UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 1998 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 0-1460
ANDERSEN GROUP, INC.
(Exact name of Registrant as specified in its charter)
Connecticut 06-0659863
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) No.)
515 Madison Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 826-8942
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
-------------------------------------------------------------------------
Common Stock, No Par Value The NASDAQ Stock Market
10 1/2% Convertible Subordinated Debentures Due 2007
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, 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 the 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.
The aggregate market value of the Common Stock, no par value, held by
non-affiliates of the Registrant based upon the average bid and asked prices on
May 8, 1998, as reported on the NASDAQ Stock Market, was approximately
$8,646,000. Shares of Common Stock held by each officer and director and by each
person who owns 5% or more of the outstanding Common Stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
As of May 8, 1998, there were 1,930,478 shares of Common Stock, no par
value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive Proxy
Statement dated May 19, 1998,
filed with the Commission pursuant to Regulation 14A,
are incorporated into Part III.
The exhibit index is located on page E-1
<PAGE>
PART I
ITEM 1. BUSINESS.
General. Andersen Group, Inc., referred to herein as the "Company" or the
"Registrant", was incorporated under the laws of the State of Connecticut in
1951.
The Company has historically made investments in companies that operated in
several highly diverse segments, and which required extensive management
participation in operation and restructure. These segments have included dental
distribution and manufacture, electronics manufacturing and supply businesses,
ultrasonic cleaning equipment, communications electronics, medical products and
services and video products. More recently, however, the Company has increased
its level of investments that do not require extensive management participation.
These passive investments include investments in certain U.S.-based financial
institutions and in the securities of Russian and Eastern European companies.
The Company intends to continue to make minority, non-controlling investments in
the future.
Since 1991, however, the Registrant's primary investment, comprising
approximately 33% of the Company's total assets, has been The J.M. Ney Company
(JM Ney) which historically operated in two industry segments: Electronics,
consisting of JM Ney's electronics and ultrasonics divisions, and Dental. In
November 1995, JM Ney sold the assets and certain liabilities of the Dental
segment. In 1997, Ney Ultrasonics Inc., a subsidiary of JM Ney, was classified
as a separate industry segment (Ultrasonic Cleaning Equipment) and, effective
February 28, 1998, substantially all of the assets of the Ultrasonics Cleaning
Equipment segment were sold.
In December 1997, JM Ney borrowed $7.5 million on a 10.26% bullet
subordinated note, due 2004 with warrants, entitling the lender to purchase
40,000 shares of JM Ney capital stock at a fixed price, in order to have funds
available for a strategic acquisition designed to grow JM Ney's business. If JM
Ney makes an acquisition, the Company's ownership of JM Ney may become diluted
through the issuance of JM Ney capital stock as part of the consideration paid.
While criteria for a strategic acquisition have been identified, no agreements
have been reached concerning any possible targets. In addition to the investment
in JM Ney, since April 1993, the Registrant has held an investment in Digital
GraphiX, Incorporated (DGI), a video graphics company. DGI sold substantially
all of its assets in April 1997 and has substantially completed the winding up
of its affairs (see "Other Investments").
Effective June 1, 1997, as part of a strategic reorganization of the
Company, Oliver R. Grace, Jr., the Company's former Chairman, became President
and Chief Executive Officer, and Francis E. Baker, the Company's President and
Chief Executive Officer from 1959 to 1997, became Chairman and Secretary. In
addition, in May 1998 the Company's principal executive offices were relocated
to New York, New York.
Industry Segment Information.
Financial information regarding the Company's industry segments is
contained in Note 18 to the Registrant's Consolidated Financial Statements for
the fiscal year ended February 28, 1998 contained in Item 8 herein.
Narrative Description of Business.
During the fiscal year ended February 28, 1998, the Company held
investments in companies that operated in two business segments, Electronics and
Ultrasonic Cleaning Equipment. As noted below, the Ultrasonic Cleaning Equipment
segment was sold effective February 28, 1998 and has been treated as a
discontinued operation in the Company's Consolidated Financial Statements. In
addition, the Company held interests in a company with plans to develop data
transmission networks throughout the Commonwealth of Independent States, and in
a Russian titanium producing company. The Company also holds a portfolio of
marketable securities comprised primarily of the common stock of certain
financial institutions and of companies based in, or mutual funds which invest
in, companies based in Russia or other Eastern European countries.
