/4 $6
Second quarter............................ 7 1/2 5 1/2
Third quarter............................. 9 6
Fourth quarter............................ 13 3/4 7 1/2
CALENDAR YEAR 1996:
First quarter (through March 22, 1996).... $13 1/4 $9 1/2
</TABLE>
On March 22, 1996, there were approximately 1468 holders of record of
the Company's Common Stock.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common
Stock. The Company intends to retain earnings for working capital to support
growth, to reduce outstanding indebtedness and for general corporate
purposes. In addition, the Company's Senior Credit Facility (as hereinafter
defined) contains provisions that prohibit the Company from paying cash
dividends on its Common Stock. Accordingly, the Company does not expect to
pay any dividends on its Common Stock in the foreseeable future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 4 of Notes to Financial Statements.
9
<PAGE>
SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data of the
Company and should be read in conjunction with and is qualified by
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Financial Statements, Notes to Financial
Statements and other financial information included or incorporated by
reference herein. All of the financial information is derived from financial
statements that have been audited by McGladrey & Pullen, LLP, independent
auditors.
<TABLE>
<CAPTION>
YEARS ENDED (1)
-------------------------------------------------------------------
JANUARY 3, JANUARY 1, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1993 1993 1994 1995
---------- ---------- ------------ ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA:
Net sales....................................... $32,994 $31,387 $64,995 $90,266 $117,057
Cost of goods sold.............................. 24,123 23,105 48,741 68,176 89,080
------- ------- ------- ------- --------
Gross profit.................................... 8,871 8,282 16,254 22,090 27,977
Selling, warehouse general and administrative
and amortization.............................. 7,233 7,144 13,889 17,318 20,874
Acquisition-related restructuring costs (2)..... -- -- -- -- 1,450
------- ------- ------- ------- --------
Operating income................................ 1,638 1,138 2,365 4,772 5,653
Interest expense, net........................... 476 388 1,198 1,606 867
Income tax expense (3).......................... 473 308 460 1,273 1,918
------- ------- ------- ------- --------
Net income...................................... $ 689 $ 442 $ 707 $ 1,893 $ 2,868
======= ======= ======= ======= ========
Earnings per common share (4)................... $ 0.25 $ 0.16 $ 0.14 $ 0.32 $ 0.36
======= ======= ======= ======= ========
Weighted average number of common shares
outstanding (4)................................ 2,774 2,774 5,085 5,889 8,036
OTHER FINANCIAL DATA:
EBITDA (5)...................................... $ 1,788 $ 1,283 $ 3,362 $ 5,537 $ 6,565(6)
EBITDA margin (5)............................... 5.4% 4.1% 5.2% 6.1% 5.6%(6)
Depreciation and amortization................... 132 145 997 765 912
Inventory turnover ratio (7).................... 4.3x 3.7x 4.4x 4.9x 5.0x
Days sales outstanding in accounts
receivable (7)................................. 34 41 43 42 42
JANUARY 3, JANUARY 1, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1993 1993 1994 1995(8)
---------- ---------- ------------ ----------- ------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital................................. $2,500 $3,014 $ 6,888 $ 5,317 $ 34,076
Total assets.................................... 9,370 9,669 30,918 35,013 118,941
Short-term debt................................. 3,510 3,181 6,995 10,443 835
Long-term debt.................................. -- -- 8,151 3,594 61,652
Stockholders' equity............................ 2,891 3,333 6,898 8,785 27,392
</TABLE>
- ---------------
(1) Unless otherwise noted, excludes results of operations of Brajdas prior to
the Richey-Brajdas Merger in April 1993, of In-Stock prior to the In-Stock
Acquisition in April 1994, of IEI prior to the IEI Acquisition in
August 1995 and of Deanco prior to the Deanco Acquisition in December 1995.
See Note 2 of Notes to Financial Statements for a discussion of the
Richey-Brajdas Merger, the In-Stock Acquisition, the IEI Acquisition, the
Deanco Acquisition and pro forma information.
(2) Consists of restructuring costs associated with the consolidation of the
operations of Deanco into the Company, including the Company's closure of
certain of its facilities and other costs associated with the
consolidation.
(3) The Company had approximately $19.6 million in federal and $1.3 million in
state tax net operating loss carry forwards ("NOLs"), primarily California,
as of December 31, 1995, which have resulted in reduced cash tax payments.
For the period ended December 31, 1995, cash tax payments were reduced
approximately $1.7 million for the utilization of federal and state NOLs.
10
<PAGE>
(4) The Richey-Brajdas Merger was accounted for as a reverse purchase
acquisition with RicheyImpact being the accounting acquirer. Per share data
for all periods from January 1, 1991 through April 6, 1993, the date of the
Richey-Brajdas Merger, are based upon the weighted average number of shares
of Brajdas indirectly acquired by the former stockholders of RicheyImpact.
(5) EBITDA consists of earnings before interest, income taxes, depreciation and
amortization. The Company has included EBITDA data (which are not a measure
of financial performance under generally accepted accounting principles)
because it understands such data are used by certain investors. EBITDA
margin represents EBITDA as a percentage of net sales. Because of the
significant amortization of intangible assets and non-cash income tax
expense incurred as a result of the Company's NOLs, the Company believes
that EBITDA may be a meaningful measure of its financial performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Deferred Tax Assets."
(6) Excluding the restructuring reserve of approximately $1.4 million, which is
an operating expense, EBITDA would have been approximately $8.0 million and
EBITDA margin would have been 6.8% for the year ended December 31, 1995.
(7) Inventory turnover ratio and days sales outstanding in accounts receivable
calculations are based upon Richey Electronics' annualized sales and cost
of sales for the latest quarter, excluding the balance sheet effect of the
Deanco Acquisition.
(8) Includes Deanco as the Deanco Acquisition was completed on December 20,
1995.
11
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
The following unaudited Pro Forma Statement of Operations is derived from
the audited statement of income of Richey Electronics for the year ended
December 31, 1995, which are included herewith, and the audited consolidated
statement of income of EDAC for the period ended December 19, 1995, which were
included in Richey Electronics Form 8-K/A dated as of January 31, 1996, and
assumes that the Deanco Acquisition and the sale of the Notes were consummated
as of January 1, 1995. These pro forma results do not give effect to the IEI
Acquisition because it would not have materially changed historical results.
The unaudited Pro Forma Statement of Operations should be read in conjunction
with the Financial Statements of the Company and the Financial Statements of
EDAC. The Company will provide, upon written or oral request, a copy of the
Form 8-K/A containing the Financial Statements of EDAC. Requests should be
directed to Richard N. Berger, Vice President and Secretary, Richey
Electronics, Inc., 7441 Lincoln Way, Garden Grove, California, 92641, telephone
number (714) 898-8288.
The Pro Forma Statement of Operations does not purport to represent what
the Company's results or financial condition would actually have been if the
Deanco Acquisition and the issuance and sale of the Notes had occurred on the
date indicated or to project the Company's results or financial condition for
or at any future period or date. The pro forma adjustments, as described in the
accompanying data, are based on available information and certain assumptions
that management believes are reasonable.
The unaudited pro forma information with respect to the Deanco Acquisition
is based on the historical financial statements of the business acquired. The
Deanco Acquisition has been accounted for under the purchase method of
accounting.
12
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
RICHEY EDAC AND ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA FOR
ELECTRONICS DEANCO FOR FOR FOR NOTE ACQUISITION AND
HISTORICAL HISTORICAL ACQUISITION ACQUISITION OFFERING NOTE OFFERING
----------- ---------- ----------- ----------- ----------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA:
Net sales....................... $117,057 $ 99,926 -- $216,983 -- $216,983
Cost of goods sold.............. 89,080 74,804 -- 163,884 -- 163,884
----------- ---------- ----------- ---------------
Gross profit....................... 27,977 25,122 -- 53,099 -- 53,099
Selling, warehouse, general and
administrative and
amortization.................... 20,874 21,558 762 (1) 38,694 -- 38,694
(4,500)(2)
Acquisition-related restructuring
costs........................... 1,450 -- (1,450)(3) -- -- --
----------- ---------- ----------- ---------------
Operating income................. 5,653 3,564 5,188 14,405 -- 14,405
Interest expense, net............ 867 2,829 2,400 (4) 6,096 (416)(7) 5,680
Other expense.................... -- 598 (476)(5) 125 175 (8) 300
3 (1)
Income tax expense............... 1,918 264 1,625 (6) 3,807 96 (6) 3,903
----------- ---------- ----------- ---------------
Net income (loss)................ $ 2,868 $ (127) 1,636 $ 4,377 145 $ 4,522
----------- ---------- ----------- ---------------
----------- ---------- ----------- ---------------
Earnings per common share:
primary........................ $ 0.36 -- -- $ 0.54 -- $ 0.56
----------- ----------- ---------------
----------- ----------- ---------------
fully diluted.................. $ 0.56
---------------
---------------
Weighted average number of common
shares outstanding:
primary........................ 8,036 -- -- 8,036 -- 8,036
fully diluted.................. 11,576
OTHER FINANCIAL DATA:
EBITDA........................... $ 6,565 $ 4,305 5,950 $ 16,820 -- $ 16,820
EBITDA margin.................... 5.6% 4.3% -- 7.8% -- 7.8%
Depreciation and amortization.... 912 1,339 289 2,540 175 2,715
</TABLE>
The accompanying notes are an integral part of the pro forma statement of
operations (unaudited).
13
<PAGE>
<TABLE>
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
(1) Amortization of goodwill and deferred debt costs have been adjusted to reflect the following:
Elimination of goodwill amortization in Deanco's income statement.................................. $ (359)
Goodwill amortization for a full year in the Company's income statement as the result of the Deanco
Acquisition........................................................................................ 1,121
---------
762
---------
---------
Elimination of amortization of deferred debt costs for Deanco...................................... $ (122)
Amortization of deferred debt costs associated with Senior Credit Facility......................... 125
---------
$ 3
---------
---------
(2)* The Company anticipates the following annual cost savings directly attributable to the Deanco
Acquisition:
Closure of seven redundant operating facilities and related lease costs............................ $ 625
Salary and related benefit costs associated with the termination of approximately 60 people,
principally corporate and management personnel, as the result of the closure of redundant
facilities, consolidation of warehouse facilities and elimination of Deanco corporate staff........ 2,555
Fringe benefit savings, as Richey Electronics benefit plans were adopted for the combined
operations......................................................................................... 350
Expected salary cost and benefit savings associated with consolidation of redundant branches....... 550
Expected savings resulting from the elimination of duplicate corporate expenses.................... 200
Elimination of management fee contract for services to Deanco that terminated at the date of the
Deanco Acquisition................................................................................. 220
---------
$ 4,500
---------
---------
In addition to the cost savings initiatives described above directly attributable to the Deanco Acquisition,
all of which are reflected in pro forma adjustments, the Company estimates it can eliminate an additional
$1,000 of annual duplicate costs through further reductions in branch operating expenses, freight and
advertising costs. The $1,000 of additional cost savings are not reflected in the Pro Forma Statement of
Operations.
(3) Material non-recurring charges for restructuring costs of $1,450 charged to the Company's fourth
quarter 1995 income statement have been eliminated.
(4) Interest expense has been increased to reflect the following assumptions:
Additional debt to fund payment of stock payment notes of $34,106 was outstanding for the full year
at the incremental borrowing rate of 8.2% on the Revolving Line of Credit.......................... $ 2,800
Notes payable to former EDAC management and stockholders had been financed at the Company's
incremental borrowing rate of 8.2% for the year as compared to the contractual rate of 9.0%........ (50)
Average bank debt outstanding for Deanco has been assumed to incur interest at the Company's
incremental borrowing rate of 8.2% for the period from January 1, 1995 to December 19, 1995,
instead of the approximate average rate of 10.75%.................................................. (350)
---------
$ 2,400
---------
---------
The annual effect on income of the interest rate varying by 1/8% from the amount used in this
calculation would be approximately $75 before taxes.
(5) Material non-recurring charge for write-off of Deanco deferred debt costs of $476 as a result of
the refinancing of the combined operations have been eliminated.
(6) The pro forma adjustments to income taxes are based on a 40% tax rate applied to taxable income.
Taxable income is income before provision for income taxes plus non-deductible goodwill.
(7) Interest expense has been adjusted to reflect the Note Offering and the application of net proceeds
therefrom, prior to the exercise of the overallotment option.
(8) Deferred debt cost amortization has been increased to reflect amortization of costs over the ten
year life of the Notes offered hereby.
* The pro forma information presented in note 2, when prepared, assumed the closure of Deanco's Santa Clara facility.
The Company is evaluating its options with respect to the Company's San Jose and Deanco's Santa Clara, California
facilities. The Company may close its San Jose facility and retain Deanco's Santa Clara facility or close both
facilities and consolidate such operations into a new facility. See "Properties." In the event that the Company determines
not to close Deanco's Santa Clara facility, the adjustment to annual cost savings reflected in the pro forma
financials would not be material.
14
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Richey Electronics is a multi-regional, specialty distributor of
electronic components and a provider of value-added assembly services. The
Company distributes a broad line of connectors, switches, wire, cable and
heat shrinkable tubing and other interconnect, electromechanical and passive
electronic components used in the assembly and manufacturing of electronic
equipment. Richey Electronics also provides a wide variety of value-added
assembly services, which typically generate higher gross margins than
traditional component distribution. These value-added assembly services
consist of (i) component assembly, which is the assembly of components to
manufacturer specifications and (ii) contract assembly, which is the assembly
of cable assemblies, battery packs and mechanical assemblies to customer
specifications. The Company's customers are primarily small- and medium-sized
OEMs. The Company intends to capitalize on a trend toward outsourcing by
increasing sales of value-added assembly services. These sales increased from
$10.9 million, or 17% of net sales, in 1993 to $21.2 million, or 23.5% of net
sales, in 1994 and to $33.0 million, or 29% of net sales, in 1995. Pro forma
for the acquisition of Deanco, 1995 sales of value-added assembly services
were $51.5 million.
The Company has been built through a series of transactions beginning
with the acquisition of the operations of Old Richey in December 1990 for
$5.9 million, including expenses, consisting of $3.7 million in cash funded
by its revolving line of credit, senior preferred stock valued at $1.0
million and $1.2 million in cash contributed by the former RicheyImpact
stockholders. The Company completed the Richey-Brajdas Merger in April 1993
through the issuance of 3,114,286 shares of Common Stock to the former
Brajdas shareholders valued at $4.1 million. The Company completed the
In-Stock Acquisition in April 1994 for $1.9 million in cash funded by its
revolving line of credit. The Company completed the IEI Acquisition in August
1995 for $1.2 million in cash funded by its revolving line of credit. The
Company has devoted significant efforts to improving the performance of those
operations. The Company completed the Deanco Acquisition in December 1995 for
consideration comprised of an aggregate stock purchase price of approximately
$34.1 million in cash, the redemption of EDAC stockholder notes of
approximately $6.6 million and the assumption of Deanco debt of approximately
$19.3 million. The Deanco Acquisition was accounted for as a purchase. The
Company funded the purchase consideration by drawing upon its $75 million
Senior Credit Facility. The Company completed the acquisition of certain
assets and the business of MS Electronics, in March, 1996 for the purchase
price of approximately $2.5 million in cash and the assumption of MS
Electronics' debt of approximately $500,000. The Company's financial
statements exclude the financial results of Brajdas prior to the
Richey-Brajdas Merger, of In-Stock prior to the In-Stock Acquisition, of IEI
prior to the IEI Acquisition and of Deanco prior to the Deanco Acquisition.
The Company will seek to complete additional strategic acquisitions in
connection with the ongoing consolidation occurring in the electronics
distribution industry.
15
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain items in the statements of
operations as a percentage of net sales for the periods shown.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
OPERATIONS STATEMENT DATA:
Net sales....................................... 100.0% 100.0% 100.0%
Cost of goods sold.............................. 75.0 75.5 76.1
----- ----- -----
Gross profit.................................... 25.0 24.5 23.9
Selling, warehouse, general and
administrative and amortization............... 21.4 19.2 17.9
Acquisition-related restructuring costs......... -- -- 1.2
----- ----- -----
Operating income................................ 3.6 5.3 4.9
Interest expense, net........................... 1.8 1.8 0.7
----- ----- -----
Income before income taxes...................... 1.8 3.5 4.1
Income tax expense.............................. 0.7 1.4 1.6
----- ----- -----
Net income...................................... 1.1% 2.1% 2.5%
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1995 AS COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Net sales were $117.1 million in 1995, an increase of $26.8 million, or
29.7%, from $90.3 million in 1994. Excluding sales of approximately $3.5
million from acquired Deanco operations after December 19, 1995, net sales
increased 25.8% in 1995. Excluding Deanco, net sales of electronic components
increased 16.6% to $80.6 million in 1995 from $69.1 million in 1994, while
net sales of value-added assembly services increased 55.7% to $33.0 million
in 1995 from $21.2 million in 1994. Component sales increased in 1995 due to
(i) the general strength of the market for electronic products, such as
computers, telecommunications and aerospace equipment, and (ii) the addition
of new franchised lines to the Company's product offering together with
geographic expansion of existing franchises. Rapid growth in net sales of
value-added assembly services resulted from the continuing trend of OEMs to
outsource the assembly of their products as well as management's decision to
accept larger contract assembly orders from larger customers than it had in
the past. On a pro forma basis, assuming the In-Stock Acquisition and Deanco
Acquisition had occurred as of January 1, 1994, net sales would have been
$193.5 million and $217.0 million for 1994 and 1995, respectively. See Note 2
of Notes to Financial Statements.
Gross profit was $28.0 million in 1995, an increase of $5.9 million, or
26.7%, from $22.1 million in 1994. Excluding gross profit of approximately
$800,000 from acquired Deanco operations after December 19, 1995, gross
profit increased 23.5% in 1995. Overall, the Company's gross margin declined
to 23.9% in 1995 from 24.5% in 1994. The Company's component distribution
gross margins remained approximately the same in 1995 as compared to 1994.
Value-added assembly gross margins declined in 1995 compared to 1994 due to
(i) an increase in the number of larger orders from larger customers which
typically provide lower gross margins than the Company previously
experienced, (ii) the acquisition of IEI which had historically lower gross
margins than the Company and (iii) inefficiencies related to the closing of
IEI's facility and the move and integration of IEI into one of the Company's
existing facilities. Management believes that these inefficiencies have now
been corrected and it has begun to implement procedures designed to limit the
acceptance of large, low margin orders and increase the gross profit margins
on the larger orders it will accept in the future.
Operating expenses were $22.3 million in 1995, an increase of $5.0
million, or 28.9%, from $17.3 million in 1994. These expenses as a percentage
of sales declined to 19.1% in 1995 from 19.2% in 1994. In the fourth quarter
of 1995, the Company recognized a charge to operating expenses related to the
Deanco Acquisition of $1.5 million, or 1.2% of net sales, to cover the costs
of closing certain of the Company's facilities and consolidating the
operations of Deanco into the Company. This restructuring charge accounted
for approximately 30% of the increase in operating expenses in 1995. After
giving effect to the restructuring charge, operating profit rose $900,000, or
18.8%, to $5.7 million in 1995 from $4.8 million in 1994. Excluding the
restructuring charge, operating expenses
16
<PAGE>
rose $3.6 million, or 20.5%, to $20.9 million in 1995. Operating expenses,
excluding the restructuring charge, declined to 17.9% of sales in 1995
compared to 19.2% in 1994 as a direct result of the Company's strategy to
increase its operating leverage by spreading its fixed costs over a larger
sales base, while operating profit rose 48.8% to $7.1 million, or 6.1% of
sales, as the decline in gross margin was more than offset by increased
operating leverage. The Company expects to pay out the restructuring costs
accrued in 1995 over the next year, except for amounts related to longer term
leases. See Note 2 of Notes to Financial Statements.
Net interest expense declined 44% to $900,000 in 1995 from $1.6 million
in 1994. The decrease in interest expense was a result of the Company using
the $15.7 million proceeds from the sale of 3,165,000 shares of Common Stock,
in April and May of 1995, to retire its subordinated debt and pay down
substantially all of its revolving line of credit. See "Liquidity and Capital
Resources."
The Company's provision for federal and state income tax expense
increased to $1.9 million in 1995 from $1.3 million in 1994, proportional to
the increase in pre-tax earnings as the effective tax rate remained the same.
The Company had approximately $19.6 million in federal and $1.3 million in
state tax NOLs, primarily California, as of December 31, 1995, which
substantially reduced cash tax payments. For the period ended December 31,
1995, cash tax payments were reduced approximately $1.7 million for the
utilization of federal and state NOLs. See "Deferred Tax Assets" and Note 8
of Notes to Financial Statements.
YEAR ENDED DECEMBER 31, 1994 AS COMPARED WITH YEAR ENDED DECEMBER 31, 1993
Net sales were $90.3 million in 1994, an increase of $25.3 million, or
38.9%, from $65.0 million in 1993. Net sales of electronic components
increased to $69.1 million in 1994 from $54.1 million in 1993, an increase of
27.7%. Net sales of value-added assembly services increased to $21.2 million
from $10.9 million in 1993, an increase of 94.5%. Although the Company fully
integrated In-Stock with its existing operations in 1994 and has not
maintained separate sales records since the In-Stock Acquisition, the Company
estimates that at least $7.0 million of the increase in net sales are
attributable to the In-Stock Acquisition. This estimate is based solely on
In-Stock's historical sales rates and backlog at the time of the In-Stock
Acquisition and, among other things, does not take into account
post-acquisition results of In-Stock's operations or variations due to
overlapping product lines or customers. The balance of the increase in net
sales is attributable to internal growth and the benefit of twelve months of
Brajdas' integrated operations in 1994 as compared to only nine months in
1993. In 1994, the Company experienced net sales growth in most of the ten
metropolitan distribution markets it served. On a pro forma basis, assuming
the Richey-Brajdas Merger and the In-Stock Acquisition occurred as of January
1, 1993, sales would have been $84.6 million and $93.0 million for 1993 and
1994, respectively.
Gross profit was $22.1 million in 1994, an increase of $5.8 million, or
35.6%, from $16.3 million in 1993. Net sales in 1993 include $540,000 of
special inventory acquired at no cost subsequent to the Company's acquisition
of Old Richey. Net sales of special inventory in 1994 were not significant.
Component distribution gross margins remained essentially flat in 1994
compared to 1993. Value-added assembly margins declined in 1994 compared to
1993 because of lower gross margins from value-added assembly sales at
In-Stock, which the Company acquired in April 1994. The Company took a number
of actions to improve operating efficiencies at its In-Stock operations and
believes that by the end of 1994 gross margins from value-added assembly
sales at those operations were roughly comparable to gross margins from its
other value-added assembly sales. Excluding sales of special inventory,
overall gross margins increased slightly from 24.4% in 1993 to 24.5% in 1994,
due to a changing sales mix increasingly oriented toward value-added assembly
services.
Operating expenses were $17.3 million in 1994, an increase of $3.4
million, or 24.5%, from $13.9 million in 1993. These expenses as a percentage
of sales declined to 19.2% from 21.4% in 1993. Increased sales from internal
growth as well as from the Richey-Brajdas Merger and the In-Stock
Acquisition, coupled with cost-saving initiatives, have allowed the Company
to substantially improve its operating leverage. The reduction in operating
expenses as a percentage of net sales resulted in part from the elimination
of duplicate personnel, sales, warehouse and corporate facilities, computer
systems and communication networks.
17
<PAGE>
Interest expense increased to $1.6 million in 1994 from $1.2 million in
1993. Interest expense rose as a result of increases in prime lending rates
and average borrowings brought about by the financing of the In-Stock
Acquisition.
The Company's provision for federal and state income tax expense
increased to $1.3 million from $460,000 in 1993. The effective tax rate for
1994 increased slightly to 40% from 39% for 1993. For the period ended
December 31, 1994 cash tax payments were reduced approximately $1.2 million
for the utilization of federal and state NOLs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources were significantly
affected in 1995 and the first quarter of 1996 by (i) the use of the $15.7
million net proceeds from the sale of 3,165,000 shares of Common Stock, in
April and May of 1995, to retire its subordinated debt and pay down
substantially all of its then outstanding revolving line of credit, (ii) the
December 20, 1995 Deanco Acquisition for consideration of $60.0 million,
including the assumption of Deanco's outstanding indebtedness and (iii) the
use of the $53.8 million net proceeds from the Note Offering to pay down
indebtedness under its $75 million revolving credit and term loan facility
(the "Senior Credit Facility") with First Interstate Bank of California
("FICAL"), as agent, and certain other lenders. The Company funded the Deanco
Acquisition by drawing upon its Senior Credit Facility, which was obtained
for that purpose.
On December 20, 1995, the Company replaced its existing credit facility
with Sanwa Business Credit Corporation and Deanco's existing credit facility
with Mellon Bank, N.A. with the Senior Credit Facility consisting of a $45
million revolving line of credit (the "Revolving Line of Credit") and a $30
million term loan (the "Term Loan"), with FICAL, as agent, and certain other
lenders. The Revolving Line of Credit terminates December 31, 1999. In the
first quarter of 1996, the Company used the net proceeds of the Note Offering
to repay the Term Loan and to pay down the Revolving Line of Credit. The
Senior Credit Facility is secured by substantially all of the Company's and
Deanco's assets and by a pledge of the Deanco stock held by the Company.
Loans under the Senior Credit Facility bear interest, at the Company's
option, at one of the following two rates: (i) the sum of (a) the Applicable
Margin (as defined in the FICAL loan agreement, currently 1%) plus (b) the
higher of FICAL's prime rate or the federal funds rate plus 1/2 of 1% or (ii)
in the case of Eurodollar Rate loans, the sum of (a) the Eurodollar Rate (as
defined in the FICAL loan agreement) plus (b) the Applicable Margin (as
defined in the FICAL loan agreement, currently 2.25%). See Note 4 of Notes to
Financial Statements.
The loan agreement evidencing the Senior Credit Facility limits the
Company's ability to create or incur liens on assets, to make distributions
or investments, to enter into any mergers or make additional acquisitions or
dispositions of assets and to enter into transactions with affiliates. In
addition, the Company must comply with various financial and other covenants
established by its lender. The loan agreement also provides the banks with
the right to terminate the commitments on 30 days' notice if there is a
change in control of the Company (generally, the acquisition of more than 50%
of the Company's capital stock).
As of December 31, 1995, the Company had outstanding borrowings under
the Senior Credit Facility of $18.4 million, with additional borrowing
capacity of $48.2 million available, including the $30 million unadvanced
portion of the Term Loan. On January 2, 1996, the Company paid approximately
$40.8 million in notes and accrued interest payable to the EDAC stockholders
by borrowing under the Senior Credit Facility. As of January 26, 1996, the
Company had $1 million in cash and $6 million of additional borrowing
capacity available.
On February 26, 1996, net proceeds from the Note Offering were used to
repay the Term Loan and pay down the Revolving Line of Credit. On March 22,
1996, net proceeds from the over-allotments under the Note Offering were used
to further pay down the Revolving Line of Credit. As of March 22, 1996,
after giving effect to the Note Offering and the application of the $53.8
million net proceeds therefrom, approximately $30 million was available for
borrowing under the Revolving Line of Credit. The $30.0 million Term Loan,
having been repaid, is no longer available to the Company. The Company
believes that the combination of cash, available borrowing capacity under the
Senior Credit Facility and cash generated by operations will be adequate to
meet its anticipated
18
<PAGE>
funding commitments for the remainder of 1996, including the pay down of
accrued restructuring costs associated with the Deanco Acquisition.
Working capital increased to $34.1 million as of December 31, 1995 from
$5.3 million as of December 31, 1994. During 1995, the Company's working
capital was affected by the sale of Common Stock and the Deanco Acquisition,
as well as operations. Working capital began the year at $5.3 million, as the
outstanding balance on the Company's then existing revolving line of credit
was classified as a current liability. Proceeds from the sale of Common Stock
in April and May of 1995 were used to pay down substantially all of the
balance on that revolving line of credit, increasing working capital to
approximately $20 million by mid-May, where it remained until the Deanco
Acquisition. With the classification of the balance outstanding at December
31, 1995 under the Revolving Line of Credit used to finance the Deanco
Acquisition as long term debt, working capital increased to $34.1 million.
The Company intends to maintain borrowings of at least the amount outstanding
at December 31, 1995 plus the portion of the Revolving Line of Credit drawn
on January 2, 1996 for an uninterrupted period extending beyond one year;
therefore, the December 31, 1995 balance of $18.4 million under the revolving
line of credit is classified as long-term debt. See Note 4 of Notes to
Financial Statements.
Excluding the effects of the Deanco Acquisition, the Company's net cash
from operating activities was $200,000 in 1995, compared to $4.0 million in
1994 and $500,000 in 1993. In 1995, net income provided $2.9 million, while
non-cash transactions provided $2.0 million ($900,000 from depreciation and
amortization and $1.1 million from deferred taxes) and $1.4 million from the
restructuring reserve. The $4.9 million in cash generated and the $1.4
million restructuring reserve financed a $2.5 million increase in trade
receivables, a $2.7 million increase in inventories, and a $300,000 increase
in other current assets, all associated with the Company's rapid sales growth
in 1995. Furthermore, accounts payable and accrued expenses declined
$600,000, bringing net cash provided by 1995 operations to $200,000. In 1994,
net income provided $1.9 million and non-cash transactions provided $1.9
million, which was used to fund $1.1 million in increased receivables and
$1.5 million in increased inventories. An increase of $2.8 million in
accounts payable and accrued liabilities brought net cash provided by 1994
operations to $4.0 million. Net cash generated from operations in 1994
increased compared to 1993, primarily due to increased net income, increased
use of the Company's NOLs and the increase in accounts payable and accrued
liabilities, offset somewhat by the increase in trade receivables.
Net cash used in investing activities increased to $3.3 million in 1995
from $2.9 million in 1994 and $3.2 million in 1993. In 1995, the Company
invested $1.3 million in improvements and equipment, primarily leasehold
improvements at its principal assembly facility in Los Angeles and its
corporate headquarters in Garden Grove. An additional $1.2 million was used
for the IEI Acquisition. During 1994, the Company spent $400,000 on
improvements and equipment to enhance its value-added assembly capabilities,
$1.8 million for the In-Stock Acquisition, and $500,000 in Richey-Brajdas
Merger costs. During 1993, the Company spent $3.2 million on costs associated
with the Richey-Brajdas Merger. In 1995, the Company financed its capital
expenditure and acquisition activities with net cash from operating
activities and borrowings under its revolving line of credit arrangements. In
1994 and 1993, the Company financed its investing activities with net cash
from operating activities and borrowings under its revolving line of credit.
The Company anticipates incurring capital expenditures of approximately $1.0
million in 1996, all of which will be financed with net cash from operating
activities and borrowings under its Revolving Line of Credit. The Company's
actual capital expenditures may vary significantly from its current
expectations, based on a number of factors, including but not limited to
additional acquisitions, if any.
For the quarter ended December 31, 1995, inventory turnover was 5.0x
compared to 4.9x in 1994 and 4.4x in 1993. In 1995, management maintained
enhanced inventory control programs initiated in earlier years. Prior to the
Deanco Acquisition, approximately 80% of the Company's inventory was located
at its centralized distribution facility in Los Angeles and 15% was located
in Boston. Pursuant to the Company's plan to integrate Deanco, the Company
expects to locate approximately 60% of its inventory in Los Angeles and
approximately 30% in Boston.
The number of days sales outstanding decreased by 0.5 days to 41.8 days
in the fourth quarter of 1995 from 42.3 days in the final quarter of 1994.
Management believes that the Company's performance in managing its
receivables is among the best in its industry. The Company did not experience
any significant trade collection difficulties in 1995.
19
<PAGE>
DEFERRED TAX ASSETS
As of December 31, 1995, the Company had approximately $19.6 million in
federal and $1.3 million in state tax NOLs, primarily California, most of
which expire between 1998 and 2009. The NOLs resulted from Brajdas' losses
prior to the Richey-Brajdas Merger.
Section 382 of the Internal Revenue Code of 1986, as amended ("Section
382") and related regulations impose certain limitations on a corporation's
ability to use NOLs. In the event certain changes in a company's stock
ownership over a three-year period exceed a specified threshold (a "Change of
Ownership"), the use of NOLs is restricted. California law conforms to the
provisions of Section 382. The public offering of 3,165,000 shares of the
Company's Common Stock in April and May of 1995 resulted in a Change in
Ownership. The Company estimates that its use of the NOLs is limited to
approximately $3.0 million per year until the NOLs are fully utilized or
expire, whichever occurs first.
As discussed in Note 8 of Notes to Financial Statements, at December 31,
1995, the Company recorded a deferred tax asset of $8.9 million, net of a
$2.1 million valuation allowance. The estimated future tax benefits of the
NOLs comprise the principal portion of the deferred tax asset. SFAS No. 109,
"Accounting for Income Taxes," requires that a valuation allowance be
recorded when it is "more likely than not" that any portion of the deferred
tax asset will not be realized. Due to the inherent uncertainty in forecasts
of future events and operating results, the Company, consistent with prior
practice, has continued to maintain a $2.1 million valuation allowance which
reduces the December 31, 1995 net deferred tax asset to the tax benefit
expected to be realized during approximately the next four years after giving
effect to the annual limitation resulting from the Change in Ownership.
The Company has been consistently profitable since December 28, 1990 and
generated taxable income before NOLs of $6.4 million in 1995. Based on its
historic and current level of profitability, the Company believes that it is
"more likely than not" that the Company will be able to generate the $26.0
million of future taxable income needed to realize the recorded amount of the
net deferred tax asset prior to expiration of the NOLs. The amount of
deferred tax asset, however, could be reduced in the near term if estimates
of future taxable income are reduced.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements required by this Item 8 are listed in Item
14(a) and are submitted at the end of this Form 10-K.
SELECTED QUARTERLY FINANCIAL DATA
The following table sets forth certain statements of operations data for
the periods indicated. The quarterly financial information provided excludes
the financial results of Brajdas, In-Stock, IEI and Deanco prior to the date
of the respective acquisition. This information has been derived from
unaudited financial statements which, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary
for a fair presentation of such information. These operating results are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
1995
Net sales........... $26,596,000 $28,305,000 $28,803,000 $33,353,000
Gross profit........ 6,513,000 6,660,000 6,931,000 7,873,000
Net income.......... 680,000 909,000 1,070,000 209,000
Earnings per common
share.............. .12 .11 .12 .02
Shipping days....... 64 64 62 62
1994
Net sales........... $20,247,000 $23,105,000 $22,838,000 $24,076,000
Gross profit........ 4,855,000 5,562,000 5,793,000 5,880,000
Net income.......... 355,000 532,000 471,000 535,000
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Earnings per common
share............. .06 .09 .08 .09
Shipping days....... 65 64 63 62
1993
Net sales........... $ 8,088,000 $19,721,000 $18,927,000 $18,259,000
Gross profit........ 2,154,000 4,782,000 4,686,000 4,632,000
Net income.......... 85,000 93,000 288,000 241,000
Earnings per common
share............. .03 .02 .05 .04
Shipping days....... 64 64 63 61
- -------------------
</TABLE>
The unaudited quarterly results of operations (excluding Deanco)
indicate that net sales rose from $388,000 per shipping day in the fourth
quarter of 1994 to $416,000, $442,000, $465,000 and $480,000 per shipping day
in the four consecutive quarters of 1995, respectively. The calendar for 1996
contains 64, 64, 62 and 64 shipping days for the first through fourth
quarters, respectively. Quarterly operating results may fluctuate
significantly from quarter to quarter in the future.
21
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item regarding directors and executive
officers of the Company is set forth in the Company's definitive Proxy
Statement (the "1996 Proxy Statement") to be filed with the Commission
relating to its Annual Meeting of Stockholders to be held on May 7, 1996,
under the headings "Nominees for Election as Directors," "Other Executive
Officers of the Company" and "Compliance with Section 16(a) of the Exchange
Act," and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item regarding compensation of the
Company's directors and executive officers, set forth in the 1996 Proxy
Statement under the heading "Executive Compensation" is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this item regarding beneficial ownership of
the Common Stock by certain beneficial owners and by management of the
Company set forth in the 1996 Proxy Statement under the heading "Security
Ownership of Certain Beneficial Owners and Management" is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item regarding certain relationships
and related transactions with management of the Company set forth in the 1996
Proxy Statement under the heading "Compensation Committee Interlocks and
Insider Participation" is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Financial Statements
Independent Auditor's Report
Balance Sheets at December 31, 1994 and 1995
Statements of Income for the Years ended December 31, 1993, 1994
and 1995
Statements of Stockholders' Equity for the Years ended December
31, 1993, 1994 and 1995
22
<PAGE>
Statements of Cash Flows for the Years ended December 31, 1993,
1994 and 1995
Notes to Financial Statements
2. Financial Statement Schedules
Not Applicable.
3. Exhibits
2.1 Stock Purchase Agreement, dated November 15, 1995, among Richey
Electronics, Inc., Deanco, Inc., Electrical Distribution
Acquisition Company and all of the stockholders of Electrical
Distribution Acquisition Company. *4* (2.1)
2.2 First Amendment to Stock Purchase Agreement and Instrument of
Joinder dated December 20, 1995 among Richey Electronics, Inc.,
Deanco, Inc., Electrical Distribution Acquisition Company and
all of the stockholders of Electrical Distribution Acquisition
Company. *4* (2.2)
2.3 Sales Tax Indemnification Agreement dated December 20, 1995
among Richey Electronics, Inc. and the stockholders of
Electrical Distribution Acquisition Company identified
therein. *4* (2.3)
3.1 Restated Certificate of Incorporation of Richey
Electronics, Inc. *5* (3.1)
3.2 Bylaws of Richey Electronics, Inc. *5* (3.2)
4.1 Indenture between Richey Electronics, Inc. and First Trust of
California, National Association, dated as of February 15,
1996.
10.1 Indemnification Agreement among Barclay and Company,
Inc., Brajdas Corporation, Donald I. Zimmerman and
certain former shareholders of RicheyImpact
Electronics, Inc. identified therein dated as of April
5, 1993. *2* (E)
10.2 Letter re Amendment to Indemnification Agreement by
Barclay and Company, Inc. and Donald I. Zimmerman, and
agreed to by BRJS Investment Holding Corp., Brajdas
Corporation and the other persons and entities
identified therein dated April 23, 1993. *1* (10.3)
10.3 Registration Rights Agreement between Brajdas
Corporation and BRJS Investment Holding Corp. dated
April 2, 1993. *2* (10.4)
10.4 Amended and Restated Loan and Security Agreement dated
as of April 7, 1993 between Sanwa Business Credit
Corporation and Brajdas Corporation. *1* (10.15)
10.5 Employment Agreement between William C. Cacciatore and
Brajdas Corporation dated as of April 1, 1993. *1*
(10.18)
23
<PAGE>
10.6 Addendum to Employment Agreement (William C.
Cacciatore) dated as of February 21, 1995. *9*
(10.37)
10.7 Employment Agreement between C. Don Alverson and
Brajdas Corporation dated as of April 1, 1993. *1*
(10.17)
10.8 Addendum to Employment Agreement (C. Don Alverson) dated as
of February 21, 1995. *9* (10.38)
10.9 Employment Agreement between Richard N. Berger and
Brajdas Corporation dated as of April 1, 1993. *1*
(10.20)
10.10 Addendum to Employment Agreement (Richard N.
Berger) dated as of February 21, 1995. *9* (10.39)
10.11 Employment Agreement between Norbert W. St. John
and Brajdas Corporation dated as of April 1, 1993. *1* (10.19)
10.12 Addendum to Employment Agreement (Norbert W. St. John)
dated as of February 21, 1995. *9* (10.40)
10.13 Brajdas Corporation Bonus Plan. *1* (10.21)
10.14 Service and Management Agreement dated December 18, 1990 by
and among RicheyImpact Electronics, Inc., Palisades
Associates, Inc. and Saunders Capital Group, Inc. *3* (10.2)
10.15 Agreement to Assume and Amend the Service and
Management Agreement among Brajdas Corporation,
Palisades Associates, Inc. and Saunders Capital
Group, Inc. dated as of April 6, 1993. *3* (10.3)
10.16 1993 Stock Appreciation Rights Plan. *6* (A)
10.17 Modification Agreement among the Company,
Palisades Associates, Inc. and Saunders Capital
Group, Inc. dated as of January 2, 1995. *9* (10.26)
10.18 Assumption and Amendment Agreement to Loan and
Security Agreement dated as of December 31, 1993
by and between Sanwa Business Credit Corporation
and Richey Electronics, Inc. *8* (10.31)
10.19 Second Amendment to Amended and Restated Loan and
Security Agreement dated as of March 29, 1994 by
and between Sanwa Business Credit Corporation and
Richey Electronics, Inc. *8* (10.32)
10.20 First Amendment to Stockholders Agreement dated
December 14, 1994 among the Company and the
individuals and entities listed on Schedule I to
the Stockholders Agreement. *9* (10.31)
10.21 Lease between Principal Mutual Life Insurance
Company and Richey Electronics, Inc. for lease of
premises at 7441 Lincoln Way, Garden Grove,
California. *9* (10.32)
10.22 Lease between M&M Enterprises, a California
General Partnership and Richey Electronics, Inc.
for lease of premises at 10871 La Tuna Canyon
Road, Sun Valley, California. *9* (10.33)
24
<PAGE>
10.23 Lease between Anchor Group, Inc. and Richey
Electronics, Inc. for lease of premises at 11 Walkup Drive,
Westborough, Massachusetts. *9* (10.34)
10.24 Lease between Hownat Trust and Deanco, Inc. for lease of
premises at 87 Concord Street, North Reading,
Massachusetts, Boston Massachusetts.
10.25 Lease between Murray Center Venture and Deanco ACA
Manufacturing, Inc. for lease of premises at Building 1,
Murray Business Center, 3601 SW Murray Blvd., Beaverton,
Oregon 97201, Beaverton, Oregon
10.26 1992 Stock Option Plan. *9* (10.35)
10.27 Form of Incentive Stock Option Agreement. *9* (10.36)
10.28 Modification Agreement by and between Richey
Electronics, Inc. and Palisades Associates, Inc.
dated as of February 21, 1995. *9* (10.41)
10.29 Loan Agreement dated as of December 20, 1995 among Richey
Electronics, Inc., the banks named therein and First
Interstate Bank of California, as Agent. *4* (10.1)
10.30 First Amendment to the Loan Agreement dated as of February 26,
1996 among Richey Electronics, Inc, the banks named
therein and First Interstate Bank of California, as Agent.
10.31 Second Addendum to Employment Agreement (William C.
Cacciatore) dated as of May 17, 1995.
10.32 Second Addendum to Employment Agreement (C. Don Alverson)
dated as of May 17, 1995.
10.33 Second Addendum to Employment Agreement (Norbert W. St. John)
dated as of May 17, 1995.
10.34 Agreement to Terminate Stockholders' Agreement *10* (10.1)
21.1 Subsidiaries of Richey Electronics, Inc.
23.1 Consent of Ernst & Young, LLP
23.2 Consent of McGladrey & Pullen, LLP
- ---------------
*1* Incorporated by reference to the designated exhibit of the Annual
Report on Form 10-K for Brajdas Corporation for the fiscal year ended
February 28, 1993, filed May 28, 1993.
*2* Incorporated by reference to the designated exhibit of the Statement
on Schedule 13D filed on behalf of BRJS Investment Holding Corp., C.
Don Alverson, William C. Cacciatore, Greg A. Rosenbaum and Norbert W.
St. John with the Securities and Exchange Commission on April 20,
1993.
*3* Incorporated by reference to the designated exhibit of the Transition
Report on Form 10-Q for Brajdas Corporation for the period from
January 1, 1993 through July 2, 1993, filed August 4, 1993.
*4* Incorporated by reference to the designated exhibit of Form 8-K for
Richey Electronics, Inc. dated December 20, 1995, filed January 3,
1996.
25
<PAGE>
*5* Incorporated by reference to the designated exhibit of the
Registration Statement on Form S-1, filed January 7, 1994,
Registration No. 33-73916 (the "Shelf Registration Statement").
*6* Incorporated by reference to the designated exhibit of the definitive
proxy statement for the 1993 Annual Meeting of Stockholders.
*7* Incorporated by reference to the designated exhibit of the Form 8-K
for Brajdas Corporation dated July 7, 1993, filed July 13, 1993.
*8* Incorporated by reference to the designated exhibit of Post-Effective
Amendment No. 1 to the Shelf Registration Statement on
April 18, 1994.
*9* Incorporated by reference to the designated exhibit of the
Registration Statement on Form S-2, filed February 23, 1995,
Registration Statement No. 33-89690.
*10* Incorporated by reference to the designated exhibit of the Quarterly
report on Form 10-Q for Richey Electronics, Inc. for the period
ending March 31, 1995, filed May 15, 1995.
*11* Incorporated by reference to the designated exhibit of the Quarterly
report on Form 10-Q for Richey Electronics, Inc. for the period
ending September 29, 1995, filed November 13, 1995.
Exhibits [10.5-10.17], Exhibits [10.26 - 10.28] and Exhibits [10.31-10.33]
are management contracts or compensatory plans or arrangements required to be
filed as exhibits pursuant to Item 14(c) of Form 10-K.
(b) Reports on Form 8-K
Form 8-K dated November 20, 1995 reporting events under item 5 and an
exhibit under item 7.
Form 8-K dated December 20, 1995 reporting the acquisition of assets
under Item 2 and exhibits under item 7.
Form 8-KA dated January 31, 1996 reporting events under item 5 and
Financial Statements under item 7.
Form 8-K dated February 27, 1996 reporting events under item 5 and on
exhibit under item 7.
Deanco, Inc.
Independent Auditor's Report
Balance Sheets at June 30, 1993, June 30, 1994, and December 31,
1994
Statements of Operations for the years ended June 30, 1992, June
30, 1993 and June 30, 1994, for each of the three month
periods ended September 30, 1994 and December 31, 1994
Statements of Stockholders' Equity for the years ended June 30,
1992, June 30, 1993 and June 30, 1994, and for the three
months ended December 31, 1994
Statements of Cash Flows for the years ended June 30, 1992, June
30, 1993 and June 30, 1994, and for each of the three month
periods ended September 30, 1994 and December 31, 1994
Notes to Financial Statements
26
<PAGE>
Electrical Distribution Acquisition Company and Subsidiary
Independent Auditor's Report
Balance Sheet at December 31, 1994
Statement of Operations for the three months ended December 31,
1994
Statement of Stockholders' Equity for the three months ended
December 31, 1994
Statement of Cash Flows for the three months ended December 31,
1994
Notes to Financial Statements
Electrical Distribution Acquisition Company and Subsidiary
Independent Auditor's Report
Consolidated Balance Sheet at December 19, 1995
Consolidated Statement of Income for the period ended December
19, 1995
Consolidated Statement of Stockholders' Equity for the period
ended December 19, 1995
Consolidated Statement of Cash Flows for the period ended
December 19, 1995
Notes to Financial Statements
Pro Forma Financial Information
Unaudited Pro Forma Condensed Income Statement
Unaudited Pro Forma Condensed Balance Sheet
Notes to Pro Forma Financial Statements
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Garden Grove, State of California, on March 26, 1996.
RICHEY ELECTRONICS, INC.
By /s/ RICHARD N. BERGER
------------------------------------
Richard N. Berger
Vice President, Chief Financial
Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <S>
/s/ WILLIAM C. CACCIATORE
- ------------------------- Chairman of the Board, President, March 26, 1996
William C.Cacciatore Chief Executive Officer (Principal
Executive Officer)
/s/ C DON ALVERSON
- -------------------------- Director March 26, 1996
C. Don Alverson
/s/ RICHARD N. BERGER
- -------------------------- Vice President, Chief Financial March 26, 1996
Richard N. Berger Officer and Secretary (Principal
Financial and Accounting Officer)
/s/ GREG A. ROSEBAUM
- --------------------------- Director March 26, 1996
Greg A. Rosenbaum
/s/ NORBERT W. ST. JOHN
- -------------------------- Director March 26, 1996
Norbert W. St. John
28
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Richey Electronics, Inc.
Garden Grove, California
We have audited the accompanying balance sheets of Richey Electronics,
Inc. as of December 31, 1994 and 1995, and the related statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Richey
Electronics, Inc. as of December 31, 1994 and 1995 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles.
MCGLADREY & PULLEN, LLP
Pasadena, California
January 19, 1996
29
<PAGE>
RICHEY ELECTRONICS, INC.
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
----------- ------------
<S> <C> <C>
ASSETS (Note 4)
CURRENT ASSETS.................................
Cash......................................... $ 9,000 $ 572,000
Trade receivables............................ 11,167,000 25,622,000
Inventories.................................. 14,913,000 31,450,000
Deferred income taxes (Note 8)............... 1,427,000 3,948,000
Other current assets......................... 435,000 1,481,000
----------- ------------
Total current assets..................... 27,951,000 63,073,000
----------- ------------
IMPROVEMENTS AND EQUIPMENT, NET (Note 3)....... 1,017,000 3,469,000
----------- ------------
OTHER ASSETS AND INTANGIBLES
Deferred income taxes (Note 8)............... 2,430,000 4,979,000
Distribution agreements...................... 2,304,000 --
Customer lists............................... 957,000 --
Other........................................ 80,000 1,161,000
Costs in excess of net assets of acquired
businesses (Note 2)........................ 274,000 46,259,000
----------- ------------
6,045,000 52,399,000
----------- ------------
$35,013,000 $118,941,000
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt
(Note 4).................................. $1,600,000 $ 835,000
Notes payable, revolving line of
credit (Note 4)........................... 8,843,000 --
Accounts payable............................ 10,457,000 18,250,000
Accrued expenses (Note 5)................... 1,734,000 6,088,000
Accrued restructuring costs (Note 2)........ -- 3,824,000
----------- ------------
Total current liabilities............... 22,634,000 28,997,000
----------- ------------
ACCRUED RESTRUCTURING COSTS (Note 2).......... -- 900,000
----------- ------------
LONG-TERM DEBT (Note 4)
Subordinated Notes Payable.................. 3,594,000 2,982,000
Other Long-term Debt........................ -- 58,670,000
----------- ------------
3,594,000 61,652,000
----------- ------------
STOCKHOLDERS' EQUITY (Note 9)
Preferred stock, $.001 par value,
authorized 10,000 shares, issued none..... -- --
Common stock, $.001 par value,
authorized 30,000,000 shares.............. 6,000 9,000
Additional paid-in capital.................. 5,240,000 20,976,000
Retained earnings........................... 3,539,000 6,407,000
----------- ------------
8,785,000 27,392,000
----------- ------------
$35,013,000 $118,941,000
=========== ============
See Notes to Financial Statements.
</TABLE>
30
<PAGE>
RICHEY ELECTRONICS, INC.
STATEMENTS OF INCOME
THREE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- ------------
<S> <C> <C> <C>
Net sales.......................... $64,995,000 $90,266,000 $117,057,000
Cost of goods sold................. 48,741,000 68,176,000 89,080,000
----------- ----------- ------------
Gross profit..................... 16,254,000 22,090,000 27,977,000
----------- ----------- ------------
Operating expenses:
Selling, warehouse, general and
administrative (Note 7)........ 13,002,000 16,750,000 20,415,000
Amortization of intangibles...... 887,000 568,000 459,000
Restructuring costs (Note 2)..... -- -- 1,450,000
----------- ----------- ------------
13,889,000 17,318,000 22,324,000
----------- ----------- ------------
Operating income............... 2,365,000 4,772,000 5,653,000
Interest expense (Note 4)........ 1,198,000 1,606,000 867,000
----------- ----------- ------------
Income before income taxes..... 1,167,000 3,166,000 4,786,000
Federal and state income taxes
(Note 8)......................... 460,000 1,273,000 1,918,000
----------- ----------- ------------
Net income..................... $ 707,000 $ 1,893,000 $ 2,868,000
=========== =========== ============
Earnings per common share.......... $ 0.14 $ 0.32 $ 0.36
=========== =========== ============
Weighted average number of common
shares outstanding............... 5,085,000 5,889,000 8,036,000
=========== =========== ============
See Notes to Financial Statements.
</TABLE>
31
<PAGE>
RICHEY ELECTRONICS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------
SENIOR ADDITIONAL
PREFERRED SHARES PAID-IN RETAINED
STOCK OUTSTANDING PAR VALUE CAPITAL EARNINGS TOTAL
--------- ------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993..... $ 1,194,000 6,000 $ -- $1,200,000 $ 939,000 $ 3,333,000
Cancellation of senior
preferred stock (Note 2). (1,194,000) -- -- 1,194,000 -- --
Merger (Note 2):
Recapitalization......... -- 9,705,000 971,000 (971,000) -- --
Issuance of common
stock.................. -- 10,905,000 1,091,000 2,961,000 -- 4,052,000
Issuance of junior
subordinated notes..... -- -- -- (1,194,000) -- (1,194,000)
Effect of three and one
half-to-one reverse
stock split.............. -- (14,727,000) (1,473,000) 1,473,000 -- --
Effect of change in
par value from $.10 per
common share to $.001
per common share......... -- -- (583,000) 583,000 -- --
Net income................. -- -- -- -- 707,000 707,000
---------- ----------- ---------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1993... -- 5,889,000 6,000 5,246,000 1,646,000 6,898,000
Reverse stock split
adjustments.............. -- -- -- (6,000) -- (6,000)
Net income................. -- -- -- -- 1,893,000 1,893,000
---------- ----------- ---------- ---------- ---------- -----------
BALANCE, DECEMBER 31, 1994... -- 5,889,000 6,000 5,240,000 3,539,000 8,785,000
Issuance of common stock,
in public offering, net
of offering expenses..... -- 3,165,000 3,000 15,736,000 -- 15,739,000
Net income................. -- -- -- -- 2,868,000 2,868,000
---------- ----------- ---------- ---------- ---------- -----------
BALANCE, DECEMBER 31, 1995... $ -- 9,054,000 $ 9,000 $20,976,000 $6,407,000 $27,392,000
========== =========== ============ =========== ========== ===========
</TABLE>
See Notes to Financial Statements.
32
<PAGE>
RICHEY ELECTRONICS, INC.
STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................... $ 707,000 $ 1,893,000 $ 2,868,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................ 997,000 765,000 912,000
Deferred taxes............................... 465,000 1,157,000 1,065,000
Change in operating assets and liabilities,
net of effect of business combinations:
(Increase) decrease in:
Trade receivables........................ (255,000) (1,107,000) (2,448,000)
Inventories.............................. (1,345,000) (1,518,000) (2,727,000)
Other current assets..................... (161,000) 14,000 (260,000)
Increase (decrease) in:
Accounts payable and accrued expenses.... 60,000 2,820,000 (624,000)
Accrued restructuring costs.............. -- -- 1,450,000
------------ ------------ -----------
Net cash provided by operating activities.. 468,000 4,024,000 236,000
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment................ 42,000 -- --
Purchase of improvements and equipment......... (89,000) (401,000) (1,316,000)
Payment of acquisition and restructuring
costs........................................ (3,188,000) (2,512,000) (2,025,000)
------------ ------------ -----------
Net cash (used in) investing activities...... (3,235,000) (2,913,000) (3,341,000)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net advances (repayments) on revolving line
of credit.................................... 3,859,000 1,848,000 (8,843,000)
Borrowings under long-term revolving line of
credit arrangement........................... -- -- 1,974,000
Payments on long-term debt..................... (1,088,000) (2,957,000) (5,202,000)
Proceeds of common stock offering, net of
expenses..................................... -- -- 15,739,000
------------ ------------ -----------
Net cash provided by (used in) financing
activities................................... 2,771,000 (1,109,000) 3,668,000
------------ ------------ -----------
INCREASE IN CASH................................. $ 4,000 $ 2,000 $ 563,000
CASH
Beginning...................................... 3,000 7,000 9,000
------------ ------------ -----------
Ending......................................... $ 7,000 $ 9,000 $ 572,000
============ ============ ===========
</TABLE>
See Notes to Financial Statements.
33
<PAGE>
RICHEY ELECTRONICS, INC.
STATEMENTS OF CASH FLOWS, CONTINUED
THREE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
----------- ---------- ------------
<S> <C> <C> <C>
Supplemental Disclosures of Cash Flow
Information
Cash payments for:
Interest.................................... $ 994,000 $1,675,000 $ 1,230,000
=========== ========== ============
Income taxes................................ $ -- $ 46,000 $ 1,249,000
=========== ========== ============
Supplemental Schedule of Noncash
Investing and Financing Activities (Note 2)
Cancellation of senior preferred stock...... $ 1,194,000
===========
Assets acquired, liabilities assumed and
securities issued in business combinations:
Current assets................................ $10,416,000 $2,410,000 $ 28,093,000
Current liabilities........................... (5,093,000) (946,000) (12,731,000)
Leasehold improvements and equipment.......... 188,000 103,000 1,646,000
Customer lists and distribution agreements.... 10,220,000 -- --
Other assets.................................. 69,000 -- 861,000
Costs in excess of net assets of acquired
businesses.................................. -- 274,000 47,287,000
Restructuring and transaction costs........... (3,748,000) -- (3,427,000)
Subordinated notes payable.................... (8,000,000) -- (2,982,000)
Common stock issued........................... (4,052,000) -- --
Other liabilities assumed..................... -- -- (23,434,000)
Stock payment notes........................... -- -- (34,106,000)
----------- ---------- -------------
Net cash paid............................... $ -- $1,841,000 $ 1,207,000
=========== ========== ============
Issuance of subordinated notes payable in
connection with merger........................ $(1,194,000)
===========
</TABLE>
See Notes to Financial Statements.
34
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company is a multiregional, specialty distributor of electronic
components and provider of value added assembly services. The Company
distributes a broad line of connectors, switches, wire, cable and heat
shrinkable tubing and other interconnect, electromechanical and passive
electronic components used in assembly and manufacture of electronic
equipment. Richey Electronics has distribution rights from major worldwide
suppliers, none of which individually accounted for sales greater than 12% in
1995. Richey Electronics' corporate headquarters are based in California and
it has markets in 17 states located predominantly in major western and
eastern markets.
A SUMMARY OF THE COMPANY'S SIGNIFICANT ACCOUNTING POLICIES FOLLOWS:
YEAR END
The Company reports its annual operating results based upon a calendar
year end (December 31) and its quarterly results using the Friday nearest the
end of each quarter.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses during the reporting period. Actual results could differ from
those estimates and could materially impact the reported amount of assets and
liabilities and future operating results.
CONCENTRATION OF CREDIT RISK
The Company distributes electronic components to small and medium-sized
manufacturers in a wide variety of industries including telecommunications,
computer, medical, transportation and aerospace. Credit is extended based on
an evaluation of the customer's financial condition and collateral is
typically not required. Credit losses are provided for in the financial
statements through a charge to operations. Credit losses have been
consistently within management's expectations and were not material in any
year presented. A valuation allowance for known and anticipated credit losses
is maintained.
INVENTORIES
Inventories consist of electronic components held for sale and are
valued at the lower of cost (first-in, first-out method) or market. The
Company periodically reviews the age and turnover of its inventory to
determine whether any inventory has become obsolete or has declined in value
and incurs a charge to operations for known and anticipated inventory
obsolescence. The Company has not incurred any material charges to operations
for inventory obsolescence during any year presented.
1993 sales and gross profit include $540,000 of special inventory
acquired at no cost subsequent to the Company's original 1990 business
combination. The 1994 and 1995 sales of this special inventory were not
material.
IMPROVEMENTS AND EQUIPMENT
Improvements and equipment are stated at cost, less accumulated
depreciation and amortization. Equipment is depreciated using the
straight-line method over estimated service lives ranging from three to seven
years. Improvements are amortized over the life of the lease or the economic
life of the asset, whichever is shorter.
DISTRIBUTION AGREEMENTS AND CUSTOMER LISTS
Distribution agreements and customer lists acquired in the
Richey-Brajdas Merger have been amortized using the straight-line method over
their respective estimated economic lives of five and fifteen years. As the
benefits of the Company's purchased net operating loss carryforwards were
realized, through the results of operations or
35
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
reductions in the deferred tax asset valuation allowance, the carrying value
of the distribution agreements and customer lists was reduced
proportionately.
COSTS IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES (GOODWILL)
The Company is generally amortizing goodwill on a straight-line method
over a 40-year period. Goodwill shown in the financial statements relates to
the Company's 1994 acquisition of In-Stock (current balance $242,000), and
the Company's 1995 acquisitions of IEI (current balance $162,000) and Deanco
(current balance $45,855,000).
The Company periodically reviews the value of its goodwill to determine
if an impairment has occurred. The Company does not believe that an
impairment of its goodwill has occurred based on an evaluation of operating
income, cash flows and business prospects.
INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax
liabilities are recognized for taxable temporary differences and deferred tax
assets are recognized for deductible temporary differences and operating loss
and tax credit carryforwards. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when it cannot be
demonstrated that the deferred tax assets are more likely than not to be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
EARNINGS PER COMMON SHARE
Earnings per common share are computed using the weighted average number
of shares of common stock outstanding. On December 30, 1993, the Company
effected a reverse stock split by issuing one share for every three and
one-half shares of common stock previously outstanding. All previously
reported earnings per share have been restated to give retroactive effect to
this reverse stock split. Common stock equivalents were not material in any
year presented.
NEW PRONOUNCEMENTS
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF
In March 1995 the FASB issued Statement No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of.
Statement No. 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. Statement No. 121 will first be
required for the Company's year ending December 31, 1996. The Company does
not anticipate that the adoption of Statement No. 121 will have a material
impact on the financial statements as of the date of adoption.
FAIR VALUE OF FINANCIAL INSTRUMENTS
During 1995 the Company adopted Statement of Financial Accounting
Standards No. 107, Disclosures about Fair Value of Financial Instruments. The
carrying amounts of accounts receivable and accounts payable approximate fair
value. The carrying amounts of the revolving line of credit and amounts to be
refinanced under the revolving line of credit and term loan approximate their
fair value given their interest rate pricing. The carrying amounts of
subordinated debt and other debt approximate fair value.
ACCOUNTING FOR STOCK-BASED COMPENSATION
In 1995 the FASB issued Statement No. 123, Accounting for Stock-based
Compensation. Statement No. 123, establishes financial accounting and
reporting standards for stock-based employee compensation plans such as a
purchase plan. The statement generally suggests stock-based compensation
transactions be accounted for based on the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is
more reliably measurable. An enterprise may continue to follow the
requirements of Accounting Principles Board (APB) Opinion No. 25, which does
not require compensation to be recorded if the consideration to be received
is at least
36
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
equal to the fair value at the measurement date. If an enterprise elects to
follow APB Opinion No. 25, it must disclose the pro forma effects on net
income as if compensation were measured in accordance with the suggestions of
Statement No. 123. The Company has not determined if it will continue to
follow APB Opinion No. 25 or follow the guidance of Statement No. 123.
However, adoption of this pronouncement in 1996 is not expected to have a
material impact on the financial statements.
NOTE 2. BUSINESS COMBINATIONS
In the period from 1993 to 1995, the Company completed several business
combinations. All of these acquisitions were accounted for as purchase
business combinations with the operations of the acquired business included
subsequent to the acquisition date. Each of the acquired businesses had
operations similar to the Company's. These acquisitions are described as
follows:
BRAJDAS ACQUISITION
On April 6, 1993, RicheyImpact merged with Brajdas Corporation, a
California corporation ("Brajdas"), with Brajdas as the surviving legal
entity (the "Richey-Brajdas Merger"). Brajdas subsequently changed its name
to Richey Electronics, Inc. (the "Company") and reincorporated in Delaware.
The Richey-Brajdas Merger was recorded as a reverse purchase acquisition with
RicheyImpact as the accounting acquirer.
IN-STOCK ACQUISITION
On April 4, 1994, the Company completed the purchase of the assets and
business of the In-Stock Products division of Anchor Group, Inc. (In-Stock),
located in Boston, Massachusetts.
EDAC AND SUBSIDIARY (DEANCO ACQUISITION)
On December 20, 1995, the Company completed the purchase of all the
issued and outstanding capital stock of Electrical Distribution Acquisition
Company ("EDAC"). EDAC, a holding company, and its wholly owned subsidiary,
Deanco, Inc. ("Deanco"), were acquired for $34,106,000 of stock payment
notes, the assumption of $5,962,000 of existing EDAC stockholder notes and
the assumption of all other debt of Deanco. The Company merged EDAC into the
Company in January 1996 and has made applications with the applicable state
authorities to merge Deanco into the Company as soon as practical.
The preliminary allocation of the purchase price is as follows:
CONSIDERATION
Purchase price for EDAC stock, consideration provided
with stock payment notes, due January 2, 1996................ $34,106,000
Assumption of EDAC stockholder notes, due January 2, 1996..... 5,962,000
Assumption of other interest-bearing debt..................... 19,300,000
Liabilities assumed, not including EDAC stockholder notes
and stock payment notes and other interest-bearing debt...... 12,511,000
Restructuring costs of acquired company....................... 3,100,000
Transaction costs, including debt issuance costs.............. 1,400,000
-----------
$76,379,000
===========
ALLOCATED TO
Estimated fair value of tangible assets acquired.............. $29,998,000
Debt issuance costs........................................... 500,000
Cost in excess of net assets of business acquired (goodwill).. 45,881,000
-----------
$76,379,000
===========
37
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 2. BUSINESS COMBINATIONS (CONTINUED)
On December 20, 1995, the Company also entered into a new credit
facility (see Note 4). This credit facility provided the funds necessary to
refinance $15,713,000 of Deanco debt as of December 20, 1995 and pay off the
EDAC stock payment notes and stockholder notes on January 2, 1996.
In connection with the Deanco Acquisition, the Company will close
certain of its own facilities and incur other costs associated with the
consolidation of the operations of Deanco into the Company. During the fourth
quarter, the Company recognized a restructuring charge of $1,450,000. These
costs are expected to be paid out over the next year, except for amounts
related to longer term real and personal property leases of approximately
$300,000. Substantially all of the original accrual remained unpaid at
December 31, 1995. The restructuring charges consisted of $400,000 for lease
obligations for Company facilities that will be consolidated into Deanco
facilities, severance costs for the Company's employees of $100,000,
inventory adjustments related to supplier terminations of $200,000, computer
conversion costs of $250,000, write-down of Company furniture and fixtures of
$150,000 and other items of $350,000.
Also in conjunction with the Deanco Acquisition, the Company accrued
restructuring costs of $3,100,000 relating to the consolidation of Deanco's
operations into the Company. Those costs related to the operations of Deanco
were recorded as a purchase accounting adjustment, resulting in an increase
in goodwill in the preliminary purchase price allocation. The accrued
restructuring costs consist of approximately $1,000,000 for severance for
Deanco employees, $1,750,000 for lease and facility costs for Deanco
facilities to be closed and other items of $350,000. At December 31, 1995,
only a nominal amount of these costs have been paid. The Company expects all
of these costs to be paid within the next 12 months, except those related to
longer term facility leases of $600,000.
Goodwill represents the costs in excess of tangible net assets acquired
in the acquisition. The Company believes that no separately identifiable
intangible assets were acquired and has assigned a 40-year life to this
asset.
INLAND EMPIRE INTERCONNECTS ACQUISITION
On August 16, 1995, the Company completed the purchase of the assets and
business of Inland Empire Interconnects ("IEI"), an Ontario, California cable
assembly company. The purchase price and related transaction costs were
approximately $1,217,000 and were paid in cash. The fair value of the
tangible assets acquired was $1,370,000 and the liabilities assumed totaled
$769,000. Intangibles of $616,000, including goodwill of $166,000 are
included in other assets and are being amortized over their estimated useful
lives.
PRO FORMA RESULTS (UNAUDITED)
The following pro forma results assume the acquisition of the assets and
business of In-Stock occurred as of the beginning of 1994 and the Deanco
Acquisition occurred as of the beginning of 1994 and 1995. The IEI
acquisition would not have materially changed pro forma reported sales or net
income. The unaudited pro forma results have been prepared utilizing the
historical financial statements of the Company and the acquired businesses
before extraordinary item. The unaudited pro forma results give effect to
certain adjustments, including amortization of acquired intangibles and
goodwill, elimination of duplicate facilities and redundant salaries,
interest expense and related tax effects.
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995
----------- -----------
(UNAUDITED) (UNAUDITED)
Net sales....................... $193,527,000 $216,983,000
Net income...................... 2,499,000 4,377,000
Earnings per share.............. 0.42 0.54
The pro forma financial information does not purport to be indicative of
the results of operations that would have occurred had the transactions
actually taken place at the beginning of the periods presented.
38
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 3. IMPROVEMENTS AND EQUIPMENT
Improvements and equipment at December 31 consist of the following:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Improvements...................................... $ 293,000 $2,084,000
Furniture, fixtures and equipment................. 1,431,000 2,597,000
---------- ----------
1,724,000 4,681,000
Less accumulated depreciation and amortization.... 707,000 1,212,000
---------- ----------
$1,017,000 $3,469,000
========== ==========
</TABLE>
NOTE 4. REVOLVING LINE OF CREDIT, LONG-TERM DEBT, SUBORDINATED DEBT AND
SUBSEQUENT EVENT
REVOLVING LINE OF CREDIT
On December 20, 1995, the Company entered into a new credit agreement
secured by all assets which expires December 31, 1999. The new credit
arrangement is comprised of a revolving line of credit of $45,000,000 and a
term loan facility of $30,000,000. The revolving line of credit allows
advances of up to 85% of eligible receivables and 50% of eligible inventory,
as defined. The revolving line of credit has several interest rate pricing
features available and at December 31, 1995 $17,411,000 bears interest at the
Eurodollar rate plus 2.25% (total of 8.06% at December 31, 1995) and $950,000
bears interest at 1% above the bank's prime rate (total of 9.5% at December
31, 1995). The Company intends to maintain borrowings of at least the amount
outstanding at December 31, 1995 and the portion to be drawn on January 2,
1996 for an uninterrupted period extending beyond one year; therefore, the
December 31, 1995 outstanding balance of $18,361,000 and $10,068,000 to be
refinanced under the revolving line of credit is classified as long-term
debt.
The term loan has similar pricing options. The term loan requires no
principal payments in 1996, $7,500,000 in 1997, $10,000,000 in 1998 and
$12,500,000 in 1999. The term loan agreement requires that all proceeds from
any future equity or debt issuance be applied to repay the $30,000,000 term
loan. The Company is required to pay the lender a quarterly unused line fee
equal to 3/8%, quarterly, of the difference between the maximum commitments
and the daily average outstanding borrowings for the prior quarter. The
credit agreement contains various restrictive covenants which require the
Company to meet certain financial conditions, including maintaining a minimum
level of stockholders' equity, minimum profitability, fixed charge coverage
and cash flow leverage ratios. In addition, the Company is restricted from
the payment of cash dividends. The loan agreement allows the lender to
terminate the commitments on 30 days' notice if there is a change in control
of the Company (generally, the acquisition of more than 50% of the Company's
capital stock).
The following is a summary of borrowings under revolving lines of
credit:
<TABLE>
<CAPTION>
1993 1994 1995
-------- ---------- -----------
<S> <C> <C> <C>
Weighted average interest rate in
effect at year end................... 8.5% 10.0% 8.2%
Available borrowings at year end....... $533,000 $5,452,000 $18,261,000
Maximum outstanding borrowings during
the year.............................. 695,000 12,610,000 18,361,000
Weighted average interest rate for
the borrowings outstanding during
the year............................. 8.5% 8.9% 9.3%
</TABLE>
The Company's revolving line of credit provides that up to $3,000,000 of
the available line can be used for letters of credit. None were outstanding
at year end.
39
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 4. REVOLVING LINE OF CREDIT, LONG-TERM DEBT, SUBORDINATED DEBT AND
SUBSEQUENT EVENT (CONTINUED)
SUBSEQUENT EVENT
On January 2, 1996, the stock payment notes and subordinated promissory
notes payable to former EDAC management and stockholders discussed below were
repaid through the $30,000,000 term loan and a $10,068,000 advance from the
revolving line of credit.
LONG-TERM DEBT
Long-term debt at December 31 is as follows:
<TABLE>
<CAPTION>
1994 1995
---------- -----------
<S> <C> <C>
Revolving line of credit........................... $ -- $18,361,000
Stock payment notes for Deanco Acquisition,
interest at 4.79%, paid January 2, 1996.......... -- 34,106,000
Subordinated promissory notes payable to former
EDAC management and stockholders, interest at
9%, paid January 2, 1996......................... -- 5,962,000
Subordinated promissory notes payable to former
stockholders of Deanco, unsecured, due in
annual installments of $1,000,000 beginning in
1997 with a final payment of $982,000 on
September 30, 1999, interest payable annually
at 8%............................................ -- 2,982,000
Unsecured subordinated note payable to a
corporation, due on January 1, 1996, interest
payable annually at 8%, subordinated to all
bank debt........................................ -- 700,000
Other.............................................. -- 376,000
10% senior subordinated note payable to Barclay
Financial Group, a related party, and
unsecured. Interest expense was $479,000 and
$118,000 for 1994 and 1995, respectively......... 4,000,000 --
12% junior subordinated notes payable to
stockholders and unsecured. Interest expense
was $145,000 and $43,000 for 1994 and 1995,
respectively..................................... 1,194,000 --
---------- -----------
5,194,000 62,487,000
Less current maturities............................ 1,600,000 835,000
---------- -----------
$3,594,000 $61,652,000
========== ===========
</TABLE>
Aggregate maturities of long-term debt as of December 31, 1995, are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1996....................................................... $ 835,000
1997....................................................... 8,715,000
1998....................................................... 11,026,000
1999....................................................... 41,911,000
-----------
$62,487,000
===========
</TABLE>
40
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 5. ACCRUED EXPENSES
Accrued expenses at December 31 consist of the following:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Compensation................................. $1,163,000 $3,193,000
Rent and facilities costs.................... 85,000 112,000
Interest..................................... 273,000 1,040,000
Other........................................ 213,000 1,743,000
---------- ----------
$1,734,000 $6,088,000
========== ==========
</TABLE>
The accrual for rent and facilities costs is net of sublease income of
$255,000 and $60,000 at December 31, 1994 and 1995, respectively.
NOTE 6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office and warehouse space under operating lease
agreements with various terms and conditions, expiring in years ending 1995
through 2000, with rent escalations typically based on the Consumer Price Index.
Future minimum lease payments under these leases, exclusive of lease
payments on duplicate facilities which have been accrued, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996....................................................... $1,475,000
1997....................................................... 1,440,000
1998....................................................... 1,415,000
1999....................................................... 1,250,000
2000....................................................... 760,000
Thereafter................................................. 1,835,000
----------
$8,175,000
==========
</TABLE>
Total rent expense under operating leases, including rent for facilities
leased on a month-to-month basis, was $846,000, $678,000 and $903,000 for
1993, 1994 and 1995, respectively.
CONTINGENT LIABILITIES
There are no material legal proceedings pending, or to the knowledge of
management, threatened against the Company.
NOTE 7. SERVICE AND MANAGEMENT AGREEMENT
The Company is party to a Service and Management Agreement dated
December 18, 1990, as amended and modified. The Service and Management
Agreement terminates on December 31, 1997; however, the term is automatically
extended for additional two-year consecutive periods unless earlier
terminated. Management fees payable under this and prior agreements were
approximately $244,000 in 1993 and 1994 and $234,000 in 1995, including a
$64,000 termination payment to a former party to this agreement.
41
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 8. INCOME TAXES
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
--------- ---------- ----------
<S> <C> <C> <C>
Currently paid or payable:
Federal............................. $ (8,000) $ 60,000 $ 745,000
State............................... 3,000 56,000 108,000
Deferred.............................. 465,000 1,157,000 1,065,000
--------- ---------- ----------
$ 460,000 $1,273,000 $1,918,000
========= ========== ==========
</TABLE>
The income tax provision differs from the amount of income tax determined
by applying the U.S. federal income tax rate to pretax income due to the
following:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Computed "expected" statutory rate..................... 35% 35% 35%
Increase (decrease) in rate resulting from:
Benefit of income taxed at lower rate................ (1) (1) (1)
State income taxes, net of federal tax benefit....... 7 5 5
Other................................................ (2) 1 1
---- ---- ----
39% 40% 40%
==== ==== ====
</TABLE>
Net deferred taxes at December 31 consist of the following:
<TABLE>
<CAPTION>
1994 1995
----------- ----------
<S> <C> <C>
Deferred tax liabilities:
Intangibles recorded at the purchase price for
financial reporting purposes, not recognized
in tax-free merger............................. $ 1,348,000 $ --
Other............................................ 337,000 314,000
----------- -----------
1,685,000 314,000
----------- -----------
Deferred tax assets:
Net operating loss carryforwards (NOLs).......... 8,421,000 7,096,000
Costs capitalized to inventory for tax purposes.. 320,000 919,000
Accrued expenses not deductible until paid....... 210,000 2,462,000
Other............................................ 244,000 890,000
----------- -----------
9,195,000 11,367,000
Less valuation allowance......................... (3,653,000) (2,126,000)
----------- -----------
5,542,000 9,241,000
----------- -----------
Net............................................ $ 3,857,000 $ 8,927,000
=========== ===========
</TABLE>
Net deferred tax assets described above have been included in the
accompanying balance sheets as follows:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Current assets.................................... $ 1,427,000 $ 3,948,000
Noncurrent assets................................. 2,430,000 4,979,000
----------- -----------
$ 3,857,000 $ 8,927,000
=========== ===========
</TABLE>
42
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 8. INCOME TAXES (CONTINUED)
As of December 31, 1995, the Company had acquired net operating loss
carryforwards which have the following expiration dates:
EXPIRATION DATE FEDERAL CALIFORNIA
--------------- ----------- ----------
1997...................... $ -- $ 76,000
1998...................... -- 953,000
1999...................... 2,242,000 290,000
2000...................... 490,000 --
2005...................... 2,000,000 --
2006...................... 2,053,000 --
2007...................... 9,700,000 --
2008...................... 2,500,000 --
2009...................... 580,000 --
----------- ----------
$19,565,000 $1,319,000
=========== ==========
Section 382 of the Internal Revenue Code of 1986 and the related
regulations and California law impose certain limitations on a corporation's
ability to use net operating loss carryforwards if more than a 50% ownership
change occurs. The Company's issuance of additional common stock in 1995,
together with the Richey Brajdas Merger, constitutes a more than 50%
ownership change. As a result, the usage of the NOLs are restricted to
approximately $3,000,000 on an annual basis.
The Company has been consistently profitable and generated taxable
income before NOL carryforwards of approximately $6.4 million in 1995. Based
on its current level of profitability, management believes that the Company
will be able to fully utilize the NOLs prior to their expiration. However,
consistent with prior practice, management has continued to maintain a
valuation allowance to reduce the net deferred tax asset to the tax benefit
expected to be realized during approximately the next four years. Management
believes that it is "more likely than not" that the Company will be able to
generate the approximately $26 million of future taxable income necessary to
realize the recorded amount of the net deferred tax asset prior to the
expiration of the NOLs. The amount of deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
NOTE 9. EMPLOYEE BENEFIT PLANS
STOCK APPRECIATION RIGHTS PLAN
On July 7, 1993, the Company adopted a Stock Appreciation Rights Plan.
Each stock appreciation right (SAR) provides the recipient with the right to
receive a cash payment equal to the excess, if any, of the fair market value
of a share of the Company's common stock on the date the SAR is exercised
over the fair market value on the date the SAR was granted, or such other
value as determined by the Compensation Committee. The maximum number of
rights that may be awarded under the plan may not exceed approximately
589,000. To date, no rights have been granted under this plan.
43
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 9. EMPLOYEE BENEFIT PLANS (CONTINUED)
STOCK OPTION PLAN
The Company has a stock option plan adopted in 1992. The options granted
vest at a rate of 25% per year over a four-year period and expire ten years
from the date of grant. The options are granted at fair market value at the
date of grant.
1994 1995
------- -------
Under option, beginning of year................ -- 226,737
Granted...................................... 226,737 266,334
Terminated and canceled...................... -- --
Exercised.................................... -- --
------- -------
Under option, end of year...................... 226,737 493,071
======= =======
Options exercisable, end of year............... -- 45,642
Available for grant, end of year............... 362,197 95,863
Average prices of options:
Granted during the year...................... $6.00 $6.63
Under option, end of year.................... 6.00 6.34
401(K) SAVINGS PLAN
The Company has a defined contribution 401(k) savings plan covering
substantially all its employees. The plan does not provide for the Company to
match any contributions by participants, and no contributions were made by
the Company during 1993, 1994 or 1995. As a result of the Deanco acquisition,
the Company acquired Deanco's 401(k) profit sharing plan whereby Deanco had
contributed 25% of each plan participant's covered contribution up to certain
specified limits.
HEALTH INSURANCE TRUST
The Company, through the Deanco Acquisition, has a health insurance
trust which provides benefits to certain employees and their eligible
dependents for medical and dental expenses. The trust is funded by the
Company and employee contributions and reimburses covered claims directly
from the trust's funds. The Company has purchased an insurance policy to
provide coverage which pays benefits if an individual's claims exceed $50,000
and aggregate claims for a year exceed 150% of the annual expected claims, as
computed by the insurance company. An estimate of the liability for the
incurred but not reported claims is recorded in the financial statements.
44
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 10. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
1995
Net sales......................... $26,596,000 $28,305,000 $28,803,000 $33,353,000
Gross profit...................... 6,513,000 6,660,000 6,931,000 7,873,000
Net income........................ 680,000 909,000 1,070,000 209,000
Earnings per common share......... 0.12 0.11 0.12 0.02
1994
Net sales......................... 20,247,000 23,105,000 22,838,000 24,076,000
Gross profit...................... 4,855,000 5,562,000 5,793,000 5,880,000
Net income........................ 355,000 532,000 471,000 535,000
Earnings per common share......... 0.06 0.09 0.08 0.09
1993
Net sales......................... 8,088,000 19,721,000 18,927,000 18,259,000
Gross profit...................... 2,154,000 4,782,000 4,686,000 4,632,000
Net income........................ 85,000 93,000 288,000 241,000
Earnings per common share......... 0.03 0.02 0.05 0.04
</TABLE>
45
<PAGE>
RICHEY ELECTRONICS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995
EXHIBIT INDEX
Exhibit
Number
- -------
2.1 Stock Purchase Agreement, dated November 15, 1995, among Richey
Electronics, Inc., Deanco, Inc., Electrical Distribution Acquisition
Company and all of the stockholders of Electrical Distribution
Acquisition Company. *4* (2.1)
2.2 First Amendment to Stock Purchase Agreement and Instrument of Joinder
dated December 20, 1995 among Richey Electronics, Inc., Deanco, Inc.,
Electrical Distribution Acquisition Company and all of the stockholders
of Electrical Distribution Acquisition Company. *4* (2.2)
2.3 Sales Tax Indemnification Agreement dated December 20, 1995 among Richey
Electronics, Inc. and the stockholders of Electrical Distribution
Acquisition Company identified therein. *4* (2.3)
3.1 Restated Certificate of Incorporation of Richey Electronics, Inc. *5*
(3.1)
3.2 Bylaws of Richey Electronics, Inc. *5* (3.2)
4.1 Indenture between Richey Electronics, Inc. and First Trust of California,
National Association, dated as of February 15, 1996.
10.1 Indemnification Agreement among Barclay and Company, Inc., Brajdas
Corporation, Donald I. Zimmerman and certain former shareholders of
RicheyImpact Electronics, Inc. identified therein dated as of April 5,
1993. *2* (E)
10.2 Letter re Amendment to Indemnification Agreement by Barclay and Company,
Inc. and Donald I. Zimmerman, and agreed to by BRJS Investment Holding
Corp., Brajdas Corporation and the other persons and entities identified
therein dated April 23, 1993. *1* (10.3)
10.3 Registration Rights Agreement between Brajdas Corporation and BRJS
Investment Holding Corp. dated April 2, 1993. *2* (10.4)
10.4 Amended and Restated Loan and Security Agreement dated as of April 7,
1993 between Sanwa Business Credit Corporation and Brajdas Corporation.
*1* (10.15)
10.5 Employment Agreement between William C. Cacciatore and Brajdas
Corporation dated as of April 1, 1993. *1* (10.18)
10.6 Addendum to Employment Agreement (William C. Cacciatore) dated as
of February 21, 1995. *9* (10.37)
10.7 Employment Agreement between C. Don Alverson and Brajdas Corporation
dated as of April 1, 1993. *1* (10.17)
10.8 Addendum to Employment Agreement (C. Don Alverson) dated as of
February 21, 1995. *9* (10.38)
10.9 Employment Agreement between Richard N. Berger and Brajdas Corporation
dated as of April 1, 1993. *1* (10.20)
46
<PAGE>
10.10 Addendum to Employment Agreement (Richard N. Berger) dated as of
February 21, 1995. *9* (10.39)
10.11 Employment Agreement between Norbert W. St. John and Brajdas Corporation
dated as of April 1, 1993. *1* (10.19)
10.12 Addendum to Employment Agreement (Norbert W. St. John) dated as of
February 21, 1995. *9* (10.40)
10.13 Brajdas Corporation Bonus Plan. *1* (10.21)
10.14 Service and Management Agreement dated December 18, 1990 by and among
RicheyImpact Electronics, Inc., Palisades Associates, Inc. and Saunders
Capital Group, Inc. *3* (10.2)
10.15 Agreement to Assume and Amend the Service and Management Agreement among
Brajdas Corporation, Palisades Associates, Inc. and Saunders Capital
Group, Inc. dated as of April 6, 1993. *3* (10.3)
10.16 1993 Stock Appreciation Rights Plan. *6* (A)
10.17 Modification Agreement among the Company, Palisades Associates,
Inc. and Saunders Capital Group, Inc. dated as of January 2, 1995.
*9* (10.26)
10.18 Assumption and Amendment Agreement to Loan and Security Agreement
dated as of December 31, 1993 by and between Sanwa Business Credit
Corporation and Richey Electronics, Inc. *8* (10.31)
10.19 Second Amendment to Amended and Restated Loan and Security
Agreement dated as of March 29, 1994 by and between Sanwa Business
Credit Corporation and Richey Electronics, Inc. *8* (10.32)
10.20 First Amendment to Stockholders Agreement dated December 14, 1994
among the Company and the individuals and entities listed on
Schedule I to the Stockholders Agreement. *9* (10.31)
10.21 Lease between Principal Mutual Life Insurance Company and Richey
Electronics, Inc. for lease of premises at 7441 Lincoln Way,
Garden Grove, California. *9* (10.32)
10.22 Lease between M&M Enterprises, a California General Partnership
and Richey Electronics, Inc. for lease of premises at 10871 La
Tuna Canyon Road, Sun Valley, California. *9* (10.33)
10.23 Lease between Anchor Group, Inc. and Richey Electronics, Inc. for
lease of premises at 11 Walkup Drive, Westborough, Massachusetts.
*9* (10.34)
10.24 Lease between Hownat Trust and Deanco, Inc. for lease of premises at 87
Concord Street, North Reading, Massachusetts, Boston, Massachusetts.
10.25 Lease between Murray Center Venture and Deanco ACA Manufacturing, Inc.
for lease of premises at Building 1, Murray Business Center, 3601 SW
Murray Blvd., Beaverton, Oregon 97201, Beaverton, Oregon.
10.26 1992 Stock Option Plan. *9* (10.35)
10.27 Form of Incentive Stock Option Agreement. *9* (10.36)
10.28 Modification Agreement by and between Richey Electronics, Inc. and
Palisades Associates, Inc. dated as of February 21, 1995. *9*
(10.41)
47
<PAGE>
10.29 Loan Agreement dated as of December 20, 1995 among Richey Electronics,
Inc., the banks named therein and First Interstate Bank of California, as
Agent. *4* (10.1)
10.30 First Amendment to the Loan Agreement dated as of February 26, 1996 among
Richey Electronics, Inc, the banks named therein and First Interstate
Bank of California, as Agent.
10.31 Second Addendum to Employment Agreement (William C. Cacciatore) dated
as of May 17, 1995.
10.32 Second Addendum to Employment Agreement (C. Don Alverson) dated
as of May 17, 1995.
10.33 Second Addendum to Employment Agreement (Norbert W. St. John) dated
as of May 17, 1995.
10.34 Agreement to Terminate Stockholders' Agreement *10* (10.1)
21.1 Subsidiaries of Richey Electronics, Inc.
23.1 Consent of Ernst & Young, LLP
23.2 Consent of McGladrey & Pullen, LLP
- --------------------
*1* Incorporated by reference to the designated exhibit of the Annual Report
on Form 10-K for Brajdas Corporation for the fiscal year ended February
28, 1993, filed May 28, 1993.
*2* Incorporated by reference to the designated exhibit of the Statement on
Schedule 13D filed on behalf of BRJS Investment Holding Corp., C. Don
Alverson, William C. Cacciatore, Greg A. Rosenbaum and Norbert W. St.
John with the Securities and Exchange Commission on April 20, 1993.
*3* Incorporated by reference to the designated exhibit of the Transition
Report on Form 10-Q for Brajdas Corporation for the period from January
1, 1993 through July 2, 1993, filed August 4, 1993.
*4* Incorporated by reference to the designated exhibit of Form 8-K for
Richey Electronics, Inc. dated December 20, 1995, filed January 3, 1996.
*5* Incorporated by reference to the designated exhibit of the Registration
Statement on Form S-1, filed January 7, 1994, Registration No. 33-73916
(the "Shelf Registration Statement").
*6* Incorporated by reference to the designated exhibit of the definitive
proxy statement for the 1993 Annual Meeting of Stockholders.
*7* Incorporated by reference to the designated exhibit of the Form 8-K for
Brajdas Corporation dated July 7, 1993, filed July 13, 1993.
*8* Incorporated by reference to the designated exhibit of Post-Effective
Amendment No. 1 to the Shelf Registration Statement on April 18, 1994.
*9* Incorporated by reference to the designated exhibit of the Registration
Statement on Form S-2, filed February 23, 1995, Registration Statement
No. 33-89690.
*10* Incorporated by reference to the designated exhibit of the Quarterly
report on Form 10-Q for Richey Electronics, Inc. for the period ending
March 31, 1995, filed May 15, 1995.
*11* Incorporated by reference to the designated exhibit of the Quarterly
report on Form 10-Q for Richey Electronics, Inc. for the period ending
September 29, 1995, filed November 13, 1995.
48
<PAGE>
- -------------------------------------------------------------------------------
RICHEY ELECTRONICS, INC.
and
FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION
as Trustee
INDENTURE
Dated as of February 15, 1996
7% Convertible Subordinated Notes Due 2006
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF NOTES . . . . . . . . . . . . . . . . . .7
Section 2.1 Designation, Amount and Issue of Notes . . . . . . . . . .7
Section 2.2 Form of Notes . . . . . . . . . . . . . . . . . . . . . .7
Section 2.3 Date and Denomination of Notes; Payments of Interest . . .8
Section 2.4 Execution of Notes . . . . . . . . . . . . . . . . . . . .9
Section 2.5 Exchange and Registration of Transfer of Notes;
Restrictions on Transfer; Depositary . . . . . . . . . . 10
Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes . . . . . . . 19
Section 2.7 Temporary Notes . . . . . . . . . . . . . . . . . . . . . 20
Section 2.8 Cancellation of Notes Paid, Etc. . . . . . . . . . . . . 21
ARTICLE III REDEMPTION OF NOTES . . . . . . . . . . . . . . . . . . . 21
Section 3.1 Redemption Prices . . . . . . . . . . . . . . . . . . . . 21
Section 3.2 Notice of Redemption; Selection of Notes . . . . . . . . 21
Section 3.3 Payment of Notes Called for Redemption . . . . . . . . . 22
Section 3.4 Conversion Arrangement on Call for Redemption . . . . . . 23
ARTICLE IV SUBORDINATION OF NOTES . . . . . . . . . . . . . . . . . 24
Section 4.1 Agreement of Subordination . . . . . . . . . . . . . . . 24
Section 4.2 Payments to Noteholders . . . . . . . . . . . . . . . . . 24
Section 4.3 Subrogation of Notes . . . . . . . . . . . . . . . . . . 27
Section 4.4 Authorization by Noteholders . . . . . . . . . . . . . . 28
Section 4.5 Notice to Trustee . . . . . . . . . . . . . . . . . . . . 28
Section 4.6 Trustee's Relation to Senior Indebtedness . . . . . . . . 29
Section 4.7 No Impairment of Subordination . . . . . . . . . . . . . 29
Section 4.8 Certain Conversions Deemed Payment . . . . . . . . . . . 29
Section 4.9 Article Applicable to Paying Agents . . . . . . . . . . . 30
ARTICLE V PARTICULAR COVENANTS OF THE COMPANY . . . . . . . . . . . 30
Section 5.1 Payment of Principal, Premium and Interest . . . . . . . 30
Section 5.2 Maintenance of Office or Agency . . . . . . . . . . . . . 30
i
<PAGE>
Page
----
Section 5.3 Appointments to Fill Vacancies in Trustee's Office . . . 31
Section 5.4 Provisions as to Paying Agent . . . . . . . . . . . . . . 31
Section 5.5 Existence . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.6 Transactions with Affiliates . . . . . . . . . . . . . . 32
Section 5.7 Rule 144A Information Requirement . . . . . . . . . . . . 33
Section 5.8 Stay, Extension and Usury Laws . . . . . . . . . . . . . 33
Section 5.9 Compliance Certificate . . . . . . . . . . . . . . . . . 33
Section 5.10 Further Instruments and Acts . . . . . . . . . . . . . . 34
ARTICLE VI NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE
TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 6.1 Noteholders' Lists . . . . . . . . . . . . . . . . . . . 34
Section 6.2 Preservation and Disclosure of Lists . . . . . . . . . . 34
Section 6.3 Reports by Trustee . . . . . . . . . . . . . . . . . . . 34
Section 6.4 Reports by Company . . . . . . . . . . . . . . . . . . . 35
ARTICLE VII DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . 35
Section 7.1 Events of Default . . . . . . . . . . . . . . . . . . . . 35
Section 7.2 Payments of Notes on Default; Suit Therefor . . . . . . . 38
Section 7.3 Application of Monies Collected by Trustee. . . . . . . . 39
Section 7.4 Proceedings by Noteholder . . . . . . . . . . . . . . . . 40
Section 7.5 Proceedings by Trustee . . . . . . . . . . . . . . . . . 41
Section 7.6 Remedies Cumulative and Continuing . . . . . . . . . . . 41
Section 7.7 Direction of Proceedings and Waiver of Defaults by
Majority of Noteholders . . . . . . . . . . . . . . . . . 41
Section 7.8 Notice of Defaults. . . . . . . . . . . . . . . . . . . . 42
Section 7.9 Undertaking to Pay Costs . . . . . . . . . . . . . . . . 42
ARTICLE VIII CONCERNING THE TRUSTEE . . . . . . . . . . . . . . . . . 43
Section 8.1 Duties and Responsibilities of Trustee . . . . . . . . . 43
Section 8.2 Reliance on Documents, Opinions, Etc. . . . . . . . . . . 44
Section 8.3 No Responsibility for Recitals, Etc. . . . . . . . . . . 45
Section 8.4 Trustee, Paying Agents, Conversion Agents or Registrar
May Own Notes . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.5 Monies to Be Held in Trust . . . . . . . . . . . . . . . 45
Section 8.6 Compensation and Expenses of Trustee . . . . . . . . . . 45
Section 8.7 Officers' Certificate as Evidence . . . . . . . . . . . . 46
Section 8.8 Conflicting Interests of Trustee . . . . . . . . . . . . 46
Section 8.9 Eligibility of Trustee . . . . . . . . . . . . . . . . . 46
Section 8.10 Resignation or Removal of Trustee . . . . . . . . . . . . 46
ii
<PAGE>
Page
----
Section 8.11 Acceptance by Successor Trustee . . . . . . . . . . . . . 48
Section 8.12 Succession by Merger, Etc.. . . . . . . . . . . . . . . . 49
Section 8.13 Limitation on Rights of Trustee as Creditor . . . . . . . 49
ARTICLE IX CONCERNING THE NOTEHOLDERS. . . . . . . . . . . . . . . . 50
Section 9.1 Action by Noteholders . . . . . . . . . . . . . . . . . . 50
Section 9.2 Proof of Execution by Noteholders . . . . . . . . . . . . 50
Section 9.3 Who Are Deemed Absolute Owners. . . . . . . . . . . . . . 50
Section 9.4 Company-Owned Notes Disregarded . . . . . . . . . . . . . 50
Section 9.5 Revocation of Consents; Future Holders Bound . . . . . . 51
ARTICLE X NOTEHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . 51
Section 10.1 Purpose of Meetings . . . . . . . . . . . . . . . . . . . 51
Section 10.2 Call of Meetings by Trustee . . . . . . . . . . . . . . . 52
Section 10.3 Call of Meetings by Company or Noteholders. . . . . . . . 52
Section 10.4 Qualifications for Voting . . . . . . . . . . . . . . . . 52
Section 10.5 Regulations . . . . . . . . . . . . . . . . . . . . . . . 53
Section 10.6 Voting . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 10.7 No Delay of Rights by Meeting . . . . . . . . . . . . . . 54
ARTICLE XI SUPPLEMENTAL INDENTURES . . . . . . . . . . . . . . . . . 54
Section 11.1 Supplemental Indentures Without Consent of
Noteholders . . . . . . . . . . . . . . . . . . . . . . . 54
Section 11.2 Supplemental Indentures with Consent of Noteholders . . . 55
Section 11.3 Effect of Supplemental Indentures . . . . . . . . . . . . 56
Section 11.4 Notation on Notes . . . . . . . . . . . . . . . . . . . . 56
Section 11.5 Evidence of Compliance of Supplemental Indenture to Be
Furnished Trustee . . . . . . . . . . . . . . . . . . . . 56
ARTICLE XII CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE . . . . 57
Section 12.1 Company May Consolidate, Etc., on Certain Terms . . . . . 57
Section 12.2 Successor Corporation to Be Substituted . . . . . . . . . 57
Section 12.3 Opinion of Counsel to Be Given Trustee . . . . . . . . . 58
ARTICLE XIII SATISFACTION AND DISCHARGE OF INDENTURE . . . . . . . . . 58
Section 13.1 Discharge of Indenture . . . . . . . . . . . . . . . . . 58
Section 13.2 Deposited Monies to Be Held in Trust by Trustee . . . . . 59
Section 13.3 Paying Agent to Repay Monies Held . . . . . . . . . . . . 59
iii
<PAGE>
Page
----
Section 13.4 Return of Unclaimed Monies . . . . . . . . . . . . . . . 59
Section 13.5 Reinstatement . . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE XIV IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND
DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 14.1 Indenture and Notes Solely Corporate Obligations . . . . 60
ARTICLE XV CONVERSION OF NOTES . . . . . . . . . . . . . . . . . . . 60
Section 15.1 Right to Convert . . . . . . . . . . . . . . . . . . . . 60
Section 15.2 Exercise of Conversion Privilege; Issuance of Common
Stock on Conversion; No Adjustment for Interest or
Dividends . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 15.3 Cash Payments in Lieu of Fractional Shares. . . . . . . . 62
Section 15.4 Conversion Price . . . . . . . . . . . . . . . . . . . . 62
Section 15.5 Adjustment of Conversion Price. . . . . . . . . . . . . . 62
Section 15.6 Effect of Reclassification, Consolidation, Merger or
Sale . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 15.7 Taxes on Shares Issued . . . . . . . . . . . . . . . . . 73
Section 15.8 Reservation of Shares; Shares to Be Fully Paid;
Listing of Common Stock . . . . . . . . . . . . . . . . . 73
Section 15.9 Responsibility of Trustee . . . . . . . . . . . . . . . . 73
Section 15.10 Notice to Holders Prior to Certain Actions . . . . . . . 74
ARTICLE XVI REPURCHASE UPON A DESIGNATED EVENT . . . . . . . . . . . 75
Section 16.1 Repurchase Right . . . . . . . . . . . . . . . . . . . . 75
Section 16.2 Notices; Method of Exercising Repurchase Right, Etc.. . . 75
Section 16.3 Certain Definitions . . . . . . . . . . . . . . . . . . . 77
ARTICLE XVII MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . 78
Section 17.1 Provisions Binding on Company's Successors . . . . . . . 78
Section 17.2 Official Acts by Successor Corporation. . . . . . . . . . 78
Section 17.3 Addresses for Notices, Etc. . . . . . . . . . . . . . . . 79
Section 17.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . 79
Section 17.5 Evidence of Compliance with Conditions Precedent;
Certificates to Trustee . . . . . . . . . . . . . . . . . 79
Section 17.6 Legal Holidays. . . . . . . . . . . . . . . . . . . . . . 80
Section 17.7 No Security Interest Created . . . . . . . . . . . . . . 80
Section 17.8 Trust Indenture Act . . . . . . . . . . . . . . . . . . . 80
Section 17.9 Benefits of Indenture . . . . . . . . . . . . . . . . . . 80
Section 17.10 Table of Contents, Headings, Etc. . . . . . . . . . . . . 80
Section 17.11 Authenticating Agent . . . . . . . . . . . . . . . . . . 80
iv
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Page
----
Section 17.12 Execution in Counterparts . . . . . . . . . . . . . . . . 81
Section 17.13 Separability . . . . . . . . . . . . . . . . . . . . . . 81
v
<PAGE>
INDENTURE dated as of February 15, 1996 between RICHEY ELECTRONICS,
INC., a Delaware corporation (hereinafter called the "Company"), and FIRST TRUST
OF CALIFORNIA, NATIONAL ASSOCIATION, a national association organized under the
laws of the United States (hereinafter called the "Trustee").
W I T N E S S E T H:
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the issue of its 7% Convertible Subordinated Notes due 2006
(hereinafter called the "Notes"), in an aggregate principal amount not to exceed
$57,500,000 and, to provide the terms and conditions upon which the Notes are to
be authenticated, issued and delivered, the Company has duly authorized the
execution and delivery of this Indenture; and
WHEREAS, the Notes, the certificate of authentication to be borne
by the Notes, a form of assignment, a form of option to elect repurchase upon a
Designated Event, a form of conversion notice and a certificate of transfer to
be borne by the Notes are to be substantially in the forms hereinafter provided
for; and
WHEREAS, all acts and things necessary to make the Notes, when
executed by the Company and authenticated and delivered by the Trustee or a duly
authorized authenticating agent, as in this Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute these presents a
valid agreement according to its terms, have been done and performed, and the
execution of this Indenture and the issue hereunder of the Notes have in all
respects been duly authorized.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the
Notes are, and are to be, authenticated, issued and delivered, and in
consideration of the premises and of the purchase and acceptance of the Notes by
the holders thereof, the Company covenants and agrees with the Trustee for the
equal and proportionate benefit of the respective holders from time to time of
the Notes (except as otherwise provided below), as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. The terms defined in this Section 1.1
(except as herein otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Indenture and of any indenture supplemental
hereto shall have the respective meanings specified in this Section 1.1. All
other terms used in this Indenture, which are defined in the Trust Indenture Act
or which are by reference therein defined in the Securities Act (except as
herein otherwise expressly provided or unless the context otherwise requires)
shall have the meanings assigned to such terms in said Trust Indenture Act and
in said Securities Act as in force at the date of the execution of this
Indenture. The words "herein," "hereof," "hereunder," and words of
1.
<PAGE>
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other Subdivision. The terms defined in this Article
include the plural as well as the singular.
AFFILIATE: The term "Affiliate" of any specified person shall mean
any other person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified person. For the purposes
of this definition, "control," when used with respect to any specified person
means the power to direct or cause the direction of the management and policies
of such person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
BOARD OF DIRECTORS: The term "Board of Directors" shall mean the
Board of Directors of the Company or a committee of such Board duly authorized
to act for it hereunder.
BOARD RESOLUTION: The term "Board Resolution" means a copy of a
resolution certified by the Secretary or an Assistant Secretary of the Company
to have been duly adopted by the Board of Directors, or duly authorized
committee thereof (to the extent permitted by applicable law), and to be in full
force and effect on the date of such certification, and delivered to the
Trustee.
BUSINESS DAY: The term "Business Day" means each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which the banking
institutions in The City of New York, New York, the city of Los Angeles,
California, or the city in which the Corporate Trust Office is located are
authorized or obligated by law or executive order to close or be closed.
COMMISSION: The term "Commission" shall mean the Securities and
Exchange Commission.
COMMON STOCK: The term "Common Stock" shall mean any stock of any
class of the Company which has no preference in respect of dividends or of
amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company and which is not subject to redemption
by the Company. Subject to the provisions of Section 15.6, however, shares
issuable on conversion of Notes shall include only shares of the class
designated as common stock of the Company at the date of this Indenture or
shares of any class or classes resulting from any reclassification or
reclassifications thereof and which have no preference in respect of dividends
or of amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company and which are not subject to redemption
by the Company; PROVIDED that if at any time there shall be more than one such
resulting class, the shares of each such class then so issuable shall be
substantially in the proportion which the total number of shares of such class
resulting from all such reclassifications bears to the total number of shares of
all such classes resulting from all such reclassifications.
COMPANY: The term "Company" shall mean Richey Electronics, Inc., a
Delaware corporation, and subject to the provisions of Article XII, shall
include its successors and assigns.
2.
<PAGE>
CONVERSION PRICE: The term "Conversion Price" shall have the
meaning specified in Section 15.4.
CORPORATE TRUST OFFICE: The term "Corporate Trust Office" shall
mean the office of the Trustee at which at any particular time its corporate
trust business shall be principally administered, which office is located at 550
South Hope Street, 5th Floor, Los Angeles, California, 90071, Attention:
Corporate Trust Division; PROVIDED, HOWEVER, that for the purpose of maintenance
of the Note register and presentation of Notes for transfer, exchange, payment,
conversion and repurchase upon a Designated Event, such term shall mean the
office at which the Trustee conducts its corporate agency business.
CUSTODIAN: The term "Custodian" means First Trust of California,
National Association, as custodian with respect to the Notes in global form, or
any successor entity thereto.
DEFAULT: The term "default" shall mean any event that is, or after
notice or passage of time, or both, would be, an Event of Default.
DEPOSITARY: The term "Depositary" means, with respect to the Notes
issuable or issued in whole or in part in global form, the person specified in
Section 2.5(d) as the Depositary with respect to such Notes, until a successor
shall have been appointed and become such pursuant to the applicable provisions
of this Indenture, and thereafter, "Depositary" shall mean or include such
successor.
DESIGNATED EVENT: The term "Designated Event" shall have the
meaning specified in Section 16.3.
EVENT OF DEFAULT: The term "Event of Default" shall mean any event
specified in Section 7.1(a), (b), (c), (d), (e), (f), (g) or (h), continued for
the period of time, if any, and after the giving of notice, if any, therein
designated.
EXCHANGE ACT: The term "Exchange Act" means the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
INDEBTEDNESS: The term "Indebtedness" means, with respect to any
Person, (a) all obligations and other liabilities of such Person (i) for
borrowed money, (ii) evidenced by bonds, debentures, notes or similar
instruments (other than amounts owed for goods or materials purchased in the
ordinary course of business or for services) or (iii) with respect to letters of
credit, bank guarantees or bankers' acceptances, (b) all obligations for the
payment of money in respect of leases of such Person as lessee required, in
conformity with generally accepted accounting principles, to be accounted for as
capitalized lease obligations on the balance sheet of such Person, (c) all
direct or indirect guaranties or similar agreements by such Person in respect
of, and obligations or liabilities of such Person to purchase or otherwise
acquire or otherwise assure a creditor against loss in respect of, indebtedness,
obligations or liabilities of another Person of the kind described in clauses
(a) and (b), (d) any indebtedness or other obligations described in clauses (a)
and (b) secured by any mortgage, pledge, lien or other encumbrance
3.
<PAGE>
existing on property which is owned or held by such Person, regardless of
whether the indebtedness or other obligation secured thereby shall have been
assumed by such Person and (e) any and all deferrals, renewals, extensions and
refundings of, or amendments, modifications or supplements to, any indebtedness,
obligation or liability of the kind described in clauses (a) through (d).
INDENTURE: The term "Indenture" shall mean this instrument as
originally executed or, if amended or supplemented as herein provided, as so
amended or supplemented.
INITIAL PURCHASERS: The term "Initial Purchasers" shall mean
Jefferies & Company, Inc. and Cruttenden Roth Incorporated.
NOTE OR NOTES: The terms "Note" or "Notes" shall mean any Note or
Notes, as the case may be, authenticated and delivered under this Indenture.
NOTEHOLDER; HOLDER: The terms "Noteholder" or "holder" as applied
to any Note, or other similar terms (but excluding the term "beneficial
holder"), shall mean any person in whose name at the time a particular Note is
registered on the Note register.
NOTE REGISTER: The term "Note register" shall have the meaning
specified in Section 2.5.
OFFICERS' CERTIFICATE: The term "Officers' Certificate," when used
with respect to the Company, shall mean a certificate signed by both (a) one of
the President, the Chief Executive Officer or Chief Financial Officer and (b) by
one of the Treasurer or any Assistant Treasurer or Secretary or any Assistant
Secretary of the Company, which is delivered to the Trustee. Each such
certificate shall include the statements provided for in Section 17.5 if and to
the extent required by the provisions of such Section.
OPINION OF COUNSEL: The term "Opinion of Counsel" shall mean an
opinion in writing signed by legal counsel, who may be an employee of or counsel
to the Company, or other counsel acceptable to the Trustee, which is delivered
to the Trustee. Each such opinion shall include the statements provided for in
Section 17.5 if and to the extent required by the provisions of such Section.
OUTSTANDING: The term "outstanding," when used with reference to
Notes, shall, subject to the provisions of Section 9.4, mean, as of any
particular time, all Notes authenticated and delivered by the Trustee under this
Indenture, except:
(a) Notes theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(b) Notes, or portions thereof, for the redemption of which
monies in the necessary amount shall have been deposited in trust with the
Trustee or with any paying agent (other than the Company) or shall have been set
aside and segregated in trust by the Company (if
4.
<PAGE>
the Company shall act as its own paying agent); PROVIDED that if such Notes are
to be redeemed prior to the maturity thereof, notice of such redemption shall
have been given as provided in Section 3.2, or provision satisfactory to the
Trustee shall have been made for giving such notice;
(c) Notes in lieu of which, or in substitution for which, other
Notes shall have been authenticated and delivered pursuant to the terms of
Section 2.6 unless proof satisfactory to the Trustee is presented that any such
Notes are held by bona fide holders in due course; and
(d) Notes converted into Common Stock pursuant to Article XV and
Notes deemed not outstanding pursuant to Section 3.2.
PERSON: The term "Person" or "person" shall mean a corporation, an
association, a partnership, an individual, a joint venture, a joint stock
company, a trust, an unincorporated organization or a government or an agency or
a political subdivision thereof.
PORTAL MARKET: The term "PORTAL Market" shall mean the Private
Offerings, Resales and Trading through Automated Linkages Market operated by the
National Association of Securities Dealers, Inc. or any successor thereto.
PREDECESSOR NOTE: The term "Predecessor Note" of any particular
Note shall mean every previous Note evidencing all or a portion of the same debt
as that evidenced by such particular Note; and, for the purposes of this
definition, any Note authenticated and delivered under Section 2.6 in lieu of a
mutilated, lost, destroyed or stolen Note shall be deemed to evidence the same
debt as the mutilated, lost, destroyed or stolen Note that it replaces.
QIB: The term "QIB" shall mean a "qualified institutional buyer"
as defined in Rule 144A.
REGISTRATION RIGHTS AGREEMENT: The term "Registration Rights
Agreement" means that certain Registration Rights Agreement, dated as of
February 21, 1996, as from time to time amended or supplemented, among the
Company and the Initial Purchasers.
REGULATION S: The term "Regulation S" shall mean Regulation S as
promulgated under the Securities Act.
REPURCHASE PRICE: The term "Repurchase Price" has the meaning
specified in Section 16.1.
RESPONSIBLE OFFICER: The term "Responsible Officer", when used
with respect to the Trustee, shall mean an officer of the Trustee in the
Corporate Trust Office assigned and duly authorized by the Trustee to administer
its obligations under this Indenture.
RESTRICTED SECURITIES: The term "Restricted Securities" has the
meaning specified in Section 2.5(d).
5.
<PAGE>
RULE 144A: The term "Rule 144A" shall mean Rule 144A as
promulgated under the Securities Act.
SECURITIES ACT: The term "Securities Act" means the Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder.
SENIOR INDEBTEDNESS: The term "Senior Indebtedness" means the
principal of, premium, if any, interest (including all interest accruing
subsequent to the commencement of any bankruptcy or similar proceeding, whether
or not a claim for post-petition interest is allowable as a claim in any such
proceeding) and rent, fees, expenses, indemnities and other amounts payable on
or in connection with secured Indebtedness of the Company, excluding the claims
of trade creditors of the Company, whether outstanding on the date of this
Indenture or thereafter created, incurred, assumed or guaranteed by the Company,
unless in the case of any particular Indebtedness the instrument creating or
evidencing the same or the assumption or guarantee thereof provides that such
Indebtedness shall not be senior in right of payment to the Notes or provides
that such Indebtedness is "pari passu" or subordinated to the Notes.
Notwithstanding the foregoing, Senior Indebtedness shall not include (i) any
Indebtedness of the Company to any Subsidiary of the Company or (ii) any
Indebtedness to the extent that it is not secured.
SIGNIFICANT SUBSIDIARY: The term "Significant Subsidiary" means,
with respect to any person, a Subsidiary of such person organized under the
laws of the United States of America, any state thereof, or the District of
Columbia that would constitute a "significant subsidiary" as such term is
defined under ule 1-02 of Regulation S-X of the Securities and Exchange
Commission.
SUBSIDIARY: The term "Subsidiary" means a corporation more than
50% of the outstanding voting stock of which is owned, directly or indirectly,
by the Company or by one or more other Subsidiaries, or by the Company and one
or more other Subsidiaries. For the purposes of this definition, "voting
stock" means stock which ordinarily has voting power for the election of
directors, whether at all times or only so long as no senior class of stock
has such voting power by reason of any contingency.
TRADING DAY: The term "Trading Day" has the meaning specified in
Section 15.5(g)(5).
TRUST INDENTURE ACT: The term "Trust Indenture Act" shall mean the
Trust Indenture Act of 1939, as amended, as it was in force at the date of
execution of this Indenture, except as provided in Sections 11.3 and 15.6;
PROVIDED, HOWEVER, that in the event the Trust Indenture Act of 1939 is amended
after the date hereof, the term "Trust Indenture Act" shall mean, to the extent
required by such amendment, the Trust Indenture Act of 1939 as so amended.
TRUSTEE: The term "Trustee" shall mean First Trust of California,
National Association, and its successors and any corporation resulting from or
surviving any consolidation or merger to which it or its successors may be a
party and any successor trustee at the time serving as successor trustee
hereunder.
6.
<PAGE>
The definitions of certain other terms are as specified in Article
XV and Article XVI.
ARTICLE II
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF NOTES
Section 2.1 DESIGNATION, AMOUNT AND ISSUE OF NOTES. The Notes
shall be designated as "7% Convertible Subordinated Notes due 2006." Notes not
to exceed the aggregate principal amount of $50,000,000 (or $57,500,000 if the
over-allotment option set forth in Section 7 of the Purchase Agreement dated
February 21, 1996 (as amended from time to time by the parties thereto) by and
between the Company and the Initial Purchasers is exercised in full) (except
pursuant to Sections 2.5, 2.6, 3.3, 15.2 and 16.2) upon the execution of this
Indenture, or from time to time thereafter, may be executed by the Company and
delivered to the Trustee for authentication, and the Trustee shall thereupon
authenticate and deliver said Notes upon the written order of the Company,
signed by the Company's (a) President, Chief Executive Officer or Chief
Financial Officer and (b) Treasurer or Assistant Treasurer or its Secretary or
any Assistant Secretary, without any further action by the Company hereunder.
Section 2.2 FORM OF NOTES. The Notes and the Trustee's
certificate of authentication to be borne by such Notes shall be substantially
in the form set forth in Exhibit A, which is incorporated in and made a part of
this Indenture.
Any of the Notes may have such letters, numbers or other marks of
identification and such notations, legends and endorsements as the officers
executing the same may approve (execution thereof to be conclusive evidence of
such approval) and as are not inconsistent with the provisions of this
Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any
securities exchange or automated quotation system on which the Notes may be
listed or designated for issuance, or to conform to usage.
Any Note in global form shall represent such of the outstanding
Notes as shall be specified therein and shall provide that it shall represent
the aggregate amount of outstanding Notes from time to time endorsed thereon and
that the aggregate amount of outstanding Notes represented thereby may from time
to time be increased or reduced to reflect transfers or exchanges permitted
hereby. Any endorsement of a Note in global form to reflect the amount of any
increase or decrease in the amount of outstanding Notes represented thereby
shall be made by the Trustee or the Custodian, at the direction of the Trustee,
in such manner and upon instructions given by the holder of such Notes in
accordance with this Indenture. Payment of principal of and interest and
premium, if any (including any redemption price), on any Note in global form
shall be made to the holder of such Note.
7.
<PAGE>
The terms and provisions contained in the form of Note attached as
Exhibit A hereto shall constitute, and are hereby expressly made, a part of this
Indenture and to the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Section 2.3 DATE AND DENOMINATION OF NOTES; PAYMENTS OF INTEREST.
The Notes shall be issuable in registered form without coupons in denominations
of $100,000 principal amount or any multiple of $1,000 in excess thereof. Every
Note shall be dated the date of its authentication, and shall bear interest from
the applicable date specified on the face of the form of Note attached as
Exhibit A hereto and accrued interest thereon shall be payable semiannually on
each March 1 and September 1, commencing September 1, 1996.
The person in whose name any Note (or its Predecessor Note) is
registered at the close of business on any record date with respect to any
interest payment date (including any Note that is converted after the record
date and on or before the interest payment date) shall be entitled to receive
the interest payable on such interest payment date notwithstanding the
cancellation of such Note upon any transfer, exchange or conversion subsequent
to the record date and on or prior to such interest payment date. Interest may,
at the option of the Company, be paid by check mailed by first class mail to the
address of such person on the registry kept for such purposes; PROVIDED that,
with respect to any holder of (a) Notes with an aggregate principal amount equal
to or in excess of $5,000,000 who so requests in writing to the Company, or (b)
Notes in global form, interest on such holder's Notes shall be paid by wire
transfer in immediately available funds in accordance with the wire transfer
instruction supplied by such holder to the Trustee, the Company and the paying
agent (if different from Trustee) in writing prior to the applicable record date
(or by such later date as may be acceptable to the Trustee). The term "record
date" with respect to any interest payment date shall mean the February 15 or
August 15 preceding said March 1 or September 1.
Interest on the Notes shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
Any interest on any Note which is payable, but is not punctually
paid or duly provided for, on any said March 1 or September 1 (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Noteholder on
the relevant record date by virtue of his having been such Noteholder; and such
Defaulted Interest shall be paid by the Company, at its election in each case,
as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any
Defaulted Interest to the persons in whose names the Notes (or their
respective Predecessor Notes) are registered at the close of business on a
special record date for the payment of such Defaulted Interest, which shall
be fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest to be paid on each Note and the
date of the payment (which shall be not less than twenty-five (25) days
after the receipt by the Trustee of such notice, unless the Trustee shall
consent to an earlier date), and at the same time the Company shall deposit
with the Trustee an amount of money
8.
<PAGE>
equal to the aggregate amount to be paid in respect of such Defaulted
Interest, such money when deposited to be held in trust for the benefit of
the persons entitled to such Defaulted Interest as in this clause provided.
Thereupon the Trustee shall fix a special record date for the payment of
such Defaulted Interest which shall be not more than fifteen (15) days and
not less than ten (10) days prior to the date of the proposed payment and
not less than ten (10) days after the receipt by the Trustee of the notice
of the proposed payment. The Trustee shall promptly notify the Company of
such special record date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted
Interest and the special record date therefor to be mailed, first-class
postage prepaid, to each Noteholder as of such special record date at his
address as it appears in the Note register, not less than ten (10) days
prior to such special record date. Notice of the proposed payment of such
Defaulted Interest and the special record date therefor having been so
mailed, such Defaulted Interest shall be paid to the persons in whose names
the Notes (or their respective Predecessor Notes) were registered at the
close of business on such special record date and shall no longer be
payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with the requirements
of any securities exchange or automated quotation system on which the Notes
may be listed or designated for issuance, and upon such notice as may be
required by such exchange or automated quotation system, if, after notice
given by the Company to the Trustee of the proposed payment pursuant to
this clause, such manner of payment shall be deemed practicable by the
Trustee.
Section 2.4 EXECUTION OF NOTES. The Notes shall be signed in the
name and on behalf of the Company by the manual or facsimile signature of its
President, its Chief Executive Officer or its Chief Financial Officer and
attested by the manual or facsimile signature of its Secretary or any of its
Assistant Secretaries (which may be printed, engraved or otherwise reproduced
thereon, by facsimile or otherwise). Only such Notes as shall bear thereon a
certificate of authentication substantially in the form set forth on the form of
Note attached as Exhibit A hereto, manually executed by the Trustee (or an
authenticating agent appointed by the Trustee as provided by Section 17.11),
shall be entitled to the benefits of this Indenture or be valid or obligatory
for any purpose. Such certificate by the Trustee (or such an authenticating
agent) upon any Note executed by the Company shall be conclusive evidence that
the Note so authenticated has been duly authenticated and delivered hereunder
and that the holder is entitled to the benefits of this Indenture.
In case any officer of the Company who shall have signed any of the
Notes shall cease to be such officer before the Notes so signed shall have been
authenticated and delivered by the Trustee, or disposed of by the Company, such
Notes nevertheless may be authenticated and delivered or disposed of as though
the person who signed such Notes had not ceased to be such officer of the
Company; and any Note may be signed on behalf of the Company by such persons as,
at the actual date of the execution of such Note, shall be the proper officers
of the Company, although at the date of the execution of this Indenture any such
person was not such an officer.
9.
<PAGE>
Section 2.5 EXCHANGE AND REGISTRATION OF TRANSFER OF NOTES; RESTRICTIONS
ON TRANSFER; DEPOSITARY.
(a) The Company shall cause to be kept at the Corporate Trust
Office a register (the register maintained in such office and in any other
office or agency of the Company designated pursuant to Section 5.2 being herein
sometimes collectively referred to as the "Note register") in which, subject to
such reasonable regulations as it may prescribe, the Company shall provide for
the registration of Notes and of transfers of Notes as herein provided. Such
register shall be in written form or in any form capable of being converted into
written form within a reasonably prompt period of time. The Trustee is hereby
appointed "Note registrar" for the purpose of registering Notes and transfers of
Notes as herein provided. The Company may appoint one or more co-registrars in
accordance with Section 5.2. The Trustee agrees that it shall make the Note
register available for inspection by the Company at all reasonable times.
Upon surrender for registration of transfer of any Note to the Note
registrar or any co-registrar, and satisfaction of the requirements for such
transfer set forth in this Section 2.5, the Company shall execute, and the
Trustee shall authenticate and deliver, in the name of the designated transferee
or transferees, one or more new Notes of any authorized denominations and of a
like aggregate principal amount and bearing such restrictive legends as may be
required by this Indenture.
Notes may be exchanged for other Notes of any authorized
denominations and of a like aggregate principal amount, upon surrender of the
Notes to be exchanged at any office or agency maintained by the Company for such
purpose pursuant to Section 5.2. Whenever any Notes are so surrendered for
exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Notes which the Noteholder making the exchange is entitled to
receive, bearing registration numbers not contemporaneously outstanding.
All Notes presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company, the Trustee, the Note
registrar or any co-registrar) be duly endorsed, or be accompanied by a written
instrument or instruments of transfer in form satisfactory to the Company and
duly executed, by the Noteholder thereof or his attorney duly authorized in
writing.
No service charge shall be charged to the Noteholder for any
exchange or registration of transfer of Notes, but the Company may require
payment of a sum sufficient to cover any tax, assessments or other governmental
charges that may be imposed in connection therewith.
None of the Company, the Trustee, the Note registrar or any co-
registrar shall be required to exchange or register a transfer of (a) any Notes
for a period of fifteen (15) days next preceding any selection of Notes to be
redeemed or (b) any Notes called for redemption or, if a portion of any Note is
selected or called for redemption, such portion thereof selected or called for
redemption or (c) any Notes surrendered for conversion or, if a portion of any
Note is surrendered for conversion, such portion thereof surrendered for
conversion.
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All Notes issued upon any transfer or exchange of Notes in accordance
with this Indenture shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this Indenture as the
Notes surrendered for such transfer or exchange.
(b) So long as the Notes are eligible for book-entry settlement
with the Depositary, unless otherwise required by law, all Notes to be traded on
the PORTAL Market or to a person who is not a U.S. Person (as defined in
Regulation S) who is acquiring the Note in an offshore transaction (a "Non-U.S.
Person") in accordance with Regulation S shall be represented by a Note in
global form registered in the name of the Depositary or the nominee of the
Depositary. The transfer and exchange of beneficial interests in such Note in
global form, which does not involve the issuance of a definitive Note, shall be
effected through the Depositary in accordance with this Indenture (including the
restrictions on transfer set forth herein) and the procedures of the Depositary
therefor.
At any time at the request of the Depositary, the beneficial holder of
an interest in a global Note shall be entitled to obtain a definitive Note, in
any authorized denomination and subject to Section 2(d), upon written request to
the Trustee in accordance with the standing instructions and procedures existing
between the Depositary and the Custodian for the issuance thereof. Upon receipt
of any such request, the Trustee or the Custodian, at the direction of the
Trustee, will cause, in accordance with the standing instructions and procedures
existing between the Depositary and the Custodian, the aggregate principal
amount of the Note in global form to be reduced by the principal amount of the
definitive Note issued upon such request to such beneficial holder and,
following such reduction, the Company will execute and the Trustee will
authenticate and deliver to such beneficial holder (or its nominee) a definitive
Note or Notes in the appropriate aggregate principal amount in the name of such
beneficial holder (or its nominee) and bearing such restrictive legends as may
be required by this Indenture.
Any transfer of a beneficial interest in a Note in global form which
cannot be effected through book-entry settlement must be effected by the
delivery to the transferee (or its nominee) of a definitive Note or Notes
registered in the name of the transferee (or its nominee) on the books
maintained by the Note registrar in accordance with the transfer restrictions
set forth herein. With respect to any such transfer, the Trustee or the
Custodian, at the direction of the Trustee, will cause, in accordance with the
standing instructions and procedures existing between the Depositary and the
Custodian, the aggregate principal amount of the Note in global form to be
reduced by the principal amount of the beneficial interest in the Note in global
form being transferred and, following such reduction, the Company will execute
and the Trustee will authenticate and deliver to the transferee (or such
transferee's nominee, as the case may be), a Note or Notes in the appropriate
aggregate principal amount in the name of such transferee (or its nominee) and
bearing such restrictive legends as may be required by this Indenture.
(c) So long as the Notes are eligible for book-entry settlement,
unless otherwise required by law, upon any transfer of a definitive Note to a
QIB in accordance with Rule 144A or a Non-U.S. Person in accordance with
Regulation S, unless otherwise requested by the transferor, and upon receipt of
the definitive Note or Notes being so transferred, together with a certification
from the transferor that the transferee is a QIB or a Non-U.S. Person (or other
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evidence satisfactory to the Trustee), the Trustee shall make or direct the
Custodian to make, an endorsement on the Note in global form to reflect an
increase in the aggregate principal amount of the Notes represented by the Note
in global form by the principal amount of the Note being transferred to the QIB
or the Non-U.S. Person, the Trustee shall cancel such definitive Note or Notes
and cause, or direct the Custodian to cause, in accordance with the standing
instructions and procedures existing between the Depositary and the Custodian,
the aggregate principal amount of Notes represented by the Note in global form
to be increased accordingly; PROVIDED that no definitive Note, or portion
thereof, in respect of which the Company or an Affiliate of the Company held any
beneficial interest shall be included in such Note in global form until such
definitive Note is freely tradable in accordance with Rule 144(k); PROVIDED
FURTHER that the Trustee shall issue Notes in definitive form upon any transfer
of a beneficial interest in the Note in global form to the Company or any
Affiliate of the Company.
Any Note in global form may be endorsed with or have incorporated in
the text thereof such legends or recitals or changes not inconsistent with the
provisions of this Indenture as may be required by the Custodian, the Depositary
or by the National Association of Securities Dealers, Inc. in order for the
Notes to be tradeable on the PORTAL Market or as may be required for the Notes
to be tradeable on any other market developed for trading of securities pursuant
to Rule 144A or Regulation S or as are required to comply with any applicable
law or any regulation thereunder or with the rules and regulations of any
securities exchange or automated quotation system upon which the Notes may be
listed or traded or designated for issuance or to conform with any usage with
respect thereto, or to indicate any special limitations or restrictions to which
any particular Notes are subject.
(d) Every Note that bears or is required under this
Section 2.5(d) to bear the legend set forth in this Section 2.5(d) (together
with any Common Stock issued upon conversion of the Notes and required to bear
the legend set forth in Section 2.5(e), collectively, the "Restricted
Securities") shall be subject to the restrictions on transfer set forth in this
Section 2.5(d) (including those contained in the legend set forth below), unless
such restrictions on transfer shall be waived by written consent of the Company,
and the holder of each such Restricted Security, by such holder's acceptance
thereof, agrees to be bound by all such restrictions on transfer. As used in
Sections 2.5(d) and 2.5(e), the term "transfer" encompasses any sale, pledge,
transfer or other disposition whatsoever of any Restricted Security.
Until three (3) years after the original issuance date of any Note,
any certificate evidencing such Note (and all securities issued in exchange
therefor or substitution thereof, other than Common Stock, if any, issued upon
conversion thereof which shall bear the legend set forth in Section 2.5(e), if
applicable) shall bear a legend in substantially the following form (unless such
Notes have been transferred pursuant to a registration statement that has been
declared effective under the Securities Act (and which continues to be effective
at the time of such transfer) or unless otherwise agreed by the Company in
writing, with notice thereof to the Trustee):
THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR ANY STATE
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SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS
SET FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER"
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1),
(2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED
INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE NOTE
EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL
NOT WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THE NOTE
EVIDENCED HEREBY RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED
HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE
EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER,
FURNISHES TO FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION, AS
TRUSTEE, A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE
EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH
TRUSTEE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904
UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE
EFFECTIVE AT THE TIME OF SUCH TRANSFER); AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS
TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE) A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH
ANY TRANSFER OF THE NOTE EVIDENCED HEREBY WITHIN THREE YEARS AFTER THE
ORIGINAL ISSUANCE OF SUCH NOTE (OTHER THAN A
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TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE), THE HOLDER MUST CHECK THE
APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER
OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO FIRST TRUST OF
CALIFORNIA, NATIONAL ASSOCIATION, AS TRUSTEE. IF THE PROPOSED
TRANSFER IS PURSUANT TO CLAUSE 2(C) OR 2(E) ABOVE, THE HOLDER MUST,
PRIOR TO SUCH TRANSFER, FURNISH TO FIRST TRUST OF CALIFORNIA, NATIONAL
ASSOCIATION, AS TRUSTEE, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE
TRANSFER OF THIS NOTE EVIDENCED HEREBY PURSUANT TO CLAUSE 2(F) ABOVE
OR THE EXPIRATION OF THREE YEARS FROM THE ORIGINAL ISSUANCE OF THE
NOTE EVIDENCED HEREBY. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
Any Note (or security issued in exchange or substitution therefor) as
to which such restrictions on transfer shall have expired in accordance with
their terms may, upon surrender of such Note for exchange to the Note registrar
in accordance with the provisions of this Section 2.5, be exchanged for a new
Note or Notes, of like tenor and aggregate principal amount, which shall not
bear the restrictive legend required by this Section 2.5(d).
Notwithstanding any other provisions of this Indenture (other than the
provisions set forth in this Section 2.5(d)), a Note in global form may not be
transferred as a whole or in part except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
The Depositary shall be a clearing agency registered under the
Exchange Act. The Company initially appoints The Depository Trust Company to
act as Depositary with respect to the Notes in global form. Initially, the
global Note shall be issued to the Depositary, registered in the name of Cede &
Co., as the nominee of the Depositary, and deposited with the Custodian.
If at any time the Depositary for the Note in global form notifies the
Company that it is unwilling or unable to continue as Depositary for such Note,
the Company may appoint a successor Depositary with respect to such Note. If a
successor Depositary for the Note is not
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appointed by the Company within ninety (90) days after the Company receives such
notice, the Company will execute, and the Trustee, upon receipt of an Officers'
Certificate for the authentication and delivery of Notes, will authenticate and
deliver, Notes in definitive form, in an aggregate principal amount equal to the
principal amount of the Note in global form, in exchange for such Note in global
form and upon delivery of such Note in global form to the Trustee such Note in
global form shall be canceled.
Definitive Notes issued in exchange for all or a part of a Note in
global form pursuant to this Section 2.5(d) shall be registered in such names
and in such authorized denominations as the Depositary, pursuant to instructions
from its direct or indirect participants or otherwise, shall instruct the
Trustee. Upon execution and authentication, the Trustee shall deliver such
definitive Notes to the persons in whose names such definitive Notes are so
registered.
At such time as all interests in a Note in global form have been
redeemed, converted, canceled, repurchased, exchanged for definitive Notes, or
transferred to a transferee who receives only definitive Notes, such Note in
global form shall be, upon receipt thereof, canceled by the Trustee in
accordance with standing procedures and instructions existing between the
Depositary and the Custodian. At any time prior to such cancellation, if any
interest in a global Note is exchanged for definitive Notes, redeemed,
converted, canceled, repurchased or transferred to a transferee who receives
definitive Notes therefor or any definitive Note is exchanged or transferred for
part of a Note in global form, the principal amount of such Note in global form
shall, in accordance with the standing procedures and instructions existing
between the Depositary and the Custodian, be appropriately reduced or increased,
as the case may be, and an endorsement shall be made on such Note in global
form, by the Trustee or the Custodian, at the direction of the Trustee, to
reflect such reduction or increase.
(e) Until three (3) years after the original issuance date of
any Note, any stock certificate representing Common Stock issued upon conversion
of such Note shall bear a legend in substantially the following form (unless
such Common Stock has been sold pursuant to a registration statement that has
been declared effective under the Securities Act (and which continues to be
effective at the time of such transfer) or such Common Stock has been issued
upon conversion of Notes that have been transferred pursuant to a registration
statement that has been declared effective under the Securities Act or unless
otherwise agreed by the Company with written notice thereof by the Company to
any transfer agent for the Common Stock):
THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND MAY NOT
BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR
THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH
IN THE FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES THAT
UNTIL THE EXPIRATION OF THREE YEARS AFTER THE ORIGINAL
ISSUANCE OF
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THE NOTE UPON THE CONVERSION OF WHICH THE COMMON STOCK EVIDENCED HEREBY WAS
ISSUED, (1) IT WILL NOT RESELL OR OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED
HEREBY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) IN COMPLIANCE WITH RULE 144A, (C) INSIDE THE UNITED
STATES TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1),
(2), (3) OR (7) UNDER THE SECURITIES ACT) THAT, PRIOR TO SUCH TRANSFER,
FURNISHES TO OTR, INC., AS TRANSFER AGENT, A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE
COMMON STOCK EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM
SUCH TRANSFER AGENT), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904
UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO
A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (2)
PRIOR TO ANY SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE
1(F) ABOVE), IT WILL FURNISH TO OTR, INC., AS TRANSFER AGENT, SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT; AND (3) IT WILL DELIVER TO EACH PERSON TO
WHOM THE COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER
PURSUANT TO CLAUSE 1(F) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF COMMON
STOCK EVIDENCED HEREBY PURSUANT TO CLAUSE 1(F) ABOVE OR THE EXPIRATION OF THREE
YEARS FROM THE ORIGINAL ISSUANCE OF THE NOTE UPON THE CONVERSION OF WHICH THE
COMMON STOCK EVIDENCED HEREBY WAS ISSUED OR
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UPON THE EARLIER SATISFACTION OF OTR, INC., AS TRANSFER AGENT, THAT
THE COMMON STOCK HAS BEEN OR IS BEING OFFERED AND SOLD IN COMPLIANCE
WITH RULE 904 UNDER THE SECURITIES ACT. AS USED HEREIN, THE TERMS
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY
REGULATION S UNDER THE SECURITIES ACT.
Any such Common Stock as to which such restrictions on transfer shall
have expired in accordance with their terms may, upon surrender of the
certificates representing such shares of Common Stock for exchange in accordance
with the procedures of the transfer agent for the Common Stock, be exchanged for
a new certificate or certificates for a like aggregate number of shares of
Common Stock, which shall not bear the restrictive legend required by this
Section 2.5(e).
(f) Any certificate evidencing a Note that has been transferred
to an Affiliate of the Company within three years after the original issuance
date of the Note, as evidenced by a notation on the Assignment Form for such
transfer or in the representation letter delivered in respect thereof, for so
long as such Note is held by such Affiliate, shall, until three years after the
last date on which the Company or any Affiliate of the Company was an owner of
such Note, in each case, bear a legend in substantially the following form,
unless otherwise agreed by the Company (with written notice thereof to the
Trustee):
THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT", AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD IN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY
ITS ACQUISITION HEREOF, THE HOLDER AGREES (1) THAT IT WILL
NOT RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY
OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE
EXCEPT (A) TO RICHEY ELECTRONICS, INC. OR ANY SUBSIDIARY
THEREOF, (B) IN A TRANSACTION REGISTERED UNDER THE
SECURITIES ACT OR (C) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE) OR (D) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (2) THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS
LEGEND SHALL BE
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REMOVED UPON THE TRANSFER OF THE NOTE EVIDENCED HEREBY OR THE COMMON
STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE PURSUANT TO THE
IMMEDIATELY PRECEDING SENTENCE. IF THE PROPOSED TRANSFER IS PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT OR ANOTHER AVAILABLE EXEMPTION, THE HOLDER MUST, PRIOR
TO SUCH TRANSFER, FURNISH TO FIRST TRUST OF CALIFORNIA, NATIONAL
ASSOCIATION, AS TRUSTEE, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
Any stock certificate representing Common Stock issued upon conversion of such
Note shall also bear a legend in substantially the form indicated above, unless
otherwise agreed by the Company (with written notice thereof to the Trustee).
(g) Notwithstanding any provision of Section 2.5 to the
contrary, in the event Rule 144(k) as promulgated under the Securities Act (or
any successor rule) is amended to shorten the three-year period under
Rule 144(k) (or the corresponding period under any successor rule), from and
after receipt by the Trustee of the Officers' Certificate and Opinion of Counsel
provided for in this Section 2.5(g), (i) the references in the first sentence of
the second paragraph of Section 2.5(d) to "three (3) years" and in the
restrictive legend set forth in such paragraph to "THREE YEARS" shall be deemed
for all purposes hereof to be references to such shorter period, (ii) the
references in the first paragraph of Section 2.5(e) to "three (3) years" and in
the restrictive legend set forth in such paragraph to "THREE YEARS" shall be
deemed for all purposes hereof to be references to such shorter period and
(iii) all corresponding references in the Notes and the restrictive legends
thereon shall be deemed for all purposes hereof to be references to such shorter
period, provided that such changes shall not become effective if they are
otherwise prohibited by, or would otherwise cause a violation of the then-
applicable federal securities laws. As soon as practicable after the Company
has knowledge of the effectiveness of any such amendment to shorten the three-
year period under Rule 144(k) (or the corresponding period under any successor
rule), unless such changes would otherwise be prohibited by, or would otherwise
cause a violation of, the then-applicable securities law, the Company shall
provide to the Trustee an Officers' Certificate and Opinion of Counsel informing
the Trustee of the effectiveness of such amendment and the effectiveness of the
foregoing changes to Sections 2.5(d) and 2.5(e) and the Notes. The provisions
of this Section 2.5(g) will not be effective until such time as the Opinion of
Counsel and Officer's Certificate have been received by the Trustee hereunder.
This Section 2.5(g) shall
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apply to successive amendments to Rule 144(k) (or any successor rule) shortening
the holding period thereunder.
Section 2.6 MUTILATED, DESTROYED, LOST OR STOLEN NOTES.
If any mutilated Note is surrendered to the Trustee or any
authenticating agent, the Company shall execute and the Trustee or such
authenticating agent shall authenticate and deliver in exchange therefor a new
Note of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee and, if
applicable, any authenticating agent (i) evidence to their satisfaction of the
destruction, loss or theft of any Note and (ii) such security or indemnity as
may be required by them to save each of them and any agent of any of them
harmless, then, in the absence of notice to the Company, the Trustee or such
authenticating agent that such Note has been acquired by a bona fide purchaser,
the Company shall execute and upon its request the Trustee or such
authenticating agent shall authenticate and deliver, in lieu of any such
destroyed, lost or stolen Note, a new Note of like tenor and principal amount
and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, and upon receipt of any security or
indemnity required as provided in the preceding paragraph in the case of a
destroyed, lost or stolen Note, the Company in its discretion may, instead of
issuing a new Note, pay such Note, and in case such Note is a Note for which the
Trustee has received a notice of conversion duly executed by the holder thereof,
the Company may, in its discretion, instead of issuing a new Note, convert or
authorize the conversion thereof.
Upon the issuance of any new Note under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to the provisions of this Section 2.6
by virtue of the fact that any Note is destroyed, lost or stolen shall
constitute an additional contractual obligation of the Company, whether or not
the destroyed, lost or stolen Note shall be found at any time, and shall be
entitled to all the benefits of (but shall be subject to all the limitations set
forth in) this Indenture equally and proportionately with any and all other
Notes duly issued hereunder. To the extent permitted by law, all Notes shall be
held and owned upon the express condition that the foregoing provisions are
exclusive with respect to the replacement or payment or conversion of mutilated,
destroyed, lost or stolen Notes and shall preclude any and all other rights or
remedies notwithstanding any law or statute existing or hereafter enacted to the
contrary with respect to the replacement or payment or conversion of negotiable
instruments or other securities without their surrender.
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Section 2.7 TEMPORARY NOTES. Pending the preparation of definitive
Notes, the Company may execute and the Trustee or an authenticating agent
appointed by the Trustee shall, upon written request of the Company,
authenticate and deliver temporary Notes (printed or lithographed). Temporary
Notes shall be issuable in any authorized denomination, and substantially in the
form of the definitive Notes but with such omissions, insertions and variations
as may be appropriate for temporary Notes, all as may be determined by the
Company. Every such temporary Note shall be executed by the Company and
authenticated by the Trustee or such authenticating agent upon the same
conditions and in substantially the same manner, and with the same effect, as
the definitive Notes. Without unreasonable delay the Company will execute and
deliver to the Trustee or such authenticating agent definitive Notes (other than
in the case of Notes in global form) and thereupon any or all temporary Notes
(other than any such Note in global form) may be surrendered in exchange
therefor, at each office or agency maintained by the Company pursuant to
Section 5.2 and the Trustee or such authenticating agent shall authenticate and
deliver in exchange for such temporary Notes an equal aggregate principal amount
of definitive Notes. Such exchange shall be made by the Company at its own
expense and without any charge therefor. Until so exchanged, the temporary
Notes shall in all respects be entitled to the same benefits and subject to the
same limitations under this Indenture as definitive Notes authenticated and
delivered hereunder.
Section 2.8 CANCELLATION OF NOTES PAID, ETC. All Notes surrendered
for the purpose of payment, redemption, repurchase, conversion, exchange or
registration of transfer, shall, if surrendered to the Company or any paying
agent or any Note registrar or any conversion agent, be surrendered to the
Trustee and promptly canceled by it; or, if surrendered to the Trustee, shall be
promptly canceled by it, and no Notes shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Indenture. The Trustee
shall (unless otherwise instructed by the Company) destroy canceled Notes and,
after such destruction shall upon written request of the Company deliver a
certificate of such destruction to the Company. If the Company shall acquire
any of the Notes, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Notes unless and until the
same are delivered to the Trustee for cancellation.
ARTICLE III
REDEMPTION OF NOTES
Section 3.1 REDEMPTION PRICES. The Company may, at its option,
redeem all or from time to time any part of the Notes on any date prior to
maturity, upon notice as set forth in Section 3.2, and at the optional
redemption prices set forth in the form of Note attached as Exhibit A hereto,
together with accrued interest, if any, to, but excluding, the date fixed for
redemption, PROVIDED, HOWEVER, that no such redemption shall be effected before
March 4, 1999.
Section 3.2 NOTICE OF REDEMPTION; SELECTION OF NOTES. In case the
Company shall desire to exercise the right to redeem all or, as the case may be,
any part of the Notes pursuant to Section 3.1, it shall fix a date for
redemption, and it, or at its request, the Trustee in the name
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of and at the expense of the Company, shall mail or cause to be mailed a notice
of such redemption at least twenty (20) and not more than sixty (60) days prior
to the date fixed for redemption to the holders of Notes so to be redeemed as a
whole or in part at their last addresses as the same appear on the Note register
(PROVIDED that if the Company shall give such notice, it shall also give such
notice, and notice of the Notes to be redeemed, to the Trustee). Such mailing
shall be by first class mail. The notice if mailed in the manner herein
provided shall be conclusively presumed to have been duly given, whether or not
the holder receives such notice. In any case, failure to give such notice by
mail or any defect in the notice to the holder of any Note designated for
redemption as a whole or in part shall not affect the validity of the
proceedings for the redemption of any other Note.
Each such notice of redemption shall specify the aggregate principal
amount of Notes to be redeemed, the date fixed for redemption, the redemption
price at which Notes are to be redeemed, the place or places of payment, that
payment will be made upon presentation and surrender of such Notes, that
interest accrued to, but excluding, the date fixed for redemption will be paid
as specified in said notice, and that on and after said date interest thereon or
on the portion thereof to be redeemed will cease to accrue. Such notice shall
also state the current Conversion Price, the date on which the right to convert
such Notes or portions thereof into Common Stock will expire and the place or
places where Notes may be surrendered for conversion. If fewer than all the
Notes are to be redeemed, the notice of redemption shall identify the Notes to
be redeemed. In case any Note is to be redeemed in part only, the notice of
redemption shall state the portion of the principal amount thereof to be
redeemed and shall state that on and after the date fixed for redemption, upon
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion thereof will be issued.
On or prior to the redemption date specified in the notice of
redemption given as provided in this Section, the Company will deposit with the
Trustee or with one or more paying agents (or, if the Company is acting as its
own paying agent, set aside, segregate and hold in trust as provided in
Section 5.4) an amount of money sufficient to redeem on the redemption date all
the Notes (or portions thereof) so called for redemption (other than those
theretofore surrendered for conversion into Common Stock) at the appropriate
redemption price, together with accrued interest to, but excluding, the date
fixed for redemption; PROVIDED that if such payment is made on the redemption
date it must be received by the Trustee or paying agent, as the case may be, by
10:00 a.m. New York City time, on such date. If any Note called for redemption
is converted pursuant hereto, any money deposited with the Trustee or any paying
agent or so segregated and held in trust for the redemption of such Note shall
be paid to the Company upon its request, or, if then held by the Company shall
be discharged from such trust. If any Notes are to be redeemed, the Company
will give the Trustee written notice in the form of an Officers' Certificate not
fewer than thirty-five (35) days (or such shorter period of time as may be
acceptable to the Trustee) prior to the redemption date as to the aggregate
principal amount of Notes to be redeemed.
If fewer than all the Notes are to be redeemed, the Trustee shall
select the Notes or portions thereof to be redeemed (in principal amounts of
$100,000 or integral multiples of $1,000 in excess thereof), by lot or, in its
sole discretion, on a pro rata basis. If any Note
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selected for partial redemption is converted in part after such selection, the
converted portion of such Note shall be deemed (so far as may be) to be the
portion to be selected for redemption. The Notes (or portions thereof) so
selected shall be deemed duly selected for redemption for all purposes hereof,
notwithstanding that any such Note is converted as a whole or in part before the
mailing of the notice of redemption.
Upon any redemption of less than all Notes, the Company and the
Trustee may treat as outstanding any Notes surrendered for conversion during the
period of fifteen (15) days next preceding the mailing of a notice of redemption
and need not treat as outstanding any Note authenticated and delivered during
such period in exchange for the unconverted portion of any Note converted in
part during such period.
Section 3.3 PAYMENT OF NOTES CALLED FOR REDEMPTION. If notice of
redemption has been given as above provided, the Notes or portion of Notes with
respect to which such notice has been given shall, unless converted into Common
Stock pursuant to the terms hereof, become due and payable on the date and at
the place or places stated in such notice at the applicable redemption price,
together with interest accrued to, but excluding, the date fixed for redemption,
and on and after said date (unless the Company shall default in the payment of
such Notes at the redemption price, together with interest accrued to, but
excluding, said date) interest on the Notes or portion of Notes so called for
redemption shall cease to accrue and such Notes shall not be convertible into
Common Stock and, except as provided in Sections 8.5 and 13.5, shall not be
entitled to any benefit or security under this Indenture, and the holders
thereof shall have no right in respect of such Notes except the right to receive
the redemption price thereof and unpaid interest to, but excluding, the date
fixed for redemption. On presentation and surrender of such Notes at a place of
payment in said notice specified, the said Notes or the specified portions
thereof to be redeemed shall be paid and redeemed by the Company at the
applicable redemption price, together with interest accrued thereon to, but
excluding, the date fixed for redemption; provided that if the date fixed for
redemption is a date after a record date and on or before the related interest
payment date, then such accrued interest shall be payable to the holder of
record on such record date.
Upon presentation of any Note redeemed in part only, the Company shall
execute and the Trustee shall authenticate and deliver to the holder thereof, at
the expense of the Company, a new Note or Notes, of authorized denominations, in
principal amount equal to the unredeemed portion of the Notes so presented.
Notwithstanding the foregoing, the Trustee shall not redeem any Notes
or mail any notice of optional redemption during the continuance of a default in
payment of interest or premium on the Notes or of any Event of Default of which,
in the case of any Event of Default other than under Section 7.1(a), (b) or (c),
a Responsible Officer of the Trustee has actual knowledge. If any Note called
for redemption shall not be so paid upon surrender thereof for redemption, the
principal and premium, if any, shall, until paid or duly provided for, bear
interest from the date fixed for redemption at the rate borne by the Note and
such Note shall remain convertible into Common Stock until the principal and
premium, if any, shall have been paid or duly provided for.
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Section 3.4 CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION. In
connection with any redemption of Notes, the Company may arrange for the
purchase and conversion of any Notes by an agreement with one or more investment
bankers or other purchasers to purchase such Notes by paying to the Trustee in
trust for the Noteholders, on or before the date fixed for redemption, an amount
not less than the applicable redemption price, together with interest accrued to
(but excluding) the date fixed for redemption, of such Notes. Notwithstanding
anything to the contrary contained in this Article III, the obligation of the
Company to pay the redemption price of such Notes, together with interest
accrued to, but excluding, the date fixed for redemption, shall be deemed to be
satisfied and discharged to the extent such amount is so paid by such
purchasers. If such an agreement is entered into, the Company shall so advise
the Trustee prior to the date fixed for redemption, and any Notes not duly
surrendered for conversion by the holders thereof may, at the option of the
Company, be deemed, to the fullest extent permitted by law, acquired by such
purchasers from such holders and (notwithstanding anything to the contrary
contained in Article XV) surrendered by such purchasers for conversion, all as
of immediately prior to the close of business on the date fixed for redemption
(and the right to convert any such Notes shall be extended through such time),
subject to payment of the above amount as aforesaid. At the direction of the
Company, the Trustee shall hold and dispose of any such amount paid to it in the
same manner as it would monies deposited with it by the Company for the
redemption of Notes. Without the Trustee's prior written consent, no
arrangement between the Company and such purchasers for the purchase and
conversion of any Notes shall increase or otherwise affect any of the powers,
duties, responsibilities or obligations of the Trustee as set forth in this
Indenture, and the Company agrees to indemnify the Trustee from, and hold it
harmless against, any loss, liability or expense arising out of or in connection
with any such arrangement for the purchase and conversion of any Notes between
the Company and such purchasers to which the Trustee has not consented in
writing, including the costs and expenses incurred by the Trustee in the defense
of any claim or liability arising out of or in connection with the exercise or
performance of any of its powers, duties, responsibilities or obligations under
this Indenture.
ARTICLE IV
SUBORDINATION OF NOTES
Section 4.1 AGREEMENT OF SUBORDINATION. The Company covenants and
agrees, and each holder of Notes issued hereunder by his acceptance thereof
likewise covenants and agrees, that all Notes shall be issued subject to the
provisions of this Article IV; and each person holding any Note, whether upon
original issue or upon transfer, assignment or exchange thereof, accepts and
agrees to be bound by such provisions.
The payment of the principal of, premium, if any, and interest on all
Notes (including, but not limited to, the redemption price or repurchase price
with respect to the Notes to be redeemed or repurchased, as provided in this
Indenture) issued hereunder shall, to the extent and in the manner hereinafter
set forth, be subordinated and subject in right of payment to the prior payment
in full of all Senior Indebtedness, whether outstanding at the date of this
Indenture or thereafter incurred.
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No provision of this Article IV shall prevent the occurrence of any
default or Event of Default hereunder.
Section 4.2 PAYMENTS TO NOTEHOLDERS. No payment shall be made by the
Company with respect to the principal of, or premium, if any, or interest on the
Notes (including, but not limited to, the redemption price or repurchase price
with respect to the Notes to be called for redemption in accordance with Section
3.2 or submitted for repurchase in accordance with Article XVI, as the case may
be, as provided in this Indenture), except payments made pursuant to Article
XIII from monies deposited with the Trustee pursuant thereto prior to the
happening of such default, if
(a) a default in the payment of principal, premium, interest,
rent or other obligations due on any Senior Indebtedness occurs and is
continuing (or, in the case of Senior Indebtedness for which there is a period
of grace, in the event of such a default that continues beyond the period of
grace, if any, specified in the instrument or lease evidencing such Senior
Indebtedness), unless and until such default shall have been cured or waived or
shall have ceased to exist, or
(b) a default, other than a payment default, on any Senior
Indebtedness occurs and is continuing that then permits holders of such Senior
Indebtedness to accelerate its maturity and the Trustee receives a notice of the
default (a "Payment Blockage Notice") from a Person who may give it pursuant to
Section 4.5 hereof.
If the Trustee receives any Payment Blockage Notice pursuant to clause
4.2(b), no subsequent Payment Blockage Notice shall be effective for purposes of
this Section unless and until (A) at least 365 days shall have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice, and (B) all
scheduled payments of principal, premium, if any, and interest on the Notes that
have come due have been paid in full in cash. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage Notice
to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice.
The Company may and shall resume payments on and distributions in
respect of the Notes and may acquire them upon the earlier of:
(1) the date upon which the default is cured or waived, or
(2) in the case of a default referred to in clause 4.2(b), 179
days pass after the Payment Blockage Notice is received if the maturity of such
Senior Indebtedness has not been accelerated,
if this Article IV otherwise permits the payment, distribution or acquisition at
the time of such payment or acquisition.
Upon any payment by the Company, or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution
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or winding-up or total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings, all amounts due or to become due upon all Senior Indebtedness
shall first be paid in full, or payment thereof provided for in money in
accordance with its terms, before any payment is made on account of the
principal (and premium, if any) or interest on the Notes (except payments made
pursuant to Article XIII from monies deposited with the Trustee pursuant thereto
prior to the happening of such dissolution, winding-up, liquidation or
reorganization or bankruptcy, insolvency, receivership or other such
proceedings); and upon any such dissolution or winding-up or liquidation or
reorganization or bankruptcy, insolvency, receivership or other such
proceedings, any payment by the Company, or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
which the holders of the Notes or the Trustee under this Indenture would be
entitled, except for the provision of this Article IV, shall(except as
aforesaid) be paid by the Company or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making such payment or distribution,
or by the holders of the Notes or by the Trustee under this Indenture if
received by them or it, directly to the holders of Senior Indebtedness (pro rata
to such holders on the basis of the respective amounts of Senior Indebtedness
held by such holders, or as otherwise required by law or a court order) or their
respective representative or representatives, or to the trustee or trustees
under any indenture pursuant to which any instruments evidencing any Senior
Indebtedness may have been issued, as their respective interests may appear, to
the extent necessary to pay all Senior Indebtedness in full after giving effect
to any concurrent payment or distribution to or for the holders of Senior
Indebtedness, before any payment or distribution is made to the holders of the
Notes or to the Trustee under this Indenture.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities (including, without limitation, by way of setoff or
otherwise), prohibited by the foregoing, shall be received by the Trustee under
this Indenture or by any holders of the Notes before all Senior Indebtedness is
paid in full, or provision is made for such payment in accordance with its
terms, such payment or distribution shall be held by the recipient or recipients
in trust for the benefit of, and shall be paid over or delivered to, the holders
of Senior Indebtedness or their respective representative or representatives, or
to the trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, as calculated by the Company, for application to the
payment of all Senior Indebtedness remaining unpaid to the extent necessary to
pay all Senior Indebtedness in full in accordance with its terms, after giving
effect to any concurrent payment or distribution (or provision therefor) to or
for the holders of such Senior Indebtedness.
For purposes of this Article IV, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated (at least to the extent provided in this Article IV with respect
to the Notes) to the payment of all Senior Indebtedness which may at the time be
outstanding; PROVIDED that (i) the Senior Indebtedness is assumed by the new
corporation, if any, resulting from such reorganization or readjustment, and
(ii) the rights of the holders of
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Senior Indebtedness (other than leases which are not assumed by the Company or
by the new corporation, as the case may be) are not, without the consent of such
holders, altered by such reorganization or readjustment. The consolidation of
the Company with, or the merger of the Company into, another corporation or the
liquidation or dissolution of the Company following the conveyance or transfer
of its property as an entirety, or substantially as an entirety, to another
corporation upon the terms and conditions provided for in Article XII shall not
be deemed a dissolution, winding-up, liquidation or reorganization for the
purposes of this Section 4.2 if such other corporation shall, as a part of such
consolidation, merger, conveyance or transfer, comply with the conditions stated
in Article XII.
Nothing in this Section 4.2 shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 8.6. This Section 4.2 shall be subject
to the further provisions of Section 4.5.
Section 4.3 SUBROGATION OF NOTES. Subject to the payment in full of
all Senior Indebtedness, the rights of the holders of the Notes shall be
subrogated to the extent of the payments or distributions made to the holders of
such Senior Indebtedness pursuant to the provisions of this Article IV (equally
and ratably with the holders of all indebtedness of the Company which by its
express terms is subordinated to other indebtedness of the Company to
substantially the same extent as the Notes are subordinated and is entitled to
like rights of subrogation) to the rights of the holders of Senior Indebtedness
to receive payments or distributions of cash, property or securities of the
Company applicable to the Senior Indebtedness until the principal of (and
premium, if any) and interest on the Notes shall be paid in full; and, for the
purposes of such subrogation, no payments or distributions to the holders of the
Senior Indebtedness of any cash, property or securities to which the holders of
the Notes or the Trustee would be entitled except for the provisions of this
Article IV, and no payment over pursuant to the provisions of this Article IV,
to or for the benefit of the holders of Senior Indebtedness by holders of the
Notes or the Trustee, shall, as between the Company, its creditors other than
holders of Senior Indebtedness, and the holders of the Notes, be deemed to be a
payment by the Company to or on account of the Senior Indebtedness; and no
payments or distributions of cash, property or securities to or for the benefit
of the holders of the Notes pursuant to the subrogation provisions of this
Article IV, which would otherwise have been paid to the holders of Senior
Indebtedness shall be deemed to be a payment by the Company to or for the
account of the Notes. It is understood that the provisions of this Article IV
are and are intended solely for the purposes of defining the relative rights of
the holders of the Notes, on the one hand, and the holders of the Senior
Indebtedness, on the other hand.
Nothing contained in this Article IV or elsewhere in this Indenture or
in the Notes is intended to or shall impair, as among the Company, its creditors
other than the holders of Senior Indebtedness, and the holders of the Notes, the
obligation of the Company, which is absolute and unconditional, to pay to the
holders of the Notes the principal of (and premium, if any) and interest on the
Notes as and when the same shall become due and payable in accordance with their
terms, or is intended to or shall affect the relative rights of the holders of
the Notes and creditors of the Company other than the holders of the Senior
Indebtedness, nor shall anything herein or therein prevent the Trustee or the
holder of any Note from exercising all remedies
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otherwise permitted by applicable law upon default under this Indenture, subject
to the rights, if any, under this Article IV of the holders of Senior
Indebtedness in respect of cash, property or securities of the Company received
upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to
in this Article IV, the Trustee, subject to the provisions of Section 8.1, and
the holders of the Notes shall be entitled to rely upon any order or decree made
by any court of competent jurisdiction in which such bankruptcy, dissolution,
winding-up, liquidation or reorganization proceedings are pending, or a
certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent
or other person making such payment or distribution, delivered to the Trustee or
to the holders of the Notes, for the purpose of ascertaining the persons
entitled to participate in such distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article IV.
Section 4.4 AUTHORIZATION BY NOTEHOLDERS. Each holder of a Note by
his acceptance thereof authorizes and directs the Trustee on his behalf to take
such action as may be necessary or appropriate to effectuate the subordination
provided in this Article IV and appoints the Trustee his attorney-in-fact for
any and all such purposes.
Section 4.5 NOTICE TO TRUSTEE. The Company shall give prompt written
notice in the form of an Officers' Certificate to a Responsible Officer of the
Trustee and to any paying agent of any fact known to the Company which would
prohibit the making of any payment of monies to or by the Trustee or any paying
agent in respect of the Notes pursuant to the provisions of this Article IV.
Notwithstanding the provisions of this Article IV or any other provision of this
Indenture, the Trustee shall not be charged with knowledge of the existence of
any Senior Indebtedness or of any default or event of default with respect to
any Senior Indebtedness or of any other facts which would prohibit the making of
any payment of monies to or by the Trustee in respect of the Notes pursuant to
the provisions of this Article IV, unless and until a Responsible Officer of the
Trustee shall have received written notice thereof at the Corporate Trust Office
from the Company (in the form of an Officers' Certificate) or a holder or
holders of Senior Indebtedness or from any trustee thereof who shall have been
certified by the Company or otherwise established to the reasonable satisfaction
of the Trustee to be such holder or trustee; and before the receipt of any such
written notice, the Trustee, subject to the provisions of Section 8.1, shall be
entitled in all respects to assume that no such facts exist; PROVIDED that if on
a date at least two (2) Business Days prior to the date upon which by the terms
hereof any such monies may become payable for any purpose (including, without
limitation, the payment of the principal of, or premium, if any, or interest on
any Note), the Trustee shall not have received with respect to such monies the
notice provided for in this Section 4.5, then, anything herein contained to the
contrary notwithstanding, the Trustee shall have full power and authority to
receive such monies and to apply the same to the purpose for which they were
received, and shall not be affected by any notice to the contrary which may be
received by it on or after such prior date.
Notwithstanding anything in this Article IV to the contrary, nothing
in this Article IV shall prevent (a) any payment by the Company or the Trustee
to the Noteholders of amounts
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in connection with a redemption of Notes if (i) notice of such redemption has
been given pursuant to Article III prior to the receipt by the Trustee of
written notice as aforesaid, and (ii) such notice of redemption is given not
earlier than sixty (60) days before the redemption date, (b) any payment by the
Company or the Trustee to the Noteholders of amounts in connection with a
repurchase of Notes upon a Designated Event pursuant to Article XVI if
(i) notice of such repurchase has been given pursuant to Article XVI prior to
the receipt by the Trustee of written notice as aforesaid, and (ii) such notice
of repurchase is given not earlier than fifty (50) days before the repurchase
date, or (c) any payment by the Trustee to the Noteholders of monies deposited
with it pursuant to Section 13.1.
The Trustee, subject to the provisions of Section 8.1, shall be
entitled to rely on the delivery to it of a written notice by a person
representing himself to be a holder of Senior Indebtedness (or a trustee on
behalf of such holder) to establish that such notice has been given by a holder
of Senior Indebtedness or a trustee on behalf of any such holder or holders. In
the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article IV, the Trustee may request such person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such person, the extent to which such person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such person under this Article IV, and if such evidence is not furnished the
Trustee may defer any payment to such person pending judicial determination as
to the right of such person to receive such payment.
Section 4.6 TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS. The Trustee
and any agent of the Company or the Trustee in its individual capacity shall be
entitled to all the rights set forth in this Article IV in respect of any Senior
Indebtedness at any time held by it, to the same extent as any other holder of
Senior Indebtedness, and nothing in Section 8.13 or elsewhere in this Indenture
shall deprive the Trustee or any such agent of any of its rights as such holder.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article IV, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and, subject to the
provisions of Section 4.2 and Section 8.1, the Trustee shall not be liable to
any holder of Senior Indebtedness if it shall pay over or deliver to holders of
Notes, the Company or any other person money or assets to which any holder of
Senior Indebtedness shall be entitled by virtue of this Article IV or otherwise.
Section 4.7 NO IMPAIRMENT OF SUBORDINATION. No right of any present
or future holder of any Senior Indebtedness to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Company with the
terms, provisions and covenants of this Indenture, regardless of any knowledge
thereof which any such holder may have or otherwise be charged with.
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Section 4.8 CERTAIN CONVERSIONS DEEMED PAYMENT. For the purposes of
this Article only, (1) the issuance and delivery of junior securities upon
conversion of Notes in accordance with Article XV shall not be deemed to
constitute a payment or distribution on account of the principal of (or premium,
if any) or interest on Notes or on account of the purchase or other acquisition
of Notes, and (2) the payment, issuance or delivery of cash, property or
securities (other than junior securities) upon conversion of a Note shall be
deemed to constitute payment on account of the principal of such Note. For the
purposes of this Section, the term "junior securities" means (a) shares of any
stock of any class of the Company and (b) securities of the Company which are
subordinated in right of payment to all Senior Indebtedness which may be
outstanding at the time of issuance or delivery of such securities to
substantially the same extent as, or to a greater extent than, the Notes are so
subordinated as provided in this Article. Nothing contained in this Article or
elsewhere in this Indenture or in the Notes is intended to or shall impair, as
among the Company, its creditors other than holders of Senior Indebtedness and
the holders of the Notes, the right, which is absolute and unconditional, of the
holder of any Note to convert such Note in accordance with Article XV.
Section 4.9 ARTICLE APPLICABLE TO PAYING AGENTS. If at any time any
paying agent other than the Trustee shall have been appointed by the Company and
be then acting hereunder, the term "Trustee" as used in this Article shall
(unless the context otherwise requires) be construed as extending to and
including such paying agent within its meaning as fully for all intents and
purposes as if such paying agent were named in this Article in addition to or in
place of the Trustee; PROVIDED, HOWEVER, that the first paragraph of Section 4.5
shall not apply to the Company or any Affiliate of the Company if it or such
Affiliate acts as paying agent.
ARTICLE V
PARTICULAR COVENANTS OF THE COMPANY
Section 5.1 PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The Company
covenants and agrees that it will duly and punctually pay or cause to be paid
the principal of and premium, if any, and interest on each of the Notes at the
places, at the respective times and in the manner provided herein and in the
Notes.
Section 5.2 MAINTENANCE OF OFFICE OR AGENCY. The Company will
maintain in the Borough of Manhattan, The City of New York, an office or agency
where the Notes may be surrendered for registration of transfer or exchange or
for presentation for payment, conversion or redemption or for repurchase upon a
Designated Event and where notices and demands to or upon the Company in respect
of the Notes and this Indenture may be served. The Company will give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency not designated or appointed by the Trustee. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office or the office or agency of the Trustee in the Borough of Manhattan, The
City of New York.
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The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
PROVIDED that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, The City of New York, for such purposes. The Company will give
prompt written notice to the Trustee of any such designation or rescission and
of any change in the location of any such other office or agency.
The Company hereby initially designates the Trustee as paying
agent, Note registrar, Custodian and conversion agent and each of the Corporate
Trust Office and the office or agency of the Trustee in the Borough of
Manhattan, The City of New York (which shall initially be _____, at 100 Wall
Street, 20th Floor, New York, New York, 10005) as one such office or agency of
the Company for each of the aforesaid purposes.
So long as the Trustee is the Note registrar, the Trustee agrees
to mail, or cause to be mailed, the notices set forth in Section 8.10(a) and the
third paragraph of Section 8.11.
Section 5.3 APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE.
The Company, whenever necessary to avoid or fill a vacancy in the office of
Trustee, will appoint, in the manner provided in Section 8.10, a Trustee, so
that there shall at all times be a Trustee hereunder.
Section 5.4 PROVISIONS AS TO PAYING AGENT.
(a) If the Company shall appoint a paying agent other
than the Trustee or if the Trustee shall appoint such a paying agent, it will
cause such paying agent to execute and deliver to the Trustee an instrument in
which such agent shall agree with the Trustee, subject to the provisions of this
Section 5.4:
(1) that it will hold all sums held by it as such
agent for the payment of the principal of and premium, if any, or
interest on the Notes (whether such sums have been paid to it by the
Company or by any other obligor on the Notes) in trust for the benefit
of the holders of the Notes;
(2) that it will give the Trustee notice of any
failure by the Company (or by any other obligor on the Notes) to make
any payment of the principal of and premium, if any, or interest on
the Notes when the same shall be due and payable;
(3) that at any time during the continuance of an
Event of Default, upon request of the Trustee, it will forthwith pay
to the Trustee all sums so held in trust; and
(4) that it will comply with the provisions of
the Trust Indenture Act and this Indenture applicable to it as paying
agent.
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The Company shall, before each due date of the principal of,
premium, if any, or interest on the Notes, deposit with the paying agent a sum
sufficient to pay such principal, premium, if any, or interest, and (unless such
paying agent is the Trustee) the Company will promptly notify the Trustee of any
failure to take such action.
(b) If the Company shall act as its own paying agent, it
will, on or before each due date of the principal of, premium, if any, or
interest on the Notes, set aside, segregate and hold in trust for the benefit of
the holders of the Notes a sum sufficient to pay such principal, premium, if
any, or interest so becoming due and will notify the Trustee of any failure to
take such action and of any failure by the Company (or any other obligor under
the Notes) to make any payment of the principal of, premium, if any, or interest
on the Notes when the same shall become due and payable.
(c) Anything in this Section 5.4 to the contrary
notwithstanding, the Company may, at any time, for the purpose of obtaining a
satisfaction and discharge of this Indenture, or for any other reason, pay or
cause to be paid to the Trustee all sums held in trust by the Company or any
paying agent hereunder as required by this Section 5.4, such sums to be held by
the Trustee upon the trusts herein contained and upon such payment by the
Company or any paying agent to the Trustee, the Company or such paying agent
shall be released from all further liability with respect to such sums.
(d) Anything in this Section 5.4 to the contrary
notwithstanding, the agreement to hold sums in trust as provided in this
Section 5.4 is subject to Sections 13.3 and 13.4.
Section 5.5 EXISTENCE. Subject to Article XII, the Company will
do or cause to be done all things necessary to preserve and keep in full force
and effect its corporate existence.
Section 5.6 TRANSACTIONS WITH AFFILIATES. The Company covenants
and agrees not to sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
any contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company than those that would have been obtained on an
arm's-length basis in a comparable transaction by the Company or with an
unrelated Person and (ii) prior to the consummation of any such Affiliate
Transaction the Company delivers to the Trustee (x) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate payments in excess of $500,000, a resolution of the disinterested
members of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction was approved by a majority of the disinterested
members of the Board of Directors and (y) with respect to any Affiliate
Transaction involving aggregate payments in excess of $15 million, in addition
to the requirements specified in clause (x), a written opinion as to the
fairness of such Affiliate Transaction to the Company from a financial point of
view issued by an investment banking firm of national standing, or in the case
of a transaction involving the sale, lease, transfer or purchase of assets
subject to valuation, such as real estate, a written
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appraisal by a nationally recognized appraisal firm; PROVIDED, HOWEVER, that any
employment agreement or management agreement entered into by the Company in the
ordinary course of business and consistent with the past practice of the Company
that is approved by the Board of Directors of the Company (including a majority
of the disinterested members in the case of an agreement with a person who is a
member of the Board of Directors) shall not be deemed to be an Affiliate
Transaction.
Section 5.7 RULE 144A INFORMATION REQUIREMENT. During the
period beginning on the latest date of the original issuance of any of the Notes
and ending on the date that is three years from such date, the Company covenants
and agrees that it shall, during any period in which it is not subject to
Section 13 or 15(d) under the Exchange Act, make available to any holder or
beneficial holder of Notes or, any Common Stock issued upon conversion thereof,
in each case which continue to be Restricted Securities, in connection with any
sale thereof and any prospective purchaser of Notes or such Common Stock from
such holder or beneficial holder, the information required pursuant to
Rule 144A(d)(4) under the Securities Act upon the request of any holder or
beneficial holder of the Notes or such Common Stock and it will take such
further action as any holder or beneficial holder of such Notes or such Common
Stock may reasonably request, all to the extent required from time to time to
enable such holder or beneficial holder to sell its Notes or Common Stock
without registration under the Securities Act within the limitation of the
exemption provided by Rule 144A, as such rule may be amended from time to time.
Upon the request of any holder or any beneficial holder of the Notes or such
Common Stock, the Company will deliver to such holder a written statement as to
whether it has complied with such requirements.
Section 5.8 STAY, EXTENSION AND USURY LAWS. The Company
covenants (to the extent that it may lawfully do so) that it shall not at any
time insist upon, plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay, extension or usury law or other law which would
prohibit or forgive the Company from paying all or any portion of the principal
of or interest on the Notes as contemplated herein, wherever enacted, now or at
any time hereafter in force, or which may affect the covenants or the
performance of this Indenture; and the Company (to the extent it may lawfully do
so) hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not, by resort to any such law, hinder, delay or impede
the execution of any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law has been enacted.
Section 5.9 COMPLIANCE CERTIFICATE. The Company shall deliver
to the Trustee within 120 days after the end of each fiscal year of the Company
(beginning with the fiscal year ending on December 31, 1996) an Officers'
Certificate stating whether or not the signers know of any default or Event of
Default that occurred during such period. If they do, such Officers'
Certificate shall describe the default or Event of Default and its status.
Section 5.10 FURTHER INSTRUMENTS AND ACTS. Upon request of the
Trustee, the Company will execute and deliver such further instruments and do
such further acts (including providing the Trustee any information it may need
to provide the reports required by Section 6.3
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hereof) as may be reasonably necessary or proper to carry out more effectively
the purposes of this Indenture.
ARTICLE VI
NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND
THE TRUSTEE
Section 6.1 NOTEHOLDERS' LISTS. The Company covenants and
agrees that it will furnish or cause to be furnished to the Trustee, semi-
annually, not more than fifteen (15) days after each February 15 and August 15
in each year beginning with August 15, 1996, and at such other times as the
Trustee may request in writing, within thirty (30) days after receipt by the
Company of any such request (or such lesser time as the Trustee may reasonably
request in order to enable it to timely provide any notice to be provided by it
hereunder), a list in such form as the Trustee may reasonably require of the
names and addresses of the holders of Notes as of a date not more than fifteen
(15) days (or such other date as the Trustee may reasonably request in order to
so provide any such notices) prior to the time such information is furnished,
except that no such list need be furnished so long as the Trustee is acting as
Note registrar.
Section 6.2 PRESERVATION AND DISCLOSURE OF LISTS.
(a) The Trustee shall preserve, in as current a form as
is reasonably practicable, all information as to the names and addresses of the
holders of Notes contained in the most recent list furnished to it as provided
in Section 6.1 or maintained by the Trustee in its capacity as Note registrar,
if so acting. The Trustee may destroy any list furnished to it as provided in
Section 6.1 upon receipt of a new list so furnished.
(b) The rights of Noteholders to communicate with other
holders of Notes with respect to their rights under this Indenture or under the
Notes and the corresponding rights and duties of the Trustee, shall be as
provided by the Trust Indenture Act.
(c) Every Noteholder, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of holders of Notes made
pursuant to the Trust Indenture Act.
Section 6.3 REPORTS BY TRUSTEE.
(a) Within 60 days after May 15 of each year commencing
with the year 1996, the Trustee shall transmit to holders of Notes such reports
dated as of May 15 of the year in which such reports are made concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act at the times and in the manner provided pursuant thereto.
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(b) A copy of such report shall, at the time of such
transmission to holders of Notes, be filed by the Trustee with each stock
exchange and automated quotation system upon which the Notes are listed and with
the Company. The Company will notify the Trustee when the Notes are listed on
any stock exchange or automated quotation system and when any such listing is
discontinued.
Section 6.4 REPORTS BY COMPANY. The Company shall file with the
Trustee (and the Commission if at any time after the Indenture becomes qualified
under the Trust Indenture Act), and transmit to holders of Notes, such
information, documents and other reports and such summaries thereof, as may be
required pursuant to the Trust Indenture Act at the times and in the manner
provided pursuant to such Act; PROVIDED that any such information, documents or
reports required to be filed with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act shall be filed with the Trustee within 15 days after the
same is so required to be filed with the Commission.
The Company will deliver to the Trustee (a) as soon as available
and in any event within ninety (90) days after the end of each fiscal year of
the Company (i) a consolidated balance sheet of the Company and its subsidiaries
as of the end of such fiscal year and the related consolidated statements of
operations, stockholders' equity and cash flows for such fiscal year, all
reported on by an independent public accountant of nationally recognized
standing and (ii) a report containing a management's discussion and analysis of
the financial condition and results of operations and a description of the
business and properties of the Company and (b) as soon as available and in any
event within forty-five (45) days after the end of each of the first three
quarters of each fiscal year of the Company (i) an unaudited consolidated
management's discussion and analysis of the financial condition and results of
operations of the Company for such quarter; provided that the foregoing
statements and reports shall not be required for any fiscal year or quarter, as
the case may be, with respect to which the Company files or expects to file with
the Trustee an annual report or quarterly report, as the case may be, pursuant
to the preceding paragraph of this Section 6.4. The Trustee shall have no
liability as regards the substance of the information provided by the Company or
its agents pursuant to this Section 6.4.
ARTICLE VII
DEFAULTS AND REMEDIES
Section 7.1 EVENTS OF DEFAULT. In case one or more of the
following Events of Default (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgement, decree or order of any court or any order, rule or
regulation of any administrative or governmental body) shall have occurred and
be continuing:
(a) default in the payment of any installment of
interest upon any of the Notes as and when the same shall become due and
payable, and continuance of such default for
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a period of thirty (30) days, whether or not such payment is prohibited by the
provisions of Article IV; or
(b) default in the payment of the principal of and
premium, if any, on any of the Notes as and when the same shall become due and
payable either at maturity or in connection with any redemption, by declaration
or otherwise, whether or not such payment is prohibited by the provisions of
Article IV; or
(c) a default in the payment of the Repurchase Price in
respect of any Note on the repurchase date therefor in accordance with the
provisions of Article XVI, whether or not such payment is prohibited by the
provisions of Article IV; or
(d) failure on the part of the Company duly to observe
or perform any other of the covenants or agreements on the part of the Company
in the Notes or in this Indenture (other than a covenant or agreement a default
in whose performance or whose breach is elsewhere in this Section specifically
dealt with) (a "Covenant Default") continued for a period of sixty (60) days
after the date on which written notice of such failure, requiring the Company to
remedy the same, shall have been given to the Company by the Trustee, or to the
Company and a Responsible Officer of the Trustee by the holders of at least 25%
in aggregate principal amount of the outstanding Notes at the time outstanding
determined in accordance with Section 9.4; or
(e) default (after giving effect to any applicable grace
periods or waivers or any extension of any maturity date) under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness by the Company or any Significant
Subsidiary (or the payment of which is guaranteed by the Company or any
Significant Subsidiary) whether such Indebtedness or guarantee now exists, or is
created after the date of the Indenture if (i) either (1) such default results
from the failure to pay principal of, or interest on, such Indebtedness or
(2) as a result of such default the maturity of such Indebtedness has been
accelerated, and (ii) the principal amount of such Indebtedness, together with
the principal amount of any other such Indebtedness with respect to which such a
payment default (after the expiration of any applicable grace period or any
extension of the maturity date) has occurred, or the maturity of which has been
so accelerated, exceeds $2.5 million in the aggregate at any one time;
(f) failure by the Company or any Significant Subsidiary
to pay one or more final judgments in excess of $1.0 million, which judgments
are not stayed within 60 days after their entry;
(g) the Company or any Significant Subsidiary shall
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or shall consent
to any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other
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proceeding commenced against it, or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they become
due; or
(h) an involuntary case or other proceeding shall be
commenced against the Company or any Significant Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed
and unstayed for a period of ninety (90) consecutive days;
then, and in each and every such case (other than an Event of Default
specified in Section 7.1(g) or (h)), unless the principal of all of the Notes
shall have already become due and payable, either the Trustee or the holders
of not less than 25% in aggregate principal amount of the Notes then
outstanding hereunder determined in accordance with Section 9.4, by notice in
writing to the Company (and to the Trustee if given by Noteholders), may
declare the principal of and premium, if any, on all the Notes and the
interest accrued thereon to be due and payable immediately, and upon any such
declaration the same shall become and shall be immediately and automatically
due and payable without the necessity of further action, anything in this
Indenture or in the Notes contained to the contrary notwithstanding. If an
Event of Default specified in Section 7.1(g) or (h) occurs and is continuing,
the principal of all the Notes and the interest accrued thereon shall be
immediately due and payable. This provision, however, is subject to the
conditions that if, at any time after the principal of the Notes shall have
been so declared due and payable, and before any judgment or decree for the
payment of the monies due shall have been obtained or entered as hereinafter
provided, the Company shall pay or shall deposit with the Trustee a sum
sufficient to pay all matured installments of interest upon all Notes and the
principal of and premium, if any, on any and all Notes which shall have
become due otherwise than by acceleration (with interest on overdue
installments of interest (to the extent that payment of such interest is
enforceable under applicable law) and on such principal and premium, if any,
at the rate borne by the Notes, to the date of such payment or deposit) and
amounts due to the Trustee pursuant to Section 8.6, and if any and all
defaults under this Indenture, other than the nonpayment of principal of and
premium, if any, and accrued interest on Notes which shall have become due by
acceleration, shall have been cured or waived pursuant to Section 7.7, then
and in every such case the holders of a majority in aggregate principal
amount of the Notes then outstanding, by written notice to the Company and to
the Trustee, may waive all defaults or Events of Default and rescind and
annul such declaration and its consequences; but no such waiver or rescission
and annulment shall extend to or shall affect any subsequent default or Event
of Default, or shall impair any right consequent thereon. The Company shall
notify a Responsible Officer of the Trustee, promptly upon becoming aware
thereof, of any Event of Default.