Electronics Segment
The Electronics segment, which consists of the operations of JM Ney, is a
full-service, precious metal and parts supplier to automotive, medical,
industrial electronics, military and semi-conductor manufacturers. JM Ney's
fully integrated approach includes fabrication and manufacture of its precious
metal alloys, as well as design, engineering and metallurgical support. The
fabrication capabilities include stamping, wire drawing, rolling from ingot to
foil, precision turning, injection and insert molding, and refining.
JM Ney specializes in the engineering and manufacturing of precious metal alloy
contacts and contact assemblies aimed at low amperage applications. Electrical
contacts made of precious metals, including gold, platinum, palladium and
silver, are considered extremely dependable as the materials are inert and
highly resistant to corrosion and wear. In developing a finished contact or
assembly, JM Ney's technical staff works closely with customers, typically on an
engineer-to-engineer level, in order to design a product that meets all of the
metallurgical, electronic, dynamic and other performance specifications required
for the customer's applications. JM Ney designs and builds the necessary molds
and tools as well as designs and manufactures the end product. By controlling
the total process JM Ney believes it has a competitive advantage over other
companies in technology, cost and response time. JM Ney has attained ISO 9001
certification and QS9000 certification for the manufacture of its products as
well as approval by the Japanese Industrial Standards (JIS) and the United
States Food and Drug Administration.
In connection with the sale of the assets and liabilities of the Company's
Dental segment in November, 1995, JM Ney (and the Company, solely for purposes
of a non-competition covenant) entered into a three year manufacturing agreement
to alloy and fabricate precious metals for Ney Dental International, Inc. (NDI),
the purchaser of JM Ney's dental business. As part of this agreement, JM Ney and
the Company agreed, for a ten-year period, not to sell alloys, equipment or
merchandise into the dental market that NDI serves. JM Ney is, however,
permitted to continue producing, selling and marketing precious metal copings
and other machined and molded parts and material for use in the dental implant
industry.
JM Ney's business has limited direct competition with regard to the
manufacture of low amperage precious metal contacts and contact assemblies due
to the inherent risks, which accompany the engineering and manufacture of
precious metals (i.e., high start-up and inventory costs, theft, etc.). While
some competitors offer similar products, the Company believes that these
operations lack the vertical integration to compete across the entire spectrum
of products. JM Ney faces indirect competition from companies such as Engelhard
Corporation and Johnson Matthey, Inc., which have significantly greater
resources and which are involved in higher volume production of more standard
precious metal alloys.
JM Ney sells to more than 800 customers, with approximately 85% of its sales
being made to customers in the United States. JM Ney's sales are made
domestically through both field sales and manufacturers' representatives located
in key geographic markets. Internationally, JM Ney sells through manufacturers'
representatives, independent distributors and original equipment manufacturers.
Two customers in the Electronics segment (Implant Innovations, Inc., a purchaser
of precision machined precious metal components and precious metal materials,
and First Inertia, Inc., a purchaser of electronic components for the automotive
market) each accounted for more than 10% of the Registrant's consolidated sales
in fiscal 1998.
Ultrasonic Cleaning Equipment Segment
Effective February 28, 1998, the Company sold the net assets of Ney
Ultrasonics Inc. (Ney Ultrasonics) which until that date comprised the Company's
Ultrasonic Cleaning Equipment segment for approximately $3.5 million in cash. In
addition to consideration received at closing, and anticipated to be received
upon the agreement of closing date financial information, the Company expects to
receive consideration during the next several years based on growth of sales of
certain products by the purchasers of Ney Ultrasonics net assets. See Note 5 to
the Company's Consolidated Financial Statements for the year ended February 28,
1998 contained in Item 8 herein.