In case the Trustee shall have proceeded to enforce any right
under this Indenture and such proceedings shall have been discontinued or
abandoned because of such waiver or rescission and annulment or for any other
reason or shall have been determined adversely to the Trustee, then and in every
such case, subject to any such adverse determination, the Company, the holders
of Notes, and the Trustee shall be restored respectively to their several
positions and
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rights hereunder, and all rights, remedies and powers of the Company, the
holders of Notes, and the Trustee shall continue as though no such proceeding
had been instituted.
Section 7.2 PAYMENTS OF NOTES ON DEFAULT; SUIT THEREFOR. The
Company covenants that (a) in case default shall be made in the payment by the
Company of any installment of interest upon any of the Notes as and when the
same shall become due and payable, and such default shall have continued for a
period of thirty (30) days, or (b) in case default shall be made in the payment
of the principal of or premium, if any, on any of the Notes as and when the same
shall have become due and payable, whether at maturity of the Notes or in
connection with any redemption or repurchase, by declaration under this
Indenture or otherwise, then, upon demand of the Trustee, the Company will pay
to the Trustee, for the benefit of the holders of the Notes, the whole amount
that then shall have become due and payable on all such Notes for principal and
premium, if any, or interest, or both, as the case may be, with interest upon
the overdue principal and premium, if any, and (to the extent that payment of
such interest is enforceable under applicable law) upon the overdue installments
of interest at the rate borne by the Notes; and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including reasonable compensation to the Trustee, its agents,
attorneys and counsel, and any expenses or liabilities incurred by the Trustee
hereunder other than through its negligence or bad faith. Until such demand by
the Trustee, the Company may pay the principal of and premium, if any, and
interest on the Notes to the registered holders, whether or not the Notes are
overdue.
In case the Company shall fail forthwith to pay such amounts upon
such demand, the Trustee, in its own name and as trustee of an express trust,
shall be entitled and empowered to institute any actions or proceedings at law
or in equity for the collection of the sums so due and unpaid, and may prosecute
any such action or proceeding to judgment or final decree, and may enforce any
such judgment or final decree against the Company or any other obligor on the
Notes and collect in the manner provided by law out of the property of the
Company or any other obligor on the Notes wherever situated the monies adjudged
or decreed to be payable.
In case there shall be pending proceedings for the bankruptcy or
for the reorganization of the Company or any other obligor on the Notes under
Title 11 of the United States Code, or any other applicable law, or in case a
receiver, assignee or trustee in bankruptcy or reorganization, liquidator,
sequestrator or similar official shall have been appointed for or taken
possession of the Company or such other obligor, the property of the Company or
such other obligor, or in the case of any other judicial proceedings relative to
the Company or such other obligor upon the Notes, or to the creditors or
property of the Company or such other obligor, the Trustee, irrespective of
whether the principal of the Notes shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand pursuant to the provisions of this Section 7.2, shall
be entitled and empowered, by intervention in such proceedings or otherwise, to
file and prove a claim or claims for the whole amount of principal, premium, if
any, and interest owing and unpaid in respect of the Notes, and, in case of any
judicial proceedings, to file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee and
of the Noteholders allowed in such judicial proceedings relative to the Company
or any other obligor on the Notes,
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its or their creditors, or its or their property, and to collect and receive any
monies or other property payable or deliverable on any such claims, and to
distribute the same after the deduction of any amount due the Trustee under
Section 8.6; and any receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, custodian or similar official is hereby authorized
by each of the Noteholders to make such payments to the Trustee, and, in the
event that the Trustee shall consent to the making of such payments directly to
the Noteholders, to pay to the Trustee any amount due it for reasonable
compensation, expenses, advances and disbursements, including counsel fees
incurred by it up to the date of such distribution. To the extent that such
payment of reasonable compensation, expenses, advances and disbursements out of
the estate in any such proceedings shall be denied for any reason, payment of
the same shall be secured by a lien on, and shall be paid out of, any and all
distributions, dividends, monies, securities and other property which the
holders of the Notes may be entitled to receive in such proceedings, whether in
liquidation or under any plan of reorganization or arrangement or otherwise.
All rights of action and of asserting claims under this
Indenture, or under any of the Notes, may be enforced by the Trustee without the
possession of any of the Notes, or the production thereof on any trial or other
proceeding relative thereto, and any such suit or proceeding instituted by the
Trustee shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the holders of the Notes.
In any proceedings brought by the Trustee (and in any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the holders
of the Notes, and it shall not be necessary to make any holders of the Notes
parties to any such proceedings.
Section 7.3 APPLICATION OF MONIES COLLECTED BY TRUSTEE. Any
monies collected by the Trustee pursuant to this Article VII shall be applied in
the order following, at the date or dates fixed by the Trustee for the
distribution of such monies, upon presentation of the several Notes, and
stamping thereon the payment, if only partially paid, and upon surrender
thereof, if fully paid:
First: To the payment of all amounts due the Trustee under
Section 8.6;
Second: Subject to the provisions of Article IV, in case
the principal of the outstanding Notes shall not have become due and
be unpaid, to the payment of interest on the Notes in default in the
order of the maturity of the installments of such interest, with
interest (to the extent that such interest has been collected by the
Trustee) upon the overdue installments of interest at the rate borne
by the Notes, such payments to be made ratably to the persons entitled
thereto;
Third: Subject to the provisions of Article IV, in case the
principal of the outstanding Notes shall have become due, by
declaration or otherwise, and be unpaid, to the payment of the whole
amount then owing and unpaid upon the Notes for principal and
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premium, if any, and interest, with interest on the overdue principal
and premium, if any, and (to the extent that such interest has been
collected by the Trustee) upon overdue installments of interest at the
rate borne by the Notes; and in case such monies shall be insufficient
to pay in full the whole amounts so due and unpaid upon the Notes,
then to the payment of such principal and premium, if any, and
interest without preference or priority of principal and premium, if
any, over interest, or of interest over principal and premium, if any,
or of any installment of interest over any other installment of
interest, or of any Note over any other Note, ratably to the aggregate
of such principal and premium, if any, and accrued and unpaid
interest; and
Fourth: Subject to the provisions of Article IV, to the
payment of the remainder, if any, to the Company or any other person
lawfully entitled thereto.
Section 7.4 PROCEEDINGS BY NOTEHOLDER. No holder of any Note
shall have any right by virtue of or by availing of any provision of this
Indenture to institute any suit, action or proceeding in equity or at law upon
or under or with respect to this Indenture, or for the appointment of a
receiver, trustee, liquidator, custodian or other similar official, or for any
other remedy hereunder, unless such holder previously shall have given to the
Trustee written notice of an Event of Default and of the continuance thereof, as
hereinbefore provided, and unless also the holders of not less than 25% in
aggregate principal amount of the Notes then outstanding shall have made written
request upon the Trustee to institute such action, suit or proceeding in its own
name as Trustee hereunder and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee for sixty (60) days after its
receipt of such notice, request and offer of indemnity, shall have neglected or
refused to institute any such action, suit or proceeding and no direction
inconsistent with such written request shall have been given to the Trustee
pursuant to Section 7.7; it being understood and intended, and being expressly
covenanted by the taker and holder of every Note with every other taker and
holder and the Trustee, that no one or more holders of Notes shall have any
right in any manner whatever by virtue of or by availing of any provision of
this Indenture to affect, disturb or prejudice the rights of any other holder of
Notes, or to obtain or seek to obtain priority over or preference to any other
such holder, or to enforce any right under this Indenture, except in the manner
herein provided and for the equal, ratable and common benefit of all holders of
Notes (except as otherwise provided herein). For the protection and enforcement
of this Section 7.4, each and every Noteholder and the Trustee shall be entitled
to such relief as can be given either at law or in equity.
Notwithstanding any other provision of this Indenture and any
provision of any Note, the right of any holder of any Note to receive payment of
the principal of and premium, if any, and interest on such Note, on or after the
respective due dates expressed in such Note, or to institute suit for the
enforcement of any such payment on or after such respective dates against the
Company shall not be impaired or affected without the consent of such holder.
Anything in this Indenture or the Notes to the contrary
notwithstanding, the holder of any Note, without the consent of either the
Trustee or the holder of any other Note, in his own
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behalf and for his own benefit, may enforce, and may institute and maintain any
proceeding suitable to enforce, his rights of conversion as provided herein.
Section 7.5 PROCEEDINGS BY TRUSTEE. In case of an Event of
Default the Trustee may in its discretion proceed to protect and enforce the
rights vested in it by this Indenture by such appropriate judicial proceedings
as the Trustee shall deem most effectual to protect and enforce any of such
rights, either by suit in equity or by action at law or by proceeding in
bankruptcy or otherwise, whether for the specific enforcement of any covenant or
agreement contained in this Indenture or in aid of the exercise of any power
granted in this Indenture, or to enforce any other legal or equitable right
vested in the Trustee by this Indenture or by law.
Section 7.6 REMEDIES CUMULATIVE AND CONTINUING. Except as
provided in Section 2.6, all powers and remedies given by this Article VII to
the Trustee or to the Noteholders shall, to the extent permitted by law, be
deemed cumulative and not exclusive of any thereof or of any other powers and
remedies available to the Trustee or the holders of the Notes, by judicial
proceedings or otherwise, to enforce the performance or observance of the
covenants and agreements contained in this Indenture, and no delay or omission
of the Trustee or of any holder of any of the Notes to exercise any right or
power accruing upon any default or Event of Default occurring and continuing as
aforesaid shall impair any such right or power, or shall be construed to be a
waiver of any such default or any acquiescence therein; and, subject to the
provisions of Section 7.4, every power and remedy given by this Article VII or
by law to the Trustee or to the Noteholders may be exercised from time to time,
and as often as shall be deemed expedient, by the Trustee or by the Noteholders.
Section 7.7 DIRECTION OF PROCEEDINGS AND WAIVER OF DEFAULTS BY
MAJORITY OF NOTEHOLDERS. The holders of a majority in aggregate principal
amount of the Notes at the time outstanding determined in accordance with
Section 9.4 shall have the right to direct the time, method, and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee; PROVIDED, HOWEVER, that (a) such
direction shall not be in conflict with any rule of law or with this Indenture,
and (b) the Trustee may take any other action deemed proper by the Trustee which
is not inconsistent with such direction. The holders of a majority in aggregate
principal amount of the Notes at the time outstanding determined in accordance
with Section 9.4 may on behalf of the holders of all of the Notes waive any past
default or Event of Default hereunder and its consequences except (i) a default
in the payment of interest or premium, if any, on, or the principal of, the
Notes, (ii) a failure by the Company to convert any Notes into Common Stock,
(iii) a default in payment of the redemption price pursuant to Article III or
the repurchase price pursuant to Article XVI, or (iv) a default in respect of a
covenant or provisions hereof which under Article XI cannot be modified or
amended without the consent of the holders of all Notes then outstanding. Upon
any such waiver the Company, the Trustee and the holders of the Notes shall be
restored to their former positions and rights hereunder; but no such waiver
shall extend to any subsequent or other default or Event of Default or impair
any right consequent thereon. Whenever any default or Event of Default
hereunder shall have been waived as permitted by this Section 7.7, said default
or Event of Default shall for all purposes of the Notes and this Indenture be
deemed to have been cured and
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to be not continuing; but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon.
Section 7.8 NOTICE OF DEFAULTS. The Trustee shall, within
ninety (90) days after knowledge by a Responsible Officer of the occurrence of a
default, mail to all Noteholders, as the names and addresses of such holders
appear upon the Note register, notice of all such defaults, unless such defaults
shall have been cured or waived before the giving of such notice; and, PROVIDED
that, except in the case of default in the payment of the principal of, or
premium, if any, or interest on any of the Notes, the Trustee shall be protected
in withholding such notice if and so long as a trust committee of directors
and/or Responsible Officers of the Trustee in good faith determine that the
withholding of such notice is in the interests of the Noteholders.
Section 7.9 UNDERTAKING TO PAY COSTS. All parties to this
Indenture agree, and each holder of any Note by his acceptance thereof shall be
deemed to have agreed, that any court may, in its discretion, require, in any
suit for the enforcement of any right or remedy under this Indenture, or in any
suit against the Trustee for any action taken or omitted by it as Trustee, the
filing by any party litigant in such suit of an undertaking to pay the costs of
such suit and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; PROVIDED that the provisions of this Section 7.9 shall not
apply to any suit instituted by the Company or by the Trustee, to any suit
instituted by any Noteholder, or group of Noteholders, holding in the aggregate
more than 10% in principal amount of the Notes at the time outstanding
determined in accordance with Section 9.4, or to any suit instituted by any
Noteholder for the enforcement of the payment of the principal of or premium, if
any, or interest on any Note (including, but not limited to, the redemption
price or repurchase price with respect to the Notes being redeemed or
repurchased as provided in this Indenture) on or after the due date expressed in
such Note or to any suit for the enforcement of the right to convert any Note in
accordance with the provisions of Article XV.
ARTICLE VIII
CONCERNING THE TRUSTEE
Section 8.1 DUTIES AND RESPONSIBILITIES OF TRUSTEE. The
Trustee, prior to the occurrence of an Event of Default and after the curing of
all Events of Default which may have occurred, undertakes to perform such duties
and only such duties as are specifically set forth in this Indenture. In case
an Event of Default has occurred (which has not been cured or waived) the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that
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(a) prior to the occurrence of an Event of Default and
after the curing or waiving of all Events of Default which may have occurred:
(1) the duties and obligations of the Trustee
shall be determined solely by the express provisions of this Indenture
and the Trust Indenture Act, and the Trustee shall not be liable
except for the performance of such duties and obligations as are
specifically set forth in this Indenture and no implied covenants or
obligations shall be read into this Indenture and the Trust Indenture
Act against the Trustee; and
(2) in the absence of bad faith or willful
misconduct on the part of the Trustee, the Trustee may conclusively
rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture; but, in the case of any such certificates or opinions which
by any provisions hereof are specifically required to be furnished to
the Trustee, the Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this
Indenture;
(b) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer or Officers of the Trustee,
unless the Trustee was negligent in ascertaining the pertinent facts;
(c) the Trustee shall not be liable to any Noteholder
with respect to any action taken or omitted to be taken by it in good faith in
accordance with the direction of the holders of not less than a majority in
principal amount of the Notes at the time outstanding determined as provided in
Section 9.4 relating to the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred upon the Trustee, under this Indenture; and
(d) whether or not therein provided, every provision of
this Indenture relating to the conduct or affecting the liability of, or
affording protection to, the Trustee shall be subject to the provisions of this
Section.
None of the provisions contained in this Indenture shall require
the Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the exercise
of any of its rights or powers, if there is reasonable ground for believing that
the repayment of such funds or adequate security or indemnity against such risk
or liability is not reasonably assured to it.
Section 8.2 RELIANCE ON DOCUMENTS, OPINIONS, ETC. Except as
otherwise provided in Section 8.1:
(a) the Trustee may rely and shall be protected in
acting upon any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, bond, note, coupon or other paper or document
believed by it in good faith to be genuine and to have been signed or presented
by the proper party or parties;
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(b) any request, direction, order or demand of the
Company mentioned herein shall be sufficiently evidenced by an Officers'
Certificate (unless other evidence in respect thereof be herein specifically
prescribed); and any resolution of the Board of Directors may be evidenced to
the Trustee by a copy thereof certified by the Secretary or an Assistant
Secretary of the Company;
(c) the Trustee may consult with counsel and any written
advice or Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or omitted by it hereunder in good
faith and in accordance with such written advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the request, order
or direction of any of the Noteholders pursuant to the provisions of this
Indenture, unless such Noteholders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby;
(e) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts or
matters as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the books,
records and premises of the Company, personally or by agent or attorney;
PROVIDED, HOWEVER that if the payment within a reasonable time to the Trustee of
the costs, expenses or liabilities likely to be incurred by it in the making of
such investigation is, in the opinion of the Trustee, not reasonably assured to
the Trustee by the security afforded to it by the terms of this Indenture, the
Trustee may require reasonable indemnity from the Noteholders against such
expenses or liability as a condition to so proceeding; the reasonable expenses
of every such examination shall be paid by the Company or, if paid by the
Trustee or any predecessor Trustee, shall be repaid by the Company upon demand;
and
(f) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed by it with due care
hereunder.
Section 8.3 NO RESPONSIBILITY FOR RECITALS, ETC. The recitals
contained herein and in the Notes (except in the Trustee's certificate of
authentication) shall be taken as the statements of the Company, and the Trustee
assumes no responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Notes. The Trustee shall not be accountable for the use or application by the
Company of any Notes or the proceeds of any Notes authenticated and delivered by
the Trustee in conformity with the provisions of this Indenture.
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Section 8.4 TRUSTEE, PAYING AGENTS, CONVERSION AGENTS OR REGISTRAR
MAY OWN NOTES. The Trustee, any paying agent, any conversion agent or Note
registrar, in its individual or any other capacity, may become the owner or
pledgee of Notes with the same rights it would have if it were not Trustee,
paying agent, conversion agent or Note registrar.
Section 8.5 MONIES TO BE HELD IN TRUST. Subject to the provisions of
Section 13.4, all monies received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were received.
Money held by the Trustee in trust hereunder need not be segregated from other
funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except pursuant to
Section 15.5(m) hereof or as may be agreed from time to time by the Company and
the Trustee.
Section 8.6 COMPENSATION AND EXPENSES OF TRUSTEE. The Company
covenants and agrees to pay to the Trustee from time to time, and the Trustee
shall be entitled to, reasonable compensation for all services rendered by it
hereunder in any capacity as may be mutually agreed upon in writing by the
Company and the Trustee (which shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust), and the Company
will pay or reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances reasonably incurred or made by the Trustee in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all persons not regularly in its employ) except any such expense, disbursement
or advance as may arise from its negligence, willful misconduct, recklessness or
bad faith. The Company also covenants to indemnify the Trustee in any capacity
under this Indenture and its agents and any authenticating agent for, and to
hold them harmless against, any loss, liability or expense incurred without
negligence, willful misconduct, recklessness or bad faith on the part of the
Trustee or such agent or authenticating agent, as the case may be, and arising
out of or in connection with the acceptance or administration of this trust or
in any other capacity hereunder, including the costs and expenses of defending
themselves against any claim of liability in the premises. The obligations of
the Company under this Section 8.6 to compensate or indemnify the Trustee and to
pay or reimburse the Trustee for expenses, disbursements and advances shall be
secured by a lien prior to that of the Notes upon all property and funds held or
collected by the Trustee as such, except funds held in trust for the benefit of
the holders of particular Notes. The obligation of the Company under this
Section shall survive removal or resignation of the Trustee or the satisfaction
and discharge of this Indenture.
When the Trustee and its agents and any authenticating agent incur
expenses or render services after an Event of Default specified in
Section 7.1(g) or (h) occurs, the expenses and the compensation for the services
are intended to constitute expenses of administration under any bankruptcy,
insolvency or similar laws.
Section 8.7 OFFICERS' CERTIFICATE AS EVIDENCE. Except as otherwise
provided in Section 8.1, whenever in the administration of the provisions of
this Indenture the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or omitting any action hereunder, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may, in the absence of negligence, willful misconduct, recklessness
or bad faith on the part of the Trustee, be deemed to be conclusively proved and
established by an Officers' Certificate delivered to the Trustee, and such
Officers Certificate, in the absence of negligence, willful misconduct,
recklessness or bad faith on
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the part of the Trustee, shall be full warrant to the Trustee for any action
taken or omitted by it under the provisions of this Indenture upon the faith
thereof.
Section 8.8 CONFLICTING INTERESTS OF TRUSTEE. If the Trustee has or
shall acquire a conflicting interest within the meaning of the Trust Indenture
Act, the Trustee shall either eliminate such interest or resign, to the extent
and in the manner provided by, and subject to the provisions of, the Trust
Indenture Act and this Indenture.
Section 8.9 ELIGIBILITY OF TRUSTEE. There shall at all times be a
Trustee hereunder which shall be a person that is eligible pursuant to the Trust
Indenture Act to act as such and has a combined capital and surplus of at least
$50,000,000. If such person publishes reports of condition at least annually,
pursuant to law or to the requirements of any supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such person shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
the Trustee shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
Section 8.10 RESIGNATION OR REMOVAL OF TRUSTEE.
(a) The Trustee may at any time resign by giving written notice
of such resignation to the Company and by mailing notice thereof to the holders
of Notes at their addresses as they shall appear on the Note register. Upon
receiving such notice of resignation, the Company shall promptly appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors, one copy of which instrument shall be delivered to the
resigning Trustee and one copy to the successor trustee. If no successor
trustee shall have been so appointed and have accepted appointment sixty (60)
days after the mailing of such notice of resignation to the Noteholders, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor trustee, or any Noteholder who has been a bona fide
holder of a Note or Notes for at least six months may, subject to the provisions
of Section 7.9, on behalf of himself and all others similarly situated, petition
any such court for the appointment of a successor trustee. Such court may
thereupon, after such notice if any, as it may deem proper and prescribe,
appoint a successor trustee.
(b) The Company may remove the Trustee and appoint a successor
trustee in accordance with and by complying with the procedures and requirements
set forth in this Section 8.10(b) in the event the Company reasonably believes
that the services required of a "Trustee" hereunder are available at
significantly reduced costs from a proposed successor trustee. In order to
exercise its right to remove the Trustee in accordance with this
Section 8.10(b), the Company shall deliver to the Trustee and shall mail or
cause to be mailed to the holders of the Notes at their addresses as they appear
on the Note register written notice of the proposed removal and appointment of a
successor trustee (the "Removal Notice"). The
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Removal Notice shall (i) state that the Company proposes to remove the existing
Trustee in accordance with Section 8.10(b) of the Indenture, (ii) set forth the
name of the proposed successor trustee, (iii) include a certification by the
Company that no default or Event of Default has occurred and is continuing under
the Indenture, (iv) state that the proposed successor trustee shall succeed to
the Trustee as trustee under the Indenture on the thirty-fifth (35th) day (or,
if such day is not a Business Day, the next succeeding Business Day) unless
holders of not less that twenty (20) percent in aggregate principal amount of
the Notes then outstanding object in writing to the removal of the existing
Trustee to the Company or the Trustee within twenty (20) days after the date on
which written notice of such proposed removal and appointment is given to the
holders of all of the Notes, and (v) include a certification by the Company
that, based on information provided by the proposed successor trustee, such
proposed successor trustee is eligible to act as Trustee under the Indenture.
The appointment of the proposed successor trustee shall become effective on the
thirty-fifth (35th) day (or, if such day is not a Business Day, the next
succeeding Business Day) after the giving of the notice to holders of Notes as
required by the preceding sentence, by written instrument, in duplicate,
executed by order of the Board of Directors, one copy of which instrument shall
be delivered to the Trustee so removed and one copy to the successor trustee,
PROVIDED that neither such appointment nor such removal shall be effective in
the event that (A) a default or Event of Default under the Indenture has
occurred and is continuing as of such date, (B) written objections shall have
been received by the Company or the Trustee by not less than twenty (20) percent
in aggregate principal amount of the Notes as contemplated by clause (iv) of the
preceding sentence, or (C), the proposed successor trustee is not then eligible
to act as Trustee under the Indenture.
(c) In case at any time any of the following shall occur:
(1) the Trustee shall fail to comply with Section 8.8 after
written request therefor by the Company or by any Noteholder who has been a
bona fide holder of a Note or Notes for at least six months, or
(2) the Trustee shall cease to be eligible in accordance
with the provisions of Section 8.9 and shall fail to resign after written
request therefor by the Company or by any such Noteholder, or
(3) the Trustee shall become incapable of acting, or shall
be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its
property shall be appointed, or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors, one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor trustee, or, subject to the
provisions of Section 7.9, any Noteholder who has been a bona fide holder of a
Note or Notes for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the removal
of the Trustee and the appointment
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of a successor trustee. Such court may thereupon, after such notice, if any, as
it may deem proper and prescribe, remove the Trustee and appoint a successor
trustee.
(d) The holders of a majority in aggregate principal amount of
the Notes at the time outstanding may at any time remove the Trustee and
nominate a successor trustee which shall be deemed appointed as successor
trustee unless within ten (10) days after notice to the Company of such
nomination the Company objects thereto, in which case any Noteholder, upon the
terms and conditions and otherwise as in Section 8.10(a) provided, may petition
any court of competent jurisdiction for an appointment of a successor trustee.
(e) Any resignation or removal of the Trustee and appointment of
a successor trustee pursuant to any of the provisions of this Section 8.10 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 8.11.
Section 8.11 ACCEPTANCE BY SUCCESSOR TRUSTEE. Any successor trustee
appointed as provided in Section 8.10 shall execute, acknowledge and deliver to
the Company and to its predecessor trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations of its predecessor hereunder, with like effect as
if originally named as trustee herein; but, nevertheless, on the written request
of the Company or of the successor trustee, the trustee ceasing to act shall,
upon payment of any amounts then due it pursuant to the provisions of
Section 8.6, execute and deliver an instrument transferring to such successor
trustee all the rights and powers of the trustee so ceasing to act. Upon
request of any such successor trustee, the Company shall execute any and all
instruments in writing for more fully and certainly vesting in and confirming to
such successor trustee all such rights and powers. Any trustee ceasing to act
shall, nevertheless, retain a lien upon all property and funds held or collected
by such trustee as such, except for funds held in trust for the benefit of
holders of particular Notes, to secure any amounts then due it pursuant to the
provisions of Section 8.6.
No successor trustee shall accept appointment as provided in this
Section 8.11 unless at the time of such acceptance such successor trustee shall
be qualified under the provisions of Section 8.8 and be eligible under the
provisions of Section 8.9.
Upon acceptance of appointment by a successor trustee as provided in
this Section 8.11, each of the Company and the former trustee shall mail or
cause to be mailed notice of the succession of such trustee hereunder to the
holders of Notes at their addresses as they shall appear on the Note register.
If the Company fails to mail such notice within ten (10) days after acceptance
of appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Company.
Section 8.12 SUCCESSION BY MERGER, ETC. Any corporation or other
entity into which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation or other
entity succeeding to all or substantially all of the trust
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business of the Trustee, shall be the successor to the Trustee hereunder without
the execution or filing of any paper or any further act on the part of any of
the parties hereto, provided that in the case of any corporation succeeding to
all or substantially all of the trust business of the Trustee such corporation
shall be qualified under the provisions of Section 8.8 and eligible under the
provisions of Section 8.9.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture, any of the Notes shall have been authenticated
but not delivered, any such successor to the Trustee may adopt the certificate
of authentication of any predecessor trustee or authenticating agent appointed
by such predecessor trustee, and deliver such Notes so authenticated; and in
case at that time any of the Notes shall not have been authenticated, any
successor to the Trustee or an authenticating agent appointed by such successor
trustee may authenticate such Notes either in the name of any predecessor
trustee hereunder or in the name of the successor trustee; and in all such cases
such certificates shall have the full force which it is anywhere in the Notes or
in this Indenture provided that the certificate of the Trustee shall have;
PROVIDED, HOWEVER, that the right to adopt the certificate of authentication of
any predecessor Trustee or to authenticate Notes in the name of any predecessor
Trustee shall apply only to its successor or successors by merger, conversion or
consolidation.
Section 8.13 LIMITATION ON RIGHTS OF TRUSTEE AS CREDITOR. If and
when the Trustee shall be or become a creditor of the Company (or any other
obligor upon the Notes), the Trustee shall to the extent required by applicable
law be subject to the provisions of the Trust Indenture Act regarding the
collection of the claims against the Company (or any such other obligor).
ARTICLE IX
CONCERNING THE NOTEHOLDERS
Section 9.1 ACTION BY NOTEHOLDERS. Whenever in this Indenture it is
provided that the holders of a specified percentage in aggregate principal
amount of the Notes may take any action (including the making of any demand or
request, the giving of any notice, consent or waiver or the taking of any other
action), the fact that at the time of taking any such action, the holders of
such specified percentage have joined therein may be evidenced (a) by any
instrument or any number of instruments of similar tenor executed by Noteholders
in person or by agent or proxy appointed in writing, or (b) by the record of the
holders of Notes voting in favor thereof at any meeting of Noteholders duly
called and held in accordance with the provisions of Article X, or (c) by a
combination of such instrument or instruments and any such record of such a
meeting of Noteholders. Whenever the Company or the Trustee solicits the taking
of any action by the holders of the Notes, the Company or the Trustee may fix in
advance of such solicitation, a date as the record date for determining holders
entitled to take such action. The record date shall be not more than fifteen
(15) days prior to the date of commencement of solicitation of such action.
Section 9.2 PROOF OF EXECUTION BY NOTEHOLDERS. Subject to the
provisions of Sections 8.1, 8.2 and 10.5, proof of the execution of any
instrument by a Noteholder or his agent
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or proxy shall be sufficient if made in accordance with such reasonable rules
and regulations as may be prescribed by the Trustee or in such manner as shall
be satisfactory to the Trustee. The holding of Notes shall be proved by the
Note register or by a certificate of the Note registrar. The record of any
Noteholders' meeting shall be proved in the manner provided in Section 10.6.
Section 9.3 WHO ARE DEEMED ABSOLUTE OWNERS. The Company, the
Trustee, any paying agent, any conversion agent and any Note registrar may deem
the person in whose name such Note shall be registered upon the Note register to
be, and may treat him as, the absolute owner of such Note (whether or not such
Note shall be overdue and notwithstanding any notation of ownership or other
writing thereon) for the purpose of receiving payment of or on account of the
principal of, premium, if any, and interest on such Note, for conversion of such
Note and for all other purposes; and neither the Company nor the Trustee nor any
paying agent nor any conversion agent nor any Note registrar shall be affected
by any notice to the contrary. All such payments so made to any holder for the
time being, or upon his order, shall be valid, and, to the extent of the sum or
sums so paid, effectual to satisfy and discharge the liability for monies
payable upon any such Note.
Section 9.4 COMPANY-OWNED NOTES DISREGARDED. In determining whether
the holders of the requisite aggregate principal amount of Notes have concurred
in any direction, consent, waiver or other action under this Indenture, Notes
which are owned by the Company or any other obligor on the Notes or by any
person directly or indirectly controlling or controlled by or under direct or
indirect common control with the Company or any other obligor on the Notes shall
be disregarded and deemed not to be outstanding for the purpose of any such
determination; PROVIDED that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, consent, waiver or other
action only Notes which a Responsible Officer knows are so owned shall be so
disregarded. Notes so owned which have been pledged in good faith may be
regarded as outstanding for the purposes of this Section 9.4 if the pledgee
shall establish to the satisfaction of the Trustee the pledgee's right to vote
such Notes and that the pledgee is not the Company, any other obligor on the
Notes or a person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company or any such other obligor.
In the case of a dispute as to such right, any decision by the Trustee taken
upon the advice of counsel shall be full protection to the Trustee. Upon
request of the Trustee, the Company shall furnish to the Trustee promptly an
Officers' Certificate listing and identifying all Notes, if any, known by the
Company to be owned or held by or for the account of any of the above described
persons; and, subject to Section 8.1, the Trustee shall be entitled to accept
such Officers' Certificate as conclusive evidence of the facts therein set forth
and of the fact that all Notes not listed therein are outstanding for the
purpose of any such determination.
Section 9.5 REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND. At any
time prior to (but not after) the evidencing to the Trustee, as provided in
Section 9.1, of the taking of any action by the holders of the percentage in
aggregate principal amount of the Notes specified in this Indenture in
connection with such action, any holder of a Note which is shown by the evidence
to be included in the Notes the holders of which have consented to such action
may, by filing written notice with the Trustee at its Corporate Trust Office and
upon proof of holding as
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provided in Section 9.2, revoke such action so far as concerns such Note.
Except as aforesaid, any such action taken by the holder of any Note shall be
conclusive and binding upon such holder and upon all future holders and owners
of such Note and of any Notes issued in exchange, or substitution therefor,
irrespective of whether any notation in regard thereto is made upon such Note or
any Note issued in exchange or substitution therefor.
ARTICLE X
NOTEHOLDERS' MEETINGS
Section 10.1 PURPOSE OF MEETINGS. A meeting of Noteholders may be
called at any time and from time to time pursuant to the provisions of this
Article X for any of the following purposes:
(1) to give any notice to the Company or to the Trustee or
to give any directions to the Trustee permitted under this Indenture, or to
consent to the waiving of any default or Event of Default hereunder and its
consequences, or to take any other action authorized to be taken by
Noteholders pursuant to any of the provisions of Article VII;
(2) to remove the Trustee and nominate a successor trustee
pursuant to the provisions of Article VIII;
(3) to consent to the execution of an indenture or
indentures supplemental hereto pursuant to the provisions of Section 11.2;
(4) to take any other action authorized to be taken by or
on behalf of the holders of any specified aggregate principal amount of the
Notes under any other provision of this Indenture or under applicable law;
or
(5) to take any other action authorized by this Indenture
or under applicable law.
Section 10.2 CALL OF MEETINGS BY TRUSTEE. The Trustee may at any
time call a meeting of Noteholders to take any action specified in Section 10.1,
to be held at such time and at such place in the Borough of Manhattan, The City
of New York, as the Trustee shall determine. Notice of every meeting of the
Noteholders, setting forth the time and the place of such meeting and in general
terms the action proposed to be taken at such meeting and the establishment of
any record date pursuant to Section 9.1, shall be mailed to holders of Notes at
their addresses as they shall appear on the Note register. Such notice shall
also be mailed to the Company. Such notices shall be mailed not less than
twenty (20) nor more than ninety (90) days prior to the date fixed for the
meeting.
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Any meeting of Noteholders shall be valid without notice if the
holders of all Notes then outstanding are present in person or by proxy or if
notice is waived before or after the meeting by the holders of all Notes
outstanding, and if the Company and the Trustee are either present by duly
authorized representatives or have, before or after the meeting, waived notice.
Section 10.3 CALL OF MEETINGS BY COMPANY OR NOTEHOLDERS. In
case at any time the Company, pursuant to a resolution of its Board of
Directors, or the holders of at least 10% in aggregate principal amount of the
Notes then outstanding, shall have requested the Trustee to call a meeting of
Noteholders, by written request setting forth in reasonable detail the action
proposed to be taken at the meeting, and the Trustee shall not have mailed the
notice of such meeting within twenty (20) days after receipt of such request,
then the Company or such Noteholders may determine the time and the place (which
shall be in the Borough of Manhattan, The City of New York) for such meeting and
may call such meeting to take any action authorized in Section 10.1, by mailing
notice thereof as provided in Section 10.2.
Section 10.4 QUALIFICATIONS FOR VOTING. To be entitled to vote
at any meeting of Noteholders a person shall (a) be a holder of one or more
Notes on the record date pertaining to such meeting or (b) be a person appointed
by an instrument in writing as proxy by a holder of one or more Notes. The only
persons who shall be entitled to be present or to speak at any meeting of
Noteholders shall be the persons entitled to vote at such meeting and their
counsel and any representatives of the Trustee and its counsel and any
representatives of the Company and its counsel.
Section 10.5 REGULATIONS. Notwithstanding any other provisions
of this Indenture, the Trustee may make such reasonable regulations as it may
deem advisable for any meeting of Noteholders, in regard to proof of the holding
of Notes and of the appointment of proxies, and in regard to the appointment and
duties of inspectors of votes, the submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall think fit.
The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have been called by
the Company or by Noteholders as provided in Section 10.3, in which case the
Company or the Noteholders calling the meeting, as the case may be, shall in
like manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by vote of the holders of a majority
in principal amount of the Notes represented at the meeting and entitled to vote
at the meeting.
Subject to the provisions of Section 9.4, at any meeting each
Noteholder or proxyholder shall be entitled to one vote for each $1,000
principal amount of Notes held or represented by him; provided, however, that no
vote shall be cast or counted at any meeting in respect of any Note challenged
as not outstanding and ruled by the chairman of the meeting to be not
outstanding. The chairman of the meeting shall have no right to vote other than
by virtue of Notes held by him or instruments in writing as aforesaid duly
designating him as the proxy to vote on behalf of other Noteholders. Any
meeting of Noteholders duly called pursuant to the provisions of Section 10.2 or
10.3 may be adjourned from time to time by the holders of a
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majority of the aggregate principal amount of Notes represented at the meeting,
whether or not constituting a quorum, and the meeting may be held as so
adjourned without further notice.
Section 10.6 VOTING. The vote upon any resolution submitted to
any meeting of Noteholders shall be by written ballot on which shall be
subscribed the signatures of the holders of Notes or of their representatives by
proxy and the principal amount of the Notes held or represented by them. The
permanent chairman of the meeting shall appoint two inspectors of votes who
shall count all votes cast at the meeting for or against any resolution and who
shall make and file with the secretary of the meeting their verified written
reports in duplicate of all votes cast at the meeting. A record in duplicate of
the proceedings of each meeting of Noteholders shall be prepared by the
secretary of the meeting and there shall be attached to said record the original
reports of the inspectors of votes on any vote by ballot taken thereat and
affidavits by one or more persons having knowledge of the facts setting forth a
copy of the notice of the meeting and showing that said notice was mailed as
provided in Section 10.2. The record shall show the principal amount of the
Notes voting in favor of or against any resolution. The record shall be signed
and verified by the affidavits of the permanent chairman and secretary of the
meeting and one of the duplicates shall be delivered to the Company and the
other to the Trustee to be preserved by the Trustee, the latter to have attached
thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive evidence of
the matters therein stated.
Section 10.7 NO DELAY OF RIGHTS BY MEETING. Nothing in this
Article X contained shall be deemed or construed to authorize or permit, by
reason of any call of a meeting of Noteholders or any rights expressly or
impliedly conferred hereunder to make such call, any hindrance or delay in the
exercise of any right or rights conferred upon or reserved to the Trustee or to
the Noteholders under any of the provisions of this Indenture or of the Notes.
ARTICLE XI
SUPPLEMENTAL INDENTURES
Section 11.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
NOTEHOLDERS. The Company, when authorized by the resolutions of the Board of
Directors, and the Trustee may from time to time and at any time enter into an
indenture or indentures supplemental hereto for one or more of the following
purposes:
(a) to make provision with respect to the conversion rights
of the holders of Notes pursuant to the requirements of Section 15.6;
(b) subject to Article IV, to convey, transfer, assign,
mortgage or pledge to the Trustee as security for the Notes, any property or
assets;
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(c) to evidence the succession of another corporation to
the Company, or successive successions, and the assumption by the successor
corporation of the covenants, agreements and obligations of the Company pursuant
to Article XII;
(d) to add to the covenants of the Company such other
covenants, restrictions or conditions as the Board of Directors shall consider
to be for the benefit of the holders of Notes, and to make the occurrence, or
the occurrence and continuance, of a default in any such additional covenants,
restrictions or conditions a default or an Event of Default permitting the
enforcement of all or any of the several remedies provided in this Indenture as
herein set forth; PROVIDED, HOWEVER, that in respect of any such additional
covenant, restriction or condition such supplemental indenture may provide for a
particular period of grace after default (which period may be shorter or longer
than that allowed in the case of other defaults) or may provide for an immediate
enforcement upon such default or may limit the remedies available to the Trustee
upon such default;
(e) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture which may be
defective or inconsistent with any other provision contained herein or in any
supplemental indenture, or to make such other provisions in regard to matters or
questions arising under this Indenture which shall not adversely affect the
interests of the holders of the Notes;
(f) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee with respect to the Notes; or
(g) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the qualifications of
this Indenture under the Trust Indenture Act, or under any similar federal
statute hereafter enacted.
The Trustee is hereby authorized to join with the Company in the
execution of any such supplemental indenture, to make any further appropriate
agreements and stipulations which may be therein contained and to accept the
conveyance, transfer and assignment of any property thereunder, but the Trustee
shall not be obligated to, but may in its discretion, enter into any
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this
Section 11.1 may be executed by the Company and the Trustee without the consent
of the holders of any of the Notes at the time outstanding, notwithstanding any
of the provisions of Section 11.2.
Section 11.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF
NOTEHOLDERS. With the consent (evidenced as provided in Article IX) of the
holders of not less than a majority in aggregate principal amount of the Notes
at the time outstanding (determined in accordance with Section 9.4), the
Company, when authorized by the resolutions of the Board of Directors, and the
Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any
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of the provisions of this Indenture or any supplemental indenture or of
modifying in any manner the rights of the holders of the Notes; provided however
that no such supplemental indenture shall (a)(i) change the stated maturity date
of the principal of, or any installment of interest on, any Note, (ii) reduce
the principal amount of, or the rate of interest on, or any premium payable on,
any Note, whether upon acceleration, redemption or otherwise, (iii) change the
place or currency for payment of principal of, or premium or interest on, any
Note, (iv) impair the right to institute suit for the enforcement of any such
payment when due, (v) adversely affect the right provided in the Indenture to
convert any Note, (vi) modify the provisions of the Indenture with respect to
the subordination of the Notes in a manner adverse to the holders, (vii) modify
the provisions relating to the Repurchase Right of the holders in a manner
adverse to the holders, (viii) reduce the percentage of principal amount of
outstanding Notes necessary to modify or amend the Indenture or to consent to
any waiver provided for in the Indenture, or (ix) modify the obligation of the
Company to deliver information required under Rule 144A to permit resales of
Notes and Common Stock issuable upon conversion thereof in the event the Company
ceases to be subject to certain reporting requirements under the United States
securities laws, or (b) reduce the aforesaid percentage of Notes, the holders of
which are required to consent to any such supplemental indenture, without the
consent of the holders of all Notes then outstanding.
Upon the request of the Company, accompanied by a copy of the
resolutions of the Board of Directors certified by its Secretary or Assistant
Secretary authorizing the execution of any such supplemental indenture, and upon
the filing with the Trustee of evidence of the consent of Noteholders as
aforesaid, the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such supplemental indenture. Promptly after the execution of such
supplemental indenture, the Company shall transmit to the Noteholders a notice
setting forth the substance of such supplemental indenture.
It shall not be necessary for the consent of the Noteholders
under this Section 11.2 to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such consent shall approve
the substance thereof.
Section 11.3 EFFECT OF SUPPLEMENTAL INDENTURES. Any
supplemental indenture executed pursuant to the provisions of this Article XI
shall comply with the Trust Indenture Act, as then in effect. Upon the
execution of any supplemental indenture pursuant to the provisions of this
Article XI, this Indenture shall be and be deemed to be modified and amended in
accordance therewith and the respective rights, limitation of rights,
obligations, duties and immunities under this Indenture of the Trustee, the
Company and the holders of Notes shall thereafter be determined, exercised and
enforced hereunder subject in all respects to such modifications and amendments
and all the terms and conditions of any such supplemental indenture shall be and
be deemed to be part of terms and conditions of this Indenture for any and all
purposes.
Section 11.4 NOTATION ON NOTES. Notes authenticated and
delivered after the execution of any supplemental indenture pursuant to the
provisions of this Article XI may bear
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a notation in form approved by the Trustee as to any matter provided for in such
supplemental indenture. If the Company shall so determine, new Notes so
modified as to conform, in the opinion of the Trustee and the Board of
Directors, to any modification of this Indenture contained in any such
supplemental indenture may, at the Company's expense, be prepared and executed
by the Company, authenticated by the Trustee (or an authenticating agent duly
appointed by the Trustee pursuant to Section 17.11) and delivered in exchange
for the Notes then outstanding, upon surrender of such Notes then outstanding.
Section 11.5 EVIDENCE OF COMPLIANCE OF SUPPLEMENTAL INDENTURE TO
BE FURNISHED TRUSTEE. The Trustee, subject to the provisions of Sections 8.1
and 8.2, may receive an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant hereto
complies with the requirements of this Article XI.
ARTICLE XII
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
Section 12.1 COMPANY MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
Subject to the provisions of Section 12.2, nothing contained in this Indenture
or in any of the Notes shall prevent, without the consent of the holders of the
Notes, any consolidation or merger of the Company with or into any other
corporation or corporations (whether or not affiliated with the Company), or
successive consolidations or mergers in which the Company or its successor or
successors shall be a party or parties, or shall prevent any sale, conveyance or
lease (or successive sales, conveyances or leases) of all or substantially all
of the property of the Company, to any other corporation (whether or not
affiliated with the Company), authorized to acquire, and operate the same and
which shall be organized under the laws of the United States of America, any
state thereof or the District of Columbia; PROVIDED, HOWEVER, and the Company
hereby covenants and agrees, that upon any such consolidation, merger, sale,
conveyance or lease, the due and punctual payment of the principal of and
premium, if any, and interest on all of the Notes, according to their tenor, and
the due and punctual performance and observance of all of the covenants and
conditions of this Indenture to be performed by the Company, shall be expressly
assumed, by supplemental indenture satisfactory in form to the Trustee, executed
and delivered to the Trustee by the corporation (if other than the Company)
formed by such consolidation, or into which the Company shall have been merged,
or by the corporation which shall have acquired or leased such property, and
such supplemental indenture shall provide for the applicable conversion rights
set forth in Section 15.6 and the repurchase rights set forth in Article XVI;
and PROVIDED FURTHER, that immediately after giving effect to such
consolidation, merger, sale, conveyance or lease, no default or Event of Default
shall have occurred and be continuing.
Section 12.2 SUCCESSOR CORPORATION TO BE SUBSTITUTED. In case
of any such consolidation, merger, sale, conveyance or lease and upon the
assumption by the successor corporation, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form to the Trustee, of the due and
punctual payment of the principal of and premium, if any, and interest on all of
the Notes and the due and punctual performance of all of the covenants and
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conditions of this Indenture to be performed by the Company, such successor
corporation shall succeed to and be substituted for the Company, with the same
effect as if it had been named herein as the party of the first part. Such
successor corporation thereupon may cause to be signed, and may issue either in
its own name or in the name of Richey Electronics, Inc., any or all of the Notes
issuable hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee; and, upon the order of such successor corporation
instead of the Company and subject to all the terms, conditions and limitations
in this Indenture prescribed, the Trustee shall authenticate and shall deliver,
or cause to be authenticated and delivered, any Notes which previously shall
have been signed and delivered by the officers of the Company to the Trustee for
authentication, and any Notes which such successor corporation thereafter shall
cause to be signed and delivered to the Trustee for that purpose. All the Notes
so issued shall in all respects have the same legal rank and benefit under this
Indenture as the Notes theretofore or thereafter issued in accordance with the
terms of this Indenture as though all of such Notes had been issued at the date
of the execution hereof. In the event of any such consolidation, merger, sale,
conveyance or lease, the person named as the "Company" in the first paragraph of
this Indenture or any successor which shall thereafter have become such in the
manner prescribed in this Article XII may be dissolved, wound up and liquidated
at any time thereafter and such person shall be released from its liabilities as
obligor and maker of the Notes and from its obligations under this Indenture.
In case of any such consolidation, merger, sale, conveyance or
lease, such changes in phraseology and form (but not in substance) may be made
in the Notes thereafter to be issued as may be appropriate.
Section 12.3 OPINION OF COUNSEL TO BE GIVEN TRUSTEE. The
Trustee, subject to Sections 8.1 and 8.2, shall receive an Officers' Certificate
and an Opinion of Counsel as conclusive evidence that any such consolidation,
merger, sale, conveyance or lease and any such assumption complies with the
provisions of this Article XII.
ARTICLE XIII
SATISFACTION AND DISCHARGE OF INDENTURE
Section 13.1 DISCHARGE OF INDENTURE. When (a) the Company shall
deliver to the Trustee for cancellation all Notes theretofore authenticated
(other than any Notes which have been destroyed, lost or stolen and in lieu of
or in substitution for which other Notes shall have been authenticated and
delivered) and not theretofore canceled, or (b) all the Notes not theretofore
canceled or delivered to the Trustee for cancellation shall have become due and
payable, or are by their terms to become due and payable within one year or are
to be called for redemption within one year under arrangements satisfactory to
the Trustee for the giving of notice of redemption, and the Company shall
deposit with the Trustee, in trust, funds sufficient to pay at maturity or upon
redemption of all of the Notes (other than any Notes which shall have been
mutilated, destroyed, lost or stolen and in lieu of or in substitution for which
other Notes shall have been authenticated and delivered) not theretofore
canceled or delivered to the Trustee for
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cancellation, including principal and premium, if any, and interest due or to
become due to such date of maturity or redemption date, as the case may be, and
if in either case the Company shall also pay or cause to be paid all other sums
payable hereunder by the Company, then this Indenture shall cease to be of
further effect (except as to (i) remaining rights of registration of transfer,
substitution and exchange and conversion of Notes, (ii) rights hereunder of
Noteholders to receive payments of principal of and premium, if any, and
interest on, the Notes and the other rights, duties and obligations of
Noteholders, as beneficiaries hereof with respect to the amounts, if any, so
deposited with the Trustee and (iii) the rights, obligations and immunities of
the Trustee hereunder), and the Trustee, on demand of the Company accompanied by
an Officers' Certificate and an Opinion of Counsel as required by Section 17.5
and at the cost and expense of the Company, shall execute proper instruments
acknowledging satisfaction of and discharging this Indenture; the Company,
however, hereby agreeing to reimburse the Trustee for any costs or expenses
thereafter reasonably and properly incurred by the Trustee and to compensate the
Trustee for any services thereafter reasonably and properly rendered by the
Trustee in connection with this Indenture or the Notes.
Section 13.2 DEPOSITED MONIES TO BE HELD IN TRUST BY TRUSTEE.
Subject to Section 13.4, all monies deposited with the Trustee pursuant to
Section 13.1 shall be held in trust and applied by it to the payment,
notwithstanding the provisions of Article IV, either directly or through any
paying agent (including the Company if acting as its own paying agent), to the
holders of the particular Notes for the payment or redemption of which such
monies have been deposited with the Trustee, of all sums due and to become due
thereon for principal and interest and premium, if any. All monies deposited
with the Trustee pursuant to Section 13.1 (and held by it or any paying agent)
for the payment of Notes subsequently converted into Common Stock shall be
returned to the Company upon its request.
Section 13.3 PAYING AGENT TO REPAY MONIES HELD. Upon the
satisfaction and discharge of this Indenture, all monies then held by any paying
agent of the Notes (other than the Trustee) shall, upon demand of the Company,
be repaid to it or paid to the Trustee, and thereupon such paying agent shall be
released from all further liability with respect to such monies.
Section 13.4 RETURN OF UNCLAIMED MONIES. Subject to the
requirements of applicable law, any monies deposited with or paid to the Trustee
for payment of the principal of, premium, if any, or interest on Notes and not
applied but remaining unclaimed by the holders of Notes for two years after the
date upon which the principal of, premium, if any, or interest on such Notes, as
the case may be, shall have become due and payable, shall be repaid to the
Company by the Trustee on demand and all liability of the Trustee shall
thereupon cease with respect to such monies; and the holder of any of the Notes
shall thereafter look only to the Company for any payment which such holder may
be entitled to collect unless an applicable abandoned property law designates
another person.
Section 13.5 REINSTATEMENT. If the Trustee or the paying agent
is unable to apply any money in accordance with Section 13.2 by reason of any
order or judgment of any court or governmental authority enjoining, restraining
or otherwise prohibiting such application, the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as
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though no deposit had occurred pursuant to Section 13.1 until such time as the
Trustee or the paying agent is permitted to apply all such money in accordance
with Section 13.2; PROVIDED, HOWEVER, that if the Company makes any payment of
interest on or principal of any Note following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the holders of
such Notes to receive such payment from the money held by the Trustee or paying
agent.
ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
Section 14.1 INDENTURE AND NOTES SOLELY CORPORATE OBLIGATIONS.
No recourse for the payment of the principal of or premium, if any, or interest
on any Note, or for any claim based thereon or otherwise in respect thereof, and
no recourse under or upon any obligation, covenant or agreement of the Company
in this Indenture or in any supplemental indenture or in any Note, or because of
the creation of any indebtedness represented thereby, shall be had against any
incorporator, stockholder, employee, agent, officer or director or subsidiary,
as such, past, present or future, of the Company or of any successor
corporation, either directly or through the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issue of the Notes.
ARTICLE XV
CONVERSION OF NOTES
Section 15.1 RIGHT TO CONVERT. Subject to and upon compliance
with the provisions of this Indenture, the holder of any Note shall have the
right, at his option, at any time after sixty (60) days following the latest
date of original issuance of the Notes and prior to the close of business on
March 1, 2006 (except that, with respect to any Note or portion of a Note which
shall be called for redemption, such right shall terminate, at the close of
business on the second Trading Day prior to the date fixed for redemption of
such Note or portion of a Note unless the Company shall default in payment due
upon redemption thereof) to convert the principal amount of any such Note, or
any portion (which is $1,000 or an integral multiple thereof) of such principal
amount, into that number of fully paid and non-assessable shares of Common Stock
(as such shares shall then be constituted) obtained by dividing the principal
amount of the Note or portion thereof surrendered for conversion by the
Conversion Price in effect at such time, by surrender of the Note so to be
converted in whole or in part in the manner provided in Section 15.2; provided
that no Note may be converted in part unless the principal amount of such Note
remaining outstanding after such conversion shall be $100,000 or an integral
multiple of $1,000 in excess thereof. A Note for which a holder has delivered a
notice to require the
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Company to repurchase such Note as provided in Section 16.1 may be converted
only if such notice is properly revoked by such holder prior to the close of
business on the repurchase date. A holder of Notes is not entitled to any
rights of a holder of Common Stock until such holder has converted his Notes to
Common Stock, and only to the extent such Notes are deemed to have been
converted to Common Stock under this Article XV.
Section 15.2 EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF
COMMON STOCK ON CONVERSION; NO ADJUSTMENT FOR INTEREST OR DIVIDENDS. In order
to exercise the conversion privilege with respect to any Note in definitive
form, the holder of any such Note to be converted in whole or in part shall
surrender such Note, duly endorsed, at an office or agency maintained by the
Company pursuant to Section 5.2, accompanied by the funds, if any, required by
the penultimate paragraph of this Section 15.2, and shall give written notice of
conversion in the form provided on the Notes (or such other notice which is
acceptable to the Company) to the office or agency that the holder elects to
convert such Note or such portion thereof specified in said notice. Such notice
shall also state the name or names (with address) in which the certificate or
certificates for shares of Common Stock which shall be issuable on such
conversion shall be issued, and shall be accompanied by transfer taxes, if
required pursuant to Section 15.7. Each such Note surrendered for conversion
shall, unless the shares issuable on conversion are to be issued in the same
name as the registration of such Note, be duly endorsed by, or be accompanied by
instruments of transfer in form satisfactory to the Company duly executed by,
the holder or his duly authorized attorney.
In order to exercise the conversion privilege with respect to any
interest in a Note in global form, the beneficial holder must complete the
appropriate instruction form for conversion pursuant to the Depositary's book-
entry conversion program, deliver by book-entry delivery an interest in such
Note in global form, furnish appropriate endorsements and transfer documents if
required by the Company or the Trustee or conversion agent, and pay the funds,
if any, required by the penultimate paragraph of this Section 15.2 and any
transfer taxes, if required pursuant to Section 15.7.
As promptly as practicable after satisfaction of the requirements
for conversion set forth above, subject to compliance with any restrictions on
transfer if shares issuable on conversion are to be issued in a name other than
that of the Noteholder (as if such transfer were a transfer of the Note or Notes
(or portion thereof) so converted), the Company shall issue and shall deliver to
such holder at the office or agency maintained by the Company for such purpose
pursuant to Section 5.2, a certificate or certificates for the number of full
shares of Common Stock issuable upon the conversion of such Note or portion
thereof in accordance with the provisions of this Article and a check or cash in
respect of any fractional interest in respect of a share of Common Stock arising
upon such conversion, as provided in Section 15.3. In case any Note shall be
surrendered for partial conversion, and subject to Section 2.3, the Company
shall execute and the Trustee shall authenticate and deliver to the holder of
the Note so surrendered, without charge to him, a new Note or Notes in
authorized denominations in an aggregate principal amount equal to the
unconverted portion of the surrendered Note; PROVIDED that the principal amount
of such new Note shall be in a denomination of $100,000 or an integral multiple
of $1,000 in excess thereof.
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Each conversion shall be deemed to have been effected as to any
such Note (or portion thereof) on the date on which the requirements set forth
above in this Section 15.2 have been satisfied as to such Note (or portion
thereof), and the person in whose name any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become on said date the holder of record of the shares represented thereby;
PROVIDED, HOWEVER that any such surrender on any date when the stock transfer
books of the Company shall be closed shall constitute the person in whose name
the certificates are to be issued as the record holder thereof for all purposes
on the next succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date upon which
such Note shall be surrendered.
Any Note or portion thereof surrendered for conversion during the
period from the close of business on the record date for any interest payment
date through the close of business on the Business Day next preceding such
interest payment date shall (unless such Note or portion thereof being converted
shall have been called for redemption after the close of business on such record
date and before the close of business on the date that is prior to the date two
Trading Days after such interest payment date) be accompanied by payment, in New
York Clearing House funds or other funds acceptable to the Company, of an amount
equal to the interest otherwise payable on such interest payment date on the
principal amount being converted; PROVIDED, HOWEVER, that no such payment need
be made if there shall exist at the time of conversion a default in the payment
of interest on the Notes. Except as provided above in this Section 15.2 and in
Section 2.3, no payment or adjustment shall be made for interest accrued on any
Note converted or for dividends on any shares issued upon the conversion of such
Note as provided in this Article.
Upon the conversion of an interest in a Note in global form, the
Trustee, or the Custodian at the direction of the Trustee, shall make a notation
on such Note in global form as to the reduction in the principal amount
represented thereby.
Section 15.3 CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES. No
fractional shares of Common Stock or scrip representing fractional shares shall
be issued upon conversion of Notes. If more than one Note shall be surrendered
for conversion at one time by the same holder, the number of full shares which
shall be issuable upon conversion shall be computed on the basis of the
aggregate principal amount of the Notes (or specified portions thereof to the
extent permitted hereby) so surrendered for conversion. If any fractional share
of stock otherwise would be issuable upon the conversion of any Note or Notes,
the Company shall make an adjustment therefor in cash at the current market
value thereof to the holder of Notes. The current market value of a share of
Common Stock shall be the Closing Price on the first Trading Day immediately
preceding the day on which the Notes (or specified portions thereof) are deemed
to have been converted and such Closing Price shall be determined as provided in
Section 15.5(g).
Section 15.4 CONVERSION PRICE. The conversion price shall be as
specified in the form of Note (herein called the "Conversion Price") attached as
Exhibit A hereto, subject to adjustment as provided in this Article XV.
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Section 15.5 ADJUSTMENT OF CONVERSION PRICE. The Conversion Price
shall be adjusted from time to time by the Company as follows:
(a) In case the Company shall hereafter pay a dividend or make a
distribution payable in shares of Common Stock to all holders of shares of any
class of capital stock of the Company, the Conversion Price in effect at the
opening of business on the day following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution shall be
reduced by multiplying such Conversion Price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on the Record Date (as defined in Section 15.5(g)) fixed for such
determination and the denominator shall be the sum of such number of shares and
the total number of shares constituting such dividend or other distribution,
such reduction to become effective immediately after the opening of business on
the day following the Record Date. If any dividend or distribution of the type
described in this Section 15.5(a) is declared but not so paid or made, the
Conversion Price shall again be adjusted to the Conversion Price which would
then be in effect if such dividend or distribution had not been declared.
(b) In case the Company shall issue rights or warrants to all
holders of its outstanding shares of Common Stock entitling them to subscribe
for or purchase shares of Common Stock at a price per share less than the
Current Market Price (as defined in Section 15.5(g)) on the Record Date fixed
for the determination of stockholders entitled to receive such rights or
warrants, the Conversion Price shall be adjusted so that the same shall equal
the price determined by multiplying the Conversion Price in effect at the
opening of business on the day after such Record Date by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on the Record Date plus the number of shares which the aggregate
offering price of the total number of shares so offered would purchase at such
Current Market Price, and of which the denominator shall be the number of shares
of Common Stock outstanding on the close of business on the Record Date plus the
total number of additional shares of Common Stock so offered for subscription or
purchase. Such adjustment shall become effective immediately after the opening
of business on the day following the Record Date fixed for determination of
stockholders entitled to receive such rights or warrants. To the extent that
shares of Common Stock are not delivered pursuant to such rights or warrants,
upon the expiration or termination of such rights or warrants the Conversion
Price shall be readjusted to the Conversion Price which would then be in effect
had the adjustments made upon the issuance of such rights or warrants been made
on the basis of delivery of only the number of shares of Common Stock actually
delivered. In the event that such rights or warrants are not so issued, the
Conversion Price shall again be adjusted to be the Conversion Price which would
then be in effect if such date fixed for the determination of stockholders
entitled to receive such rights or warrants had not been fixed. In determining
whether any rights or warrants entitle the holders to subscribe for or purchase
shares of Common Stock at less than such Current Market Price, and in
determining the aggregate offering price of such shares of Common Stock, there
shall be taken into account any consideration received for such rights or
warrants, the value of such consideration, if other than cash, to be determined
by the Board of Directors.
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(c) In case the outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the Conversion Price
in effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall be proportionately reduced, and
conversely, in case outstanding shares of Common Stock shall be combined into a
smaller number of shares of Common Stock, the Conversion Price in effect at the
opening of business on the day following the day upon which such combination
becomes effective shall be proportionately increased, such reduction or
increase, as the case may be, to become effective immediately after the opening
of business on the day following the day upon which such subdivision or
combination becomes effective.
(d) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock shares of any class of capital
stock of the Company (other than any dividends or distributions to which
Section 15.5(a) applies) or evidences of its indebtedness, cash or other assets
(including securities, but excluding (1) any rights or warrants referred to in
Section 15.5(b), (2) dividends and distributions paid exclusively in cash and
(3) excluding any capital stock, evidences of indebtedness, cash or assets
distributed upon a merger or consolidation to which Section 15.6 applies) (the
foregoing hereinafter in this Section 15.5(d) called the "Securities")), then,
in each such case, the Conversion Price shall be reduced so that the same shall
be equal to the price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on the Record Date (as defined in
Section 15.5(g)) with respect to such distribution by a fraction of which the
numerator shall be the Current Market Price per share of Common Stock
(determined as provided in Section 15.5(g)) on such Record Date less the fair
market value (as determined by the Board of Directors, whose determination shall
be conclusive and described in a Board Resolution) on such date of the portion
of the Securities so distributed applicable to one share of Common Stock and the
denominator shall be such Current Market Price, such reduction to become
effective immediately prior to the opening of business on the day following the
Record Date; PROVIDED, HOWEVER, that in the event the then fair market value (as
so determined) of the portion of the Securities so distributed applicable to one
share of Common Stock is equal to or greater than the Current Market Price on
the Record Date, in lieu of the foregoing adjustment, adequate provision shall
be made so that each Noteholder shall have the right to receive upon conversion
of a Note (or any portion thereof) the amount of Securities such holder would
have received had such holder converted such Note (or portion thereof)
immediately prior to such Record Date. In the event that such dividend or
distribution is not so paid or made, the Conversion Price shall again be
adjusted to be the Conversion Price which would then be in effect if such
dividend or distribution had not been declared. If the Board of Directors
determines the fair market value of any distribution for purposes of this
Section 15.5(d) by reference to the actual or when issued trading market for any
securities comprising all or part of such distribution, it must in doing so
consider the prices in such market over the same period (the "Reference Period")
used in computing the Current Market Price pursuant to Section 15.5(g) to the
extent possible.
Rights or warrants distributed by the Company to all holders of Common
Stock entitling the holders thereof to subscribe for or purchase shares of the
Company's capital stock (either initially or under certain circumstances), which
rights or warrants, until the occurrence of a specified event or events
("Trigger Event"): (i) are deemed to be transferred with such shares
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of Common Stock; (ii) are not exercisable; and (iii) are also issued in respect
of future issuances of Common Stock, shall be deemed not to have been
distributed for purposes of this Section 15.5 (and no adjustment to the
Conversion Price under this Section 15.5 will be required) until the occurrence
of the earliest Trigger Event, whereupon such rights and warrants shall be
deemed to have been distributed and an appropriate adjustment (if any is
required) to the Conversion Price shall be made under this Section 15.5. If
such right or warrant is subject to subsequent events, upon the occurrence of
which such right or warrant shall become exercisable to purchase different
securities, evidences of indebtedness or other assets or entitle the holder to
purchase a different number or amount of the foregoing or to purchase any of the
foregoing at a different purchase price, then the occurrence of each such event
shall be deemed to be the date of issuance and record date with respect to a new
right or warrant (and a termination or expiration of the existing right or
warrant without exercise by the holder thereof). In addition, in the event of
any distribution (or deemed distribution) of rights or warrants, or any Trigger
Event or other event (of the type described in the preceding sentence) with
respect thereto, that resulted in an adjustment to the Conversion Price under
this Section 15.5, (1) in the case of any such rights or warrants which shall
all have been redeemed or repurchased without exercise by any holders thereof,
the Conversion Price shall be readjusted upon such final redemption or
repurchase to give effect to such distribution or Trigger Event, as the case may
be, as though it were a cash distribution, equal to the per share redemption or
repurchase price received by a holder of Common Stock with respect to such
rights or warrants (assuming such holder had retained such rights or warrants),
made to all holders of Common Stock as of the date of such redemption or
repurchase, and (2) in the case of such rights or warrants all of which shall
have expired or been terminated without exercise, the Conversion Price shall be
readjusted as if such rights and warrants had never been issued.
For purposes of this Section 15.5(d) and Sections 15.5(a) and (b), any
dividend or distribution to which this Section 15.5(d) is applicable that also
includes shares of Common Stock, or rights or warrants to subscribe for or
purchase shares of Common Stock to which Section 15.5(b) applies (or both),
shall be deemed instead to be (1) a dividend or distribution of the evidences of
indebtedness, assets, shares of capital stock, rights or warrants other than
such shares of Common Stock or rights or warrants to which Section 15.5(b)
applies (and any Conversion Price reduction required by this Section 15.5(d)
with respect to such dividend or distribution shall then be made) immediately
followed by (2) a dividend or distribution of such shares of Common Stock or
such rights or warrants (and any further Conversion Price reduction required by
Sections 15.5(a) and (b) with respect to such dividend or distribution shall
then be made, except (A) the Record Date of such dividend or distribution shall
be substituted as "the date fixed for the determination of stockholders entitled
to receive such dividend or other distribution", "Record Date fixed for such
determination" and "Record Date" within the meaning of Section 15.5(a) and as
"the date fixed for the determination of stockholders entitled to receive such
rights or warrants", "the Record Date fixed for the determination of the
stockholders entitled to receive such rights or warrants" and "such Record Date"
within the meaning of Section 15.5(b) and (B) any shares of Common Stock
included in such dividend or distribution shall not be deemed "outstanding at
the close of business on the date fixed for such determination" within the
meaning of Section 15.5(a).
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(e) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock cash (excluding any cash that is
distributed upon a merger or consolidation to which Section 15.6 applies or as
part of a distribution referred to in Section 15.5(d)), in an aggregate amount
that, combined together with (1) the aggregate amount of any other such
distributions to all holders of its Common Stock made exclusively in cash within
the twelve (12) months preceding the date of payment of such distribution, and
in respect of which no adjustment pursuant to this Section 15.5(e) has been
made, and (2) the aggregate Dilutive Repurchase Premium (as defined in Section
15.5(f)) for all shares of Common Stock purchased pursuant to Dilutive
Repurchases (as defined in Section 15.5(f)) concluded within the twelve (12)
months preceding the date of payment of such distribution and in respect of
which no adjustment pursuant to section 15.5(f) has been made, exceeds 10.0% of
the product of the Current Market Price (determined as provided in
Section 15.5(g)) on the Record Date with respect to such distribution times the
number of shares of Common Stock outstanding on such date, then, and in each
such case, immediately after the close of business on such date, the Conversion
Price shall be reduced so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the close of
business on such Record Date by a fraction (i) the numerator of which shall be
equal to the Current Market Price on the Record Date less an amount equal to the
quotient of (x) the excess of such combined amount over such 10.0% and (y) the
number of shares of Common Stock outstanding on the Record Date and (ii) the
denominator of which shall be equal to the Current Market Price on such date,
provided, however, that in the event the portion of the cash so distributed
applicable to one share of Common Stock is equal to or greater than the Current
Market Price of the Common Stock on the Record Date, in lieu of the foregoing
adjustment, adequate provision shall be made so that each Noteholder shall have
the right to receive upon conversion of a Note (or any portion thereof) the
amount of cash such holder would have received had such holder converted such
Note (or portion thereof) immediately prior to such Record Date. In the event
that such dividend or distribution is not so paid or made, the Conversion Price
shall again be adjusted to be the Conversion Price which would then be in effect
if such dividend or distribution had not been declared. Any cash distribution
to all holders of Common Stock as to which the Company makes the election
permitted by Section 15.5(m) and as to which the Company has complied with the
requirements of such Section shall be treated as not having been made for all
purposes of this Section 15.5(e).
(f) In the case of any Dilutive Repurchase, if the sum of
(i) the aggregate Dilutive Repurchase Premium for all shares purchased pursuant
to such Dilutive Repurchase, (ii) the aggregate Dilutive Repurchase Premium for
all shares purchased pursuant to Dilutive Repurchases within the twelve (12)
months preceding the date of such Dilutive Repurchase as to which no adjustments
pursuant to this Section 15.5(f) have been made and (iii) the aggregate amount
of any distributions to all holders of the Common Stock made exclusively in cash
within the twelve (12) months preceding the date of such Dilutive Repurchase as
to which no adjustments pursuant to Section 15.5(e) have been made, exceeds
10.0% of the product of the Current Market Price on the date of such Dilutive
Repurchase times the number of shares of Common Stock outstanding immediately
prior to giving effect to such Dilutive Repurchase, then, and in each case, the
Conversion Price shall be adjusted so that the same shall equal the Conversion
Price in effect immediately prior to the close of business on the date of such
Dilutive Repurchase multiplied by a fraction (i) the numerator of which shall be
equal to the
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Current Market Price on the date of such Dilutive Repurchase less an amount
equal to the quotient of (x) the excess of the sum of the amounts referred to in
clauses (i) (ii) and (iii) over such 10.0% and (y) the number of shares of
Common Stock outstanding immediately prior to such Dilutive Repurchase and
(ii) the denominator of which shall be equal to the Current Market Price on the
date of such Dilutive Repurchase, such reduction (if any) to become effective
immediately prior to the opening of business on the day following the date of
such Dilutive Repurchase. In the event that the Company is obligated to
purchase shares pursuant to any such tender offer constituting a Dilutive
Repurchase, but the Company is permanently prevented by applicable law from
effecting any such purchases or all such purchases are rescinded, the Conversion
Price shall again be adjusted to be the Conversion Price which would then be in
effect if such tender offer had not been made. If the application of this
Section 15.5(f) to any Dilutive Repurchase would result in an increase in the
Conversion Price, no adjustment shall be made for such tender offer under this
Section 15.5(f). Any cash distribution to all holders of Common Stock as to
which the Company has made the election permitted by Section 15.5(m) and as to
which the Company has complied with the requirements of such Section shall be
treated as not having been made for all purposes of this Section 15.5(f).
As used in this Section 15.5(f) and in Section 15.5(e), "Dilutive
Repurchase" means a repurchase (including by a tender offer) by the Company or
any of its subsidiaries of Common Stock at a price per share (including the
amount of any cash and the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution) of any non-cash consideration) which exceeds both (1) the then
current Conversion Price and (2) the then Current Market Price, the "date of the
Dilutive Repurchase" means the date on which the Dilutive Repurchase is
consummated which, in the case of a tender offer, shall be deemed to be the date
on which such tender offer shall expire and the Company or such subsidiary shall
become obligated to pay the purchase price for the shares accepted for
repurchase; and "Dilutive Repurchase Premium" means the excess of such
repurchase price per share over the Current Market Price as of the date of the
Dilutive Repurchase.
(g) For purposes of this Section 15.5, the following terms shall
have the meaning indicated:
(1) "Closing Price" with respect to any securities on any
day shall mean the closing sale price regular way on such day or, in case
no such sale takes place on such day, the average of the reported closing
bid and asked prices, regular way, in each case on the Nasdaq National
Market or New York Stock Exchange, as applicable, or, if such security is
not listed or admitted to trading on such National Market or Exchange, on
the principal national security exchange or quotation system on which such
security is quoted or listed or admitted to trading, or, if not quoted or
listed or admitted to trading on any national securities exchange or
quotation system, the average of the closing bid and asked prices of such
security on the over-the-counter market on the day in question as reported
by the National Quotation Bureau Incorporated, or a similar generally
accepted reporting service, or if not so available, in such manner as
furnished by any New York Stock Exchange member firm selected from time to
time by the Board
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of Directors for that purpose, or a price determined in good faith by the
Board of Directors, whose determination shall be conclusive and described
in a Board Resolution.
(2) "Current Market Price" shall mean the average of the
daily Closing Prices per share of Common Stock for the ten (10) consecutive
Trading Days immediately prior to the date in question; PROVIDED, HOWEVER,
that (1) if the "ex" date (as hereinafter defined) for any event (other
than the issuance or distribution requiring such computation) that requires
an adjustment to the Conversion Price pursuant to Section 15.5(a), (b),
(c), (d), (e) or (f) occurs during such ten (10) consecutive Trading Days,
the Closing Price for each Trading Day prior to the "ex" date for such
other event shall be adjusted by multiplying such Closing Price by the same
fraction by which the Conversion Price is so required to be adjusted as a
result of such other event, (2) if the "ex" date for any event (other than
the issuance or distribution requiring such computation) that requires an
adjustment to the Conversion Price pursuant to Section 15.5(a), (b), (c),
(d), (e) or (f) occurs on or after the "ex" date for the issuance or
distribution requiring such computation and prior to the day in question,
the Closing Price for each Trading Day on and after the "ex" date for such
other event shall be adjusted by multiplying such Closing Price by the
reciprocal of the fraction by which the Conversion Price is so required to
be adjusted as a result of such other event, and (3) if the "ex" date for
the issuance or distribution requiring such computation is prior to the day
in question, after taking into account any adjustment required pursuant to
clause (1) or (2) of this proviso, the Closing Price for each Trading Day
on or after such "ex" date shall be adjusted by adding thereto the amount
of any cash and the fair market value (as determined by the Board of
Directors in a manner consistent with any determination of such value for
purposes of Section 15.5(d) or (f), whose determination shall be conclusive
and described in a Board Resolution) of the evidences of indebtedness,
shares of capital stock or assets being distributed applicable to one share
of Common Stock as of the close of business on the day before such "ex"
date. For purposes of any computation under Section 15.5(f), the Current
Market Price of the Common Stock on any date shall be deemed to be the
average of the daily Closing Prices per share of Common Stock for such day
and the next two succeeding Trading Days; PROVIDED, HOWEVER, that if the
"ex" date for any event (other than the Dilutive Repurchase requiring such
computation) that requires an adjustment to the Conversion Price pursuant
to Section 15.5(a), (b), (c), (d), (e) or (f) occurs after the Dilutive
Repurchase requiring such computation and prior to the day in question, the
Closing Price for each Trading Day on and after the "ex" date for such
other event shall be adjusted by multiplying such Closing Price by the
reciprocal of the fraction by which the Conversion Price is so required to
be adjusted as a result of such other event. For purposes of this
paragraph, the term "ex" date, (1) when used with respect to any issuance
or distribution, means the first date on which the Common Stock trades
regular way on the relevant exchange or in the relevant market from which
the Closing Price was obtained without the right to receive such issuance
or distribution, (2) when used with respect to any subdivision or
combination of shares of Common Stock, means the first date on which the
Common Stock trades regular way on such exchange or in such market after
the time at which such subdivision or combination becomes effective, and
(3) when used with respect to any tender or exchange offer means the first
date on which the Common
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Stock trades regular way on such exchange or in such market after the date
on which such tender or exchange offer shall expire and the Company or such
subsidiary shall become obligated to pay the purchase price for the share
accepted for purchase. Notwithstanding the foregoing, whenever successive
adjustments to the Conversion Price are called for pursuant to this
Section 15.5, such adjustments shall be made to the Current Market Price as
may be necessary or appropriate to effectuate the intent of this
Section 15.5 and to avoid unjust or inequitable results as determined in
good faith by the Board of Directors.
(3) "fair market value" shall mean the amount which a
willing buyer would pay a willing seller in an arm's length transaction.
(4) "Record Date" shall mean, with respect to any dividend,
distribution or other transaction or event in which the holders of Common
Stock have the right to receive any cash, securities or other property or
in which the Common Stock (or other applicable security) is exchanged for
or converted into any combination of cash, securities or other property,
the date fixed for determination of stockholders entitled to receive such
cash, securities or other property (whether such date is fixed by the Board
of Directors or by statute, contract or otherwise).
(5) "Trading Day" shall mean (x) if the applicable security
is listed or admitted for trading on the New York Stock Exchange or another
national security exchange, a day on which the New York Stock Exchange or
another national security exchange is open for business or (y) if the
applicable security is quoted on the Nasdaq National Market, a day on which
trades may be made thereon or (z) if the applicable security is not so
listed, admitted for trading or quoted, any day other than a Saturday or
Sunday or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
(h) The Company may make such reductions in the Conversion
Price, in addition to those required by Sections 15.5(a), (b), (c), (d), (e) and
(f), as the Board of Directors considers to be advisable to avoid or diminish
any income tax to holders of Common Stock or rights to purchase Common stock
resulting from any dividend or distribution of stock (or rights to acquire
stock) or from any event treated as such for income tax purposes.
To the extent permitted by applicable law, the Company from time to
time may reduce the Conversion Price by any amount for any period of time if the
period is at least twenty (20) days, the reduction is irrevocable during the
period and the Board of Directors shall have made a determination that such
reduction would be in the best interests of the Company, which determination
shall be conclusive and described in a Board Resolution. Whenever the
Conversion Price is reduced pursuant to the preceding sentence, the Company
shall mail to the holder of each Note at his last address appearing on the Note
register provided for in Section 2.5 a notice of the reduction at least fifteen
(15) days prior to the date the reduced Conversion Price takes effect, and such
notice shall state the reduced Conversion Price and the period during which it
will be in effect.
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(i) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
such price; PROVIDED, HOWEVER, that any adjustments which by reason of this
Section 15.5(i) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this
Article XV shall be made by the Company and shall be made to the nearest cent or
to the nearest one hundredth of a share, as the case may be. No adjustment need
be made for a change in the par value or no par value of the Common Stock.
(j) Whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly file with the Trustee and any conversion
agent other than the Trustee an Officers' Certificate setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment. Promptly after delivery of such
certificate, the Company shall prepare a notice of such adjustment of the
Conversion Price setting forth the adjusted Conversion Price and the date on
which each adjustment becomes effective and shall mail such notice of such
adjustment of the Conversion Price to the holder of each Note at his last
address appearing on the Note register provided for in Section 2.5, within
twenty (20) days of the effective date of such adjustment. Failure to deliver
such notice shall not effect the legality or validity of any such adjustment.
(k) In any case in which this Section 15.5 provides that an
adjustment shall become effective immediately after a Record Date for an event,
the Company may defer until the occurrence of such event (i) issuing to the
holder of any Note converted after such Record Date and before the occurrence of
such event the additional shares of Common Stock issuable upon such conversion
by reason of the adjustment required by such event over and above the Common
Stock issuable upon such conversion before giving effect to such adjustment and
(ii) paying to such holder any amount in cash in lieu of any fraction pursuant
to Section 15.3.
(l) For purposes of this Section 15.5, the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Company but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock. The Company
will not pay any dividend or make any distribution on shares of Common Stock
held in the treasury of the Company.
(m) In lieu of making any adjustment to the Conversion Price
pursuant to Section 15.5(e), the Company may elect to reserve an amount of cash
for distribution to the holders of the Notes upon the conversion of the Notes so
that any such holder converting Notes will receive upon such conversion, in
addition to the shares of Common Stock and other items to which such holder is
entitled, the full amount of cash which such holder would have received if such
holder had, immediately prior to the Record Date for such distribution of cash,
converted its Notes into Common Stock, together with any interest accrued with
respect to such amount, in accordance with this Section 15.5(m). The Company
may make such election by providing an Officers' Certificate to the Trustee to
such effect on or prior to the payment date for any such distribution and
depositing with the Trustee on or prior to such date an amount of cash equal to
the aggregate amount the holders of the Notes would have received if such
holders had, immediately prior to the Record Date for such distribution,
converted all of the Notes into Common Stock.
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Any such funds so deposited by the Company with the Trustee shall be invested
upon written direction from the Company by the Trustee in marketable
obligations issued or fully guaranteed by the United States government with a
maturity not more than three (3) months from the date of issuance. Upon
conversion of Notes by a holder, the holder will be entitled to receive, in
addition to the Common Stock issuable upon conversion, an amount of cash
equal to the amount such holder would have received if such holder had,
immediately prior to the Record Date for such distribution, converted its
Notes into
Common Stock, along with such holder's pro rata share of any accrued interest
earned as a consequence of the investment of such funds. Promptly after making
an election pursuant to this Section 15.5(m), the Company shall give or shall
cause to be given notice to all Noteholders of such election, which notice shall
state the amount of cash per $1,000 principal amount of Notes such holders shall
be entitled to receive (excluding interest) upon conversion of the Notes as a
consequence of the Company having made such election.
(n) Notwithstanding any other provision of this Section 15.5 to
the contrary, rights, warrants, evidences of indebtedness, other securities,
cash or other assets (including, without limitation, any rights distributed
pursuant to any stockholder rights plan) distributed to the Company's
stockholders after March 4, 1999 shall be deemed not to have been distributed
for purposes of this Section 15.5 if (a) the Company makes proper provision so
that each holder of Notes who converts a Note (or any portion thereof) after the
date fixed for determination of stockholders entitled to receive such
distribution shall be entitled to receive upon such conversion, in addition to
the shares of Common Stock issuable upon such conversion, the amount and kind of
such distribution that such holder would have been entitled to receive if such
holder had, immediately prior to such determination date, converted such Note
into Common Stock and (b) the Company shall have given written notice of such
distribution and of its intent to make such provision, and not to make any
adjustment to the Conversion Price with respect to such distribution, at least
ten Business Days prior to the record date for such distribution.
Section 15.6 EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any of the following events occur, namely (i) any reclassification or
change of the outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination to which Section 15.5(c) applies),
(ii) any consolidation, merger or combination of the Company with another
corporation as a result of which holders of Common Stock shall be entitled to
receive stock, securities or other property or assets (including cash) with
respect to or in exchange for such Common Stock, or (iii) any sale or conveyance
of the properties and assets of the Company as, or substantially as, an entirety
to any other corporation as a result of which holders of Common Stock shall be
entitled to receive stock, securities or other property or assets (including
cash) with respect to or in exchange for such Common Stock, then the Company or
the successor or purchasing corporation, as the case may be, shall execute with
the Trustee a supplemental indenture (which shall comply with the Trust
Indenture Act as in force at the date of execution of such supplemental
indenture if such supplemental indenture is then required to so comply)
providing that such Note shall be convertible into the kind and amount of shares
of stock and other securities or property or assets (including cash) receivable
upon such reclassification, change, consolidation, merger, combination, sale or
conveyance by a holder of a number of shares of Common Stock issuable upon
conversion of such Notes (assuming, for such purposes, a sufficient number of
authorized
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shares of Common Stock available to convert all such Notes) immediately prior to
such reclassification, change, consolidation, merger, combination, sale or
conveyance assuming such holder of Common Stock did not exercise his rights of
election, if any, as to the kind or amount of securities, cash or other property
receivable upon such consolidation, merger, statutory exchange, sale or
conveyance (provided that, if the kind or amount of securities, cash or other
property receivable upon such consolidation, merger, statutory exchange, sale or
conveyance is not the same for each share of Common Stock in respect of which
such rights of election shall not have been exercised ("non-electing share"),
then for the purposes of this Section 15.6 the kind and amount of securities,
cash or other property receivable upon such consolidation, merger, statutory
exchange, sale or conveyance for each non-electing share shall be deemed to be
the kind and amount so receivable per share by a plurality of the non-electing
shares). Such supplemental indenture shall provide for adjustments which shall
be as nearly equivalent as may be practicable to the adjustments provided for in
this Article. If, in the case of any such reclassification, change,
consolidation, merger, combination, sale or conveyance, the stock or other
securities and assets receivable thereupon by a holder of shares of Common Stock
includes shares of stock or other securities and assets of a corporation other
than the successor or purchasing corporation, as the case may be, in such
reclassification, change, consolidation, merger, combination, sale or
conveyance, then such supplemental indenture shall also be executed by such
other corporation and shall contain such additional provisions to protect the
interests of the holders of the Notes as the Board of Directors shall reasonably
consider necessary by reason of the foregoing, including to the extent
practicable the provisions providing for the repurchase rights set forth in
Article XVI herein.
The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each holder of Notes, at his address appearing on the
Note register provided for in Section 2.5 of this Indenture, within twenty (20)
days after execution thereof. Failure to deliver such notice shall not affect
the legality or validity of such supplemental indenture.
The above provisions of this Section shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances.
If this Section 15.6 applies to any event or occurrence, Section 15.5
shall not apply.
Section 15.7 TAXES ON SHARES ISSUED. The issue of stock certificates
on conversions of Notes shall be made without charge to the converting
Noteholder for any tax in respect of the issue thereof. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of stock in any name other than that
of the holder of any Note converted, and the Company shall not be required to
issue or deliver any such stock certificate unless and until the person or
persons requesting the issue thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the Company that
such tax has been paid.
Section 15.8 RESERVATION OF SHARES; SHARES TO BE FULLY PAID; LISTING
OF COMMON STOCK. The Company shall provide, free from preemptive rights, out of
its authorized but
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unissued shares or shares held in treasury, sufficient shares to provide for the
conversion of the Notes from time to time as such Notes are presented for
conversion.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the shares of Common Stock
issuable upon conversion of the Notes, the Company will take all corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue shares of such Common Stock at such
adjusted Conversion Price.
The Company covenants that all shares of Common Stock issued upon
conversion of Notes will be fully paid and non-assessable by the Company and
free from all taxes, liens and charges with respect to the issue thereof.
The Company covenants that if any shares of Common Stock to be
provided for the purpose of conversion of Notes hereunder require registration
with or approval of any governmental authority under any federal or state law
before such shares may be validly issued upon conversion, the Company will in
good faith and as expeditiously as possible endeavor to secure such registration
or approval, as the case may be. The Company further covenants that if at any
time the Common Stock shall be listed on the Nasdaq National Market or any other
national securities exchange or automated quotation system the Company will, if
permitted by the rules of such exchange or automated quotation system, list and
keep listed, so long as the Common Stock shall be so listed on such exchange or
automated quotation system, all Common Stock issuable upon conversion of the
Notes.
Section 15.9 RESPONSIBILITY OF TRUSTEE. The Trustee and any other
conversion agent shall not at any time be under any duty or responsibility to
any holder of Notes to determine whether any facts exist which may require any
adjustment of the Conversion Price, or with respect to the nature or extent or
calculation of any such adjustment when made, or with respect to the method
employed, or herein or in any supplemental indenture provided to be employed, in
making the same. The Trustee and any other conversion agent shall not be
accountable with respect to the validity or value (or the kind or amount) of any
shares of Common Stock, or of any securities or property, which may at any time
be issued or delivered upon the conversion of any Note; and the Trustee and any
other conversion agent make no representations with respect thereto. Subject to
the provisions of Section 8.1, neither the Trustee nor any conversion agent
shall be responsible for any failure of the Company to issue, transfer or
deliver any shares of Common Stock or stock certificates or other securities or
property or cash upon the surrender of any note for the purpose of conversion or
to comply with any of the duties, responsibilities or covenants of the Company
contained in this Article. Without limiting the generality of the foregoing,
neither the Trustee nor any conversion agent shall be under any responsibility
to determine the correctness of any provisions contained in any supplemental
indenture entered into pursuant to Section 15.6 relating either to the kind or
amount of shares of stock or securities or property (including cash) receivable
by Noteholders upon the conversion of their Notes after any event referred to in
such Section 15.6 or to any adjustment to be made with respect thereto, but,
subject to the provisions of Section 8.1, may accept as conclusive evidence of
the correctness of any such provisions, and shall be
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protected in relying upon, the Officers' Certificate (which the Company shall be
obligated to file with the Trustee prior to the execution of any such
supplemental indenture) with respect thereto.
Section 15.10 NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS.
In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock that would require an adjustment in the
Conversion Price pursuant to Section 15.5; or
(b) the Company shall authorize the granting to all of the
holders of its Common Stock of rights or warrants to subscribe for or purchase
any share of any class or any other rights or warrants; or
(c) of any reclassification of the Common Stock of the Company
(other than a subdivision or combination of its outstanding Common Stock, or a
change in par value, or from par value to no par value, or from no par value to
par value), or of any consolidation or merger to which the Company is a party
and for which approval of any shareholders of the Company is required, or of the
sale or transfer of all or substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
the Company shall cause to be filed with the Trustee and to be mailed to each
holder of Notes at his address appearing on the Note register, provided for in
Section 2.5 of this Indenture, as promptly as possible but in any event at least
fifteen days prior to the applicable date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights are to be determined, or (y) the date
on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become effective or occur,
and the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of such
dividend, distribution, reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up.
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ARTICLE XVI
REPURCHASE UPON A DESIGNATED EVENT
Section 16.1 REPURCHASE RIGHT. If, at any time prior to March 1,
2006, there shall occur a Designated Event, then each Noteholder shall have the
right, at such holder's option, to require the Company to repurchase all of such
holder's Notes, or any portion thereof, in principal amounts of $100,000 or an
integral multiple of $1,000 in excess thereof (provided that no single Note may
be repurchased in part unless the portion of the principal amount of such Note
to be outstanding after such repurchase is equal to $100,000 or an integral
multiple of $1,000 in excess thereof) on the date (the "Repurchase Date") that
is 45 days after the date of the Company Notice (as defined in Section 16.2
below) of such Designated Event (or, if such 45th day is not a Business Day, the
next succeeding Business Day). Such repayment shall be made in cash at a price
equal to 101% of the principal amount of Notes such holder elects to require the
Company to repurchase plus interest accrued to, but excluding, the Repurchase
Date (the "Repurchase Price"); PROVIDED that if such Repurchase Date is a
February 15 or August 15 and on or before the next succeeding March 1 or
September 1, then the accrued interest payable on such March 1 or September 1,
respectively, shall be paid to the holder of record of the Note on such
February 15 or August 15, respectively. No Notes may be redeemed at the option
of holders upon a Designated Event if there has occurred and is continuing an
Event of Default, other than a default in the payment of the Repurchase Price
with respect to such Notes on the Repurchase Date.
Section 16.2 NOTICES; METHOD OF EXERCISING REPURCHASE RIGHT, ETC.
(a) Unless the Company shall have theretofore called for
redemption all of the outstanding Notes, on or before the thirtieth (30th)
calendar day after the occurrence of a Designated Event, the Company or, at the
request of the Company, the Trustee, shall mail to all holders a notice (the
"Company Notice") of the occurrence of the Designated Event and of the
repurchase right set forth herein arising as a result thereof. The Company
shall also deliver a copy of such notice of a repurchase right to the Trustee
and cause a copy of such notice of a repurchase right, or a summary of the
information contained therein, to be published in a newspaper of general
circulation in The City of New York. The Company Notice shall contain the
following information:
(1) the Repurchase Date,
(2) the date by which the repurchase right must be
exercised,
(3) the last date by which the election to require
repurchase, if submitted, must be revoked,
(4) the Repurchase Price,
(5) a description of the procedure which a holder must
follow to exercise a repurchase right,
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(6) the Conversion Price then in effect, the date on
which the right to convert the principal amount of the Notes to be
repurchased will terminate and the place or places where Notes may
be surrendered for conversion, and
(7) the place or places where such Notes are to be
surrendered for payment of the Repurchase Price.
No failure of the Company to give the foregoing notices or defect
therein shall limit any holder's right to exercise a repurchase right or affect
the validity of the proceedings for the repurchase of Notes.
If any of the foregoing provisions are inconsistent with applicable
law, such law shall govern.
(b) To exercise a repurchase right, a holder shall deliver to
the Trustee prior to the close of business on the 40th day after the date of the
Company Notice (i) written notice to the Company (or agent designated by the
Company for such purpose) of the holder's exercise of such right, which notice
shall set forth the name of the holder, the principal amount of the Notes to be
repurchased, a statement that an election to exercise the repurchase right is
being made thereby, and (ii) the Notes with respect to which the repurchase
right is being exercised, duly endorsed for transfer to the Company. Election
of repurchase by a holder shall be revocable at any time prior to the close of
business on the Repurchase Date, by delivering written notice to that effect to
the Trustee prior to the close of business on the Repurchase Date.
(c) If the Company fails to repurchase on the Repurchase Date
any Notes (or portions thereof) as to which the repurchase right has been
properly exercised, then the principal of such Notes shall, until paid, bear
interest to the extent permitted by applicable law from the Repurchase Date at
the rate borne by the Note and each such Note shall be convertible into Common
Stock in accordance with this Indenture (without giving effect to
Section 16.2(b)) until the principal of such Note shall have been paid or duly
provided for.
(d) Any Note which is to be repurchased only in part shall be
surrendered to the Trustee (with, if the Company or the Trustee so requires, the
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and deliver to the holder of such Note without service
charge, a new Note or Notes, containing identical terms and conditions, of any
authorized denomination as requested by such holder in aggregate principal
amount equal to and in exchange for the unrepurchased portion of the principal
of the Note so surrendered. In the event a holder shall request repurchase of a
Note only in part and such new Note or Notes would be in a principal amount of
less than $100,000, such holder shall be deemed to have elected to have
exercised such holder's right to have such Notes repurchased in whole and not in
part.
(e) On or prior to the Repurchase Date, the Company shall
deposit with the Trustee or with a paying agent (or, if the Company is acting as
its own paying agent, segregate
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and hold in trust as provided in Section 5.4) an amount of money sufficient to
pay the Repurchase Price of the Notes that are to be repaid on the Repurchase
Date; PROVIDED THAT if such payment is made on the Repurchase Date it must be
received by the Trustee or paying agent, as the case may be, by 10:00 a.m., New
York City time, on such date.
Section 16.3 CERTAIN DEFINITIONS. For purposes of this Article XVI:
(a) the term "beneficial owner" shall be determined in
accordance with Rule 13d-3 and 13d-5, as in effect on the date of the original
execution of this Indenture, promulgated by the Commission pursuant to the
Exchange Act;
(b) the term "person" or "group" shall include any syndicate or
group which would be deemed to be a "person" under Section 13(d)(3) and 14(d) of
the Exchange Act as in effect on the date of the original execution of this
Indenture; and
(c) the term "Continuing Director" means at any date a member of
the Company's Board of Directors (i) who was a member of such board on February
21, 1996 or (ii) who was nominated or elected by at least a majority of the
directors who were Continuing Directors at the time of such nomination or
election or whose election to the Company's Board of Directors was recommended
or endorsed by at least a majority of the directors who were Continuing
Directors at the time of such nomination or election.
(d) the term "Designated Event" means a Change in Control or a
Termination of Trading.
(e) the term "Change in Control" means an event or series of
events as a result of which (i) any person or group is or becomes the beneficial
owner of shares representing more than 50% of the combined voting power of the
then outstanding securities entitled to vote generally in elections of directors
of the Company (the "Voting Stock"), (ii) the Company consolidates with or
merges into any other corporation, or conveys, transfers or leases all or
substantially all of its assets to any person, or any other corporation merges
into the Company, and, in the case of any such transaction, the outstanding
common stock of the Company is changed or exchanged into other assets or
securities as a result, unless the stockholders of the Company immediately
before such transaction own, directly or indirectly immediately following such
transaction, at least 51% of the combined voting power of the outstanding voting
securities of the corporation resulting from such transaction in substantially
the same proportion as their ownership of the Voting Stock immediately before
such transaction, or (iii) any time Continuing Directors do not constitute a
majority of the Board of Directors of the Company (or, if applicable, a
successor corporation to the Company); provided that a Change in Control shall
not be deemed to have occurred if either (1) the last sale price of the Common
Stock for any five trading days during the ten trading days immediately
preceding the Change in Control is at least equal to 105% of the Conversion
Price in effect on such five trading days or (2) both (A) at least 90% of the
consideration (excluding cash payments for fractional shares) in the transaction
or transactions constituting the Change in Control consists of common stock or
securities convertible into common stock that are, or upon issuance will be,
traded on a United States national securities
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exchange or approved for trading on an established automated over-the-counter
trading market in the United States and (B) the last sale price of such common
stock for any five trading days during the ten trading days immediately
preceding the Change in Control is at least equal to 105% of the Conversion
Price in effect on such five trading days.
(f) "Termination of Trading" shall have occurred if the Common
Stock of the Company (or other common stock into which the Notes are then
convertible) is neither listed for trading on a United States national
securities exchange nor approved for trading on an established automated over-
the-counter trading market in the United States.
ARTICLE XVII
MISCELLANEOUS PROVISIONS
Section 17.1 PROVISIONS BINDING ON COMPANY'S SUCCESSORS. All the
covenants, stipulations, promises and agreements of the Company in this
Indenture contained shall bind its successors and assigns whether so expressed
or not.
Section 17.2 OFFICIAL ACTS BY SUCCESSOR CORPORATION. Any act or
proceeding by any provision of this Indenture authorized or required to be done
or performed by any board, committee or officer of the Company shall and may be
done and performed with like force and effect by the like board, committee or
officer of any corporation that shall at the time be the lawful sole successor
of the Company.
Section 17.3 ADDRESSES FOR NOTICES, ETC. Any notice or demand which
by any provision of this Indenture is required or permitted to be given or
served by the Trustee or by the holders of Notes on the Company shall be deemed
to have been sufficiently given or made, for all purposes if given or served by
being deposited postage prepaid by registered or certified mail in a post office
letter box addressed (until another address is filed by the Company with the
Trustee) to Richey Electronics, Inc., 3441 Lincoln Way, Garden Grove, California
92641, Attention: Chief Financial Officer. Any notice, direction, request or
demand hereunder to or upon the Trustee shall be deemed to have been
sufficiently given or made, for all purposes, if given or served by being
deposited postage prepaid by registered or certified mail in a post office
letter box addressed to the Corporate Trust Office.
The Trustee, by notice to the Company, may designate additional or
different addresses for subsequent notices or communications.
Any notice or communication mailed to a Noteholder shall be mailed to
him by first class mail, postage prepaid, at his address as it appears on the
Note register and shall be sufficiently given to him if so mailed within the
time prescribed.
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Failure to mail a notice or communication to a Noteholder or any
defect in it shall not affect its sufficiency with respect to other Noteholders.
If a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
Section 17.4 GOVERNING LAW. This Indenture and each Note shall be
deemed to be a contract made under the laws of New York, and for all purposes
shall be construed in accordance with the laws of New York, but without regard
to the principles of conflicts of law thereof.
Section 17.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT;
CERTIFICATES TO TRUSTEE. Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions of this Indenture, the
Company shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, and an Opinion of Counsel stating that,
in the opinion of such counsel, all such conditions precedent have been complied
with.
Each certificate or opinion provided for by or on behalf of the
Company in this Indenture and delivered to the Trustee with respect to
compliance with a condition or covenant provided for in this Indenture shall
include (1) a statement that the person making such certificate or opinion has
read such covenant or condition; (2) a brief statement as to the nature and
scope of the examination or investigation upon which the statement or opinion
contained in such certificate or opinion is based; (3) a statement that, in the
opinion of such person, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and (4) a statement as to whether
or not, in the opinion of such person, such condition or covenant has been
complied with.
Section 17.6 LEGAL HOLIDAYS. In any case where the date of maturity
of interest on or principal of the Notes or the date fixed for redemption of any
Note will not be a Business Day, then payment of such interest on or principal
of the Notes need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the date of
maturity or the date fixed for redemption, and no interest shall accrue for the
period from and after such date.
Section 17.7 NO SECURITY INTEREST CREATED. Nothing in this Indenture
or in the Notes, expressed or implied, shall be construed to constitute a
security interest under the Uniform Commercial Code or similar legislation, as
now or hereafter enacted and in effect, in any jurisdiction where property of
the Company or any Subsidiary thereof is located.
Section 17.8 TRUST INDENTURE ACT. This Indenture is hereby made
subject to, and shall be governed by, the provisions of the Trust Indenture Act
required to be part of and to govern indentures qualified under the Trust
Indenture Act; PROVIDED, HOWEVER, that, unless otherwise required by law,
notwithstanding the foregoing, this Indenture and the Notes issued hereunder
shall not be subject to the provisions of subsections (a)(1), (a)(2), and (a)(3)
of Section 314 of the Trust Indenture Act as now in effect or as hereafter
amended or modified;
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PROVIDED FURTHER that this Section 17.8 shall not require that this Indenture or
the Trustee be qualified under the Trust Indenture Act prior to the time such
qualification is in fact required under the terms of the Trust Indenture Act,
nor shall it constitute any admission or acknowledgment by any party hereto that
any such qualification is required prior to the time such qualification is in
fact required under the terms of the Trust Indenture Act. If any provision
hereof limits, qualifies or conflicts with another provision hereof which is
required to be included in an indenture qualified under the Trust Indenture Act,
such required provision shall control.
Section 17.9 BENEFITS OF INDENTURE. Nothing in this Indenture or in
the Notes, expressed or implied, shall give to any person, other than the
parties hereto, any paying agent, any authenticating agent, any Note registrar
and their successors hereunder, the holders of Notes and, with respect to
Article IV, the holders of Senior Indebtedness, any benefit or any legal or
equitable right, remedy or claim under this Indenture.
Section 17.10 TABLE OF CONTENTS, HEADINGS, ETC. The table of
contents and the titles and headings of the articles and sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof, and shall in no way modify or restrict any of the
terms or provisions hereof.
Section 17.11 AUTHENTICATING AGENT. The Trustee may appoint an
authenticating agent acceptable to the Company which shall be authorized to act
on its behalf and subject to its direction in the authentication and delivery of
Notes in connection with the original issuance thereof and transfers and
exchanges of Notes hereunder, including under Sections 2.4, 2.5, 2.6, 2.7, 3.3,
15.2 and 16.2(d) as fully to all intents and purposes as though the
authenticating agent had been expressly authorized by this Indenture and those
Sections to authenticate and deliver Notes. For all purposes of this Indenture,
the authentication and delivery of Notes by the authenticating agent shall be
deemed to be authentication and delivery of such Notes "by the Trustee" and a
certificate of authentication executed on behalf of the Trustee by an
authenticating agent shall be deemed to satisfy any requirement hereunder or in
the Notes for the Trustee's certificate of authentication. Such authenticating
agent shall at all times be a person eligible to serve as trustee hereunder
pursuant to Section 8.9.
Any corporation into which any authenticating agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any authenticating agent
shall be a party, or any corporation succeeding to substantially all of the
corporate trust business of any authenticating agent, shall be the successor of
the authenticating agent hereunder, if such successor corporation is otherwise
eligible under this Section, without the execution or filing of any paper or any
further act on the part of the parties hereto or the authenticating agent or
such successor corporation.
Any authenticating agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at any
time terminate the agency of any authenticating agent by giving written notice
of termination to such authenticating agent and to the Company. Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
any authenticating agent shall cease to be eligible under this Section, the
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Trustee shall promptly appoint a successor authenticating agent (which may be
the Trustee or other person acceptable to the Company), shall give written
notice of such appointment to the Company and shall mail notice of such
appointment to all holders of Notes as the names and addresses of such holders
appear on the Note register.
The Trustee agrees to pay to the authenticating agent from time to
time reasonable compensation for its services (to the extent pre-approved by the
Company in writing), and the Trustee shall be entitled to be reimbursed for such
pre-approved payments, subject to Section 8.6.
The provisions of Sections 8.2, 8.3, 8.4, 9.3 and this Section 17.11
shall be applicable to any authenticating agent.
Section 17.12 EXECUTION IN COUNTERPARTS. This Indenture may be
executed in any number of counterparts, each of which shall be an original, but
such counterparts shall together constitute but one and the same instrument.
Section 17.13 SEPARABILITY. In case any provisions in this Indenture
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
First Trust of California, National Association hereby accepts the
trusts in this Indenture declared and provided, upon the terms and conditions
hereinabove set forth.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly signed, and their respective corporate seals to be hereunto affixed and
attested, all as of the date first written above.
RICHEY ELECTRONICS, INC.
By:
Name:
Title:
Attest:
FIRST TRUST OF CALIFORNIA, NATIONAL
ASSOCIATION, as Trustee
By:
Name:
Title:
Attest:
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EXHIBIT A - FORM OF NOTE
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND MAY
NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR
(B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1),
(2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR")
OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN
OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER THE
ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY RESELL OR OTHERWISE TRANSFER THE
NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE
EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED
STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED
INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO FIRST TRUST OF CALIFORNIA,
NATIONAL ASSOCIATION, AS TRUSTEE, A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE
NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH
TRUSTEE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY
IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE) A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF
THE NOTE EVIDENCED HEREBY WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THE
NOTE (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE), THE HOLDER MUST
CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER
OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO FIRST
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TRUST OF CALIFORNIA, NATIONAL ASSOCIATION, AS TRUSTEE. IF THE PROPOSED TRANSFER
IS PURSUANT TO CLAUSE 2(C) OR 2(E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION, AS
TRUSTEE, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY
MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO
AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE
EARLIER OF THE TRANSFER OF THE NOTE EVIDENCED HEREBY PURSUANT TO CLAUSE 2(F)
ABOVE OR THE EXPIRATION OF THREE YEARS FROM THE ORIGINAL ISSUANCE OF THE NOTE
EVIDENCED HEREBY. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED
STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER
THE SECURITIES ACT.
RICHEY ELECTRONICS, INC.
7% Convertible Subordinated Note Due 2006
R-4 CUSIP 763302 AA 4
RICHEY ELECTRONICS, INC., a corporation duly organized and validly
existing under the laws of the State of Delaware (herein called the "Company",
which term includes any successor corporation under the Indenture referred to on
the reverse hereof), for value received, hereby promises to pay to CEDE & CO.,
or registered assigns, the principal sum of FORTY-NINE MILLION FOUR HUNDRED
THOUSAND Dollars on March 1, 2006, and to pay interest on said principal sum
semi-annually on March 1 and September 1 of each year, commencing September 1,
1996, at the rate per annum specified in the title of this Note, accrued from
the March 1, or September 1, as the case may be, next preceding the date of this
Note to which interest has been paid or duly provided for, unless the date of
this Note is a date to which interest has been paid or duly provided for, in
which case interest shall accrue from the date of this Note, or unless no
interest has been paid or duly provided for on this Note, in which case interest
shall accrue from February 26, 1996, until payment of said principal sum has
been made or duly provided for. Notwithstanding the foregoing, if the date
hereof is after any February 15 or August 15, as the case may be, and before the
following March 1 or September 1, this Note shall bear interest from such March
1 or September 1, respectively; PROVIDED, HOWEVER, that if the Company shall
default in the payment of interest due on such March 1 or September 1, then this
Note shall bear interest from the next preceding September 1 or March 1 to which
interest has been paid or duly provided for or, if no interest has been paid or
duly provided for on this Note, from February 26, 1996. The interest so payable
on any March 1 or September 1 will be paid to the person in whose name this Note
(or one or more Predecessor Notes) is registered at the close of business on the
record date, which shall be the February 15 or
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<PAGE>
August 15 (whether or not a Business Day) next preceding such March 1 or
September 1, respectively; PROVIDED THAT any such interest not punctually paid
or duly provided for shall be payable as provided in the Indenture. Payment of
the principal of and interest accrued on this Note shall be made at the office
or agency of the Company maintained at the Corporate Trust Office, in such coin
or currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts; PROVIDED, HOWEVER,
that at the option of the Company, payment of interest may be made by check
mailed to the registered address of the person entitled thereto, unless this
Note is issued in global form, in which case such payment shall be made by wire
transfer of immediately available funds.
Reference is made to the other provisions of this Note set forth on
the reverse hereof, including, without limitation, provisions subordinating the
payment of principal of and premium, if any, and interest on this Note to the
prior payment in full of all Senior Indebtedness as defined in the Indenture and
provisions giving the holder of this Note the right to convert this Note into
Common Stock of the Company on the terms and subject to the limitations referred
to on the reverse hereof and as more fully specified in the Indenture. Such
further provisions shall for all purposes have the same effect as though fully
set forth at this place.
This Note shall be deemed to be a contract made under the laws of the
State of New York, and for all purposes shall be construed in accordance with
and governed by the laws of said State, but without reference to the principles
of conflict of laws thereof.
This Note shall not be valid or become obligatory for any purpose
until the certificate of authentication hereon shall have been manually signed
by the Trustee or a duly authorized authenticating agent under the Indenture.
A-3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed under its corporate seal.
RICHEY ELECTRONICS, INC.
Dated: By:
President
Attest:
Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes described in the within-named Indenture.
FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION,
as Trustee
By:
---------------------
Authorized Signatory
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<PAGE>
RICHEY ELECTRONICS, INC.
7% Convertible Subordinated Note Due 2006
This Note is one of a duly authorized issue of Notes of the Company,
designated as its 7% Convertible Subordinated Notes due 2006 (herein called the
"Notes"), limited to the aggregate principal amount of $57,500,000, all issued
or to be issued under and pursuant to an Indenture dated as of February 15, 1996
(herein called the "Indenture"), between the Company and First Trust of
California, National Association (herein called the "Trustee"), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the holders of the Notes.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of and accrued interest on all Notes
may be declared, and upon said declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority of the
aggregate principal amount of the Notes at the time outstanding, evidenced as in
the Indenture provided, to execute supplemental indentures adding any provisions
to or changing in any manner or eliminating any of the provisions of the
Indenture or of any supplemental indenture or modifying in any manner the rights
of the holders of the Notes; PROVIDED, HOWEVER, that no such supplemental
indenture shall (a)(i) change the stated maturity date of the principal of, or
any installment of interest on, any Note, (ii) reduce the principal amount of,
or the rate of interest on, or any premium payable on, any Note, whether upon
acceleration, redemption or otherwise, (iii) change the place or currency for
payment of principal of, or premium or interest on, any Note, (iv) impair the
right to institute suit for the enforcement of any such payment when due,
(v) adversely affect the right provided in the Indenture to convert any Note,
(vi) modify the provisions of the Indenture with respect to the subordination of
the Notes in a manner adverse to the holders, (vii) modify the provisions
relating to the Repurchase Right of the holders in a manner adverse to the
holders, (viii) reduce the percentage of principal amount of outstanding Notes
necessary to modify or amend the Indenture or to consent to any waiver provided
for in the Indenture, or (ix) modify the obligation of the Company to deliver
information required under Rule 144A to permit resales of
A-5
<PAGE>
Notes and Common Stock issuable upon conversion thereof in the event the Company
ceases to be subject to certain reporting requirements under the United States
securities laws, or (b) reduce the aforesaid percentage of Notes, the holders of
which are required to consent to any such supplemental indenture, without the
consent of the holders of all Notes then outstanding. It is also provided in
the Indenture that the holders of a majority in aggregate principal amount of
the Notes at the time outstanding may on behalf of the holders of all of the
Notes waive any past default or Event of Default under the Indenture and its
consequences except a default in the payment of interest or any premium on or
the principal of or any redemption price or repurchase price of any of the Notes
or a failure by the Company to convert any Notes into Common Stock of the
Company or a default in respect of a provision of the Indenture which cannot be
modified or amended without the consent of the holders of all Notes then
outstanding. Any such consent or waiver by the holder of this Note (unless
revoked as provided in the Indenture) shall be conclusive and binding upon such
holder and upon all future holders and owners of this Note and any Notes which
may be issued in exchange or substitution hereof, irrespective of whether or not
any notation thereof is made upon this Note or such other Notes.
The indebtedness evidenced by the Notes is, to the extent and in the
manner provided in the Indenture, expressly subordinate and subject in right of
payment to the prior payment in full of all Senior Indebtedness of the Company,
as defined in the Indenture, whether outstanding at the date of the Indenture or
thereafter incurred, and this Note is issued subject to the provisions of the
Indenture with respect to such subordination. Each holder of this Note, by
accepting the same, agrees to and shall be bound by such provisions and
authorizes the Trustee on his or her behalf to take such action as may be
necessary or appropriate to effectuate the subordination so provided and
appoints the Trustee attorney-in-fact for such purpose.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Note at the place, at the respective times, at the rate and in the coin
or currency herein prescribed.
Interest on the Notes shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
The Notes are issuable in registered form without coupons in
denominations of $100,000 principal amount or any integral multiple of $1,000 in
excess thereof. At the office or agency of the Company referred to on the face
hereof, and in the manner and subject to the limitations provided in the
Indenture,
A-6
<PAGE>
without payment of any service charge but with payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any registration of exchange of Notes, Notes may be exchanged for a like
aggregate principal amount of Notes of other authorized denominations.
The Notes will not be redeemable at the option of the Company prior to
March 4, 1999. On or after such date and prior to maturity, the Notes may be
redeemed at the option of the Company as a whole, or from time to time in part,
upon mailing a notice of such redemption by first class mail not less than 20
nor more than 60 days before the date fixed for redemption to the holders of
Notes at their last registered addresses, all as provided in the Indenture, at
the following redemption prices (expressed as percentages of the principal
amount).
If redeemed during the 12-month period beginning March 1 of the
following years:
<TABLE>
<CAPTION>
Year Percentage Year Percentage
- ---- ---------- ---- ----------
<S> <C> <S> <C>
1999 . . . . . . . 103.5 % 2003 . . . . . . . 101.5%
2000 . . . . . . . 103.0 2004 . . . . . . . 101.0
2001 . . . . . . . 102.5 2005 . . . . . . . 100.5
2002 . . . . . . . 102.0
</TABLE>
and 100% at March 1, 2006; in each case together with accrued interest to the
date of redemption; provided that if the date fixed for redemption shall be a
date after a record date and before the related interest payment date, then
such accrued interest shall be payable to the holders of record on such record
date.
The Notes are not subject to redemption through the operation of any
sinking fund.
Upon the occurrence of a "Designated Event" prior to March 1, 2006,
the Noteholder has the right, at such holder's option, to require the Company to
repurchase all or any portion of such holder's Notes on the date that is forty-
five (45) days after the date of the notice of such Designated Event referred to
below at a price equal to 101% of the principal amount of the Notes, together in
each case with accrued interest to the date fixed for redemption. The Company
shall mail to all holders of record of the Notes a notice of the occurrence of a
Designated Event and of the repurchase right arising as a result thereof on or
before thirty (30) calendar days after the occurrence of such Designated Event
provided that if the date fixed for redemption shall be a date after a record
date and before the related
A-7
<PAGE>
interest payment date, then such accrued interest shall be payable to the holder
of record on such record date.
Subject to the provisions of the Indenture, the holder hereof has the
right, at its option, at any time after 60 days following the latest date of
original issuance of the Notes and prior to the close of business on March 1,
2006, or, as to all or any portion hereof called for redemption, prior to the
close of business on the Business Day next preceding the date fixed for
redemption (unless the Company shall default in payment due upon redemption), to
convert the principal hereof or any portion of such principal which is $1,000 or
an integral multiple thereof, into that number of fully paid and non-assessable
shares of Company's Common Stock, as said shares shall be constituted at the
date of conversion, obtained by dividing the principal amount of this Note or
portion thereof to be converted by the conversion price of $14.125 or such
conversion price as adjusted from time to time as provided in the Indenture,
upon surrender of this Note, together with a conversion notice as provided in
the Indenture and this Note, to the Company at the office or agency of the
Company maintained for that purpose in The City of New York, and, unless the
shares issuable on conversion are to be issued in the same name as this Note,
duly endorsed by, or accompanied by instruments of transfer in form satisfactory
to the Company duly executed by, the holder or by his duly authorized attorney.
No adjustment in respect of interest or dividends will be made upon any
conversion; PROVIDED, HOWEVER, that if this Note shall be surrendered for
conversion during the period from the close of business on any record date for
the payment of interest through the close of business on the Business Day next
preceding the following interest payment date, this Note (unless it or the
portion being converted shall have been called for redemption during the period
from the close of business on any record date through the close of business on
the day that is prior to the date two Trading Days after the following interest
payment date) must be accompanied by an amount, in funds acceptable to the
Company, equal to the interest otherwise payable on such interest payment date
on the principal amount being converted; and PROVIDED FURTHER, that no such
payment need be made if there shall exist at the time of conversion a default in
the payment of interest on the Notes. No fractional shares of Common Stock will
be issued upon any conversion, but an adjustment in cash will be paid to the
holder, as provided in the Indenture, in respect of any fraction of a share
which would otherwise be issuable upon the surrender of any Note or Notes for
conversion.
Upon due presentment for registration of transfer of this Note at the
office or agency of Company in The City of New York, a new Note or Notes of
authorized denominations for equal aggregate principal amount will be issued to
the transferee in exchange thereof, subject to the limitations provided in the
A-8
<PAGE>
Indenture, without charge except for any tax or other governmental charge
imposed in connection therewith.
The Company, the Trustee, any authenticating agent, any paying agent,
any conversion agent and any Note registrar may deem and treat the registered
holder hereof as the absolute owner of this Note (whether or not this Note shall
be overdue and notwithstanding any notation of ownership or other writing hereon
made by anyone other than the Company or any Note registrar), for the purpose of
receiving payment hereof, or on account hereof, for the conversion hereof and
for all other purposes, and neither the Company nor the Trustee nor any other
authenticating agent nor any paying agent, nor any other conversion agent nor
any Note registrar shall be affected by any notice to the contrary. All
payments made to or upon the order of such registered holder shall, to the
extent of the sum or sums paid, satisfy and discharge liability for monies
payable on this Note.
No recourse for the payment of the principal of or any premium or
interest on this Note, or for any claim based hereon or otherwise in respect
hereof, and no recourse under or upon any obligation, covenant or agreement of
the Company in the Indenture or any indenture supplemental thereto or in any
Note, or because of the creation of any indebtedness represented thereby, shall
be had against any incorporator, stockholder, employee, agent, officer, director
or subsidiary, as such, past, present or future, of the Company or of any
successor corporation, either directly or through the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law or by
the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
Terms used in this Note and defined in the Indenture are used herein
as therein defined.
A-9
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face
of this Note, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - __________ Custodian
TEN ENT - as tenants by the (Cust) (Minor)
entireties under Uniform Gifts to Minors Act
JT TEN - as joint tenants with
right of survivorship (State)
and not as tenants in
common
Additional abbreviations may also be used
though not in the above list.
A-10
<PAGE>
CONVERSION NOTICE
To: Richey Electronics, Inc.
The undersigned registered owner of this Note hereby irrevocably
exercises the option to convert this Note, or the portion hereof (which is
$1,000 principal amount or an integral multiple thereof) below designated, into
shares of Common Stock in accordance with the terms of the Indenture referred to
in this Note, and directs that the shares issuable and deliverable upon such
conversion, together with any check in payment for fractional shares and any
Notes representing any unconverted principal amount hereof, be issued and
delivered to the registered holder hereof unless a different name has been
indicated below. If shares or any portion of this Note not converted are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto. Any amount required to be
paid to the Company on account of interest accompanies this Note.
Dated:
---------------------
-----------------------------
------------------------------
Signature(s)
Signature(s) must be guaranteed by
an eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit
unions) with membership in an approved signature
guarantee medallion program pursuant to Securities
and Exchange Commission Rule 17Ad-15 if shares of
Common Stock are to be issued, or Notes to be
delivered, other than to and in the name of the
registered holder.
----------------------------------
Signature Guarantee
A-11
<PAGE>
Fill in for registration of shares if to be issued, and Notes if to be
delivered, other than to and in the name of the registered holder:
-----------------------------------
(Name)
-----------------------------------
(Street Address)
-----------------------------------
(City, State and Zip Code)
Please print name and address
Principal amount to be converted
(if less than all): $_______,000
--------------------------------
Social Security or Other Taxpayer
Identification Number
A-12
<PAGE>
OPTION TO ELECT REPURCHASE UPON A DESIGNATED EVENT
To: Richey Electronics, Inc.