Other Investments
Trading Portfolio
At February 28, 1998, the Company had a portfolio of short-term investments with
a reported value of $9,001,000. The reported amount is reflected net of a
$617,000 valuation reserve to provide for volatility and liquidity concerns
relating to marketable investments in Russia and other eastern European
countries. The larger components of these investments include $5.6 million of
common stocks of savings banks and $2.4 million of the CA IB Emerging Russia
Fund. In addition, these investments include investment in Ukrainian and Polish
companies, common stock of Centennial Cellular, Inc. and municipal bonds. See
Note 3 to the Company's Consolidated Financial Statements for the year ended
February 28, 1998 contained in Item 8 herein.
Digital GraphiX
During fiscal 1998 the Company received payments of its investments in notes,
preferred stock and common stock of DGI, pursuant to DGI's liquidation as a
result of the sale of substantially all of its net assets in April 1997. For
further information on the Registrant's investment in DGI, see Note 7 to the
Company's Consolidated Financial Statements for the fiscal year ended February
28, 1998 contained in Item 8 herein, and Certain Relationships and Related
Transactions in Item 13.
Institute for Automated Systems
The Company also holds an investment in Treglos Investments, LTD, a joint
venture that is investing in the Institute for Automated Systems, a Russian
telecommunications company that has agreements to develop a data transmission
network throughout the Commonwealth of Independent States. The joint venture
owns approximately 6% of the Institute for Automated Systems. Among the joint
venture partners are the Company's Chairman and another Director. See Note 7 to
the Company's Consolidated Financial Statements for the fiscal year ended
February 28, 1998 contained in Item 8 herein, and Certain Relationships and
Related Transactions in Item 13.
<PAGE>
AVISMA
The Company also owns 9,734 shares of AVISMA, a Russian based titanium producer.
These shares were purchased during fiscal 1998 for an aggregate cost of
approximately $1,225,000. They are being valued for financial reporting purposes
net of a valuation reserve of $245,000. AVISMA will be merged into VSMPO, a
Russian titanium processing company, under the terms of a transaction in which
VSMPO will be the surviving entity. There is currently a limited trading market
for AVISMA. The Company anticipates improved liquidity following the merger with
VSMPO. See Note 7 to the Company's Consolidated Financial Statements for the
fiscal year ended February 28, 1998 contained in Item 8 herein, and Certain
Relationships and Related Transactions in Item 13.
Research and Development
During fiscal years 1998, 1997, and 1996, research and development expenditures
from continuing operations totaled approximately $1,444,000, $1,228,000 and
$1,374,000, respectively.
Sources and Availability of Raw Materials and Components
JM Ney purchases its raw materials, including precious metals, and the
components used in the manufacture of its products from a number of domestic
suppliers, and generally is not dependent upon any single supplier. Although JM
Ney utilizes Russian palladium in the manufacture of many of its products, and
despite recent publicized events regarding lack of palladium shipments from
Russia to the world market, the Company believes that its sources of supply are
adequate for its continuing needs.
Compliance with Environmental Protection Laws
Management of the Company believes that the Company and its operating
subsidiaries are in material compliance with applicable federal, state and local
environmental regulations. Compliance with these regulations has not in the past
had any material effect on the Company's capital expenditures, consolidated
statements of operations or competitive position, nor does the Company
anticipate that compliance with existing regulations will have any such effect
in the near future.
Employees
As of April 30, 1998, the Company, including all subsidiaries, had 191 full-time
employees and one part-time employee. None of these employees are represented by
a labor union, and the Company is not aware of any organizing activities.
Neither the Company nor any of its subsidiaries has experienced any significant
work stoppage due to any labor problems. The Company considers its employee
relations to be satisfactory.
Forward Looking Statements
This report contains forward-looking statements, which are subject to a number
of risks, and uncertainties that may cause actual results to differ materially
from expectations.
<PAGE>
Executive Officers of the Company
The Executive Officers of the Company and certain significant employees of its
subsidiaries are as follows:
<TABLE>
<CAPTION>
- ------------------------------- -------- ----------------------------------------------------------- -----------------
Officer
Name Age Position Since
- ------------------------------- -------- ----------------------------------------------------------- -----------------
<S> <C> <C> <C>
Francis E. Baker 68 Chairman and Secretary 1959
Oliver R. Grace, Jr. 44 President and Chief Executive Officer 1997
Bernard F. Travers, III 40 Assistant Secretary 1993
Ronald N. Cerny 46 President, The J.M. Ney Company 1993
Andrew M. O'Shea 39 Treasurer of the Company; Chief Financial Officer and
Secretary, The J.M. Ney Company 1995
Eugene Phaneuf 51 Vice President - Operations,
The J.M. Ney Company 1996
- ------------------------------- -------- ----------------------------------------------------------- -----------------
</TABLE>
Except as set forth below, all of the officers and significant employees of its
subsidiaries have been associated with the Company in their present positions
for more than the past five years.