The undersigned registered owner of this Note hereby acknowledges
receipt of a notice from Richey Electronics, Inc. (the "Company") as to the
occurrence of a Designated Event with respect to the Company and requests and
instructs the Company to repay the entire principal amount of this Note, or the
portion thereof (which is $1,000 principal amount or an integral multiple
thereof) below designated, in accordance with the terms of the Indenture
referred to in this Note.
Dated:
----------------------
--------------------------------
--------------------------------
Signature(s)
NOTICE: The above signatures of the holder(s)
hereof must correspond with the name as written
upon the face of the Note in every particular
without alteration or enlargement or any change
whatsoever.
Principal amount to be repaid
(if less than all): $_______,000
---------------------------------
Social Security or Other Taxpayer
Identification Number
A-13
<PAGE>
ASSIGNMENT
For value received __________________________ hereby sell(s),
assign(s) and transfer(s) unto ___________________ (Please insert social
security or Taxpayer Identification Number of assignee) the within Note, and
hereby irrevocably constitutes and appoints ________________ attorney to
transfer the said Note on the books of tide Company, with full power of
substitution in the premises.
In connection with any transfer of the within Note occurring within
three years of the original issuance of such Note (unless such Note is being
transferred pursuant to a registration statement that has been declared
effective under the Securities Act), the undersigned confirms that such Note is
being transferred:
/ / To Richey Electronics, Inc. or a subsidiary thereof; or
/ / Pursuant to and in compliance with Rule 144A under the
Securities Act of 1933, as amended; or
/ / To an Institutional Accredited Investor pursuant to and in
compliance with the Securities Act of 1933, as amended; or
/ / Pursuant to and in compliance with Regulation S under the
Securities Act of 1933, as amended; or
/ / Pursuant to and in compliance with Rule 144 under the
Securities Act of 1933, as amended;
and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):
A-14
<PAGE>
/ / The transferee is an Affiliate of the Company.
Dated:
-----------------------
----------------------------
----------------------------
Signature(s)
Signature(s) must be guaranteed by an eligible
Guarantor Institution (banks, stock brokers,
savings and loan associations and credit unions)
with membership in an approved signature guarantee
medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15 if shares of
Common Stock are to be issued, or Notes to be
delivered, other than to and in the name of the
required holder.
---------------------------------
Signature Guarantee
NOTICE: The signature on the conversion notice, the option to elect repurchase
upon a Designated Event or the assignment must correspond with the name as
written upon the face of the Note in every particular without alteration or
enlargement or any change whatsoever.
A-15
<PAGE>
Exhibit 10.24
THIS LEASE AGREEMENT made this 10th day of August, 1994, by and
between Michael A. Howland and Lorraine K. Howland, as Trustees of Hownat Trust
under Declaration of Trust dated March 31, 1993 and recorded in the Middlesex
South District Registry of Deeds in Book 23039, Page 350, having a principal
place of business at 155 West Street, Wilmington, Massachusetts 01887
(hereinafter with their successors and assigns called the "Lessor") and Deanco,
Inc., a New York corporation, having an office c/o Schaal Division, 87 Terrace
Hall Avenue, Burlington, Massachusetts 01803 (hereinafter with its successors
and permitted assigns called the "Lessee").
WITNESSETH:
ARTICLE I
PREMISES
Section 1. In consideration of the rents and covenants herein
contained on the part of the Lessee to be paid, performed and observed, the
Lessor hereby leases to the Lessee and the Lessee hereby leases from the Lessor
subject to the terms and provisions hereinafter set forth, certain premises
(hereinafter called the "demised premises") consisting of approximately 60,200
square feet of floor area in the building (the "Building") thereon and situated
at 87 CONCORD STREET, NORTH READING, MASSACHUSETTS on the land described in
Exhibit A attached hereto (the "Land"), a copy of a plan of the demised premises
being attached hereto as Exhibit B; together with the exclusive right to use the
common areas of the Building, the parking areas on the Land as same may exist
from time to time, for parking purposes only, and the driveways and walkways on
the Land, as same may exist from time to time, for roadway and walkway purposes
only.
Section 2. The demised premises are leased subject to the
reservation to the Lessor of the roof and exterior walls of the demised premises
and of the Building, and subject to the Lessor's reservation of the right
(without thereby assuming the obligation) to install, maintain, use, repair and
replace (in such manner as to reduce to a minimum to the extent reasonably
practicable the interference with Lessee's use of the demised premises) all
pipes, ducts, wires, meters, utility lines and the like which are in the
judgment of the Lessor, required to be in the demised premises. The Lessor
reserves the right to alter, reduce, increase and relocate such parking areas,
driveways and walkways from time to time and any common facilities within the
Building. The Lessor reserves the right to make additions to the Building and
to erect additional buildings and structures on the Land provided Lessee
approves of such additions and provided further that such additions do not
increase the costs to Tenant under this Lease and provided further that the
construction of same will not interfere with use of the demised premises.
<PAGE>
ARTICLE II
TERM AND COMMENCEMENT
Section 1. TO HAVE AND TO HOLD the demised premises for the
original term of ten (10) years and two and one half (2 1/2) months from October
15, 1994 (the "Commencement Date") and expiring on December 31, 2004 (the
"Original Term") unless sooner terminated as herein provided.
ARTICLE III
RENT
Section 1. YIELDING AND PAYING an annual base rent during the
Original Term hereof in the amounts set forth in the Rider (the "Rider")
attached hereto and incorporated herein by reference thereto ("annual base
rent"). All such rent including the annual base rent as it may be adjusted
together with any such sum or amount hereunder designated as additional rent
shall be paid as and when same shall become due without offset, deduction or
demand. All such rent shall be payable in advance on the first day of each
calendar month during the term hereof commencing on the Commencement Date. If
the Commencement Date is other than the first day of a calendar month, annual
base rent for the first incomplete month, prorated at the rate set forth above,
shall be paid on the Commencement Date.
Section 2. INTENTIONALLY DELETED.
Section 3. Except as provided in the Rider, the Lessee shall
pay, as additional rent hereunder, during the Original Term hereof and any
extension or renewal thereof, Lessee's Pro Rata Share (as defined in Article XX
hereof) of any and all real estate taxes and betterments and other assessments
(ordinary and extraordinary), water rents, sewer and other charges which shall
be imposed, assessed or levied upon the Building and the Land. In addition, the
Lessee shall pay one hundred (100%) percent of real estate taxes, betterments
and other assessments due to any alterations or Improvements made by the Lessee
to the demised premises. The Lessee shall pay such additional rent to the
Lessor upon presentation of the applicable tax bills, together with computations
showing Lessee's Pro Rata Share thereof, but in any event not later than thirty
(30) days prior to the last day or dates on which said taxes may be paid without
interest or penalty, or, at Lessor's request, in monthly installments in such
amounts as Lessor may reasonably require from time to time which installments
shall be due and payable hereunder, with a final adjustment to be made as soon
as all bills are available for the applicable period.
If this Lease shall commence on a date other than the first day
of a tax year, or terminate on a date other than the last day of a tax year, the
Lessee for that tax year shall
2
<PAGE>
pay to the Lessor only such portion of such additional rent for the whole tax
year as shall be proportionate to the portion of the tax year contained within
the term of this Lease.
Section 4. The term "real estate taxes" shall mean all taxes and
special assessments of every kind and nature assessed by a governmental
authority on the Land or the Building which the Lessor shall become obligated to
pay because of or in connection with the ownership, leasing and operation of the
Land or Building. The foregoing provisions are predicated upon the present
system of taxation in the Commonwealth of Massachusetts. If taxes upon rentals
or otherwise pertaining to the demised premises shall be substituted, in whole
or in part, for the present ad valorem real estate taxes or assessed in addition
thereto, then Lessee's obligation to pay such taxes shall be based upon such
substituted taxes, to the extent to which the same shall be a substitute for
present ad valorem real estate taxes, together with such additional taxes, and
such substitute or additional taxes shall be deemed to be included within the
term "real estate taxes". Except as hereinabove provided, nothing herein
contained shall otherwise require or be construed to require Lessee to reimburse
Lessor for any inheritance, estate, succession, transfer, gift, franchise,
income or earnings, profit, excess profit tax, capital stock, capital levy or
corporate or other similar tax which is or may be imposed upon Lessor or upon
Lessor's business.
Section 5. Except as provided in the Rider, during the Original
Term and any extensions or renewals thereof, Lessee shall pay to Lessor, as
additional rent, Lessee's Pro Rata Share of the costs paid or incurred by Lessor
in maintaining the Building, and any additions to the Building (except only for
structural repairs set forth in Article VI, Section 2) and in maintaining and
repairing the Land, including without limitation, parking areas, driveways,
walkways, and landscaping thereon. Such costs shall be paid within ten (10)
days after receipt of invoices from Lessor therefor, or at Lessor's election, in
accordance with Section 6 hereof. Such costs shall include, without limitation,
(1) all costs of providing lighting for and maintaining and repairing the
parking areas, driveways and walkways on the Land (including without limitation,
striping and sweeping) and removing snow and ice from the parking areas,
driveways and walkways on the Land and from the roof of the Building, (2) all
costs of maintaining and repairing all drainage, sewage and/or septic system and
utility facilities and equipment on the Land whether above or underground, (3)
all costs of maintaining the grass and shrubs and other planted areas and
landscaping on the Land, and (4) all costs of maintaining the Building
(structural repairs set forth in Article VI, Section 2 excepted), including,
without limitation, maintenance of all fixtures and equipment and utility
facilities not serving exclusively the demised premises nor serving exclusively
any other tenant. As used herein, the term "repairing" shall not mean
"replacement". If during the term of this Lease, Lessor shall replace the
sewage and/or septic system and utility facilities and equipment referred to in
Section 5(2), Lessee shall nevertheless be responsible for the payment of
Lessee's Pro Rata Share of any such replacement costs, after the expenditure is
made, in an amount equal to the "annual charge-off" of such replacement
expenditure. The annual charge-off shall be determined by dividing the cost of
the replacement expenditure plus, if the Lessor shall obtain financing for the
purpose of making the applicable replacement expenditure, an interest factor
equal to the interest rate then being charged to Lessor for such expenditure by
the number of years of useful life of the replacement item,
3
<PAGE>
and the useful life shall be reasonably determined by Lessor in accordance with
generally accepted accounting principles and practices in effect at the time of
the replacement expenditure. Lessor shall furnish, at least once a year, a
statement in writing setting forth the amounts payable by Lessee pursuant to
this Section 5.
Section 6. At Lessor's election, Lessee's Pro Rata Share of the
costs referred to in Section 5 of this Article III shall be paid in advance in
twelve (12) equal monthly estimated installments (based on an amount estimated
by Lessor) due and payable on the same dates as the monthly installments of
annual base rent payable hereunder. Within ninety (90) days after the end of
each fiscal year of Lessor (meaning the twelve (12) month period used by the
Lessor in preparing its annual financial statements), Lessor shall furnish to
Lessee a statement in reasonable detail setting forth the computation of such
costs, thereupon Lessee shall pay any deficiency, and any overpayment shall be
credited to Lessee's obligations hereunder for the then current fiscal year, or,
in the case of the last year of the term (or any extension or renewal thereof),
shall be refunded to Lessee. For purposes of Section 5 of this Article III, if
the Lease shall commence on a date other than the first day of Lessor's fiscal
year, or terminate on a date other than the last day of Lessor's fiscal year,
the Lessee for that respective fiscal year shall pay to the Lessor only a
proportionate share of Lessor's costs referred to in such Section 5 for the
whole fiscal year as shall be proportionate to the portion of the fiscal year
contained within the term (as extended or renewed) of this Lease.
Section 7. Except as provided in the Rider, during the Original
Term and any extensions or renewals thereof, Lessee shall pay Lessor, as
additional rent hereunder, Lessee's Pro Rata Share of Lessor's cost of the
following insurance on the Building and the Land: fire and extended coverage
insurance and such other insurance covering all hazards included within
customary "all risks" coverage, including without limitation insurance covering
fire, lightning, vandalism, malicious mischief, and sprinkler leakage, said
insurance to be on a full value, repair, or replacement basis, as determined by
Lessor's mortgagee and Lessor's costs, for comprehensive liability insurance
indemnifying the Lessor against all claims and demands for any injury to persons
or property which may be claimed to have occurred in or upon the Building or the
Land in such amounts as Lessor shall from time to time determine. In addition,
notwithstanding the foregoing, Lessee shall pay as additional rent, one hundred
(100%) percent of Lessor's cost of any insurance with respect to the Building or
the Land which is attributable solely to Lessee's particular use of the demised
premises.
Section 8. All additional rent on account of insurance shall be
paid to Lessor within fifteen (15) days of receipt by Lessee of a bill therefor
from Lessor, which bill shall be accompanied by a copy of the applicable
Insurance bills and a computation showing Lessee's Pro Rata Share of the cost
thereof, or, at the election of the Lessor, in advance in twelve (12) equal
monthly estimated installments (based on an amount estimated by Lessor) due and
payable on the same dates as the monthly installments of annual base rent
payable hereunder, with a final adjustment to be made as soon as all applicable
bills are available for such period.
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Section 9. INTENTIONALLY DELETED.
Section 10. All payments of base rent and additional rent
hereunder shall be mailed without offset or deduction and without previous
demand therefore and if other than cash payable to the order of Lessor at 155
West Street, Wilmington, Massachusetts 01887, or otherwise as Lessor may notify
Lessee from time to time.
Section 11. INTENTIONALLY DELETED.
ARTICLE IV
COVENANTS
Lessee covenants and agrees as follows:
(a) To pay when due the said annual base rent and additional
rent at the times and in the manner set forth herein:
(b) To procure any and all licenses and permits required for any
use to be made of the demised premises by Lessee; to keep
the demised premises equipped with all safety appliances
required by law or ordinance because of any use of the
demised premises by Lessee and to make any alterations or
changes which may be necessary to meet the obligations and
standards promulgated under the Occupational Safety and
Health Act of 1970 which are related to Lessee's use and
occupation of the demised premises;
(c) To pay promptly when due the entire cost of any work to the
demised premises undertaken by Lessee so that said premises
shall at all times be free of liens for labor and materials,
to procure all necessary permits before undertaking such
work, to do all of such work in a good and workmanlike
manner employing new materials of good quality and complying
with all governmental and insurance requirements and to save
Lessor harmless and indemnified from any and all injury,
loss, claims or damage to any person or property occasioned
by or growing out of such work including, without
limitation, reasonable attorneys' fees if so requested by
Lessor. Lessee shall take over Lessor's defense in any
action related to work undertaken by Lessee on the demised
premises;
(d) To permit Lessor and anyone claiming under Lessor at
reasonable times and upon reasonable notice to enter into
and examine the demised premises and to show the demised
premises to prospective purchasers or tenants provided that
Lessor shall not thereby unreasonably interfere
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with the conduct of Lessee's business, to permit Lessor to
enter said premises to make such repairs, improvements,
alterations or additions thereto as may be required in order
to comply with the requirements of any public authority
having jurisdiction over the demised premises, or as may be
required of Lessor under the terms of this Lease, provided
that such entry shall not unreasonably interfere with the
conduct of Lessee's business; and to permit the affixing to
any suitable part of the demised premises a reasonable
notice for letting or selling the demised premises or the
Building; to permit Lessor to enter the demised premises at
any time to make emergency repairs;
(e) To pay when due any and all State, Federal or local taxes
based upon Lessee's use or occupation of the demised
premises or pertaining to Lessee's personal property or
resulting from any permitted alteration, additions or
improvements made by Lessee to the demised premises;
(f) To comply with any rules, regulations or recommendations of
the National Board of Fire Underwriters, any rating bureau,
or any similar association performing such function, and any
insurance company insuring the demised premises with respect
to the demised premises and/or Lessee's use and occupation
thereof. To the best of Lessor's knowledge, Lessor
represents that on the Commencement Date, the demised
premises and the Building will comply, in all material
respects, with all applicable laws, ordinances, rules and
regulations of governmental authorities. Notwithstanding
anything in this paragraph to the contrary, Lessor shall
comply with any rules, regulations or recommendations of the
National Board of Fire Underwriters, any rating bureau or
any similar association performing such function and any
insurance company insuring the demised premises with respect
to the Land and the Building. Lessee shall comply with such
rules, regulations and recommendations as they pertain to
the particular manner in which Lessee uses the demised
premises and Lessee shall not be responsible for the
physical condition of the demised premises as it relates to
such rules, regulations and recommendations, except where
Lessee makes any alterations, improvements or additions to
the demised premises;
(g) To keep the demised premises adequately heated for the
protection of the plumbing therein;
(h) To permit no waste with respect to the demised premises;
(i) To permit no storage of materials outside of the demised
premises except for such temporary storage as may be
required for reasonable periods of time due to unforeseen
circumstances or emergencies;
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(j) To comply with such reasonable rules and regulations now or
hereafter made by Lessor for and with respect to the care
and use of the Building, the land and their facilities and
approaches, it being understood that Lessor shall not be
liable to Lessee for the failure of any other tenants of the
Building to conform to such rules and regulations;
(k) Not to do or suffer to be done, or to keep, or to suffer to
be kept, or omit to do anything in, upon or about the
demised premises which may prevent the obtaining of any
insurance on the Building, the land or the demised premises
or which may make void or voidable any insurance on the
Building, the land or the demised premises.
ARTICLE V
USE OF DEMISED PREMISES
Section 1. The Lessee shall have the right to use the demised
premises for warehousing, light manufacturing and office use and for no other
purposes whatsoever, but in no event shall Lessee conduct at the demised
premises any use or do anything which is offensive, constitutes a nuisance or
violates any provisions of any zoning, building or other applicable laws,
ordinances or regulations.
Section 2. Lessee further agrees to conform to the following
provisions during the entire term of this Lease or any extensions thereof:
(a) Lessee shall not permit any auction, fire, going-out-of
business, or bankruptcy sales or any retail sales whatsoever
to be conducted within the demised premises, without the
prior written consent of the Lessor;
(b) Lessee shall not use the sidewalks, parking areas or other
outside areas for advertising or business purposes or
otherwise obstruct the same;
(c) Lessee shall be responsible for maintaining its own exterior
trash receptacle. The location of said receptacle shall be
subject to Lessor's approval which shall not be unreasonably
withheld. Lessee shall keep the area around said trash
receptacle neat, clean and free of all refuse and the like.
Further, Lessee shall screen said receptacle, at Lessee's
expense, in a manner approved by Lessor;
(d) Lessee shall take whatever measures are necessary to insure
that floor load limitations are not exceeded in the demised
premises;
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(e) Lessee shall not cause any offensive odors or loud noise
(including, but without limitation, the use of
loudspeakers), nor take nor permit any action which
constitutes a nuisance or menace to any other occupant of
other premises in the Building and in no event shall any
loud noises or offensive odors be emitted from the demised
premises;
(f) No merchandise or advertising materials shall be placed in
windows nor be visible from the demised premises;
ARTICLE VI
REPAIRS AND ALTERATIONS
Section 1. The Lessee shall keep the demised premises in a neat,
clean, sanitary condition and in good order and repair and in good working
condition, including all electrical, plumbing, gas, sprinkler, and equipment
within or serving the demised premises (including without limitation the
maintenance, repair and/or replacement of the HVAC system serving the demised
premises), and all fixtures and interior walls, floors, ceilings, signs
(including exterior signs where permitted) and all interior building appliances
and similar equipment and the exterior and the interior portions of all windows,
window frames, doors, door frames, and all other glass or plateglass thereon.
In connection therewith, and without limiting Lessee's obligations hereunder,
Lessee shall perform the maintenance as set forth on the HVAC maintenance
schedule attached hereto as Exhibit D and made a part hereof.
Section 2. The Lessor shall, at its expense, promptly after
receipt of written notice from the Lessee, make any necessary repairs to the
roof, foundations, beams, girders, mullions and exterior walls of the demised
premises only (exclusive of glass, window frames, windows, doors, door frames
and signs, which repairs shall be made by the Lessee) except where such repairs
are required by reason of any act or negligence of the Lessee, its employees,
agents, licensees, suppliers, contractors, or guests ("structural repairs").
The Lessor shall commence repairs to be made by it as promptly as practical
after the receipt of such notice provided, however, that the Lessor (without
limiting Section 14 of Article XXII hereof), shall not be liable for a delay in
commencement of the making of such repairs or for a delay or failure to complete
such repairs where such delay or failure is attributable to strikes or other
labor conditions, inability or difficulty in obtaining materials or services,
wars, delays due to the weather, or other cause beyond the reasonable control of
the Lessor.
Section 3. Lessor shall be responsible for the maintenance of
the grass and shrubs located on the Land and shall be responsible for
maintaining, repairing and lighting of common areas of the Building and
maintaining, repairing, lighting and removing snow from the parking areas,
driveways and walkways on the Land, except where the necessity thereof is due to
the willful or negligent acts of Lessee or its agents, employees, licensees,
suppliers, contractors or guests.
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Section 4. All costs paid or incurred by Lessor in performing
any of its obligations under this Article VI (except for structural repairs set
forth in Section 2 hereof), shall be included in Lessor's costs of maintaining
and repairing as set forth in Article III, Section 5.
Section 5. The Lessee shall at the expiration or earlier
termination of this Lease remove its goods and effects and peaceably yield up
the demised premises, clean and in the same order, repair and condition as at
the Commencement Date of the term hereof, or as the same may be put in during
the term hereof, reasonable wear and tear excepted (provided good maintenance
practices are employed), except for repairs which the Lessor agrees to make as
herein provided and except for damage by fire or insured casualty, and Lessee
shall promptly repair any injury done to the demised premises the Building or
the Land by the installation or removal of the Lessee's fixtures or other
property.
Section 6. The Lessee shall have the right at its expense to
make alterations, improvements or additions to the interior of the demised
premises, provided that:
(a) No such alteration, addition or improvement shall lessen the
fair market value of the demised premises or the Building
and any such alteration, addition or improvement shall be
done in accordance with all applicable law, in a good and
workmanlike manner with good quality materials and shall not
impair the safety of the structure of the Building;
(b) Any such alteration, addition or improvement shall be made
in accordance with previously prepared plans and
specifications, and such plans and specifications must have
the written approval of the Lessor before any work thereon
shall be commenced. Lessor's consent shall not be
unreasonably withheld;
(c) Prior to the commencement of work on any such alteration,
addition, or improvement, the plans and specifications
covering the same shall have been submitted to and approved
by:
1. All municipal or other governmental departments or
agencies having jurisdiction over the subject matter
thereof, and
2. Any mortgagee having an interest in or lien upon the
Building or the Land, if required by the terms of the
mortgage, it being understood that the Lessor will join
in any application to any such mortgagee to obtain such
approval with respect to any alteration, addition, or
improvement which the Lessor shall have approved under
subparagraph (b) above. Notwithstanding the foregoing
to the contrary, the provisions of Article VI, Section
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6(c)(2) shall not apply to the initial improvements or
alterations to be constructed by the Lessee on the
demised premises; and
(d) The Lessee shall pay the increased premium, if any, for the
insurance coverage of the demised premises or the Building
resulting from any additional risk during the course of
construction or installation of any such alteration,
addition or improvement or resulting from such alteration
addition or improvement.
All additions, improvements and fixtures (other than the
usual trade fixtures, furniture and equipment installed by
the Lessee which may be removed from the demised premises
without injury thereto) which may be made or installed by
either the Lessor or the Lessee and which are attached to a
floor, wall or ceiling, including any linoleum or other
floor covering of similar character, shall remain upon the
demised premises, and at the expiration or earlier
termination of this Lease shall be surrendered with the
demised premises as a part thereof. However, the Lessor
upon termination of this Lease may require the Lessee at
Lessee's expense to restore the demised premises to their
condition at the commencement of this Lease in whole or in
part.
Any trade fixtures, furniture and equipment owned by the
Lessee which may be removed from the demised premises
without injury thereto shall remain the property of the
Lessee and shall be removed by the Lessee from the demised
premises without injury thereto prior to the expiration or
earlier termination of this Lease. In the event Lessee
fails to remove said fixtures, furniture and/or equipment
prior to the expiration or earlier termination of this
Lease, they shall be deemed abandoned and may be disposed of
by Lessor in any way it sees fit, and Lessor shall not be
liable for any such disposal.
(e) Notwithstanding anything contained in the foregoing to the
contrary, Lessee shall not, without the prior written
consent of Lessor, make any alteration to the demised
premises which would (i) increase the amount of space used
for office purposes within the demised premises or create
additional offices or general office space within that
portion of the demised premises initially earmarked for
office use (ii) increase the amount of electrical, HVAC or
other utility consumption by Lessee (iii) delay completion
of the demised premises or any other part of the Building or
(iv) affect any mechanical, electrical, HVAC, sewer, septic
or other utility system serving the demised premises or the
Building or the capacity thereof to serve other occupants or
lessees in the Building.
(f) Lessee, in its sole discretion, may allow Lessor, at its
option, to perform any and all changes, additions and
alterations to the demised
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premises provided that Lessor is willing to perform such
changes, additions and alterations at a price which is equal
to or less than the price which would be charged for the
work in question by other reputable contractors and Lessor
shall have the right to match any offer of any other party
for such work and if it matches any such offer, to perform
such work based on the offer which it matches.
Section 7. Without limiting Lessee's obligations in this Lease
or elsewhere, Lessee shall promptly, after notice from the Lessor, repair at its
own expense, any damage to the exterior of the demised premises, the Building or
to the utilities serving the demised premises (including the HVAC system), or to
the land (including without limitation the parking areas, driveways, walkways,
and grass and shrubs located on the Land) caused by any act or negligence of the
Lessee, its agents, employees, licensees, suppliers, contractors, or guests.
Section 8. It is understood that Lessor's obligations under this
Article VI are subject to the provisions and limitations set forth in Articles
XV and XVI.
ARTICLE VII
UTILITIES
The Lessee shall pay when due all charges for utility services
provided to the demised premises including, without limitation, electricity,
gas, water, telephone, and the cost of fuel to heat or air-condition the demised
premises. If water consumed by the demised premises is not metered separately
from water consumed by the remainder of the Building, Lessee shall pay to
Lessor, upon being billed therefor by Lessor, Lessee's Pro Rata Share of the
aforesaid. The aforementioned share is based on the assumption that water in
the demised premises will be used only for ordinary drinking and lavatory
purposes. If water is consumed in the demised premises for other purposes or in
excessive quantities or if Lessee's heating and/or cooling requirements are
materially greater than that of other tenants or prospective tenants, then
Lessee shall pay to Lessor, on demand from time to time, charges for said
additional water as reasonably estimated by Lessor. Lessor reserves the right
to install a water meter to measure water consumption in the demised premises if
not installed at the Commencement Date. Except for the Lessor's negligence, the
Lessor shall not be liable for any interruption of electricity, gas, water,
telephone, sewage and/or septic system or other utility service supplied to the
demised premises and Lessor reserves the right to stop any service or utility to
the demised premises, when in Lessor's judgment it is deemed necessary by reason
of accident, emergency, repair work, or otherwise. No such interruption or
stoppage of utility service shall be deemed to be an eviction of the Lessee or
relieve Lessee from any of the Lessee's obligations under this Lease. Lessor
represents that there are separate meters in the premises for the utilities,
including gas, electric and water.
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Electricity and gas consumed on the demised premises will be
separately metered. The cost of such meters and the cost of installation,
repair, maintenance and replacement of all meters serving the demised premises
shall be borne by Lessee. Lessee shall not overload the electrical wiring or
electrical panels within or serving the demised premises and will install at its
own expense, but only after obtaining Lessor's prior written approval, any
additional electrical wiring or panels which may be required in connection with
Lessee's Apparatus.
ARTICLE VIII
INDEMNITY AND PUBLIC LIABILITY INSURANCE
Section 1. The Lessee shall assume exclusive control of the demised
premises, and all tort liabilities with respect to the control or occupancy
thereof and shall save the Lessor harmless and indemnified from all injury,
loss, claims or damage of whatever nature to any person or property in or about
the demised premises, the Building and/or the Land arising from any act,
omission or negligence of the Lessee or Lessee's subtenants or concessionaires
or the employees, agents, contractors, suppliers, licensees, invitees, or
customers of any of the foregoing or otherwise resulting from Lessee's use,
maintenance and occupancy of the demised premises or anything or facility kept
or used thereon provided such injury, loss, claims or damage are not caused by
the negligent acts or omissions of Lessor or Lessor's other tenants, employees,
agents, contractors, suppliers, licensees, invitees or customers. Upon request
of Lessor, the Lessee shall take over Lessor's defense in any action related to
such matter for which Lessee has agreed to indemnify Lessor. The provisions
hereof shall survive expiration or termination of this Lease.
Section 2. Lessee agrees to maintain in full force during the term
hereof and any extensions thereof a policy of public liability and property
damage insurance under which the Lessor (and such other persons as are in
privity of estate with Lessor as may be set out in a notice from Lessor from
time to time) and Lessee are named as insured and under which the insurer agrees
to indemnify and hold Lessor and those in privity of estate with Lessor harmless
from and against all costs, expense and/or liability arising out of or based
upon any and all claims, accidents, injuries and damages mentioned in Section 1
of this Article VIII. Each such policy shall be noncancellable with respect to
the Lessor and Lessor's said designees without ten (10) days prior written
notice to Lessor and a duplicate original or certificate thereof shall be
delivered to Lessor. The minimum limits of liability of such insurance shall be
One Million and No/100ths ($1,000,000.00) Dollars for injury (or death) to any
one person and Five Hundred Thousand and No/100ths ($500,000.00) Dollars with
respect to damage to property.
Section 3. Neither the Lessor nor any agent or employee of the Lessor
shall be liable for any loss or damage to the person or property of the Lessee
or of any subtenant or concessionaire, or of any employee, customer, licensee,
invitee, contractor or supplier, or guest of any of the foregoing, except where
such damage is attributable to the negligent acts
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or omissions of the Lessor, its agents or employees. Without in any way
limiting the generality of the foregoing and except where any such damage is
caused by the negligent acts or omissions of the Lessor, its agents,
contractors, suppliers or employees, the Lessor, its agents or employees shall
not be liable in any event, for any such damage resulting:
(a) from the interruption to business resulting from theft, fire,
explosion, falling plaster, steam, gas, electricity, water, rain
or snow or leaks from any part of said demised premises or from
the pipes, appliances or plumbing or from dampness or any other
cause;
(b) from any hidden defect in, under or upon the demised premises,
the Building or the Land; and/or;
(c) from acts or omissions of persons occupying adjacent premises or
otherwise entitled to use the Building and/or Land;
Section 4. Lessor shall not be liable to Lessee for any compensation
or reduction of rent by reason of inconvenience or annoyance or for loss of
business arising from power losses or shortages or from the necessity of
Lessor's entering the demised premises for any of the purposes in this Lease
authorized, or for repairing the demised premises or any portions of the
Building or Land in accordance herewith, nor shall any such entry, interruption
or similar event give rise to a claim in Lessee's favor that such event
constitutes actual or constructive, total or partial, eviction from the demised
premises. Nothing contained herein shall be deemed to exonerate Lessor from its
own negligent acts or omissions.
ARTICLE IX
FIRE AND EXTENDED COVERAGE INSURANCE
Section 1. The Lessor shall obtain the insurance for which Lessee
makes required payments to Lessor under Article III, Section 7.
Section 2. The Lessee shall not acquire, by being named, at the
election of Lessor, as insured under any fire or extended coverage insurance on
the demised premises or the Building, any right to participate in the adjustment
of loss or to receive insurance proceeds and agrees upon request promptly to
endorse any checks or other instruments in payment of loss in which the Lessee
is named as payee.
Section 3. The Lessee shall, at its own expense, maintain fire and
comprehensive casualty insurance of adequate amounts with respect to its own
fixtures, merchandise, equipment and other property contained in the demised
premises, it being understood that all merchandise, furniture, fixtures, effects
and property of every kind of the
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Lessee which may be in the demised premises, or the Building or on the Land
shall be at the sole risk and hazard of the Lessee.
ARTICLE X
SIGNS
In no event shall signs be allowed on the exterior surface of the
Building nor on the Land or other exterior grounds of the Building. Lessor has
erected a building directory sign on the Land in front of the Building listing
Lessee and other tenants and Lessee shall pay Lessor, upon demand, Lessee's Pro
Rata share of all costs associated with the manufacture, installation, erection,
maintenance, and repair or replacement of said directory sign. All Lessee's
signs (if any are consented to by Lessor) shall conform to the rules and
regulations of the Town of North Reading and any applicable law, rule, ordinance
or code governing the area in which the Building is located and shall be simple
and dignified in appearance and constructed of durable materials and shall be of
a size and style approved by Lessor in its sole and absolute discretion. Lessee
shall maintain and keep in good repair any signs erected by it. Lessee shall be
responsible for any repairs to the demised premises or the Building related to
the erection of said signs. Any signs which Lessee may desire to erect shall
first be approved in writing by Lessor which consent shall not be unreasonably
withheld or delayed. Lessee shall remove all of its signs upon expiration of
the term or earlier termination and shall promptly repair any damage related to
the erection or removal of said signs. Notwithstanding the foregoing, the
parties have agreed upon the size and style of Lessee's sign at the demised
premises.
ARTICLE XI
ASSIGNMENT OR SUBLETTING
The Lessee shall not assign nor permit any assignment by mortgage,
operation of law or otherwise of this Lease nor underlet any portion of the
demised premises nor permit the occupation of the whole or any part thereof by
another by license or otherwise without the prior written consent of the Lessor,
which consent shall not be unreasonably withheld. No consent by the Lessor to an
assignment, sublease or other indulgence or favor at any time granted by the
Lessor to Lessee or to anyone claiming under the Lessee, nor acceptance of rent
from, or otherwise dealing with, anyone claiming under the Lessee, shall be
deemed to constitute any consent to any further assignment, sublease or
otherwise or relieve the Lessee from its obligations under this Lease and Lessee
hereby guarantees the prompt and timely payment of all rent, additional rent and
other charges hereunder. The Lessee and all persons claiming under the Lessee
shall be deemed to have waived any and all suretyship defenses. It shall be a
condition of the validity of any such assignment or underletting that the
assignee or sublessee agrees directly with Lessor by written instrument in form
satisfactory to Lessor to be bound by all the obligations of the Lessee
hereunder,
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including without limitation the obligation to pay rent and other amounts
provided for under this Lease and the covenant against further assignment and
subletting. Any transfer or assignment of any of the stock or other equity
interests in Lessee shall be deemed to constitute an assignment barred by this
Article XI. Concurrently with the execution hereof, Lessee has furnished Lessor
with a certified list of all of the present shareholders of Lessee.
In any case where Lessor consents to an assignment of this Lease,
Lessor shall be entitled to receive 50% of all amounts received by Lessee in
connection with such assignment (unless such assignment is made in connection
with a sale of all or substantially all of the assets of Lessee's, in which case
Lessor shall not be entitled to participate in such proceeds). Further, in the
event of any subletting of the demised premises, Lessor shall be entitled to
receive 50% of all Subleasing Overages (as said term is hereinafter defined).
As used herein, the term "Subleasing Overages" shall mean, for each period in
question, all amounts received by Lessee in excess of annual base rent and
additional rent reserved under this Lease attributable to the space sublet
(including, without limitation, all lump sum payments made in connection
therewith). Subleasing Overages shall not include the price paid to Lessee for
equipment or personal property transferred to the assignee or subtenant in
connection with such transaction.
ARTICLE XII
SUBORDINATION
Section 1. The Lessee shall from time to time, within ten (10) days
written demand of Lessor, either (as demanded by Lessor) subordinate this Lease
or make this Lease superior to any existing and/or future Mortgage heretofore or
hereafter placed upon the Land and to any renewal, modification, replacement or
extension of such Mortgage, and to any and all advances made or to be made
thereunder, provided that said Mortgagee enter into an agreement with Lessee by
the terms of which the Mortgagee under said Mortgage will agree that in the
event of foreclosure thereof, said Mortgagee will not disturb the possession of
the Lessee under the Lease so long as the Lessee is not in default hereunder and
the Lessee will agree to recognize the holder of such Mortgage as the Lessor in
such event, which agreement shall be made expressly binding upon the successors
and assigns of the Lessee, and the Mortgagee and upon anyone purchasing said
demised premises or Building at any foreclosure sale. Notwithstanding the
foregoing, if requested by Lessor or a Mortgagee of the demised premises, Lessee
agrees to promptly execute an Estoppel Certificate and Non-Disturbance and
Attornment Agreement substantially in the form attached hereto as Exhibit E and
failure to execute such an agreement promptly upon request shall be default
under this Lease. The Lessee and the Lessor agree to execute and deliver any
instruments necessary to carry out the agreements in this Section contained.
Any such Mortgage to which this Lease shall be subordinated or be made superior
may contain such other terms, provisions and conditions as the Mortgagee deems
usual or customary.
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Section 2. If any Mortgagee elects, by written notice given to the
Lessee, to have this Lease and the interest of the Lessee hereunder superior to
any such Mortgage then this Lease and the interest of the Lessee hereunder shall
be deemed superior to any such Mortgage whether this Lease was executed before
or after such Mortgage.
Section 3. Lessee will upon request by Lessor or any Mortgagee, from
time to time execute and deliver to such party (a) an "Estoppel Letter",
so-called in form satisfactory to such party and/or (b) a copy of every notice
of default delivered by Lessee to Lessor at the same time and in the same manner
as to Lessor and/or (c) an agreement consenting to an assignment of this Lease
to such party and acknowledging such assignment.
Section 4. For purposes hereof the term "Mortgage" shall mean any
real estate mortgages, ground leases, deeds of trust, security agreements or
indentures affecting the Land or Building, the term "Mortgagee" shall include
the holder of any such real estate mortgage, any ground lessor or any trustees
or holders of any such security agreements or indentures.
ARTICLE XIII
SELF HELP
If the Lessee shall default in the performance or observance of any
agreement or condition in this Lease contained on its part to be performed or
observed, and shall not cure such default within thirty (30) days after notice
from Lessor specifying the default (or, if said default cannot reasonably be
expected to be cured within such thirty (30) day period, shall not within said
period commence to cure such default and thereafter prosecute the curing of such
default to completion with due diligence) Lessor may, at its option, without
waiving any claim for breach of agreement, at any time thereafter cure such
default for the account of Lessee, and make all necessary payments in connection
therewith, including but not limiting the same to reasonable counsel fees, costs
or charges of or in connection with any legal action which may have been
brought, and any amount paid by Lessor in so doing shall be deemed paid for the
account of Lessee and Lessee agrees to reimburse Lessor therefor with interest
thereon at eighteen (18%) percent per annum, such sums payable by Lessee to
Lessor to be deemed per additional rent, provided that Lessor may cure any such
default as aforesaid prior to the expiration of any waiting or cure period but
after Lessor has exerted best efforts to give actual notice (by telephone or
otherwise) if the curing of such default prior to the expiration of said waiting
or cure period is reasonably necessary to protect the real estate or Lessor's
interest therein, or to prevent injury or damage to persons or property.
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ARTICLE XIV
WAIVER OF SUBROGATION
Lessor and Lessee each hereby releases the other from any and all
liability or responsibility to the other (or anyone claiming through or under
them by way of subrogation or otherwise) for any loss or damage to the demised
premises or property thereon against which the waiving party is protected by
insurance (but only to the extent that the waiving party is actually indemnified
pursuant to such insurance), even if such loss or damage shall have been caused
by the fault or negligence of the other party, or anyone for whom such party may
be responsible, provided, however, that this release shall be applicable and in
force and effect only with respect to loss or damage occurring during such time
as the releasor's policies shall contain a clause or endorsement to the effect
that any such release shall not adversely affect or impair said policies or
prejudice the right of the releasor to recover thereunder. Lessor and Lessee
each hereby agree that it shall cause such a clause or endorsement to be
included in its insurance policies with respect to the demised premises, if
available, and, if necessary, pay an additional premium that may be charged
therefore.
ARTICLE XV
DAMAGE BY FIRE, ETC.
Section 1. If the demised premises or the Building shall be damaged
or destroyed by fire, windstorm or any other insured casualty the Lessee shall
immediately give notice, thereof to the Lessor and unless this Lease is
terminated as hereinafter provided, the Lessor, at his own expense, shall repair
or rebuild the same so as to restore the demised premises to substantially the
same condition they were in immediately prior to such damage or destruction,
subject, however, to zoning and building laws then in existence, provided that
the Lessor shall not be responsible for any delay in such repair or
reconstruction which may result from any cause beyond its reasonable control,
and provided further that Lessor shall not be required to expend more than the
net amount of insurance proceeds, if any received, by Lessor for such purposes
it being understood that the application of insurance proceeds is subject to the
right of any first mortgagee of the demised premises. Notwithstanding the
foregoing, if Lessor does not repair or rebuild the demised premises so as to
restore the demised premises to substantially the same condition they were in
immediately prior to the destruction, within 210 days following the date of such
damage or destruction, then Lessee may elect to cancel this Lease upon notice to
Lessor.
Section 2. If either the demised premises or the Building shall be
damaged or destroyed to the extent of twenty-five (25%) percent or more on a
square footage basis by any cause (whether insured against by the Lessor or not)
then either party may elect by written notice to the other either to terminate
this Lease or to repair or rebuild on the conditions set forth in Section 1.
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Section 3. If the demised premises or the Building shall, within the
last year of the original term of this Lease or the last year of the extended
term hereof, be damaged or destroyed by any cause to such an extent that the
same cannot reasonably be expected to be restored to substantially the same
condition as prior to such damage or destruction within ninety (90) days from
the time that such repair or restoration would be commenced then the Lessor
shall have the right to terminate this Lease by notice to Lessee given within
sixty (60) days after the occurrence of such damage or destruction.
Section 4. In the event that the demised premises or Building is
damaged or destroyed by any cause, then, unless this Lease is terminated as
provided above, the Lessee at its own expense and proceeding with all reasonable
dispatch, shall repair or replace all trade fixtures, equipment, signs or other
property installed by or belonging to Lessee which shall be damaged or
destroyed.
Section 5. If this Lease is not terminated as above provided, then,
from and after such damage which is material and until demised premises are
restored as above provided the rent reserved hereunder shall abate either wholly
or proportionately according to the nature and extent of the injury.
ARTICLE XVI
EMINENT DOMAIN
Section 1. If, as a result of any taking by eminent domain, which
shall be deemed to include a voluntary conveyance in lieu of a taking, the total
floor area remaining in the demised premises shall be reduced to less than fifty
(50%) percent of the total floor area in the demised premises at the
commencement of the term hereof, then at the election of either party,
exercisable by written notice given to the other within ninety (90) days after
the date of the filing of the notice of such taking this Lease may be terminated
as of the date when the Lessee is required to vacate the demised premises or the
portion thereof so taken notwithstanding that the entire interest of the Lessor
may have been divested by such taking, and if following any such taking either
party does not terminate this Lease, then the Lessor, at the Lessor's expense,
but only to the extent of the award actually received by the Lessor for any such
taking (subject to the rights of any first mortgagee of the demised premises)
and proceeding with all reasonable dispatch (but not later than six (6) months)
shall do such work as may be required to put what may remain of the demised
premises in proper condition for the conduct of the Lessee's business and the
Lessee, at the Lessee's expense (but only to the extent of the award actually
received by the Lessee for any such taking) and proceeding with all reasonable
dispatch, shall make such alterations, repairs and replacements of the trade
fixtures, equipment, signs or other property installed by or belonging to the
Lessee as may be necessary to put the remainder of the demised premises in
proper condition for the Lessee's business. From and after the date on which
the Lessee is required to vacate the portion of the demised premises so taken, a
just proportion of the rent reserved herein according to the nature and extent
of the taking of the demised premises shall be abated until
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the demised premises are restored to such condition that the Lessee can commence
business therein and provided such restoration is completed within six (6)
months of the date of such taking, and from and after the date on which the
Lessor shall restore the demised premises in the manner above provided the rent
shall be reduced in the proportion that the floor area of the portion of the
demised premises so taken bears to the floor area of the demised premises at the
commencement of the term hereof.
Section 2. In the event of a taking as defined herein, of twenty-five
(25%) percent or more of the Land or the Building and even though such taking
leaves at least fifty (50%) percent or more of the floor area of the demised
premises remaining, either party shall nonetheless have the right to terminate
this Lease by notifying the other party of their election to terminate within
(90) days after the final determination of the amount of the award or to permit
Lessor to restore any part of the demised premises so remaining and in the case
of such restoration the rent shall be abated to the extent provided above.
Section 3. The Lessor reserves and excepts all rights to damages to
the Land, the Building, the demised premises and the leasehold hereby created,
or awards with respect thereto, then or thereafter accruing by reason of any
taking by eminent domain or by reason of anything lawfully done or required by
any public authority, and the Lessee grants to the Lessor all the Lessee's
rights, if any, to such damages except with respect to the value of its personal
property and its relocation expenses, which may be compensable by a separate
award and shall execute and deliver to the Lessor such further instruments of
assignment thereof as the Lessor may from time to time request.
ARTICLE XVII
DEFAULT
Section 1. This Lease is made on the condition that if the Lessee
shall fail to perform any obligation hereunder and such failure shall continue
for ten (10) days after such notice of default in payment of annual base rent,
additional rent, or in payment of any other sums due under this Lease or for
thirty (30) days after notice of default in the case of any other obligation
(or, if said default cannot reasonably be expected to be cured within such
thirty (30) day period, Lessee shall not within such thirty (30) day period
promptly commence to cure such default and thereafter prosecute the curing of
such default to completion with due diligence) or if the estate hereby created
shall be taken on execution or other process of law, or if the Lessee shall be
declared bankrupt or insolvent according to law, or if the Lessee shall make or
offer to make, in or out of bankruptcy, a composition with the Lessee's
creditors, or if the Lessee shall make an assignment for the benefit of its
creditors, as if the Lessee shall commit any act of bankruptcy, or if a
receiver, trustee or other officer shall be appointed to take charge of all or
any substantial part of the Lessee's property by a court, or if a petition shall
be filed by or against the Lessee for the reorganization of the Lessee or for an
"arrangement" under the Bankruptcy Code or under any other provisions of the
Bankruptcy Code or any successor or similar State or Federal
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statute or regulation now or hereafter in effect, and the same, if filed against
but not by Lessee, shall not be dismissed within thirty (30) days after the date
on which it is filed, then and in any of the said cases, notwithstanding any
prior waivers or consent the Lessor lawfully may, in addition to and not in
derogation of any remedies for any preceding breach of covenant, immediately or
at any time thereafter and without prior demand or prior notice (1) terminate
this Lease by notice in writing forthwith, or on a date stated in said notice,
(2) with process of law enter into and upon the demised premises or any part
thereof in the name of the whole and repossess the same as of the Lessor's
former estate, and (3) expel the Lessee and those claiming through or under the
Lessee and remove its and their effects without being deemed guilty of any
manner of trespass and without prejudice to any remedies which might otherwise
be used for arrears of rent or preceding breach of covenant, and upon entry as
aforesaid this Lease shall terminate; and in case of such termination or
termination by reason of default on the part of the Lessee, the Lessee shall at
the election of the Lessor, which election may be changed at any time:
(a) pay to the Lessor in equal monthly installments, in advance, sums
equal to the aggregate rent herein provided for or, if the
demised premises have been relet, sums equal to the excess of the
aggregate rent herein provided for over the sums actually
received by the Lessor from such reletting as well as any
reasonable expenses incurred by the Lessor as a consequence of
such default or in such reletting including but not limited to,
attorneys' fees, brokers' fees, and expenses of repairing and
putting the demised premises in good order and condition and
preparing the same for rerental. Such sums being payable as
liquidated damages for the unexpired term hereof, or
(b) pay to the Lessor as damages a sum which at the time of such
termination is equal to the then present value of the excess of
the aggregate rent reserved under this Lease from the day of such
termination for what would be the then unexpired term of this
Lease if the same had remained in effect, over the fair market
rental value of the demised premises for the same period, said
present value to be arrived at on the basis of a discount rate of
ten (10%) per annum, plus reasonable expenses of the Lessor by
way of attorneys' fees or otherwise, in connection with such
default.
For the purposes of this Article, the phrase "aggregate rent" as used
herein, shall include the annual base rent as adjusted from time to time, and
all additional rent payable hereunder.
In the event of a default by the Lessee as above provided, if the
Lessor shall elect not to terminate this Lease, it may relet the demised
premises or any part or parts thereof in the name of either the Lessor or the
Lessee, for a term or terms which may, at the Lessor's option, extend beyond the
balance of the term of this Lease and may remove and store the Lessee's effects
at the Lessee's expense, and the Lessee agrees that in the event of
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such reletting the Lessee shall pay Lessor any deficiency between the aggregate
rent to be paid hereunder and the net amount of the rents collected during such
reletting as well as any expenses reasonably incurred by the Lessor as a
consequence of such default or in such reletting, including but not limited to,
attorneys' fees, brokers fees and expenses of repairing and putting the demised
premises in good order and preparing the same for rerental. Such deficiency
shall be paid in monthly installment upon statements rendered by the Lessor to
the Lessee.
Section 2. All rights and remedies which the Lessor may have under
this Lease shall be cumulative and shall not be deemed inconsistent with each
other, and any two or more of such rights and remedies may be exercised at the
same time insofar as permitted by law.
Section 3. The Lessor shall not be deemed to be in default hereunder
unless its default shall continue for thirty (30) days or such additional time
as is reasonably required to correct its default, after written notice thereof
has been given by the Lessee to the Lessor specifying the nature of the alleged
default. In no event shall Lessor be liable for consequential or incidental
damages, nor shall damages exceed the reasonable costs of performing the
obligations of Lessor hereunder, except Lessor shall be liable for the Lessee's
reasonable attorney's fees arising out of or in connection with Lessor's
default.
Section 4. Any payment of annual base rent or additional rent payable
hereunder not paid when due shall, at the option of Lessor, bear interest at a
rate equal to three (3%) percent over the prime rate in effect from time to time
at the First National Bank of Boston (but in no event higher than the maximum
rate permitted pursuant to Law) from the due date thereof forthwith upon demand
by Lessor.
Section 5. All costs or expenses incurred by or on behalf of Lessor
(including without limitation attorney's fees and expenses) in enforcing
Lessor's rights hereunder shall be considered additional rent and be payable to
Lessor upon Lessor's demand therefor.
ARTICLE XVIII
NOTICES
Any notice, request, demand or other communication required or
permitted by this Lease shall, until either party notifies the other in writing
of a different address in accordance herewith, be deemed to be duly given if in
writing and sent by registered or certified first class mail, postage prepaid,
return receipt requested addressed as follows:
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If to Lessor, addressed to the Lessor:
c/o Howland Development Company
155 West Street
Wilmington, MA 01887
If to the Lessee:
DEANCO
2415 North Triphammer Road
Ithaca, New York 14850
Attention: Mr. Robert T. Dean
with a copy to:
Steven R. Shaw, Esq.
Hancock & Estabrook
1500 Mony Tower I
P.O. Box 4976
Syracuse, New York 13221-4976
with a copy to:
Mr. Joseph L. Dixon, President
Deanco Schaal Division
87 Concord Street
North Reading, Massachusetts 01864
ARTICLE XIX
BROKERAGE
Lessor and Lessee each warrants and represents to the other that it
has not dealt with any broker in connection with this Lease or the demised
premises, except only Whittier Partners, whom Lessor agrees to pay, and each
agrees to defend, indemnify and hold the other harmless from and against any and
all claims for brokerage fees and commissions (except with respect to the above
named broker) by any broker claiming to have dealt with it in connection with
this Lease.
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ARTICLE XX
TERM "LESSEE'S PRO RATA SHARE"
Lessee and Lessor hereby agree that the total leasable square footage
of the demised premises is 60,200 square feet and the total leasable square
footage of the Building at the Commencement Date is 60,200 square feet. As used
in this Lease the term "Lessee's Pro Rata Share" shall mean one hundred (100%)
percent of the respective item, so long as there are no additions to the
Building. If any additions are made to the Building, then such term shall mean
a fraction of the respective item, the numerator of which fraction shall be the
then total leasable square footage of the demised premises and the denominator
of which shall be the then total leasable square footage of floor area of the
Building.
ARTICLE XXI
SECURITY DEPOSIT
At the time of the execution hereof, Lessee shall pay to Lessor a
security deposit in an amount equal to three (3) monthly installments of the
annual base rent, which security deposit shall initially equal Sixty Three
Thousand Nine Hundred Sixty Two and 49/100ths ($63,962.49) Dollars, to be held
by Lessor without interest during the term hereof, and any extensions or
renewals thereof, and for so long thereafter as Lessee is in possession of the
demised premises or has unsatisfied obligations hereunder to Lessor, which
deposit the Lessor may apply from time to time against outstanding obligations
of Lessee hereunder. Lessee shall have no right to require the Lessor to apply
said security deposit, nor shall Lessee be entitled to credit the same against
rents or other sums payable hereunder. If and to the extent that Lessor makes
such use of the security deposit, or any part thereof, the sum so applied by
Lessor shall be restored to the security deposit by Lessee upon notice from
Lessor, and failure to pay to Lessor the amount to be so restored (within the
grace period applicable to rents hereunder) shall be a default hereunder giving
rise to all of the Lessor's rights and remedies applicable to a default in the
payment of rent. Any portion of said security deposit which has not been
applied as aforesaid by Lessor shall be repaid by Lessor to Lessee at the end of
the term and any extensions thereof or as soon thereafter as all obligations of
Lessee hereunder have been performed in full. Upon any conveyance by Lessor of
its interest under this Lease, the security deposit may be turned over by the
Lessor to Lessor's grantee or transferee, and upon any such delivery of the
deposit, Lessee hereby releases Lessor herein named of any and all liability
with respect to the security deposit, its application and return, and Lessee
agrees to look solely to such grantee or transferee, and it is further
understood that this provision shall also apply to subsequent grantees and
transferees.
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ARTICLE XXII
MISCELLANEOUS PROVISIONS
Section 1. No consent or waiver, express or implied, by the Lessor to
or of any breach in the performance by the Lessee of its agreements hereunder
shall be construed as a consent or waiver to or of any other breach in the
performance by the Lessee of the same or any other covenant or agreement. No
acceptance by the Lessor of any rent or other payment hereunder, even with the
knowledge of any such breach, shall be deemed a waiver thereof nor shall any
acceptance of rent or other such payment in a lesser amount than is herein
required to be paid by the Lessee regardless of any endorsement on any check or
any statement in any letter accompanying the payment of the same, be construed
as an accord and satisfaction or in any manner other than as a payment on
account by the Lessee. No reference in this Lease to any sublessee, licensee or
concessionaire, or acceptance by the Lessor from other than the Lessee of any
payment due hereunder shall be construed a consent by the Lessor to any
assignment or subletting by the Lessee, or give the Lessee any right to permit
another to occupy any portion of the demised premises except as herein expressly
provided. No waiver by the Lessor in respect of any one tenant shall constitute
a waiver with respect to any other tenant. Failure on the part of the Lessor to
complain of any action or nonaction on the part of the Lessee or to declare the
Lessee in default, no matter how long such failure may continue shall not be
deemed to be a waiver by the Lessor of any of its rights hereunder.
Section 2. In no case shall mention of specific instances under a
more general provision be construed to limit the generality of said provisions.
Section 3. The delivery of keys to Lessor or any employees of Lessor
or the Lessor's agent or any employee thereof shall not operate as a termination
of this Lease or a surrender of the demised premises.
Section 4. If the Lessee continues to occupy the demised premises
after the termination hereof, it shall have no more rights than a tenant by
sufferance, but shall be liable for one hundred-fifty (150%) percent of the
aggregate rental as above determined during such occupancy, and shall be liable
for any loss or expense due to such holding over. Nothing in this section shall
be construed to permit such holding over.
Section 5. If any provision of this Lease or the application thereof
to any person or circumstance shall be to any extent invalid or unenforceable
the remainder of this Lease and the application to persons or circumstances
other than those as to which it is invalid or unenforceable shall not be
affected thereby and each term and provision of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
Section 6. Lessor agrees that upon Lessee's paying the rent and
performing and observing the agreements conditions and other provisions on its
part to be performed and observed, Lessee shall and may peaceably and quietly
have, hold and enjoy the demised
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premises during the term of this Lease and any extension thereof without any
manner of hindrance or molestation from Lessor or anyone claiming under Lessor,
subject, however, to the terms and provisions of this Lease.
Section 7. The conditions and agreements in this Lease contained to
be kept and performed by the parties hereto shall be binding upon and inure to
the benefit of said respective parties, their legal representatives, successors
and assigns, and the same shall be construed as covenants running with the land.
Wherever in this Lease reference is made to either of the parties, it shall be
held to include and apply to the successors and assigns of such party as if in
each case so expressed, unless the context requires otherwise and regardless of
the number or gender of such party, provided however, that the term "Lessor" as
used in this Lease means only the owner for the time being of the Land, so that
in the event of any sale or sales of the Land and demised premises or of this
Lease, the Lessor shall be and hereby is entirely released of all covenants and
obligations of the Lessor hereunder, except for those defaults or for the
negligent acts or omissions of Lessor, its agents, employees or contractors,
occurring at the time of Lessor's ownership of the demised premises.
Section 8. This Lease shall constitute the only agreement between the
parties relative to the demised premises and no oral statements and no prior
written matter not specifically incorporated herein shall be of any force or
effect. In entering into this Lease, the Lessee relies solely upon the
representations and agreements contained herein. This agreement shall not be
modified except by writing executed by both parties.
Section 9. All provisions in this Lease dealing with indemnity and
the like by the Lessee of the Lessor shall be deemed to be modified in each case
by the insertion in the appropriate place of the language "except as otherwise
provided in Mass. G.L.Ter.Ed.C. 186 Section 15".
Section 10. The section and article headings throughout this
instrument are for convenience and reference only and shall in no way be held to
limit, define or describe the scope or intent of this Lease or in any way affect
this Lease.
Section 11. If the Lessor shall at any time be an individual, joint
venture, tenancy in common, joint tenancy, firm or partnership (general or
limited), or a trust or trustees of a trust, it is specifically understood and
agreed that there shall be no personal liability of any individual or any joint
venturer, tenant, partner (general or limited), trustee, shareholder,
beneficiary or holder of a beneficial interest under any of the provisions
hereof or arising out of the use or occupation of the demised premises by
Lessee. The obligations of Lessor shall in all events be binding upon Lessor's
equity in the Building and Land only, all in accordance herewith, it is further
understood and agreed that the liability of any party who is a Lessor (whether
the original Lessor or any successor Lessor) shall be limited to defaults
occurring or arising during the period for which such party shall have been a
Lessor, and such party shall not be liable for defaults occurring or arising at
any time before such party obtained its interest as Lessor or after such party
disposed of its interest as Lessor.
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Lessee agrees that it shall look solely to the Lessor's interest in the Land and
Building for satisfaction of any liability of Lessor in respect of this Lease
and will not seek recourse against any other assets of Lessor for such
satisfaction, it being understood that each agreement, obligation and liability
of Lessor under this Lease or otherwise is made, entered into and incurred on
the express condition that Lessee's only recourse under this Lease or otherwise
or in the event of a default by Lessor under any such agreement or obligation or
in the event of any liability of Lessor hereunder or otherwise, shall be limited
solely to Lessor's interest in the Land and Building.
Section 12. In the event that prior to the Commencement Date any
actual or proposed holder of a first mortgage on the Building or Land shall
demand that this Lease be modified or amended in any respect (other than those
provisions relating to rental, term, size or location of the demised premises
and provided that such modification shall in no event increase any of Lessee's
costs or liabilities or obligations) and if Lessee shall fail to so modify or
amend this Lease within fifteen (15) days after such demand. Lessee shall be
deemed in default under this Lease. Lessee agrees to give within ten (10) days
of written request such reasonable statements and certificates as may be
requested by Lessor in connection with a mortgage closing or the sale of the
Building or Land, or any portion thereof.
Section 13. This Lease shall be governed by and construed and
enforced in accordance with the laws of the Commonwealth of Massachusetts.
Section 14. In any case where either party hereto is required to do
any act, delays caused by or resulting from Acts of God, war, civil commotion,
fire, flood or other casualty, labor difficulties, shortages of labor, materials
or equipment, government regulations, unusually severe weather, or other causes
beyond such party's reasonable control shall not be counted in determining the
time during which work shall be completed, whether such time be designated by a
fixed date, a fixed time, "promptly" or "a reasonable time", and such time shall
be deemed to be extended by the period of such delay. For the purpose hereof,
inability to pay normal charges incurred in connection with performance of an
obligation hereunder (including without limitation payment of annual base rent
or additional rent hereunder) does not constitute a cause beyond such party's
reasonable control.
Section 15. INTENTIONALLY DELETED.
Section 16. Lessee shall not record this Lease, but upon request of
either party, both parties shall execute and deliver a notice of Lease, in form
satisfactory to Lessor and appropriate for recording, the costs of such notice
shall be born by the requesting party.
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ARTICLE XXIII
PROHIBITION OF LESSEE ABANDONMENT
At all times during the Original Term, and any extension or renewal
thereof, Lessee agrees (i) to keep the demised premises adequately heated to the
extent necessary to prevent the pipes from freezing and to prevent deterioration
of the demised premises and (ii) to keep the demised premises adequately secure
so as to prevent the entry of unauthorized persons.
ARTICLE XXIV
COMPLIANCE WITH ENVIRONMENTAL LAWS
Section 1. (a) Lessee shall not generate, store, dispose of, release,
emit, or otherwise handle or use any Hazardous Substances (as hereafter defined)
in, upon, under, within, on or from the demised premises, the Building or the
Land except in compliance with any applicable Environmental Laws (as hereafter
defined).
(b) Lessee shall provide directly to Lessor copies of all
notices and documents filed with any Governmental Authority pursuant to the
Legal Requirements (including, without limitation, the Environmental Laws) with
regard to a release or threat of release of Hazardous Substances, provided,
however, that any confidential information provided to a Governmental Authority
which may be provided to Lessor shall be maintained as confidential by Lessor.
A copy of any notice or document from a Governmental Authority received by
Lessee alleging noncompliance with, or liability under, a matter covered by any
of the Environmental Laws and involving the demised premises, the Building or
the Land shall be forwarded promptly to Lessor by Lessee. It is agreed and
understood that wherever used in this Lease, the term "Legal Requirements" shall
be deemed to include, without limitation, the Environmental Laws.
(c) Lessee shall at all times, at its own expense, maintain and
preserve secondary containment incidental to the storage of Hazardous Substances
on the demised premises, the Building or the Land to the extent required by
Environmental Laws and all Legal Requirements.
(d) Lessee shall maintain full, complete and current files of
all Material Safety Data Sheets ("MSDS") materials to the extent required by
Environmental Laws.
(e) Lessee will promptly inform Lessor of any release or threat
of release of Hazardous Substances. Except as required by law, Lessee shall not
submit to the Massachusetts Department of Environmental Protection ("DEP") or
any Governmental Authority any report or other information related to the
demised premises, the Building or
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the Land without furnishing a copy to the Lessor at least 48 hours in advance of
such submission except in the case of emergency or other direction by DEP or any
Governmental Authority in which case Lessee shall use reasonable efforts to
furnish such copy to the Lessor in advance as promptly as practicable and in any
event within 48 hours after the submission to DEP or any Governmental Authority.
(f) Lessee shall, at its own expense, remove, clean up, remedy
and dispose of (in compliance with all applicable Legal Requirements) all
Hazardous Substances generated or released by Lessee or its officers, directors,
employees, contractors, servants, invitees or agents during the Term of this
Lease (or during such term as Lessee is in occupancy or possession of any part
of the demised premises, Building or Land) at or from the demised premises, the
Building and the Land in compliance with all Environmental Laws and further,
shall remove, clean up, remedy and dispose of all Hazardous Substances located
at, upon, under, within or in the demised premises, the Building or the Land
generated by or resulting from its operations, activities or processes during
the Term of this Lease (or such other periods of time as Lessee may be in
occupancy or in possession of the demised premises or any portion of the Land or
Building), in compliance with all Environmental Laws. In performing its
obligations hereunder, Lessee shall use its best efforts to avoid interference
with the use and enjoyment of the Building and the Land by other tenants and
occupants thereof. The provisions hereof shall survive expiration or
termination of this Lease.
Section 2. Lessee shall indemnify, defend and save harmless Lessor,
its officers, directors, employees, contractors, servants, invitees and agents
from and against all loss, costs, damages, claims, proceedings, demands,
liabilities, penalties, fines and expenses, including without limitation,
reasonable fees and costs for attorneys' fees, consultants' fees, litigation
costs and clean-up costs (hereinafter collectively referred to as "Liability"),
asserted against or incurred by Lessor, its officers, directors, employees,
contractors, servants or agents at any time by reason of or arising out of any
(i) release or threat of release of any Hazardous Substance at, in, upon, under
or from the demised premises, the Building or the Land where such release or
threat of release is the result of or alleged to result from the acts or
omissions of Lessee or its agents, servants, employees, independent contractors
or invitees, or (ii) any violation or alleged violation of any Environmental
Laws governing Hazardous Substances, provided that any act, omission, event or
circumstance giving rise to such Liability or clean-up obligations occurred
during the Lease Term (or any such other periods of time as Lessee shall be in
occupancy or in possession of any portion of the demised premises, the Land or
the Building). The indemnities set forth in this Section shall survive
expiration or termination of this Lease.
Section 3. In addition to the requirements set forth above, Lessee
shall, within ten (10) days of receipt, provide to Lessor copies of any
inspection or other reports, correspondence, documentation, orders, citations,
notices, directives, or suits from or by any Governmental Authority or insurer
regarding non-compliance with or potential or actual violation of Environmental
Laws. Landlord hereby expressly reserves the right to enter the demised
premises and all other portions of the Building and the Land in order to perform
28
<PAGE>
inspections and testing of the air, soil and groundwater for the presence or
existence of Hazardous Substances.
Section 4. To the best of Lessor's knowledge, the Land and the
Building are free of any Hazardous Substances. Lessor hereby agrees to
indemnify and hold Lessee harmless from and against any and all "Remediation
Costs" (as hereafter defined) sustained or incurred by Lessee in the event that
Lessee is required by any state or federal agency to effect a remediation of any
Hazardous Substances which may be located on the Land and the Building as of the
date of this Lease, unless such Hazardous Substances are present or released as
the result of the acts or omissions of Lessee or any of Lessee's agents,
servants, employees, contractors or invitees. As used herein, the term
"Remediation Costs" shall mean the cost of remediation and clean-up of the
Hazardous Substances which Lessee may incur as the result of any order of the
DEP, the U.S. Environmental Protection Agency or any State or Federal Court of
competent jurisdiction requiring that Lessee effect a remediation of any
Hazardous Substances.
Section 5. As used herein, the term "Hazardous Substances" shall
mean and include, without limitation, any material or substance which is (i)
petroleum, (ii) asbestos, (iii) designated as a "hazardous substance"
pursuant to Section 311 of the Federal Water Pollution Control Act, 33 U.S.C.
Sections 1251 et seq. (33 U.S.C. Sections 1321) or listed in Sections 307 of
the Federal Water Pollution Control Act (33 U.S.C. Sections 1317), (iv)
defined as a "hazardous waste" pursuant to Section 1004 of the Resource
Conservation and Recovery Act, 42 U.S.C. Sections 6901 et seq. (42 U.S.C.
Sections 6903), (v) defined as a "hazardous substance" pursuant to Section
101 of the Comprehensive Environmental Response, Compensation, and Liability
Act, 42 U.S.C. Sections 9601 et seq. (42 U.S.C. Sections 9601), as amended
and regulations promulgated thereunder, or (vi) defined as "oil" or a
"hazardous waste", a "hazardous substance", a "hazardous material" or a
"toxic material" under any other law, rule or regulation applicable to the
Property, including, without limitation, Chapter 21E of the Massachusetts
General Laws, as amended and the regulations promulgated thereunder. As used
herein, the term "Environmental Laws" shall mean, without limitation, each
and every law, rule, order, statute or regulation described above in Section
5, together with (i) any amendments thereto, or regulations promulgated
thereunder and (ii) any other laws pertaining to the protection of the
environment or governing the use, release, storage or generation of Hazardous
Substances, whether now existing or hereafter enacted or promulgated.
ARTICLE XXV
COMMENCEMENT; CONSTRUCTION
Section 1. Lessee hereby agrees to accept the demised premises and
the Building in their current "as is" condition with all faults. Lessee shall,
at its sole cost and expenses, perform minor modifications to the demised
premises in accordance with plans and specifications first approved by the
Lessor. Except as otherwise provided herein, Lessor has
29
<PAGE>
made no representations or warranties as to the physical condition of the
demised premises or the Building.
Section 2. Lessee, before its work is started, shall: secure all
licenses, approvals and permits necessary therefor and deliver copies thereof to
Lessor; deliver to Lessor a statement of the names of all its contractors and
subcontractors and the estimated cost of all labor and material to be furnished
by them; and cause each contractor and subcontractor to carry workmen's
compensation insurance in statutory amounts covering all the contractor's and
subcontractor's employees and comprehensive public liability insurance and
property damage insurance with such limits not greater than a $2,000,000.00
combined single limit (all such insurance to be written in companies approved by
Lessor, which approval will not be unreasonably withheld or delayed, and
insuring Lessor and Lessee as well as the contractors), and to deliver to Lessor
certificates of all such insurance. Lessee agrees to pay promptly when due the
entire cost of any work done on the Premises by Lessee, its agents, employees,
or independent contractors, and not to cause or permit any liens for labor or
materials performed or furnished in connection therewith to attach to the
Premises, the Building or the Property and to discharge any such liens which may
so within 30 days of such attachment. Upon completion of any work done on the
Premises by Lessee, its agents, employees, or independent contractors, Lessee
shall, if reasonably obtainable deliver, to Lessor original lien releases and
waivers executed by each contractor, subcontractor, supplier, materialmen,
architect, engineer or other party which furnished labor, materials or other
services in connection with such work and pursuant to which all liens, claims
and other rights of such party with respect to labor, material or services
furnished in connection with such work are unconditionally released and waived.
Section 3. Entry by Lessee or its agents for the purpose of
installing equipment, telephones, furnishings and related fixtures and personal
property in the demised premises shall be permitted by Lessor beginning on
September 15, 1994 and prior to the Commencement Date provided however that (a)
Lessee shall not take occupancy prior to the Commencement Date and (b) Lessee,
from and after the date of such entry, shall be bound by all the provisions
contained in the Lease except that Lessee shall have no obligation to pay annual
base rent or its Pro Rata Share of real estate taxes for the period prior to the
Commencement Date. Lessee shall not use the demised premises in such manner as
will increase the cost of completion.
ARTICLE XXVI
LESSEE'S EARLY TERMINATION OPTION
Section 1. Lessee shall have the right and option (the "Early
Termination Option") to terminate this Lease effective as of the last day of the
fifth (5th) lease year (the "Early Termination Date") provided that each of the
"Termination Conditions" (as said term is hereafter defined) are satisfied as
and when required by this Article 26. As used herein, the term "Termination
Conditions" shall mean that (i) Lessee shall provide Lessor with written notice
(an "Early Termination Notice") of its exercise of the Early Termination
30
<PAGE>
Option not later than two hundred seventy (270) days prior to the last day of
the fifth (5th) lease year of the Original Term of this Lease, (ii) Lessee shall
not have theretofore nor shall Lessee thereafter exercise the Option to Extend
provided in Article 27 of this Lease, (iii) simultaneously with the giving of an
Early Termination Notice to Lessor, Lessee shall deliver to Lessor the
Termination Fee (as said term is hereinafter defined) in good funds. Failure of
Lessee to timely exercise the Early Termination Option specifically in
accordance with the terms and provisions of this Article 26 or any failure of
Lessee to comply with any of the Termination Conditions within the time and
manner provided herein, time being of the essence, shall be deemed a waiver of
the Early Termination Option by Lessee unless Lessor, in its discretion, shall
waive any of such conditions in writing. Likewise, any exercise of the Option
to Extend the Term of this Lease by Lessee pursuant to Article 27 of this Lease
shall be deemed a waiver of the Early Termination Option by Lessee. It is
agreed and understood that the Early Termination Option may be exercised only
once by Lessee and in no event shall the Early Termination Date be other than
the last day of the fifth (5th) lease year of the initial term, time being of
the essence, of all of the provisions of this Article 26. Lessor hereby
reserves the right, exercisable by Lessor at any time in its sole and absolute
discretion to waive the requirement of compliance with any or all of the
Termination Conditions or any other matter contained in this Article 26.
If Lessee shall timely and properly exercise the Early Termination
Option, Lessee shall surrender and deliver up the Premises to Lessor on the
Early Termination Date as if such date were the date originally specified in
this Lease as the last day of the Term of this Lease. As used herein, the term
"Termination Fee" shall mean One Hundred Seventy Two Thousand Five Hundred and
00/100ths ($172,500.00) Dollars. It is agreed and understood that the
provisions of this Article 26 shall not be applicable during the Extension
Period and there shall be no Early Termination Option during the Extension
Period.
ARTICLE XXVII
OPTION TO EXTEND
Section 1. Lessee shall have the right and option, which said option
and right shall not be severed from this Lease or separately assigned, mortgaged
or transferred, to extend the Original Term for one (1) additional period of one
(1) year ("Extension Period"), provided that (a) Lessee shall give Lessor notice
of Lessee's exercise of such option at least nine (9) months prior to the
expiration of the Original Term and (b) Lessee shall not have theretofore
exercised nor shall Lessee thereafter exercise the Early Termination Option
described in Article 26 of this Lease. Except for the amount of annual basic
rent (which is to be determined as hereinafter provided), all the terms,
covenants, conditions, provisions and agreements in the Lease contained shall be
applicable to the additional periods through which the Term of this Lease shall
be extended as aforesaid, except that (i) there shall be no further options to
extend the Term and (ii) there shall be no early termination right applicable to
the Extension Period and accordingly Article 26 of this Lease shall not be
applicable to or during the Extension Period. If Lessee shall give notice of
its exercise of such option to
31
<PAGE>
extend in the manner and within the time period provided aforesaid, the Term
shall be extended upon the giving of such notice without the requirement of any
further attention on the part of either Lessor or Lessee. Lessor hereby
reserves the right, exercisable by Lessor in its sole discretion, to waive (in
writing) any condition precedent set forth in clauses (a) or (b) above.
If Lessee shall fail to give timely notice of the exercise of such
option as aforesaid, Lessee shall have no right to extend the Term of this
Lease, time being of the essence of the foregoing provisions. Failure of Lessee
to exercise the first such option shall extinguish Lessee's rights under this
Article 27. Any termination of this Lease Agreement shall terminate the rights
hereby granted Lessee.
The annual basic rent payable for the twelve (12) month period during
the Extension Period shall be 90% of the Fair Market Rental Value (as said term
is hereinafter defined) as of commencement of the Extension Period but in no
event less than the annual basic rent payable for and with respect to the last
12 months immediately preceding the Extension Period. "Fair Market Rental
Value" shall be computed as of the date in question at the then current annual
rental charges, including provisions for subsequent increases and other
adjustments, for extensions of existing leases then currently being negotiated
or executed for comparable space located in comparable buildings in North
Reading, Massachusetts. In determining Fair Market Rental Value, the following
factors, among others, shall be taken into account and given effect: size of the
premises, escalation charges then payable under the Lease, location of the
premises, location of the building, allowances or lack of allowances (if any)
leasing concessions, age and condition of improvements then applicable in the
geographic locations specified above and lease term. In no event shall the
annual basic rent payable with respect to the Extension Period be less than the
annual basic rent payable during the last Year of the Original Term.
Section 2. Dispute as to Fair Market Value. Lessor shall initially
designate the Fair Market Rental Value and shall furnish data in support of such
designation. If Lessee disagrees with Lessor's designation of the Fair Market
Rental Value, Lessee shall have the right, by written notice given to Lessor
within thirty (30) days after Lessee has been notified of Lessor's designation,
to submit such Fair Market Rental Value to arbitration as follows: Fair Market
Rental Value shall be determined by impartial arbitrators who shall be real
estate appraisers or brokers with at least seven (7) years of experience, one to
be chosen by Lessor, one to be chosen by Lessee, and a third to be selected, if
necessary, as below provided. The unanimous written decision of the two first
chosen, without selection and participation of a third arbitrator, or otherwise,
the written decision of a majority of three arbitrators chosen and selected as
provided below, shall be conclusive and binding upon Lessor and Lessee. Lessor
and Lessee shall each notify the other of its chosen arbitrator within ten (10)
days following the call for arbitration and, if such two arbitrators shall not
have reached a unanimous decision within thirty (30) days after their
designation, they shall so notify the then president of the Boston Bar
Association and request him to select an impartial third arbitrator, who shall
be, a real estate appraiser or a broker with seven (7) years of experience
dealing with like types of properties, to determine Fair Market Rental Value as
32
<PAGE>
herein defined. The arbitrators shall advise the parties of their determination
by written notice at least three hundred days prior to the commencement of the
Extension Period.
ARTICLE XXVIII
ADDITIONAL PROVISIONS
Section 1: Rider to Lease
Exhibit A - Land
Exhibit B - Plan of demised Premises
Exhibit C - Tenant's Plans and Specifications
Exhibit D - HVAC Maintenance Schedule
Exhibit E - Estoppel Certificate and
Non-Disturbance and Attornment
Agreement
EXECUTED under seal as of the day and year first above written.
LESSOR: HOWNAT TRUST
- ---------------------- ---------------------------------------
Witness Michael A. Howland as Trustee of Hownat
Trust, for self and co-Trustee but not
individually
LESSEE: DEANCO, INC.
By:
- ------------------------ --------------------------
Witness
Its:
--------------------------
33
<PAGE>
RIDER TO LEASE
RENT
This Rider to Lease ("Rider") by and between the Trustees of HOWNAT Trust and
Deanco, Inc. is annexed to and made a part of the above-referenced Lease.
Wherever there shall be a conflict between the terms and provisions of the Lease
and the terms and provision of this Rider, the terms and provisions of this
Rider shall govern and the Lease shall be construed accordingly.
<TABLE>
<CAPTION>
YEAR PER SQUARE ANNUAL BASE MONTHLY
FOOT RENT RENT INSTALLMENT
OF ANNUAL
BASE RENT
<S> <C> <C> <C>
10/15/94 - Free
10/31/94
11/1/94 - 50% of $4.25 $10,660.42
12/31/94 (two months)
1/1/95 - $4.25 $234,529.17* $21,320.83
11/30/95 (11 months)
12/1/95 - Free (one month)
12/31/95
1/1/96 - $4.25 $255,850.00 $21,320.83
12/31/96
1/1/97 - $4.75 $285,950.00 $23,829.17
12/31/98
1/1/99 - $5.25 $289,712.50** $26,337.50
11/30/99 (11 months)
12/1/99 - Free (one month)
12/31/99
1/1/00 - $5.25 $316,050.00 $26,337.50
12/31/00
1/1/01 - $5.75 $346,150.00 $28,845.83
12/31/02
<PAGE>
1/1/03 - $6.00 $361,200.00 $30,100.00
12/31/03
1/1/04 - $6.25 $376,250.00 $31,354.17
12/31/04
</TABLE>
* Annual Base Rent of $234,529.17 is derived by deducting one monthly
installment of $21,320.83 from $255,850.00.
** Annual Base Rent of $289,712.50 is derived by deducting one monthly
installment of $26,337.50 from $316,050.00.
Real Estate Taxes: There shall be no charge for real estate taxes
during the period from October 15, 1994 through October 31, 1994 and Lessee
shall pay 50% of any charges for real estate taxes during the period from
November 1, 1994 through December 31, 1994. Lessee shall pay Lessee's Pro Rata
Share (100%) (as said term is defined in Article 20 of the Lease) of the real
estate taxes in accordance with Article 3, Section 3 of the Lease for the
balance of the term of the Lease.
Operating Expenses: There shall be no charge for operating expenses
during the period from October 15, 1994 through October 31, 1994 and Lessee
shall pay 50% of any charges for operating expenses and insurance during the
period from November 1, 1994 through December 31, 1994. Lessee shall pay
Lessee's Pro Rata Share (100%) (as said term is defined in Article 20 of the
Lease) of the costs of maintaining, repairing and insuring the Building and the
Land in accordance with Article 3, Sections 5 and 7 of the Lease for the balance
of the term of the Lease.
EXECUTED under seal this __ day of August, 1994.
LESSOR: HOWNAT TRUST
- ------------------------ -------------------------------
Witness Michael A. Howland, as Trustee of
Hownat Trust, for self and
co-Trustee but not individually
LESSEE: DEANCO, INC .
By:
- ------------------------ ----------------------------
Witness
Its:
---------------------------
<PAGE>
EXHIBIT A
The land with the buildings thereon situated off Concord Street in North
Reading, Middlesex County, Massachusetts, shown as Lot 2 as a plan entitled
"Plan of Land in North Reading, Mass. owned by the Realty Trust and Edward
Godlin, Scale 60 feet to an inch, October 20, 1980, Robert E. Anderson, Inc."
recorded with Middlesex South District Registry of Deeds in Book 14302, Page 48,
bounded and described as follows:
SOUTHERLY on Concord Street, three hundred twenty-two and 86/100
(322.86) feet as shown on said plan;
WESTERLY by land now or formerly of Johnson Motor Lines, Inc., ten
hundred fifty-four and 33/100 (1054.33) feet as shown on
said plan;
NORTHERLY by land now or formerly of Salvatore Ventura as shown on
said plan, three hundred forty-six and 13/100 (346.13) feet;
and
EASTERLY by land now or formerly of Salvatore Ventura (formerly
George E. and Vera L. Dunn) and by land now or formerly of
Francis Bacheller as shown on said plan, one thousand one
hundred eleven and 03/100 (1,111.03) feet.
Containing 8,2912 acres according to said plan.
Together with the benefit of a fifty (50) foot right of way as shown on said
plan and evidenced by an instrument recorded in Book 10863, Page 391.
<PAGE>
EXHIBIT B
[MAP]
<PAGE>
EXHIBIT D
HVAC Maintenance Schedule
PERIODIC MAINTENANCE
Perform the following Inspections and service routine at the beginning
of each cooling season:
1. Clean the condenser coil by hosting with cold water. Do not use
hot water which can cause excessive pressure within the coil.
2. Remove any accumulation of dust and dirt from the casing of the
unit.
3. Clean or replace the air filters.
4. Inspect the control panel wiring to make certain connections are
tight and are intact.
5. Inspect the condensate drain pan and piping to make sure they are
clear and will carry away all water.
At the beginning of the heating season, perform the following
Inspection and service routine:
1. Add a few drops of SAE No. 10 nondetergent oil to the combustion
blower motor. WARNING: The use of a heavier grade oil may cause
operating difficulties during cold weather.
2. Clean or replace the air filters.
3. Inspect the control panel wiring and the heating controls to make
sure connections are tight and wiring insulation is intact.
4. Check the operation of the gas ignition system, and the spark
electrode (is operating properly) and the setting of the limit
control and make sure the evaporatorfurnace fan is cycled at the
correct cutin and cutout points.
MONTHLY INSPECTIONS
It is recommended that, once a month, the following inspections be
performed:
1. Clean or replace air filters.
2. Inspect and clean, if necessary, the condensate drain piping
during the cooling season.
<PAGE>
EXHIBIT E
ESTOPPEL CERTIFICATE AND NON-DISTURBANCE AND ATTORNMENT
AGREEMENT
Premises: 87 Concord St., North Reading, MA Lease Date: August 10, 1994, by
and between Michael A. Howland and Lorraine K. Howland, as ("Landlord") and
Deanco, Inc. ("Tenant"), Trustees of Hownat Trust.
The undersigned, Tenant under the above Lease, certifies to Nationwide
Life Insurance Company, One Nationwide Plaza, Columbus, Ohio 43216, Attention:
Real Estate Investments, 34T ("Lender") holder or proposed holder of a note or
other obligation secured, or to be secured, by a mortgage/deed of trust
("Mortgage") upon the Premises and assignee, or proposed assignee of the Lease
under an assignment of leases, rents and profits ("Lease Assignment"), that:
1. The Lease is presently in full force and effect and unmodified
except as indicated at the end of this Certificate. Tenant has no present right
to cancel or terminate the Lease under the terms thereof or otherwise. A true,
correct and complete copy of the Lease is attached hereto.
2. The term of the Lease commences on October 15, 1994 and the full
annual rental of $_________________ is now according thereunder and the Lease
terminates on December 31, 2004.
3. The Lease provides for percentage rent in an amount equal to ___
% of annual gross sales, payable ___________. Tenant has paid Landlord the sum
of $______________ as percentage rent for the period ending ________________
_____ 19__.
4. Possession of the Premises (60,200 square foot of space) was
accepted on _____________ __, 19 __, and business is being conducted on a
regular basis; and all improvements required by the terms of the Lease to be
made by Landlord have been satisfactorily completed.
5. A security deposit of $ 63,963.49 has been paid to Landlord.
With the exception of the payment of such security deposit, no rent under the
Lease has been paid in advance of its due date.
6. The address for notices to be sent to Tenant is as set forth in
the Lease, or as set forth below.
7. As of this date, Tenant has no charge, lien or claim of offset
under the Lease, or otherwise, against rents or other charges due or to become
due thereunder payable to Landlord.
8. As of this date, Tenant is not in default under the terms and
conditions of the Lease and is fully discharging all of its obligations under
the Lease.
<PAGE>
9. The Lease contains, and Tenant has, no outstanding options or
rights of first refusal to purchase, the Premises or any part of the real
property of which the Premises are a part.
10. Tenant further agrees with Lender that from and after the date
hereof:
a. Tenant will not pay any rent under the Lease more than one
(1) month in advance of its due date.
b. Tenant will not consent to the modification of any of the
terms of the Lease, or to the termination thereof by Landlord, without written
approval of Lender.
c. Tenant will not seek to terminate the Lease by reason of any
act or omission of Landlord until Tenant has given written notice of such act or
omission to Lender (at the last address furnished to Tenant) and until Lender
has been given the opportunity, but without undertaking Landlord's obligations,
to cure the default with a sixty (60) day time period. In the event Lender has
begun action to cure the default, but has not completed the same during the
sixty (60) day period, Tenant agrees that Lender shall have a reasonable period
of time thereafter to do so. If the default is such that it cannot practically
be cured by Lender without taking possession of the Premises, Tenant agrees that
any right it may have to terminate the Lease shall be suspended so long as
Lender is diligently proceeding to acquire possession of the Premises, by
foreclosure or otherwise in order to cure said default.
d. Tenant will attorn to and recognize Lender or any purchaser
at a foreclosure sale under the Mortgage, any transferee who acquires the
Premises by deed in lieu of foreclosure, and the successors and assigns of such
purchaser(s) as its landlord for the unexpired balance (and any extensions, if
exercised) of the term of the Lease upon the same terms and conditions set forth
in the Lease. Tenant further agrees that Lender or such purchaser shall not be
(a) liable for any act or omission of any prior landlord (including Landlord);
(b) liable for the return of any security deposit not actually received by
Lender or such purchaser; (c) subject to any offsets or defenses which Tenant
might have against any prior landlord (including Landlord); (d) bound by any
advance payment of rent or additional rent made by Tenant to Landlord, except
for rent or additional rent applicable to the then current month, or (e) bound
by any amendment or modification of the Lease made without the written consent
of Lender.
e. Upon receipt of notice from Lender, Tenant shall pay all
monies then due or becoming due from Tenant under the Lease, to or at the
direction of Lender, notwithstanding any provision of the Lease to the contrary.
Tenant agrees that neither Lender's demanding or receiving any such payments,
nor Lender's exercising any other right, remedy, privilege, power or immunity
granted by the Mortgage or the Lease Assignment, will operate to impose any
liability upon Lender for performance of any obligation of Landlord under the
Lease unless and until Lender elects otherwise in writing. Such payments shall
continue until Lender directs Tenant otherwise in writing.
f. Tenant agrees that, notwithstanding any provision in the
Lease to the contrary, all insurance proceeds payable with respect to any
casualty loss at the Premises or the real property of which the Premises are a
part and any and all awards or
<PAGE>
other compensation that may be payable for the condemnation of all or any
portion of the Premises or the real property of which the Premises are a part,
may be applied by Lender, at its option, to the indebtedness secured by the
Mortgage.
11. Lender agrees that, provided Tenant is not in default under the terms
of the Lease beyond any applicable notice or grace periods, Tenant's right of
possession to the Premises shall not be affected or disturbed by Lender in the
exercise of any of its rights under the Mortgage or the note secured thereby.
LEASE MODIFICATION(S), IF ANY, TO BE LISTED HERE (IF NONE, STATE "NONE").
DATED: ______________ __, 19__
TENANT:
DEANCO, INC.
--------------------------------
By:
-----------------------------
LENDER:
NATIONWIDE LIFE INSURANCE COMPANY
By:
-----------------------------
STATE OF Ohio
-----------
COUNTY OF Franklin
----------
This ___ day of _____________, 19__, personally came before me
__________________ who, being by me duly sworn, says that he is the Vice
President of NATIONWIDE LIFE INSURANCE COMPANY and that the seal affixed to the
foregoing instrument in writing is the corporate seal of the company. and that
said writing was signed and sealed by him, on behalf of said corporation, by its
authority duly given.
--------------------------------
Notary Public
My Commission Expires: [NOTARIAL SEAL]
- ------------------------
(if an individual)
<PAGE>
STATE OF
-------------
COUNTY OF
------------
I, ______________________________ a Notary Public for said County and
State, do hereby certify that ______________________ personally appeared before
me this day and, being duly sworn, states that he/she acknowledges the due
execution of the foregoing instrument for the purposes and considerations
therein expressed.
WITNESS my hand and notarial seal, this ___ day of ______________, 19__.
--------------------------------
Notary Public
My Commission Expires:
[NOTARIAL SEAL]
- ------------------------------
<PAGE>
Standard Form of INDUSTRIAL/BUSINESS PARK LEASE Developed by
PORTLAND METROPOLITAN ASSOCIATION OF BUILDING OWNERS AND MANAGERS
INDUSTRIAL/BUSINESS PARK LEASE
(NNN)
1.1 BASIC LEASE TERMS.
a. DATE OF LEASE EXECUTION:
b. TENANT: DEANCO ACA MANUFACTURING, INC.
Trade Name:
Address (Leased Premises): Building 1, Murray Business Center
3601 SW Murray Blvd., Beaverton, OR 97006
Address (For Notices): Following possession, at the Premises; prior to
possession,
3101 S.W. 153RD DRIVE, #304, BEAVERTON, OR 97006,
Attn: Dan Duggan
c. LANDLORD: Murray Center Venture
Address (For Notices): 255 S.W. Harrison Street, No. GA6
Portland, Oregon 97201
d. TENANT'S USE OF PREMISES: General office use only
e. PREMISES AREA: Approximately 30,230 rentable square feet
f. PROJECT AREA: Approximately 335,000 rentable square feet
g. AGREED UPON PREMISES PERCENT OF PROJECT: N/A
h. TERM OF LEASE: Commencement Date: See Addendum Section 34.1
Expiration:
Number of Months: 72
i. BASE MONTHLY RENT: $ See rent schedule in Addendum Section 1.1f
j. RENT ADJUSTMENT: See rent schedule in Addendum
Effective Date of New Base
Rent Increase Monthly Rent
--------------------- ---------------------
______________, 19___ $______________
______________, 19___ $______________
______________, 19___ $______________
______________, 19___ $______________
______________, 19___ $______________
k. ANNUAL EXPENSES: See Addendum Section 4.3
l. PREPAID RENT: $ 14,510
m. TOTAL SECURITY DEPOSIT: $ 16,021
n. BROKER(S): Cushman & Wakefield of Oregon, Inc. and Greg Hume
Properties
o. GUARANTORS: N/A
2.1 PREMISES.
Landlord leases to Tenant the premises described in Section 1.1 and in
Exhibit A (the "Premises"), located in the project described on Exhibit B
(the "Project"). Landlord shall modify Tenant's percentage of the Project
as set forth in Section 1.1 if the Project size is increased or decreased,
as the case may be, through the development of additional property or the
deletion of a portion of the Project. Landlord shall give Tenant five (5)
days notice prior to the date that the Premises are ready for occupancy.
Within five (5) days after Tenant receives Landlord's notice that the
Premises are ready for occupancy, Landlord and Tenant shall inspect the
Premises and prepare a "punchlist" of items to be completed. The existence
of "punchlist" items shall not postpone the commencement date of this Lease
Agreement. By taking occupancy of the Premises, Tenant acknowledges that
it has examined the Premises and accepts the
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Premises in their then present condition, subject only to any work which
Landlord has agreed to perform as set forth on the "punchlist" and on
Exhibit E.
(1) Landlord shall deliver the Premises to Tenant clean and free of debris
on the commencement date and Landlord warrants to Tenant that the
Premises shall be in good operating condition on the commencement
date. In the event that it is determined that this warranty has been
violated, then it shall be the obligation of Landlord, after receipt
of written notice from Tenant setting forth with specificity the
nature of the violation, to promptly, at Landlord's sole cost, rectify
such violation.
3.1 TERM.
The term of this Lease is for the period set forth in Section 1.1,
commencing on the date in Section 1.1. If the Landlord, for any reason,
cannot deliver possession of the Premises to Tenant upon the scheduled
commencement date set forth in Section 1.1, this Lease shall not be void or
voidable, nor shall Landlord be liable to Tenant for any loss or damage
resulting from such delay. In that event, however, Landlord shall deliver
possession of the Premises as soon as practicable and the commencement date
shall be the date of such delivery with the term of the Lease remaining
unchanged, and all other terms and conditions of this Lease remaining in
full force and effect. However, if Landlord is delayed in delivering
possession to Tenant for any reason attributable to Tenant Delays (as
defined in the Work Letter Agreement attached hereto), this Lease
(including the obligation to pay all rents) shall commence on the scheduled
commencement date set forth in Section 1.1 above. If Landlord, for any
reason not attributable to Tenant, is unable to deliver possession of the
Premises within ninety (90) days following the scheduled commencement date,
either party may terminate this Lease by written notice given within ten
(10) days following expiration of such period.
4.1 RENT.
Base Monthly Rent. Tenant shall pay to Landlord base monthly rent in the
initial amount in Section 1.1 which shall be payable monthly in advance on
the first day of each and every calendar month ("Base Monthly Rent");
provided, however, the Base Monthly Rent for the first month of the term
shall be paid upon execution of this Lease. All charges and sums due from
Tenant to Landlord hereunder shall be deemed rent.
4.2 RENT ADJUSTMENT.
If Section 1.1j is applicable, Base Monthly Rent shall be increased
periodically to the amounts and at the times set forth in Section 1.1j.
4.3 EXPENSES.
The purpose of this Section is to ensure that Tenant bears a share of all
Expenses reasonably related to the use, maintenance, ownership, repair or
replacement, and insurance of the Project. Accordingly, beginning on the
commencement date, Tenant shall commence the payment of Expenses. See
Addendum Section 4.3.
4.4 RENT WITHOUT OFFSET AND LATE CHARGE.
All rent shall be paid by Tenant to Landlord monthly in advance on the
first day of every calendar month, at the address shown in Section 1.1, or
such other place as Landlord may designate in writing from time to time.
All rent shall be paid without prior demand or notice and without any
deduction or offset whatsoever. All rent shall be paid in lawful currency
of the United States of America. All rent due for any partial month shall
be prorated at the rate of 1/30th of the total monthly rent per day.
Tenant acknowledges that late payment by Tenant to Landlord of any rent or
other sums due under this Lease will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of such costs being extremely
difficult and impracticable to ascertain. Such costs include, without
limitation, processing and accounting charges and late charges that may be
imposed on Landlord by the terms of any encumbrance or note secured by the
Premises. Therefore, if any rent or other sum due from Tenant is not
received when due, Tenant shall pay to Landlord an additional sum equal to
7% of such overdue payment. Landlord and Tenant hereby agree that such
late charge represents a fair and reasonable estimate of the costs that
Landlord will incur by reason of any such late payment and that the late
charge is in addition to any and all remedies available to the Landlord and
that the assessment and/or collection of the late charge shall not be
deemed a waiver of any default. Additionally, all such delinquent rent not
paid within five (5) days of when due, or other sums, plus this late
charge, shall bear interest at the prime rate of Key Bank of Oregon, plus
2%, on a fully floating basis (herein the "Default Rate"), from the date
first due until the date paid in full. Any payments of any kind returned
for insufficient funds will be subject to an additional handling charge of
$25.00, and thereafter, Landlord may require Tenant to pay all future
payments of rent or other sums due by money order or cashier's check.
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5.1 PREPAID RENT.
Upon the execution of the Lease, Tenant shall pay to Landlord the prepaid
rent set forth in Section 1.1, and if Tenant is not in default of any
provisions of this Lease, such prepaid rent shall be applied toward the
Base Monthly Rent due for the first month of the term (or the first month
following any Base Monthly Rent abatement period, if applicable). Upon a
default by Tenant prior to such application, Landlord shall have the right,
without waiver of the default or prejudice to other remedies, to use the
prepaid rent or any of it to cure the default or to compensate Landlord for
all or any damages resulting from the default. Landlord's obligations with
respect to the prepaid rent are those of a debtor and not of a trustee, and
Landlord can commingle the prepaid rent with Landlord's general funds.
Landlord shall not be required to pay Tenant interest on the prepaid rent.
Landlord shall be entitled to immediately endorse and cash Tenant's prepaid
rent; however, such endorsement and cashing shall constitute Landlord's
acceptance of this Lease.
6.1 DEPOSIT.
Upon execution of this Lease, Tenant shall deposit the security deposit set
forth in Section 1.1 with Landlord as security for the performance by
Tenant of the provisions of this Lease. Upon a default by Tenant, Landlord
shall have the right, without waiver of the default or prejudice to other
remedies, to use the security deposit or any portion of it to cure the
default or to compensate Landlord for any damages resulting from Tenant's
default. Upon demand, Tenant shall immediately pay to Landlord a sum equal
to the portion of the security deposit expended or applied by Landlord to
maintain the security deposit in the amount initially deposited with
Landlord. In no event will Tenant have the right to apply any part of the
security deposit to any rent or other sums due under this Lease. If Tenant
is not in default at the expiration or termination of this Lease, Landlord
shall return the entire security deposit to Tenant, except for the portion
designated in Section 1.1, if any, which Landlord shall retain as a non-
refundable cleaning fee. Landlord's obligations with respect to the
deposit are those of a debtor and not of a trustee, and Landlord can
commingle the security deposit with Landlord's general funds. Landlord
shall not be required to pay Tenant interest on the deposit. Landlord
shall be entitled to immediately endorse and cash Tenant's security
deposit; however, such endorsement and cashing shall constitute Landlord's
acceptance of this Lease. If Landlord sells its interest in the Premises
during the term hereof and deposits with or credits to the purchaser the
unapplied portion of the security deposit, thereupon Landlord shall be
discharged from any further liability or responsibility with respect to the
security deposit.
7.1 USE OF PREMISES AND PROJECT FACILITIES.
Tenant shall use the Premises solely for the purposes set forth in Section
1.1 and for no other purpose without obtaining the prior written consent of
Landlord. Tenant acknowledges that neither Landlord nor any agent of
Landlord has made any representation or warranty with respect to the
Premises or with respect to the suitability of the Premises or the Project
for the conduct of Tenant's business, nor has Landlord agreed to undertake
any modification, alteration or improvement to the Premises or the Project,
except as provided in writing in this Lease. Tenant acknowledges that
Landlord may from time to time, at its sole discretion, make such
modifications, alterations, deletions or improvements to the Project as
Landlord may deem necessary or desirable, without compensation or notice to
Tenant. Tenant shall promptly and at all times comply with all federal,
state and local statutes, laws, ordinances, orders and regulations
affecting or resulting from Tenant's use of the Premises and the Project
(herein "Laws"), as well as all master plans, restrictive covenants, and
also any rules and regulations that Landlord may reasonably adopt from time
to time. Tenant shall not do or permit anything to be done in or about the
Premises or bring or keep anything in the Premises that will in any way
increase the premiums paid by Landlord on its insurance related to the
Project or which will in any way increase the premiums for fire or casualty
insurance carried by other tenants in the Project. Tenant will not perform
any act or carry on any practices that may injure the Premises or the
Project; that may be a nuisance or menace to other tenants in the Project;
or that shall in any way interfere with the quiet enjoyment of such other
tenants. Tenant shall not use the Premises for sleeping, washing clothes,
cooking or the preparation, manufacture or mixing of anything that might
emit any objectionable odor, noises, vibrations or lights onto such other
tenants. If sound insulation is required to muffle noise produced by
Tenant on the Premises, Tenant at its own cost shall provide all necessary
insulation. Tenant shall not do anything on the Premises which will
overload any existing parking or service to the Premises. Pets and/or
animals of any type shall not be kept on the Premises.
8.1 SIGNAGE.
All signage shall comply with rules and regulations set forth by Landlord
as may be modified from time to time. Tenant shall place no window
covering (E.G., shades, blinds, curtains, drapes, screens, or tinting
materials), stickers, signs, lettering, banners or advertising or display
material on or near exterior windows or doors if such materials are visible
from the exterior of the Premises, without Landlord's prior written
consent. Similarly, Tenant may not install any alarm boxes, foil
protection tape or other security equipment on the Premises without
Landlord's prior written consent. Any material violating this provision
may be destroyed by Landlord without compensation to Tenant. See Addendum
Section 8.
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9.1 PERSONAL PROPERTY TAXES.
Tenant shall pay before delinquency all taxes, assessments, license fees
and public charges levied, assessed or imposed upon its business operations
as well as upon all trade fixtures, leasehold improvements, merchandise and
other personal property in or about the Premises.
10.1 PARKING.
Landlord grants to Tenant and Tenant's customers, suppliers, employees and
invitees, a nonexclusive license to use the designated parking areas in the
Project for the use of motor vehicles during the term of this Lease.
Landlord reserves the right at any time to grant similar nonexclusive use
to other tenants, to make rules and regulations relating to the use of such
parking areas, including reasonable restrictions on parking by tenants and
employees, to designate specific spaces for the use of any tenant and to
make changes in the parking layout from time to time.
11.1 UTILITIES.
Tenant shall pay for all water, gas, heat, light, power, sewer,
electricity, telephone or other service metered, chargeable or provided to
the Premises. Landlord reserves the right to install separate meters or
other monitoring systems for any such utility and to charge Tenant for the
cost of such installation.
12.1 MAINTENANCE.
Landlord shall maintain, in good condition, the structural parts of the
Premises, which shall include only the foundations, bearing and exterior
walls (excluding glass), subflooring and roof (excluding skylights), the
unexposed electrical, plumbing and sewerage systems, including without
limitation, those portions of the systems lying outside the Premises,
exterior doors (excluding glass), window frames, gutters and downspouts on
the Building. Except as provided above, Tenant shall maintain the Premises
in good condition, including, without limitation, maintaining and repairing
all walls, floors, ceilings, interior doors, exterior and interior windows
and fixtures as well as damage caused by Tenant, its agents, employees or
invitees. Upon expiration or termination of this Lease, Tenant shall
surrender the Premises to Landlord in the same condition as existed at the
commencement of the term, except for reasonable wear and tear or damage
caused by fire or other casualty for which Landlord has received all funds
necessary for restoration of the Premises from insurance proceeds. Nothing
herein shall excuse Tenant from financial responsibility for property
damage or needed repairs or maintenance caused by Tenant or Tenant's
agents. See Addendum Section 12.1.
13.1 ALTERATIONS.
(1) Tenant shall not make any alterations to the Premises that can be seen
from the exterior of the Premises, to any utility system within the
Premises or to any structural element of the Premises without
Landlord's prior written consent in each instance. If Landlord gives
its consent to such alterations, Landlord may post notices in
accordance with the laws of the state in which the Premises are
located. Any alterations made shall remain on and be surrendered with
the Premises upon expiration or termination of this Lease, except that
Landlord may at the time of giving its consent, elect to require
Tenant to remove any alterations which Tenant may make to the
Premises. If Landlord so elects, at its own cost Tenant shall restore
the Premises to the original condition, reasonable wear and tear
excepted, before the last day of the term or within 30 days after
notice of its election is given, whichever is later.
(2) Any request for Landlord's consent to alterations shall be made at
least thirty (30) days before any work may be commenced and shall be
accompanied by (i) detailed and costed plans and specifications for
all alterations, and (ii) Tenant's written agreement to provide, upon
completion of work, a complete set of as-built plans and
specifications. Landlord may withhold consent, in its reasonable
discretion and may issue such consent subject to conditions. All
alterations shall be constructed only after obtaining Landlord's prior
written consent and only in conformity with all Laws. The issuance of
Landlord's consent shall not be a waiver of Tenant's obligation to
comply with all Laws, nor Landlord's opinion that such alterations are
in compliance with all Laws.
(3) Should Landlord consent in writing to Tenant's alteration of the
Premises, Tenant shall contract with a contractor approved by Landlord
for the construction of such alterations, shall secure all appropriate
governmental approvals and permits, and shall complete such
alterations with due diligence in compliance with the plans and
specifications approved by Landlord. All such construction shall be
performed in a manner which will not interfere with the quiet
enjoyment of other tenants of the Project.
(4) Tenant shall pay all costs for construction of alterations and shall
keep the Premises and the Project free and clear of all liens which
may result from work by third parties authorized by
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Tenant. If any such lien is filed, the same shall be an event of
default hereunder if Tenant fails to remove such lien within ten (10)
days of the filing thereof.
14.1 RELEASE AND INDEMNITY.
As material consideration to Landlord, Tenant agrees that except for acts
of active negligence or wilful misconduct, Landlord and Landlord's
partners, shareholders, officers, directors, employees and agents
(collectively the "Protected Parties") shall not be liable to Tenant for
any damage to Tenant or Tenant's property from any cause, and Tenant waives
all claims against Landlord for damage to persons or property arising for
any reason, except for damage resulting directly from Landlord's active
negligence, wilful misconduct, or breach of its express obligations under
this Lease which Landlord has not cured within a reasonable time after
receipt of written notice of such breach from Tenant. Tenant shall defend,
indemnify and hold Landlord and all other Protected Parties harmless from
all claims, losses, causes of action, costs and expenses, and damages
arising out of (a) any damage to any person or property occurring in the
Premises, (b) use by Tenant or its agents of the Premises and/or the
Project or other properties of Landlord, and/or (c) Tenant's breach or
violation of any term of this Lease.
15.1 INSURANCE.
Tenant, at its cost, shall maintain public liability and property damage
insurance and products liability insurance with a single combined liability
limit of $1,000,000, insuring against all liability of Tenant and its
authorized representatives arising out of or in connection with Tenant's
use or occupancy of the Premises. Public liability insurance, products
liability insurance and property damage insurance shall insure performance
by Tenant of the indemnity provisions of Section 14.1. Landlord shall be
named as an additional insured and the policy shall contain cross-liability
endorsements. On all its personal property, at its cost, Tenant shall
maintain a policy of standard fire and extended coverage insurance with
vandalism and malicious mischief endorsements and "all risk" coverage on
all Tenant's improvements and alterations in or about the Premises, to the
extent of at least 100% of their full replacement value. The proceeds from
any such policy shall be used by Tenant for the replacement of personal
property and the restoration of Tenant's improvements or alterations. All
insurance required to be provided by Tenant under this Lease shall release
Landlord and the other Protected Parties from any claims for damage to any
person or the Premises and the Project, and to Tenant's fixtures, personal
property, improvements and alterations in or on the Premises or the
Project, caused by or resulting from risks insured against under any
insurance policy carried by Tenant and in force at the time of such damage.
All insurance required to be provided by Tenant under this Lease: (a) shall
be issued by insurance companies authorized to do business in the state in
which the Premises are located; (b) be reasonably acceptable to Landlord;
(c) shall be issued as a primary policy; and (d) shall contain an
endorsement requiring at least 30 days prior written notice of cancellation
to Landlord and Landlord's lender, before cancellation or change in
coverage, scope or amount of any policy. Tenant shall deliver a
certificate or copy of such policy together with evidence of payment of all
current premiums to Landlord within 10 days of execution of this Lease.
Tenant's failure to provide evidence of such coverage to Landlord may, in
Landlord's sole discretion, constitute a default under this Lease.
16.1 DESTRUCTION.
If during the term, the Premises or Project is more than 25% destroyed
(based upon replacement cost) from any cause, or rendered inaccessible or
unusable from any cause, Landlord may, in its sole discretion, terminate
this Lease by delivery of notice to Tenant within 30 days of such event
without compensation to Tenant. If Landlord does not elect to terminate
this Lease, and if, in Landlord's estimation, the Premises cannot be
restored within 180 days following such destruction, the Landlord shall
notify Tenant and Tenant may terminate this Lease by delivery of notice to
Landlord within 30 days of receipt of Landlord's notice. If Landlord does
not terminate this Lease and if in Landlord's estimation the Premises can
be restored within 180 days, then Landlord shall commence to restore the
Premises in compliance with then existing laws and shall complete such
restoration with due diligence. In such event, this Lease shall remain in
full force and effect, but there shall be an abatement of Base Monthly Rent
between the date of destruction and the date of completion of restoration,
based on the extent to which destruction interferes with Tenant's use of
the Premises; provided, there shall be no abatement if such damage is the
result of Tenant's negligence or wrongdoing and the damage is an uninsured
loss. Tenant shall not be entitled to any damages or compensation for loss
of use or any inconvenience occasioned by damage or any repair or
restoration. See Addendum Section 16.1.
17.1 CONDEMNATION.
(1) Definitions. The following definitions apply: (1) "Condemnation"
means (a) the exercise of any governmental power of eminent domain,
whether by legal proceedings or otherwise by condemnor and (b) the
voluntary sale or transfer by Landlord to any condemnor either under
threat of condemnation or while legal proceedings for condemnation are
proceeding; (2) "Date of Taking" means the date the condemnor has the
right to possession of the property being condemned; (3) "Award" means
all compensation, sums or anything of value awarded, paid or
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received on a total or partial condemnation; and (4) "Condemnor" means
any public or quasi-public authority, or private corporation or
individual, having a power of condemnation.
(2) Obligations to Be Governed by Lease. If during the term of the Lease
there is any taking of all or any part of the Premises or the Project,
the rights and obligations of the parties shall be determined pursuant
to this Lease.
(3) Total or Partial Taking. If the Premises are totally taken by
condemnation, this Lease shall terminate on the Date of Taking. If
any portion of the Premises is taken by Condemnation, this Lease shall
terminate as to the part so taken as of the Date of Taking, but shall
in all other respects remain in effect, except that Tenant can elect
to terminate this Lease if in Tenant's estimation the remaining
portion of the Premises is rendered unsuitable for Tenant's continued
use of the Premises. If Tenant elects to terminate this Lease, Tenant
must exercise its right to terminate by giving notice to Landlord
within 30 days after the nature and extent of the Condemnation have
been fully determined. If Tenant elects to terminate this Lease,
Tenant shall also notify Landlord of its date of termination, which
date shall not be earlier than 30 days nor later than 90 days after
Tenant has notified Landlord of its election to terminate; except that
this Lease shall terminate on the Date of Taking if the Date of Taking
falls on a date before the date of termination as designated by
Tenant. If any portion of the Premises is taken by condemnation and
this Lease remains in full force and effect, on the Date of Taking the
Base Monthly Rent shall be reduced by an amount in the same ratio as
the total number of square feet in the Premises taken bears to the
total number of square feet in the Premises immediately before the
Date of Taking.
(4) Landlord's Election. Notwithstanding anything herein to the contrary,
if the Project or any portion thereof is taken by Condemnation and the
portion taken does not, in Landlord's sole judgment, feasibly permit
the continuation of the operation of the Project by Landlord, then
Landlord shall have the right to terminate this Lease by written
notice given within thirty (30) days following the Date of Taking.
(5) Award. Tenant shall have no right or claim to all or any portion of
the Award; provided this shall not limit Tenant's right to seek and to
receive compensation for relocation expenses or the value of its
personal property taken, so long as receipt of such compensation does
not decrease the Award otherwise payable to Landlord.
18.1 ASSIGNMENT OR SUBLEASE.
Tenant shall not assign or encumber its interest in this Lease or the
Premises or sublease all or any part of the Premises or allow any other
person or entity (except Tenant's authorized representatives, employees,
invitees, or guests) to occupy or use all or any part of the Premises
without first obtaining Landlord's consent (see Addendum Section 18.1).
Any assignment, encumbrance or sublease without Landlord's written consent
shall be voidable and at Landlord's election, shall constitute a default.
If Tenant is a partnership, a withdrawal or change, voluntary, involuntary
or by operation of law of any partner, or the dissolution of the
partnership, shall be deemed a voluntary assignment. If Tenant consists of
more than one person, a purported assignment, voluntary or involuntary or
by operation of law from one person to the other or to a third party shall
be deemed a voluntary assignment. All rent received by Tenant from its
subtenants in excess of the rent payable by Tenant to Landlord under this
Lease (allocated on a square footage basis in cases of partial subleasing)
shall be paid to Landlord, and any sums to be paid by an assignee to Tenant
in consideration of the assignment of this Lease shall be paid to Landlord.
If Tenant requests Landlord to consent to a proposed assignment or
subletting, Tenant shall pay to Landlord, whether or not consent is
ultimately given, $400 as Landlord's reasonable attorneys' fees incurred in
connection with such request. No interest of Tenant in this Lease shall be
assigned by involuntary assignment through operation of law (including
without limitation the transfer of this Lease by testacy or intestacy).
Each of the following acts shall be considered an involuntary assignment:
(a) if Tenant is or becomes bankrupt or insolvent, makes an assignment for
the benefit of creditors, or institutes proceedings under the Bankruptcy
Act in which Tenant is the bankrupt; or if Tenant is a partnership or
consists of more than one person or entity, if any partner of the
partnership or other person or entity is or becomes bankrupt or insolvent,
or makes an assignment for the benefit of creditors; or (b) if a writ of
attachment or execution is levied on this Lease and is not removed within
thirty (30) days or (c) if in any proceeding or action to which Tenant is a
party, a receiver is appointed with authority to take possession of the
Premises. An involuntary assignment shall constitute a default by Tenant
and Landlord shall have the right to elect to terminate this Lease, in
which case this Lease shall not be treated as an asset of Tenant.
19.1 DEFAULT.
The occurrence of any of the following shall constitute a default by
Tenant: (a) A failure to pay rent or other charge within five (5) days of
when due; or (b) Failure to perform any other provision of this Lease.
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20.1 LANDLORD'S REMEDIES.
(1) Landlord shall have the following remedies if Tenant is in default.
These remedies are not exclusive; they are cumulative and in addition
to any remedies now or later allowed by law. Landlord may terminate
this Lease and/or Tenant's right to possession of the Premises at any
time. No act by Landlord other than giving notice to Tenant shall
terminate this Lease. Acts of maintenance, efforts to relet the
Premises, or the appointment of a receiver on Landlord's initiative to
protect Landlord's interest under this Lease shall not constitute a
termination of this Lease. Upon termination of this Lease or of
Tenant's right to possession, Landlord has the right to recover from
Tenant: (1) The worth of the unpaid rent that had been earned at the
time of such termination; (2) The worth of the amount of the unpaid
rent that would have been earned after the date of such termination,
less the amount of lost rent that Tenant proves could have been
reasonably avoided; and (3) Any other amount, including court,
attorney and collection costs, necessary to compensate Landlord for
all detriment proximately caused by Tenant's default. "The Worth" as
used for Item 20.1(1) in this Paragraph is to be computed by allowing
interest at the Default Rate. "The worth" as used for Item 20.1(2) in
this Paragraph is to be computed by discounting the amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time
of termination of Tenant's right of possession.
(2) All covenants and agreements to be performed by Tenant under any of
the terms of this Lease shall be performed by Tenant at Tenant's sole
cost and expense and without any abatement of rent. If Tenant shall
fail to pay any sum of money owed to any party other than Landlord,
for which it is liable hereunder, or if Tenant shall fail to perform
any other act on its part to be performed hereunder, and such failure
shall continue for ten (10) days after notice thereof by Landlord,
Landlord may, without waiving such default or any other right or
remedy, but shall not be obligated to, make any such payment or
perform any such other act to be made or performed by Tenant. All
sums so paid by Landlord and all necessary incidental costs, together
with interest thereon at the Default Rate from the date of expenditure
by Landlord, shall be payable to Landlord on demand.
21.1 ENTRY ON PREMISES.
Landlord and its authorized representatives shall have the right to enter
the Premises at any time, in the case of an emergency, and upon reasonable
notice, at all reasonable times for any of the following purposes: (a) To
determine whether the Premises are in good condition and whether Tenant is
complying with its obligations under this Lease; (b) To do any necessary
maintenance and to make any restoration to the Premises or the Project that
Landlord has the right or obligation to perform; (c) To post "for sale"
signs at any time during the term, to post "for rent" or "for lease" signs
during the last 90 days of the term, or during any period while Tenant is
in default; (d) To show the Premises to prospective brokers, agents,
buyers, tenants or persons interested in leasing or purchasing the
Premises, at any time during the term; or (e) To repair, maintain or
improve the Project and to erect scaffolding and protective barricades
around and about the Premises but not so as to prevent entry to the
Premises and to do any other act or thing necessary for the safety or
preservation of the Premises or the Project. Landlord shall not be liable
in any manner for any inconvenience, disturbance, loss of business,
nuisance or other damage arising out of Landlord's entry onto the Premises
as provided in this Section. Tenant shall not be entitled to an abatement
or reduction of rent if Landlord exercises any rights reserved in this
Section. Landlord shall conduct its activities on the Premises as provided
herein in a manner that will cause the least inconvenience, annoyance or
disturbance to Tenant. For each of these purposes, Landlord shall at all
times have and retain a key with which to unlock all the doors in, upon and
about the Premises, excluding Tenant's vaults and safes. Tenant shall not
alter any lock or install a new or additional lock or bolt on any door of
the Premises without prior written consent of Landlord. If Landlord gives
its consent, Tenant shall furnish Landlord with a key for any such lock.
22.1 SUBROGATION.
Without the necessity of any additional document being executed by Tenant
for the purpose of effecting a subordination, and at the election of
Landlord or any mortgagee or any beneficiary of a Deed of Trust with a lien
on the Project or any ground lessor with respect to the Project, this Lease
shall be subject and subordinate at all times to (a) all ground leases or
underlying leases which may now exist or hereafter be executed affecting
the Project, and (b) the lien of any mortgage or deed of trust which may
now exist or hereafter be executed in any amount for which the Project,
ground leases or underlying leases, or Landlord's interest or estate in any
of said items is specified as security. In the event that any ground lease
or underlying lease terminates for any reason or any mortgage or Deed of
Trust is foreclosed or a conveyance in lieu of foreclosure is made for any
reason, Tenant shall, notwithstanding any subordination, attorn to and
become the Tenant of the successor in interest to Landlord, at the option
of such successor in interest. Tenant covenants and agrees to execute and
deliver, upon demand by Landlord and in the form requested by Landlord any
additional documents evidencing the priority or subordination of this Lease
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with respect to any such ground lease or underlying leases or the lien of
any such mortgage or Deed of Trust. See Addendum Section 22.1.
Tenant, within ten days from notice from Landlord, shall execute and
deliver to Landlord, in recordable form, certificates stating that this
Lease is not in default, is unmodified and in full force and effect, or in
full force and effect as modified, and stating the modifications. This
certificate should also state the amount of current monthly rent, the dates
to which rent has been paid in advance, the amount of any security deposit
and prepaid rent, and such other matters as Landlord may request. Failure
to deliver this certificate to Landlord within ten days shall be conclusive
upon Tenant that this Lease is in full force and effect and has not been
modified except as may be represented by Landlord. In addition, in
connection with any sale or financing involving the Premises, Tenant shall
deliver to Landlord, within twenty (20) days of request by Landlord, a
current unaudited financial statement of Tenant and of each guarantor.
23.1 NOTICE.
Any notice, demand, request, consent, approval or communication desired by
either party or required to be given, shall be in writing and either served
personally or sent by prepaid certified first class mail, addressed as set
forth in Section 1.1. Either party may change its address by notification
to the other party. Notice shall be deemed to be communicated 48 hours
from the time of such mailing, or upon the time of service as provided in
this Section.
24.1 WAIVER.
No delay or omission in the exercise of any right or remedy by Landlord
shall impair such right or remedy to be constructed as a waiver. No act or
conduct of Landlord, including without limitation, acceptance of the keys
to the Premises, shall constitute an acceptance of the surrender of the
Premises by Tenant before the expiration of the term. Only written notice
from Landlord to Tenant shall constitute acceptance of the surrender of the
Premises and accomplish termination of the Lease. Landlord's consent to or
approval of any act by Tenant requiring Landlord's consent or approval
shall not be deemed to waive or render unnecessary Landlord's consent to or
approval of any subsequent act by Tenant. Any waiver by Landlord of any
default must be in writing and shall not be a waiver of any other default
concerning the same or any other provision of the Lease.