Mr. Grace, Jr. has been a Director of the Company since 1986 and President
and Chief Executive Officer since June 1, 1997. Mr. Grace, Jr. was Chairman of
the Company from March 1990 to May 1997. Mr. Grace, Jr. has also been President
of AG Investors, Inc., one of the Company's subsidiaries, since 1992. Mr. Grace,
Jr. is a General Partner of The Anglo American Security Fund L.P. Mr. Grace,
Jr., the Company's Chairman, is the brother of John S. Grace, a member of the
Company's Board of Directors.
Mr. Baker became Chairman on June 1, 1997. He has been a Director of the
Company since 1959 and was President and Chief Executive Officer from 1959 until
June 1, 1997. Mr. Baker is also the Secretary of the Company, a position he has
held since May 1997.
Mr. Travers, III joined the Company in 1983. He was promoted to Assistant
Secretary in June 1993. From 1990 through the present he has also served as the
Company's Director of Law and Taxation. Mr. Travers is an attorney and a
Certified Public Accountant.
Mr. Cerny has served as President of JM Ney since November 1995. From April 1993
to November 1995, Mr. Cerny was the General Manager of JM Ney's Electronics
Division. From 1988 until joining JM Ney, Mr. Cerny served as Director of
Operations (1990-1993) and Director of Sales & Marketing (1988 to 1990) for the
Materials Technology Division of Johnson Matthey, Inc., a precious metals
fabricator.
Mr. O'Shea became Treasurer of the Company in June 1997. He joined the
Company in December 1995 as Treasurer and Chief Financial Officer of JM Ney. In
November 1997 he was also appointed JM Ney's Secretary. From 1994 until joining
the Company, Mr. O'Shea was Vice-President of Finance and Administration for the
WorldCrisa Corporation. From 1990 to 1994, Mr. O'Shea worked for Buxton Co. in
various financial management capacities, including Senior Vice-President,
Finance and Administration. Mr. O'Shea is a Certified Public Accountant.
Mr. Phaneuf joined JM Ney in 1990. He was promoted to Vice
President-Operations of JM Ney in March 1996. From April 1994 to February 1996,
Mr. Phaneuf was JM Ney's Director of Operations. He was also Acting General
Manager of Ney Ultrasonics from April 1995 through December 1996. From 1990 to
1994, Mr. Phaneuf was JM Ney's Manager of Engineering and Manufacturing.
ITEM 2. PROPERTIES.
The Company's principal executive offices were relocated to New York, New York
in May 1998. The Company subleases office space from an entity owned by Oliver
R. Grace, Jr. the Company's President and Chief Executive Officer, at lease
rates that approximate market.
The Company's subsidiary, Andersen Realty, Inc., owns a 108,000 square foot
building located in Bloomfield, Connecticut. Portions of this facility are
leased to the present owners of its former Dental and Ultrasonic Cleaning
Equipment segments, as well as to third parties.
JM Ney owns a 100,000 square foot facility within a 16.5 acre industrial park in
Bloomfield, Connecticut. This site contains JM Ney's principal operations and
general administrative offices. The Registrant believes that its plants and
properties, and the production capacities thereof, are suitable and adequate for
its business needs of the present and immediately foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
Morton International, Inc. v. A.E. Staley Mfg. Co. et al. and Velsicol
Chemical Corp. v. A.E. Staley Mfg. Co. et al.