25.1 SURRENDER OF PREMISES; HOLDING OVER.
Upon expiration of the term or the termination of this Lease or of Tenant's
right of possession, Tenant shall surrender to Landlord the Premises and
all tenant improvements and alterations (except alterations which Tenant
has the right or obligation to remove) in good condition, except for
ordinary wear and tear provided that Tenant shall not be required to
reconfigure the Premises to its original condition. Tenant shall remove
all personal property including, without limitation, all wallpaper,
paneling and other decorative improvements or fixtures and shall perform
all restoration made necessary by the removal of any alterations or
Tenant's personal property before the expiration of the term, including for
example, restoring all wall surfaces to their condition prior to the
commencement of this Lease. Landlord can elect to retain or dispose of in
any manner Tenant's personal property not removed from the Premises by
Tenant prior to the expiration of the term. Tenant waives all claims
against Landlord for any damage to Tenant resulting from Landlord's
retention or disposition of Tenant's personal property. Tenant shall be
liable to Landlord for Landlord's costs for storage, removal or disposal of
Tenant's personal property. If Tenant fails to surrender the Premises upon
the expiration of the term, or upon the termination of this Lease or of
Tenant's right of possession, Tenant shall defend, indemnify and hold
Landlord harmless from all resulting loss or liability, including without
limitation, any claim made by any succeeding tenant founded on or resulting
from such failure. See Addendum Section 25.1.
If Tenant, with Landlord's consent, remains in possession of the Premises
after expiration of this Lease, such possession by Tenant shall be deemed
to be a month-to-month tenancy terminable on written 30-day notice at any
time, by either party. All provisions of this Lease, except those
pertaining to term and rent, shall apply to the month-to-month tenancy.
Tenant shall pay Base Monthly Rent in an amount equal to 115% of the Base
Monthly Rent for the last full calendar month during the regular term plus
100% of said last month's estimate of Tenant's share of Expenses pursuant
to Section 4.3(3) for the following three (3) months, and thereafter,
Tenant shall pay 150% of the Monthly Base Rent plus Expenses.
26.1 LIMITATION OF LIABILITY.
In consideration of the benefits accruing hereunder, Tenant agrees that,
regarding any claim against Landlord and/or any other Protected Party,
including in the event of any actual or alleged failure, breach or default
by Landlord:
a. The sole and exclusive remedy of Tenant shall be against the interest
of Landlord in the Project, and neither Landlord nor any other
Protected Party shall have any other liability whatsoever.
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b. If Landlord is a partnership, the following provisions of this Item b.
shall also apply: (i) No partner of Landlord shall be sued or named as
a party in any suit or action; (ii) No service of process shall be
made against any partner of Landlord (except as may be necessary to
secure jurisdiction of the partnership); (iii) No partner of Landlord
shall be required to answer or otherwise plead to any service or
process; (iv) No judgment may be taken against any partner of
Landlord; (v) Any judgment taken against any partner of Landlord may
be vacated and set aside at any time without hearing; and (vi) No writ
of execution will ever be levied against the assets of any partner of
Landlord.
c. These covenants and agreements contained in this Section are
enforceable both by Landlord and also by any other Protected Party.
d. Tenant agrees that each of the foregoing provisions shall be
applicable to any and all liabilities, claims and causes of action
whatsoever, including those based on any provision of this Lease, any
implied covenant, and/or any statute or common law principle.
27.1 MISCELLANEOUS PROVISIONS.
(1) Time of Essence. Time is of the essence of each provision of this
Lease.
(2) Successor. This Lease shall be binding on and inure to the benefit of
the parties and their successors, except as provided in Section 18.1
herein.
(3) Landlord's Consent. Any consent required by Landlord under this Lease
must be granted in writing. No such consent shall be unreasonably
withheld, but any consent may be issued subject to reasonable
conditions. As a condition to any consent, Landlord may require that
any other party or parties with a right of consent issue such consent
on terms acceptable to Landlord.
(4) Commissions. Each party represents that it has not had dealings with
any real estate broker, finder or other person with respect to this
Lease in any manner, except for the broker identified in Section 1.1,
who shall be compensated by Landlord.
(5) Other Charges. If Landlord becomes a party to any litigation
concerning this Lease, the Premises or the Project, by reason of any
act or omission of Tenant or any agent, guest or invitee of Tenant,
Tenant shall be liable to Landlord for all attorneys fees and costs
incurred by Landlord in connection with such litigation, including any
appeal or review.
In the event of litigation between Tenant and Landlord and/or any
other Protected Party, the prevailing party shall be entitled to
recover from the losing party all costs and attorneys fees incurred
both at and in preparation for trial and any appeal or review.
(6) Landlord's Successors. In the event of a sale or conveyance by
Landlord of the Project or a portion thereof including the Premises,
or of Landlord's interest in the foregoing, the same shall operate to
release Landlord from any liability under this Lease which arises out
of obligations accruing or to be performed after the date of such sale
or conveyance and in such event Landlord's successor in interest shall
be solely responsible for all such obligations of Landlord under this
Lease.
(7) Interpretation. This Lease shall be construed and interpreted in
accordance with the laws of the state in which the Premises are
located. This Lease constitutes the entire agreement between the
parties with respect to the Premises and the Project, except for such
guarantees or modifications as may be executed in writing by the
parties from time to time. When required by the context of this
Lease, the singular shall include the plural, and the masculine shall
include the feminine and/or neuter. "Party" shall mean Landlord or
Tenant. If more than one person or entity constitutes Tenant, the
obligations imposed upon Tenant shall be joint and several. The
enforceability, invalidity or illegality of any provision shall not
render the other provisions unenforceable, invalid or illegal.
(8) Third Parties. The Protected Parties shall have the right to enforce
the provisions of this Lease which reference them. Except for the
foregoing, there are no third parties benefitted hereby, this Lease
being intended solely for the benefit of Landlord and Tenant.
Notwithstanding the foregoing, the beneficiary under a trust deed, or
a mortgagee, holding a security interest in the Project shall be a
third party beneficiary of the Tenant's obligations set forth in
Sections 22.1 and 28 hereof and shall have the right to enforce such
provisions.
(9) Survival. The release and indemnity covenants of Tenant, the right of
Landlord to enforce its remedies hereunder, the attorneys fees
provisions hereof, the provisions of Section 26.1 hereof, as well as
all provisions of this Lease which contemplate performance after the
expiration or termination hereof or the termination of Tenant's right
to possession hereunder, shall survive any such expiration or
termination.
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28.1 EMISSIONS.
Tenant shall not:
a. Discharge, emit or permit to be discharged or emitted, any liquid,
solid or gaseous matter, or any combination thereof, into the
atmosphere, the ground or any body of water, which matter, as
reasonably determined by Lessor or any governmental entity, does, or
may, pollute or contaminate the same, or is, or may become,
radioactive or does, or may, adversely affect the (1) health or safety
of persons, wherever located, whether on the Premises or anywhere
else, (2) condition, use or enjoyment of the Premises or any other
real or personal property, whether on the Premises or anywhere else,
or (3) Premises or any of the improvements thereto or thereon
including buildings, foundations, pipes, utility lines, landscaping or
parking areas;
b. Produce, or permit to be produced, any intense glare, light or heat
except within an enclosed or screened area and then only in such
manner that the glare, light or heat shall not be discernible from
outside the Premises.
c. Create, or permit to be created, any sound pressure level which will
interfere with the quiet enjoyment of any real property outside the
Premises; or which will create a nuisance or violate any Law, rule,
regulation or requirement;
d. Create, or permit to be created, any ground vibration that is
discernible outside the Premises;
e. Transmit, receive or permit to be transmitted or received, any
electromagnetic, microwave or other radiation which is harmful or
hazardous to any person or property in, on or about the Premises, or
anywhere else.
28.2 STORAGE AND USE.
(1) Storage. Subject to the uses permitted and prohibited to Tenant under
this lease, Tenant shall store in appropriate leak proof containers
all solid, liquid, or gaseous matter, or any combination thereof,
which matter, if discharged or emitted into the atmosphere, the ground
or any body of water, does or may (1) pollute or contaminate the same,
or (2) adversely affect the (i) health or safety of persons, whether
on the Premises or anywhere else, (ii) condition, use or enjoyment of
the Premises or any real or personal property, whether on the Premises
or anywhere else, or (iii) Premises or any of the improvements thereto
or thereon.
(2) Use. In addition, without Landlord's prior written consent, Tenant
shall not use, store or permit to remain on the Premises any solid,
liquid or gaseous matter which is, or may become, radioactive. If
Landlord does give its consent, Tenant shall store the materials in
such a manner that no radioactivity will be detectable outside a
designated storage area and Tenant shall use the materials in such a
manner that (1) no real or personal property outside the designated
storage area shall become contaminated thereby or (2) there are and
shall be no adverse effects on the (i) health or safety of persons,
whether on the Premises or anywhere else, (ii) condition, use or
enjoyment of the Premises or any real or personal property thereon or
therein, or (iii) Premises or any of the improvements thereto or
thereon.
28.3 DISPOSAL OF WASTE.
(1) Refuse Disposal. Tenant shall not keep any trash, garbage, waste or
other refuse on the Premises except in sanitary containers and shall
regularly and frequently remove same from the Premises. Tenant shall
keep all incinerators, containers or other equipment used for the
storage or disposal of such materials in a clean and sanitary
condition.
(2) Sewage Disposal. Tenant shall properly dispose of all sanitary sewage
and shall not use the sewage system (1) for the disposal of anything
except sanitary sewage or (2) in excess of the lesser of the amount
(a) reasonably contemplated by the uses permitted under this Lease or
(b) permitted by any governmental entity. Tenant shall keep the
sewage disposal system free of all obstructions and in good operating
condition.
(3) Disposal of Other Waste. Tenant shall properly dispose of all other
waste or other matter delivered to, stored upon, located upon or
within, used on, or removed from, the Premises in such a manner that
it does not, and will not, adversely affect the (1) health or safety
of persons, wherever located, whether on the Premises or elsewhere,
(2) condition, use or enjoyment of the Premises or any other real or
personal property, wherever located, whether on the Premises or
anywhere else, or (3) Premises or any of the improvements thereto or
thereon including buildings, foundations, pipes, utility lines,
landscaping or parking areas.
28.4 COMPLIANCE WITH LAW.
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Notwithstanding any other provision in the Lease to the contrary, Tenant
shall comply with all Laws in complying with its obligations under this
Lease, and in particular, Laws relating to the storage, use and disposal of
hazardous or toxic matter.
28.5 INDEMNIFICATION.
Tenant shall defend, indemnify and hold Landlord, the other Protected
Parties, the Project and the beneficiary under a trust deed, or mortgagee,
holding a security interest in the Project harmless from any loss, claim,
liability or expense, including, without limitation, attorneys fees and
costs, at trial and/or on appeal and review, arising out of or in
connection with its failure to observe or comply with the provisions of
this Section 28. This indemnity shall survive the expiration or earlier
termination of the term of the Lease or the termination of Tenant's right
of possession and be fully enforceable thereafter.
28.5 INDEMNIFICATION.
Tenant shall defend, indemnify and hold Landlord, the other Protected
Parties, the Project and the beneficiary under a trust deed, or mortgagee,
holding a security interest in the Project harmless from any loss, claim,
liability or expense, including, without limitation, attorneys fees and
costs, at trial and/or on appeal and review, arising out of or in
connection with its failure to observe or comply with the provisions of
this Section 28. This indemnity shall survive the expiration or earlier
termination of the term of the Lease or the termination of Tenant's right
of possession and be fully enforceable thereafter.
28.6 ADDITIONAL PROVISIONS.
The following covenants and agreements shall in no way diminish or limit
the foregoing provisions of this Section 28. No use may be made of, on or
from the Premises relating to the handling, storage, disposal,
transportation, or discharge of Hazardous Substances (as defined below).
All of such use which does occur shall be in strict conformance with all
Laws. Tenant shall give prior written notice to Landlord of any use,
whether incidental or otherwise, of Hazardous Substances on the Premises,
or of any notice of any violation of any Law with respect to such use.
Landlord and any ground lessor or master lessor of the Premises and/or the
Project shall have the right to request and to receive information with
respect to use of Hazardous Substances on the Premises in writing.
In addition to the indemnity obligations contained elsewhere herein, Tenant
shall indemnify, defend and hold harmless Landlord, the other Protected
Parties, the Premises, the Project, and the beneficiary under a trust deed,
or a mortgagee, holding a security interest in the Project, from and
against all claims, losses, damages, costs, response costs and expenses,
liabilities, and other expenses caused by, arising out of, or in connection
with, the generation, release, handling, storage, discharge,
transportation, deposit or disposal in, on, under or about the Premises by
Tenant or any of Tenant's Agents of the following (collectively referred to
as "Hazardous Substances"); hazardous materials, hazardous substances,
toxic wastes, toxic substances, pollutants, petroleum products, underground
tanks, oils, pollution, asbestos, PCB's, materials, or contaminants, as
those terms are commonly used or as defined by federal, state, and/or local
law or regulation related to protection of health or the environment,
including but not limited to, the Resource Conservation and Recovery Act
(RCRA) (42 U.S.C. Section 6901 ET SEQ.); the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA) (42 U.S.C. Section 9601,
ET SEQ.); the Toxic Substances Control Act (15 U.S.C. Section 2601, ET
SEQ.); the Clean Water Act (33 U.S.C. Section 1251, ET SEQ.); the Clean Air
Act (42 U.S.C. Section 7401 ET SEQ.); and ORS Chapters 453, 465 and 466 as
any of same may be amended from time to time, and/or by any rules and
regulations promulgated thereunder. Such damages, costs, liabilities, and
expenses shall include such as are claimed by any regulating and/or
administering agency, any ground lessor or master lessor of the Project,
the holder of any Mortgage or Deed of Trust on the Project, and/or any
successor of the Landlord named herein. This indemnity shall include
(a) claims of third parties, including governmental agencies, for damages,
fines, penalties, response costs, monitoring costs, injunctive or other
relief; (b) the costs, expenses or losses resulting from any injunctive
relief, including preliminary or temporary injunctive relief; (c) the
expenses, including fees of attorneys and experts, of reporting the
existence of Hazardous Substances to an agency of the State of Oregon or of
the United States as required by applicable laws and regulations; (d) any
and all expenses or obligations, including attorney's and paralegal fees,
incurred at, before and after any trial or appeal therefrom or review
thereof, or an administrative proceeding or appeal therefrom or review
thereof, whether or not taxable as costs, including, without limitation,
attorney's fees, paralegal fees, witness fees (expert and otherwise),
deposition costs, photocopying and telephone charges and other expenses
related to the foregoing, all of which shall be paid by Tenant to Landlord
when such expenses are accrued. This indemnity shall survive the
expiration or earlier termination of the term of the Lease or the
termination of Tenant's right of possession and be fully enforceable
thereafter.
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28.7 INFORMATION.
Tenant shall provide Landlord with any and all information regarding
Hazardous Substances in the Premises, including contemporaneous copies of
all filings and reports to governmental entities, and any other information
requested by Landlord. In the event of any accident, spill or other
incident involving Hazardous Substances, Tenant shall immediately report
the same to Landlord and supply Landlord with all information and reports
with respect to the same. All information described herein shall be
provided to Landlord regardless of any claim by Tenant that it is
confidential or privileged.
SEE ATTACHED ADDENDUM FOR ADDITIONAL PROVISIONS
Tenant: DEANCO ACA MANUFACTURING, INC.
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By:
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Its:
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Landlord: MURRAY CENTER VENTURE, a partnership
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ASPEN BUD, L.L.C., a limited liability company,
general partner
By:
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Its:
--------------------------------------------
By:
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Its:
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EXHIBITS
A - Premises
B - Project
D - Additional Space
E - Work Letter
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STANDARD ADDENDUM TO BOMA INDUSTRIAL/BUSINESS PARK LEASE
Landlord: MURRAY CENTER VENTURE
Tenant: DEANCO ACA MANUFACTURING, INC.
THIS ADDENDUM ("Addendum") is made contemporaneously with and is a
part of that certain BOMA Industrial/Business Park Lease dated June _____,
1995, between the above-named Landlord and the above-named Tenant for the
Premises commonly known as first floor of Building 1, Murray Business Center,
3601 S.W. Murray Boulevard, Beaverton, Oregon. The defined, capitalized terms
used and Section numbers in the Lease shall have the same meanings when used
in this Addendum. In the event of any inconsistency between the provisions of
this Addendum and the provisions of the Lease, the provisions of this
Addendum shall govern the rights of the parties; provided, however, no
provision of this Addendum, and no modification to the standard Lease, shall
diminish the protection given to Landlord and the Protected Parties under
Section 26.1 of the Lease.
1.1i BASE MONTHLY RENTAL:
Months of Lease Term Base Monthly Rental
----------------------- ---------------------
0 to 1 1/2 $ 0
1 1/2 to 12 $ .48 per square foot
13 to 24 $ .49 per square foot
25 to 36 $ .50 per square foot
37 to 48 $ .51 per square foot
49 to 60 $ .52 per square foot
61 to 72 $ .53 per square foot
If the Commencement Date is other than the first day of a calendar month,
then rent for the first partial month (at $.48 per square foot) shall be paid
on the Commencement Date and the above schedule will apply to the following
72 full calendar months.
4.3 EXPENSES. The following shall be added after the first paragraph of
Section 4.3:
"Beginning on and as of the Commencement Date, Tenant shall pay to
Landlord the Tenant's Share (defined below) of Expenses related to the
Project.
1. EXPENSES DEFINED. The term "Expenses" shall mean costs incurred
by Landlord for common area utilities, property taxes and
assessments, insurance, management fees, and maintenance
(including landscape maintenance) related to the Project.
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2. TENANT'S SHARE. Tenant's Share of Expenses is defined as and
shall be limited to (i) $.15 per rentable square foot per month
during the calendar years 1995, 1996, and 1997 (prorated for any
partial first month), and (ii) the $.15 per rentable square foot
amount shall increase by four percent (4%) annually, commencing
with the fourth year of the Lease term and continuing to increase
each year thereafter until expiration or earlier termination of
the Lease term.
3. MONTHLY PAYMENT OF EXPENSES. Tenant shall pay to Landlord,
monthly in advance, as additional rent, Tenant's Share of
Expenses.
8.1 SIGNAGE. The following shall be added to the end of Section 8.1:
"Provided that Tenant complies with the signage requirements of this
Section 8.1 and obtains prior approval of Landlord and the City of
Beaverton as to signage, Tenant shall be given a signage allowance of
$1,000 for signage on the north and south side of the Building."
12.1 MAINTENANCE RESPONSIBILITIES. The following shall be added to the end
of Section 12.1:
"Tenant shall be responsible for the cost of maintenance and repair of
the exposed electrical system and of the heating, ventilating, and air
conditioning ("HVAC") system servicing the Premises. In consultation
with Tenant, Landlord shall arrange for a maintenance and repair
service contract for the heating, ventilating, and air conditioning
system, and all charges under such contract shall be reimbursed by
Tenant to Landlord. Landlord shall have the right to cause all
maintenance and repair work to be performed at Tenant's expense;
provided, however, if the HVAC system requires replacement, Landlord
shall amortize the cost of replacement as a capital expense over the
useful life of the replacement under the Internal Revenue Code and its
Regulations and shall pass through to Tenant annually only the
amortized portion of such cost.
Tenant shall arrange and pay for garbage service for the Premises.
Tenant shall separately arrange for such janitorial services as Tenant
requires.
Landlord shall maintain in good condition and repair the structural
elements of the building of which the Premises is a part ("Building")
and the public and common areas of the Project, except for reasonable
wear and tear; further, Landlord shall remedy any existing code
violation regarding the Premises if properly required to do so by the
enforcing authority other than due to other work being performed by
Tenant. Landlord shall have no obligation to make repairs until a
reasonable time after receipt of written notice from Tenant of the
need for such repairs. In no event shall any payments owed by Tenant
under the Lease be abated, nor shall Landlord have any liability for
interruption or interference of Tenant's business, on account of
Landlord's repairs or failure to make repairs hereunder."
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16.1 MAINTENANCE RESPONSIBILITIES. The following shall be added to the end
of Section 16.1:
"Notwithstanding any other provision of this Section 16.1, if damage
or destruction to the Premises occurs, the repair cost of which is 50%
or more of the replacement cost of the Premises immediately prior to
such damage or destruction, then either Tenant or Landlord shall have
the right to terminate this Lease upon written notice to the other
party, which termination shall be effective thirty (30) days following
the date of such damage or destruction."
18.1 ASSIGNMENT OR SUBLEASE. The following shall be added after the first
sentence of Section 18.1:
"Landlord's prior written consent to an assignment shall not be
unreasonably withheld following delivery to Landlord of all
information requested by Landlord to evaluate a request for such
consent, but may be issued subject to reasonable conditions; Landlord
shall have the right to withhold consent to any assignment if Tenant
fails to demonstrate that the proposed assignee will not have an
adverse effect on operation of the Building and has sufficient
financial strength to perform all obligations under this Lease.
Notwithstanding the preceding sentence, Tenant shall have the right,
upon prior written notice to Landlord and compliance with
administrative conditions only (such as execution of an assumption
agreement), (a) to assign Tenant's interest in this Lease to any
affiliated company of Tenant or to any surviving entity under any
merger, consolidation or reorganization of Tenant, so long as the net
worth of Tenant's affiliated company or surviving entity is greater
than or equal to Tenant's net worth at the time of the assignment, or
(b) to sublet a portion of the Premises."
22.1 SUBORDINATION; NONDISTURBANCE. The following shall be added after the
first paragraph of Section 22.1:
"With respect to mortgages or trust deeds entered into by Landlord
after the execution of this Lease, Landlord shall request, but shall
not be obligated to provide, a reasonable nondisturbance agreement
from such lender that Tenant's possession and this Lease will not be
disturbed so long as Tenant is not in default hereunder and attorns to
the record owner of the Premises."
25.1 HOLDING OVER. The following shall be added to the end of Section
25.1:
"Notwithstanding any other provision of Section 25.1, Tenant may elect
to hold over for 90 days after expiration of the Lease term at 115% of
Base Monthly Rent then in effect during the last full calendar month
of the Lease term."
30.1 PARKING. Tenant shall endeavor to restrict its employees and
visitors, at any one time, to no more than 118 parking spaces at the Project,
provided that Tenant may use other available parking spaces in the Project on a
nonexclusive, first-come, first-served basis, provided further that Tenant does
not overburden the Project parking with usage beyond the 118 spaces
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limit and that Tenant is in full compliance with the Project parking rules
and regulations established by Landlord.
31.1 AMERICAN WITH DISABILITIES ACT ("A.D.A.").
1. COMMON AREAS. Landlord agrees to adopt and to pursue a plan
intended to comply with Landlord's reasonable interpretation of
the A.D.A. as the same relates to the common areas of the
Project. Notwithstanding the foregoing, if a modification of the
common areas may be required under the A.D.A. by reason of a
change in the particular uses of the Premises made by Tenant to
other than general office use, Landlord shall have the right (but
not the obligation), after consultation with the Tenant, to make
such modification and to perform all work required by reason of
such modification, and all costs incurred by Landlord in so doing
shall be reimbursed by Tenant within ten (10) days following
written notice from Landlord to Tenant.
2. PREMISES. As a part of Landlord's initial improvement of the
Premises for occupancy by Tenant, Landlord shall bring the
Premises into compliance with the A.D.A. for general office use,
as necessary to obtain all necessary building permits and the
certificate of occupancy. Tenant acknowledges that
(a) compliance of the Premises with the A.D.A. depends upon the
location of specific use within the Premises, alterations which
Tenant makes to the Premises, and changes to these factors over
time, and (b) Tenant may have obligations under the A.D.A. as an
employer which may differ from its obligations as the operator of
the Premises. Tenant agrees, at its expense, to cause the
Premises to comply with the A.D.A. in connection with changing
uses and employer requirements. In connection with its
installation of alterations subsequent to the Tenant Improvements
(as defined in Section 33.1), Tenant shall comply with all
requirements of the A.D.A. related to the alterations, including,
but not limited to, any requirements to improve or modify other
portions or aspects of the Premises in connection with or as a
result of the alterations by Tenant, all at the expense of
Tenant.
3. INDEMNITY. Tenant shall forever defend, indemnify and hold
Landlord (and the Protected Parties) harmless from any claim or
cause of action and all related costs and expenses (including
attorney fees incurred by or demanded from Landlord and/or the
Protected Parties) arising out of or related to the failure of
Tenant to perform any obligation under this Section 31.1.
Subject to Section 26.1, Landlord shall perform its ADA
obligations at its expense and shall indemnify Tenant against any
third party claim as it relates to performance of such
obligations or reimbursement for the cost of such performance.
4
<PAGE>
4. RELATION TO OTHER PROVISIONS. Nothing in this Section 31.1 shall
expand the rights, nor limit the duties, of Tenant pursuant to
any other Section of this Lease.
32.1 BANKRUPTCY. In the event of any litigation or proceedings in
Bankruptcy Court between Landlord and Tenant with regard to this Lease,
including litigation or proceedings regarding issues which are unique to
Bankruptcy law, the prevailing party shall be entitled to recover, in
addition to all other sums and relief, its reasonable costs and attorney fees
incurred at and in preparation for such litigation or proceedings.
33.1 INITIAL TENANT IMPROVEMENTS. Landlord agrees to pay an amount
equal to $10.00 per rentable square foot (based on the rentable square feet
of the Premises identified in Section 1.1e), which amount totals $302,300
(the "Allowance"), toward reimbursing the cost of design and construction of
the Tenant Improvements on the Premises on the terms set forth below (herein
the "Cost"):
1. TENANT IMPROVEMENTS. The Allowance shall only be used for Tenant
Improvements to the Premises to be completed in the manner set
forth in the Work Letter Agreement attached hereto as EXHIBIT E.
The term "Tenant Improvements" shall have the meaning prescribed
in paragraph 5(e) of the Work Letter Agreement. Completion of
the Tenant Improvements shall be in the manner set forth in the
Work Letter Agreement. The Cost shall include all reasonable
costs and expenses incurred by Landlord that are actually paid to
third parties in connection with the proper design and
installation of the Tenant Improvements, including, without
limitation, the costs of labor and materials, permit fees,
architects fees, design and space planning fees, other
professional fees, administrative and overhead costs, and all
other costs and expenses relating thereto. However, any salaries
and other compensation of Landlord's personnel or other general
expenses of Landlord exceeding a 3% construction management fee,
and any costs incurred by reason of delays not caused by Tenant
or to correct defective designs or non-conforming work or
construction relating to the Tenant Improvements shall not be
included in Cost and shall be paid separately by Landlord. Any
and all costs and expenses to complete the Tenant Improvements
that alter the Premises from its current "AS IS" condition shall
be applied against Cost, except for the following which shall be
accomplished by Landlord at its sole expense: (a) costs incurred
to cure existing A.D.A. violations in the Premises, to the extent
such cure is required to obtain the certificate of occupancy and
results in identifiable separate costs, (b) costs associated with
relocation of the Triquint electrical panel, (c) the cost of
agreed modifications to the storefront, (d) expenses in excess of
$5,000 for correction to the Premises arising out of or
associated with existing building code violations that require
change orders to make required corrections at this time, and
(e) all Landlord's work described in subparagraph 33.1(5) below.
Landlord agrees to provide a cost
5
<PAGE>
breakdown of the estimated hard and soft costs of the Tenant
Improvements as soon as practicable.
2. EXCESS COSTS; RENT CREDIT. If the Cost exceeds the Allowance,
any excess shall be paid by Tenant to Landlord within ten days of
written request by Landlord to Tenant and the Landlord shall have
no liability to pay such excess. Tenant agrees to indemnify
Landlord for any claim by a third party with respect to Cost of
Tenant Improvements exceeding the Allowance and for which Tenant
is obligated to pay under the Lease or Work Letter Agreement. If
the Cost of the Tenant Improvements is less than the Allowance,
the difference shall be applied toward the Base Monthly Rental
first coming due as a rent credit up to a maximum of $1.00 per
square foot, or $30,230.
3. ADDITIONAL TENANT IMPROVEMENT ALLOWANCE. In the event the Cost
of the Tenant Improvements exceed $302,300, Tenant may elect, if
Tenant is not then in default, to have Landlord establish an
additional Tenant Improvement allowance not to exceed an amount
equal to $3.00 per square foot (based on the square footage of
the Premises identified in Section 1 of the Lease), which amount
totals $90,690 (the "Additional Allowance"), to be used toward
the Cost of the Tenant Improvements on the Premises. Tenant
shall deliver written notice to Landlord of Tenant's intent to
draw on the Additional Allowance. The Additional Allowance shall
be used by Landlord for the Cost of the Tenant Improvements, but
shall be reimbursed in full by the Tenant as additional rent by
increasing the Base Monthly Rent for each of the 71 scheduled
paying months of the term of this Lease by an amount which will
fully amortize the sum so drawn (plus interest at 12% from each
draw date, capitalized as of the commencement date), with
interest at 12% per annum over such 71 months in equal payments.
4. TENANT'S COMMUNICATIONS CONSULTANT. Tenant shall have the right
to use its communications consultant in connection with the
design and planning of the Tenant Improvements, provided,
however, that any and all expense associated with such consultant
shall be part of Cost.
5. LANDLORD'S WORK. Landlord shall perform, at its expense, which
shall not be part of Cost, the landscaping and exterior painting
work as described in the Work Letter Agreement attached hereto as
EXHIBIT E and all work excluded from Tenant Improvements Cost
under subparagraph 33.1(1) above.
34.1 COMMENCEMENT DATE. The term of this Lease is 72 full calendar
months, plus any first partial month occurring if the Commencement Date is
other than the first day of a calendar month. The "Commencement Date" of the
term of this Lease shall be the earliest of (i) September 1, 1995 unless a
non-Tenant Delay as defined in the Work Letter Agreement prevents Substantial
Completion as defined in the Work Letter Agreement by such date, then the
6
<PAGE>
Commencement Date shall mean (ii), (iii) or (iv) below, (ii) the date upon
which Tenant occupies all or a part of the Premises for the conduct of its
business, (iii) five (5) days after delivery of possession of the Premises by
Landlord to Tenant, or (iv) five (5) days after the date upon which such
delivery would have occurred but for Tenant Delays (as defined in the Work
Letter Agreement).
35.1 FIRST OPPORTUNITY TO LEASE. For purposes of this Section 35.1, the
term "Additional Space" shall mean the rentable space of the Building
contiguous to the Premises which is designated as Additional Space on EXHIBIT
D attached hereto. Tenant shall have a first opportunity to lease the
Additional Space when the existing lessee of the same vacates the Additional
Space and Landlord determines that it is available for lease, on the
following terms.
1. Provided that Tenant is not otherwise in default under the Lease,
Tenant shall have the opportunity to exercise its first
opportunity to lease the Additional Space at any time during the
Lease term. If Landlord receives a written offer to lease from a
third party prospective tenant or intends to make an offer to
lease the Additional Space to such third party prospective
tenant, for a term and financial consideration which Landlord
would be willing to accept to lease all or a portion of the
Additional Space (collectively, an "Offer"), Landlord shall
communicate the Offer to Tenant in writing. Since a third party
may be willing to lease the Additional Space as part of a larger
space or for a fixed term expiring after the term of this Lease,
Landlord's notice shall specify that Tenant may accept the Offer
to lease the Additional Space or applicable portion only on such
basis and with an extension of the term of this Lease to match
such lengthier term.
2. Tenant shall have until 5 p.m. on the fourth (4th) business day
following receipt of Landlord's notice of the Offer to execute a
lease or an addendum hereto for the Additional Space (or the
applicable portion thereof) on the terms set forth in Landlord's
Offer and otherwise on the terms of this Lease; provided,
however, Sections 33, 34 and 39 shall not apply to the Additional
Space.
3. Should Tenant fail to execute such a lease or addendum regarding
the Additional Space, or otherwise indicate rejection of
Landlord's notice of the Offer, Landlord may execute a lease with
the intended third party (or its assignee or designee) on
substantially the same terms offered to Tenant. If a lease with
the third party (or its assignee or designee) is signed, this
first opportunity to lease shall again apply when such third
party lessee vacates its space and Landlord determines that the
same is again available for lease. Tenant's first opportunity
shall be subordinate to any renewal or expansion rights granted
to such third party lessee.
36.1 HAZARDOUS SUBSTANCES. In the event the Premises are or become
contaminated by Hazardous Substances not brought onto the Premises by Tenant
or an agent of Tenant, then, subject to Section 26.1, Landlord (a) shall
conduct any legally required remediation at its
7
<PAGE>
expense, and (b) shall defend and indemnify Tenant regarding any third party
claim against Tenant to require performance of such remediation or seeking
reimbursement for the costs of such remediation.
37.1 QUIET ENJOYMENT. Landlord covenants and agrees that Tenant, upon
making all of Tenant's payments of rent when due under the Lease and upon
performing Tenant's covenants, agreements and conditions of this Lease,
Tenant shall peaceably and quietly hold, occupy and enjoy the Premises during
the Term of this Lease without hindrance from Landlord, subject to the terms
and provisions of this Lease.
38.1 ENERGY CREDITS. Tenant shall have the right to apply for and to
receive any energy rebates or credits resulting from energy-related tenant
improvements, including, for example, T-8 lighting fluorescent lights and
HVAC economizers.
IN WITNESS WHEREOF, this Addendum has been executed this _____ day of
June 1995.
Landlord: MURRAY CENTER VENTURE, a partnership
By: ASPEN BUD, L.L.C., a limited liability
company, a general partner
By:
--------------------------------------------
Its:
--------------------------------------------
Tenant: DEANCO ACA MANUFACTURING, INC.
By:
--------------------------------------------
Its:
--------------------------------------------
8
<PAGE>
EXHIBIT E
WORK LETTER AGREEMENT
THIS WORK LETTER AGREEMENT ("Agreement") is being entered into as
of June _____, 1995, by and between MURRAY CENTER VENTURE, a partnership
("Landlord"), and DEANCO ACA MANUFACTURING, INC. ("Tenant"), in connection
with the Lease between Landlord and Tenant dated June _____, 1995 ("Lease"),
and the parties hereto agree as follows:
I. GENERAL.
A. The purpose of this Agreement is to set forth how the Tenant
Improvements (as defined in paragraph 5(e) herein) to the Premises are to be
constructed, who will do the construction of the Tenant Improvements, who
will pay for the construction of the Tenant Improvements, and the time
schedule for completion of the construction of the Tenant Improvements.
B. Except as defined in this Agreement to the contrary, all terms
utilized in this Agreement shall have the same meaning as the defined terms
in the Lease.
C. The provisions of the Lease, except where clearly inconsistent
or inapplicable to this Agreement, are incorporated into this Agreement.
D. Except as provided in this Lease, Tenant accepts the Premises
in its "as is" condition and acknowledges that it has had an opportunity to
inspect the Premises prior to signing the Lease.
II. COMMENCEMENT DATE. The Commencement Date shall be determined in
accordance with Section 34.1 of the Lease.
III. DELIVERY OF PREMISES. Landlord shall deliver the Premises to
Tenant upon Substantial Completion (as defined in paragraph 8 below) of the
Tenant Improvements.
IV. SELECTION OF DESIGNER/ARCHITECT. The plans and working drawings
for the Tenant Improvements have been prepared by a designer or architect,
selected by Landlord (the "Designer").
V. COMPLETION OF PLANS; CONSTRUCTION SCHEDULE. In consultation with
Tenant and Landlord, the Designer has prepared the "Plans" which are listed
on Schedule 1 hereto. Also attached as part of Schedule 1 is an estimated
cost breakdown of the work contemplated by the Plans.
A. [Intentionally Omitted]
B. [Intentionally Omitted]
E-1
<PAGE>
C. [Intentionally Omitted]
D. [Intentionally Omitted]
E. The term "Tenant Improvements" shall mean all improvements
shown on the Plans.
F. [Intentionally Omitted]
G. [Intentionally Omitted]
H. The term "Tenant Delay" as used in the Lease and this
Agreement shall mean any delay that Landlord may encounter in the performance
of Landlord's obligations hereunder or under the Lease because of any act or
omission of any nature by Tenant or its agents or contractors, which actually
delays completion of the Tenant Improvements according to the world schedule,
including any: 1. delay attributable to changes in or additions to the Plans
or to the Tenant Improvements requested by Tenant; 2. delay attributable to
the postponement of any Tenant Improvements at the request of Tenant or
selection of an alternate Contractor; 3. delay by Tenant in the submission of
information or the giving of authorizations or approvals within the time
limits set forth in this Agreement; and 4. delay attributable to the failure
of Tenant to pay, when due, any amounts required to be paid by Tenant
pursuant to this Agreement, BUT EXCLUDING, 5. any delays caused by design or
construction deficiencies not solely attributable to Tenant. Tenant shall
pay all actual costs and expenses incurred by Landlord which result from any
Tenant Delay, including, without limitation, any actual costs and expenses
attributable to increases in the cost of labor or materials. All dates by
which Landlord is to perform its obligations hereunder shall be extended by
the number of days of Tenant Delays caused by events or circumstances beyond
Landlord's reasonable control; provided, Landlord shall be deemed to have
completed any obligation on the date that completion would have occurred
absent Tenant Delay.
I. Tenant shall be entitled to enter onto the Premises during
completion of the Tenant Improvements for the purposes of installing Tenant's
fixtures and equipment (or storing such fixtures and equipment) prior to the
Commencement Date so long as Tenant's actions do not unreasonably interfere
with completion of the Tenant Improvements by Landlord's Contractor. Any
such interference by Tenant shall constitute a Tenant Delay.
VI. SELECTION OF CONTRACTOR. Landlord's contractor or a contractor
acceptable to Landlord shall be the contractor (the "Contractor") selected to
complete the Tenant Improvements. Landlord shall endeavor to instruct the
Contractor to use competitive bidding for completion of the Tenant
Improvements. Tenant shall have the right to approve the Contractor prior to
commencement of the Tenant Improvements, and may give written notice to
Landlord of its disapproval of the Contractor; provided, at such time of
disapproval Tenant provides Landlord with the names and bids of at least two
alternate contractors, selected by Tenant for Landlord's approval, to replace
the Contractor. Thereafter, Landlord and Tenant mutually agree to select an
alternate Contractor to complete the Tenant Improvements.
E-2
<PAGE>
VII. CONSTRUCTION OF TENANT IMPROVEMENTS. As soon as practical after
approval of the Plans and selection of the Contractor, Landlord shall make
arrangements to construct, consistent with industry custom and practice, the
Tenant Improvements indicated on the Plans. Landlord shall instruct the
Contractor to build the Tenant Improvements as soon as reasonably possible at
Tenant's cost and expense, subject to Tenant's ability to first utilize the
Allowance (as defined in the Lease) to pay for the costs of the Tenant
Improvement construction, and provided that Landlord shall complete, at its
expense, the landscaping and exterior painting (the "Landlord's Work") as set
forth in the Plans. Landlord will pay the Allowance toward the cost of the
design and construction of the Tenant Improvements. If the cost of the Tenant
Improvements exceeds the Allowance, the difference shall be paid by Tenant to
Landlord at the time the construction contract is signed or as provided below
in the event of a change order.
A. CHANGE ORDERS. If Tenant requests any changes to the Plans,
Landlord shall not unreasonably withhold its consent to any requested
changes, provided that the changes do not adversely affect the Building's
structure, systems equipment, security system or appearance, but if such
changes increase the total cost of the Tenant Improvements shown on the Plans
above the Allowance, Tenant shall pay such increased costs to Landlord at the
time the request is approved by Landlord (the "Increased Costs"), provided,
however, that Tenant shall have no responsibility to pay for changes arising
out of design deficiencies relating to the Tenant Improvements. The
Increased Costs shall be a. the amount of money Landlord has to pay to cause
the Tenant Improvements, as reflected by the revised Plans, to be
constructed, which amount exceeds the original contract price that was to be
paid if no changes had been made to the Plans (the "Differential"), plus b.
an amount equal to three percent (3%) of the Differential to compensate
Landlord for its time and efforts in connection with such changes.
B. MATERIALS. Whenever possible and practical, Landlord will
utilize, for the construction of the Tenant Improvements, the items and
materials designated in the Plans. However, whenever Landlord determines in
its judgment that it is not practical or efficient to use such materials,
Landlord shall have the right, upon receipt of Tenant's consent, not
unreasonably withheld or delayed, to substitute comparable items and
materials. If Tenant refuses to grant such consent, and Landlord is delayed
in completing the Tenant Improvements because of Tenant's failure to permit
the substitution of comparable items and materials, such delay shall
constitute a Tenant Delay.
C. COMPLIANCE WITH CODE. Landlord shall construct the Tenant
Improvements in compliance with all applicable laws, regulations and building
code requirements.
D. LATENT DEFECTS. Landlord shall be responsible for any latent
defects and construction defects in connection with the Tenant Improvements.
For the purposes of this subparagraph (d), "latent defects" shall mean items
not in compliance with the applicable code which are required to be brought
into compliance with such code, but which items can only be discerned by
destructive testing or expert examination (i.e., would not be apparent upon
nominal visual inspection).
VIII. SUBSTANTIALLY COMPLETE. Landlord's obligation regarding the
Tenant Improvements is to substantially complete the same in substantial
conformity with the Plans. The term "Substantial Completion" means that
Landlord has so completed the Tenant
E-3
<PAGE>
Improvements, that Landlord has obtained a temporary certificate of occupancy
from the appropriate municipal authorities (with a copy delivered to Tenant)
and that Tenant may use the Premises for their intended legal purpose,
notwithstanding the fact that minor details of construction, mechanical
adjustments or decorations which do not materially interfere with Tenant's
use of the Premises remain to be performed (items normally referred to as
"Punch List" items). Substantial Completion of the Premises shall be deemed
to have occurred even though certain portions of the Premises, which do not
interfere with Tenant's efficient conduct of its business, have not been
fully completed, and even though Tenant's furniture, telephones, telexes,
telecopiers, photocopy machines, computers and other business machines or
equipment have not been installed, the purchase and installation of which
shall be Tenant's sole responsibility. Landlord shall cause the Punch List
items to be corrected as soon as reasonably possible and practical after
Substantial Completion.
A. VARIANCE FROM PLANS. Landlord shall have the right to cause
the work to vary from the Plans when required by law, permit, or site
conditions. Landlord shall bear any cost associated with such variance to the
extent that such costs arise out of any deficient design or construction of
the Tenant Improvements.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first written above
Landlord: MURRAY CENTER VENTURE, a partnership
By: ASPEN BUD, L.L.C., a limited liability
company, a general partner
By:
-------------------------------------------
Its:
-------------------------------------------
Tenant: DEANCO ACA MANUFACTURING, INC.
By:
-------------------------------------------
Its:
-------------------------------------------
E-4
<PAGE>
EXHIBIT A
MAP
A-1
<PAGE>
EXHIBIT B
MAP
B-1
<PAGE>
EXHIBIT D
MAP
D-1
<PAGE>
SCHEDULE 1 TO WORK LETTER AGREEMENT
DEANCO
LIST of CONSTRUCTION DOCUMENTS
Plans prepared by The Wasserberger Benson Partnership Architects PC
identified as follows:
A-1 Floor Plans Dated 06/02/95
A-2 Toilet Room Plans, Canopy and Schedules Dated 06/02/95
A-3 Reflected Ceiling Plans Dated 06/02/95
IX. Plans prepared by T.M. Rippey Consulting Engineers identified as follows:
S-1 Structural Plans and Details Dated 06/02/95
X. Specifications prepared by The Wasserberger Benson Partnership Architects
PC identified as follows:
DEANCO Specifications Pages 1-5 Dated 06/02/95
1
<PAGE>
EXHIBIT 1
ESTIMATED COST BREAKDOWN OF THE WORK CONTEMPLATED BY THE PLANS
Schedule 1 to Work Letter Agreement
Page 1 of 2
MURRAY BUSINESS CENTER
Project Deanco
Final Cost On Tenant Improvements
Summit Construction $273,805
Architect 12,124
Energy Management 5,950
Heating Equipment Repair 9,728
Misc. Demo 1,500
Contingencies 5,000
New Electric Service 5,121
--------
$313,228
3% Construction Mgmt. Fee 9,396
--------
Total $322,624
1 of 2
<PAGE>
June 19, 1995
Ed Strandberg
3601 Murray Road
Beaverton, Oregon 97005
Re: DEANCO Tenant Improvement
Ed,
We are pleased to submit the following revised comparison for your review.
<TABLE>
<CAPTION>
ORIGINAL REVISED
<S> <C> <C>
Demo $ 26,560.00 $ 26,560.00
Site work 2,500.00 0.00
Concrete 4,924.00 6,364.00
Cabinetry 5,190.00 3,270.00
Doors/Windows 11,300.00 10,259.00
Walls/Ceilings** 70,942.00 61,546.00
Paint 7,301.00 7,187.00
Floor covering 34,189.00 34,189.00
Ceilings Above Above
Specialties 2,335.00 2,335.00
Mechanical 24,200.00 24,200.00
Electrical* 25,869.00 28,437.00
Fence 2,870.00 4,147.00
Overhead door 2,130.00 1,065.00
Metal canopies (2)*** 2,400.00 1,404.00
Entry additional 0.00 2,500.00
Structural steel entry 0.00 2,640.00
Plywood wainscot; stock rm 0.00 698.00
Plumbing 8,440.00 7,850.00
Fire sprinklers 0.00 8,130.00
Smoke alarm system 0.00 6,565.00
Permits 2,805.00 2,805.00
General conditions 11,392.00 11,392.00
----------- -----------
$245,347.00 $253,523.00
P & O 16,100.00 20,282.00
----------- -----------
TOTAL $261,447.00 $273,805.00
----------- -----------
----------- -----------
</TABLE>
* Electrical fixture moves above 143 fixtures O T & M.
** Ceiling in office area to be repaired only, not complete re-tile O T & M.
*** Pioneer stock 35" x 12' door covers.
2 of 2
<PAGE>
ATTACHMENT TO WORK LETTER AGREEMENT
Attached are three pages generally depicting some exterior/outdoor work
to be performed to all or part of the Project at the expense of Landlord and
a memorandum dated May 12, 1995 providing an overview of the work (the time
frames in the memorandum are to be disregarded). The costs and expenses of
the exterior/outdoor work are not included in "Cost" and are not charged
against the Allowance. The actual exterior/outdoor work to be performed by
Landlord will be detailed on plans and specifications to be prepared at a
later time; Landlord shall substantially complete the work shown on such
plans and specifications by June 1, 1996. The creation of plans and
specifications for the outdoor/exterior work and the performance of such work
are not conditions to occupancy of the Premises and commencement of the
Lease, it being agreed that Landlord shall perform such work so that the same
is substantially completed by June 1, 1996.
<PAGE>
EXHIBIT 10.30
FIRST AMENDMENT TO LOAN AGREEMENT
This First Amendment to Loan Agreement ("Amendment") is entered into
as of February 26, 1996 by and among Richey Electronics,Inc., a Delaware
corporation (the "Borrower"), each bank which is a party to the Loan Agreement
referred to below (the "Banks") and First Interstate Bank of California, as
agent (the "Agent") for the Banks.
RECITALS
A. Borrower, the Banks and the Agent have entered into that certain Loan
Agreement dated as of December 20,1995 (the "Loan Agreement") pursuant to which
the Banks have agreed to lend up to $75,000,000 to Borrower. Terms defined in
the Loan Agreement and not otherwise defined in this Amendment shall have the
meanings defined for those terms in the Loan Agreement.
B. Borrower has informed the Agent and the Banks that Borrower wishes to
issue Convertible Subordinated Notes due 2006 (the "Subordinated Notes") and,
subject to the terms and conditions set forth herein, the Banks consent to the
issuance of the Subordinated Notes.
C. In connection with the issuance of the Subordinated Notes, Borrower,
the Banks and the Agent desire to amend the Loan Agreement on the terms and
conditions set forth herein.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Borrower, the Banks and the Agent
hereby agree as follows:
1. AMENDMENT TO SECTION 1.1 - REVISIONS. Section 1.1 of the Loan
Agreement is amended to revise the definition of "Adjusted Total Liabilities" to
read in full as follows:
"'ADJUSTED TOTAL LIABILITIES' means, with respect to any Person and as
of any date of determination, the SUM OF (a) the total liabilities of
that Person as of that date determined in accordance with Generally
Accepted Accounting Principles consistently applied (PROVIDED that,
for the purpose of calculating Cash Flow Leverage in Section 6.13, the
Subordinated Notes shall be excluded from the calculation of total
liabilities of Borrower), PLUS (b) the aggregate effective amount of
<PAGE>
all letters of credit for which such Person is the account party as of
that date PLUS (c) the aggregate obligations of that Person under all
Guaranty Obligations as of that date."
2. AMENDMENT TO SECTION 1.1 - ADDITION. Section 1.1 of the Loan
Agreement is amended to add the following new definitions at the appropriate
alphabetical places:
"INDENTURE" means the Indenture to be dated on or about February 26,
1996 between Borrower and First Trust of California, N.A., as trustee,
covering the Subordinated Notes.
"SUBORDINATED NOTES" means the convertible subordinated notes due 2006
to be issued by Borrower pursuant to the Indenture.
3. AMENDMENT TO SECTION 6.9. Section 6.9 of the Loan Agreement is
hereby amended to read in full as follows:
"6.9 INDEBTEDNESS AND GUARANTY OBLIGATIONS. Create, incur or assume
any indebtedness or Guaranty Obligation EXCEPT:
(a) Indebtedness and Guaranty Obligations existing on the
Closing Date and disclosed in SCHEDULE 6.9, and renewals, extensions
or amendments that do not increase the amount thereof;
(b) Indebtedness and Guaranty Obligations under the Loan
Documents;
(c) Secured Swap Agreements;
(d) Indebtedness owed on an intercompany basis among Borrower
and its Subsidiaries;
(e) Indebtedness consisting of Capital Lease Obligations or
purchase money debt that does not exceed $500,000 incurred during the
term of this Agreement;
(f) Guaranty Obligations in support of the obligations of a
wholly-owned Subsidiary; and
(g) the Subordinate Notes, in a principal amount not in excess
of $57,500,000.
2
<PAGE>
4. CONDITIONS PRECEDENT. This Amendment shall not be effective
until each of the following conditions precedent has been satisfied or waived in
writing by the Requisite Banks:
(a) the Agent shall have received a certified copy of the
Indenture, which shall be in the form of the draft thereof dated
February 6, 1996 with such changes thereto as the Requisite Banks may
approve;
(b) Borrower shall have received (or shall concurrently receive)
on or before March 15, 1996 not less than $40,000,000 in cash proceeds
from the issuance and sale of the Subordinated Notes; and
(c) Borrower shall have applied (or shall concurrently apply)
cash proceeds from the issuance and sale of the Subordinated Notes to
prepay in full and cancel the Line B Notes in accordance with
Section 3.1(f) of the Loan Agreement.
5. REPRESENTATIONS OF BORROWER. Borrower hereby represents and
warrants to the Agent and the Banks that:
(a) The execution, delivery and performance of this Amendment by
Borrower have been authorized by all necessary corporate action;
(b) This Amendment has been duly executed and delivered by
Borrower and constitutes the legal, valid and binding obligations of
Borrower, enforceable in accordance with its terms; and
(c) No Default or Event of Default under the Loan Agreement (as
modified hereby) has occurred and is continuing.
6. EFFECT OF AMENDMENT. Except as expressly amended hereby, the
Loan Agreement shall remain in full force and effect in accordance with its
terms. Except as otherwise provided herein, the Loan Agreement is in all
respects ratified and confirmed.
7. APPLICABLE LAW. This Amendment shall be governed by and shall be
construed and enforced in accordance with the local laws of the State of
California.
8. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment by
their duly authorized officers as of the date first written above.
FIRST INTERSTATE BANK OF
RICHEY ELECTRONIC, INC. CALIFORNIA, as Agent
FIRST INTERSTATE BANK OF
CALIFORNIA, as a Bank
4
<PAGE>
Exhibit 10.31
SECOND ADDENDUM TO EMPLOYMENT AGREEMENT
(WILLIAM C. CACCIATORE)
This Second Addendum to Employment Agreement (this "Second Addendum")
dated as of May 17, 1995 is made between Richey Electronics, Inc., a Delaware
corporation (the "Company") and William C. Cacciatore (the "Executive"), with
reference to the following facts:
A. The Company and the Executive are parties to that certain
Employment Agreement dated as of April 1, 1993 (the "Employment Agreement")
which was entered into between Brajdas Corporation, a predecessor of the
Company, and the Executive.
B. The Employment Agreement was amended by Addendum to
Employment Agreement dated as of February 21, 1995 (the "Addendum") which was
entered into between the Company and the Executive. The Employment Agreement,
together with the Addendum, shall be referred to as the "Employment Agreement."
All capitalized terms used herein and not otherwise defined have the meanings
assigned to them in the Employment Agreement.
C. The Company and the Executive desire to amend the Employment
Agreement as hereinafter provided.
NOW, THEREFORE, for good and valuable consideration, it is agreed as
follows:
1. BENEFITS.
The second sentence of Section 7 of the Employment Agreement is hereby
amended to read in full as follows:
The Executive shall be entitled to (i) an allowance for the use of an
automobile of One Thousand Dollars ($1,000) per month, and (ii) tax
preparation and planning assistance of (a) up to Three Thousand
Dollars ($3,000) per year if the assistance is provided by the
Company's regular outside accountants or (b) up to One Thousand Five
Hundred Dollars ($1,500) per year if the assistance is provided by
another advisor.
2. EFFECT OF AMENDMENTS.
All references in the Employment Agreement to this "Agreement" shall
be references to the Employment Agreement as amended by the Addendum and this
Second Addendum. Except as amended by the Addendum and this Second Addendum,
each of the
<PAGE>
provisions of the Employment Agreement shall remain in full force and effect.
3. COUNTERPARTS.
This Second Addendum may be executed by the parties hereto in
counterparts, each of which when so executed and delivered shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Addendum to be duly executed as of the date first above written.
RICHEY ELECTRONICS, INC.
By ___________________________ ________________________
Donald I. Zimmerman William C. Cacciatore
Chairman, Compensation
Committee
141636
<PAGE>
Exhibit 10.32
SECOND ADDENDUM TO EMPLOYMENT AGREEMENT
(C. DON ALVERSON)
This Second Addendum to Employment Agreement (this "Second Addendum")
dated as of May 17, 1995 is made between Richey Electronics, Inc., a Delaware
corporation (the "Company") and C. Don Alverson (the "Executive"), with
reference to the following facts:
A. The Company and the Executive are parties to that certain
Employment Agreement dated as of April 1, 1993 (the "Employment Agreement")
which was entered into between Brajdas Corporation, a predecessor of the
Company, and the Executive.
B. The Employment Agreement was amended by Addendum to
Employment Agreement dated as of February 21, 1995 (the "Addendum") which was
entered into between the Company and the Executive. The Employment Agreement,
together with the Addendum, shall be referred to as the "Employment Agreement."
All capitalized terms used herein and not otherwise defined have the meanings
assigned to them in the Employment Agreement.
C. The Company and the Executive desire to amend the Employment
Agreement as hereinafter provided.
NOW, THEREFORE, for good and valuable consideration, it is agreed as
follows:
1. BENEFITS.
The second sentence of Section 7 of the Employment Agreement is hereby
amended to read in full as follows:
The Executive shall be entitled to (i) an allowance for the use of an
automobile of Six Hundred Dollars ($600) per month, and (ii) tax
preparation and planning assistance of (a) up to Three Thousand
Dollars ($3,000) per year if the assistance is provided by the
Company's regular outside accountants or (b) up to One Thousand Five
Hundred Dollars ($1,500) per year if the assistance is provided by
another advisor.
2. EFFECT OF AMENDMENTS.
All references in the Employment Agreement to this "Agreement" shall
be references to the Employment Agreement as amended by the Addendum and this
Second Addendum. Except as amended by the Addendum and this Second Addendum,
each of the
<PAGE>
provisions of the Employment Agreement shall remain in full force and effect.
3. COUNTERPARTS.
This Second Addendum may be executed by the parties hereto in
counterparts, each of which when so executed and delivered shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Addendum to be duly executed as of the date first above written.
RICHEY ELECTRONICS, INC.
By ___________________________ ________________________
Donald I. Zimmerman C. Don Alverson
Chairman, Compensation
Committee
141634
<PAGE>
Exhibit 10.33
SECOND ADDENDUM TO EMPLOYMENT AGREEMENT
(NORBERT W. ST. JOHN)
This Second Addendum to Employment Agreement (this "Second Addendum")
dated as of May 17, 1995 is made between Richey Electronics, Inc., a Delaware
corporation (the "Company") and Norbert W. St. John (the "Executive"), with
reference to the following facts:
A. The Company and the Executive are parties to that certain
Employment Agreement dated as of April 1, 1993 (the "Employment Agreement")
which was entered into between Brajdas Corporation, a predecessor of the
Company, and the Executive.
B. The Employment Agreement was amended by Addendum to
Employment Agreement dated as of February 21, 1995 (the "Addendum") which was
entered into between the Company and the Executive. The Employment Agreement,
together with the Addendum, shall be referred to as the "Employment Agreement."
All capitalized terms used herein and not otherwise defined have the meanings
assigned to them in the Employment Agreement.
C. The Company and the Executive desire to amend the Employment
Agreement as hereinafter provided.
NOW, THEREFORE, for good and valuable consideration, it is agreed as
follows:
1. BENEFITS.
The second sentence of Section 7 of the Employment Agreement is hereby
amended to read in full as follows:
The Executive shall be entitled to (i) an allowance for the use of an
automobile of Six Hundred Dollars ($600) per month, and (ii) tax
preparation and planning assistance of (a) up to Three Thousand
Dollars ($3,000) per year if the assistance is provided by the
Company's regular outside accountants or (b) up to One Thousand Five
Hundred Dollars ($1,500) per year if the assistance is provided by
another advisor.
2. EFFECT OF AMENDMENTS.
All references in the Employment Agreement to this "Agreement" shall
be references to the Employment Agreement as amended by the Addendum and this
Second Addendum. Except as amended by the Addendum and this Second Addendum,
each of the
<PAGE>
provisions of the Employment Agreement shall remain in full force and effect.
3. COUNTERPARTS.
This Second Addendum may be executed by the parties hereto in
counterparts, each of which when so executed and delivered shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Addendum to be duly executed as of the date first above written.
RICHEY ELECTRONICS, INC.
By ___________________________ ________________________
Donald I. Zimmerman Norbert W. St. John
Chairman, Compensation
Committee
141635
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF RICHEY ELECTRONICS, INC.
1. Deanco, Inc., a New York corporation ("Deanco"), has done business under
the following names: Acacia, Acacia/Deanco, Deanco, Mega, Mega/Deanco and
Schaal. The Board of Directors of the Company has adopted resolutions to
merge Deanco into the Company. In January 1996, the Company submitted to the
State of New York Department of State for filing a Certificate of Merger to
effect such merger. The Certificate will not be filed in New York until
after Deanco has filed its 1995 tax returns in New York. Beginning in April
1996, the Company and Deanco will do business as Richey Electronics.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-00171) pertaining to the Richey Electronics, Inc.
1992 Stock Option Plan of our report dated April 14, 1995 (except for Note 2 as
to which the date is November 9,1995 and Note 8 as to which the date is December
19, 1995), with respect to the consolidated financial statements of Electrical
Distribution Acquisition Company and our report dated April 14, 1995 (except for
Note 2 as to which the date is November 9, 1995), with respect to the financial
statements of Deanco, Inc. included under Item 14(b) Reports on Form 8-K in the
Annual Report (Form 10-K) for the year ended December 31, 1995.
Ernst & Young LLP
Syracuse, New York
March 22, 1996
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the January 12, 1996
Registration Statement on Form S-8 of our report, dated January 19, 1996, on
the financial statements of Richey Electronics, Inc. as of December 31, 1994
and 1995 for each of the three years in the period ended December 31, 1995,
which appears on page 25 of Form 10-K of Richey Electronics, Inc. for the
year ended December 31, 1995.
McGladrey & Pullen, LLP
Pasadena, California
March 27, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31, 1995 BALANCE SHEET AND INCOME STATEMENT FOR THE YEAR ENDING
DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS APPEARING IN PAGES 26 - 42 OF FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 572
<SECURITIES> 0
<RECEIVABLES> 25,622
<ALLOWANCES> 0
<INVENTORY> 31,450
<CURRENT-ASSETS> 63,073
<PP&E> 4,681
<DEPRECIATION> 1,212
<TOTAL-ASSETS> 118,941
<CURRENT-LIABILITIES> 28,997
<BONDS> 61,652
0
0
<COMMON> 9
<OTHER-SE> 27,381
<TOTAL-LIABILITY-AND-EQUITY> 118,941
<SALES> 117,057
<TOTAL-REVENUES> 117,057
<CGS> 89,080
<TOTAL-COSTS> 89,080
<OTHER-EXPENSES> 22,324
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 867
<INCOME-PRETAX> 4,786
<INCOME-TAX> 1,918
<INCOME-CONTINUING> 2,868
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<NET-INCOME> 2,868
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