As previously reported in the Company's Form 10-K for the year ended February
28, 1997, in July 1996, two companion lawsuits were filed in the United States
District Court for the District of New Jersey, by various owners and operators
of the Ventron-Velsicol Superfund Site (Site). The lawsuits, which were
subsequently consolidated, were filed under the Comprehensive Environmental
Resource Compensation and Liability Act (CERCLA), the Resource Conservation and
Recovery Act, the New Jersey Spill Act and New Jersey common law, alleging that
the defendants (over 100 companies, including JM Ney) were generators of certain
wastes allegedly processed at the site. The lawsuits seek recovery of costs
incurred and a declaration of future liability for costs to be incurred by the
owners and operators in studying and remediating the Site.
Based on preliminary disclosure of information relating to the claims made by
plaintiffs and defendants, JM Ney, which produced and refined precious metals
used in dental amalgams, is one of the smaller parties to have had any
transactions with one of the plaintiff's predecessors in interest. However,
under both CERCLA and the New Jersey Spill Act, a party is jointly and severally
liable, unless there is a basis for divisibility. At this time, there is
insufficient information to determine the appropriate allocation of costs as
between or among the defendant group, if liability to the generator defendants
is ultimately proven. Moreover, because of the incomplete status of discovery,
the Company is unable to predict the probable outcome of the lawsuit, whether
favorable or unfavorable, and has no basis to ascertain a range of loss, should
any occur, with respect to an outcome that might be characterized as
unfavorable.
The Company continues to investigate whether any liability, which may accrue at
some future date, may be subject to reimbursement in whole or in part from
insurance proceeds. The Company intends to continue to vigorously defend the
lawsuit.
James S. Cathers and Sylvia Jean Cathers, his wife v. Kerr Corporation,
Whip-Mix Corporation, The J.M. Ney Company and Dentsply Corporation, Inc.
As previously reported in the Company's Form 10-Q for the Quarter ended August
31, 1997, in August 1997, JM Ney was included as a defendant in an asbestos
related civil action for negligence and product liability filed in the Court of
Common Pleas of Allegheny County, Pennsylvania, in which the Plaintiffs claim
damages in excess of $30,000 (the jurisdictional limit) from being exposed to
asbestos and asbestos products alleged to have been manufactured and supplied by
the defendants, including Ney's former Dental Division, while one of the
Plaintiffs worked in a dental lab from 1960 to 1986 at an unspecified location
in Pittsburgh, Pennsylvania. The Plaintiffs allege that this exposure to
asbestos and asbestos products caused the wrongful death of one of the
Plaintiffs from cancer (mesothelioma). The Plaintiffs have not provided any
specific allegations of facts as to which defendants may have manufactured or
supplied asbestos and asbestos products which are alleged to have caused the
injury.
The Company has determined that it has insurance that potentially
covers this claim and has called upon the insurance carriers to provide
reimbursement of defense costs and liability, should any arise. As of this date,
the Company has no basis to conclude that the litigation may be material to the
Company's financial condition or business. The Company intends to vigorously
defend the lawsuit.
Anthony Nicholas Georgiou, et al. v. Mobil Exploration and Producing
Services, Inc., Metromedia International Telecommunications, Inc., et al.
On January 14, 1998, Anthony Nicholas Georgiou, et al. v. Mobil Exploration and
Producing Services, Inc., Metromedia International Telecommunications, Inc., et
al., was filed in the United States District Court for the Southern District of
Texas. Plaintiffs claim that the defendants, including the Registrant and Oliver
R. Grace, Jr. the Registrant's President and Chief Executive Officer, interfered
with plaintiffs' business relationships with several companies involving certain
oil exploration and production contracts in Siberia and telecommunications
contracts in the Russian Federation. The specific counts are civil conspiracy,
tortious interference with contractual relationships and tortious interference
with prospective contractual relationships. Plaintiffs have alleged actual
damages in excess of $500,000,000 and have sought punitive damages of three
times alleged actual damages. The Company filed its answer denying each of the
substantive allegations of wrongdoing contained in the complaint. In addition,
the Company has moved to dismiss this case in Texas against it for lack of
personal jurisdiction.
The Company believes that this action against it will be dismissed for lack of
personal jurisdiction. If the action were not dismissed, the Company believes
that it has meritorious defenses and will continue to vigorously defend the
action. The Company is investigating whether any liability, which may accrue at
some future date, may be subject to reimbursement in whole or in part from
insurance proceeds. As of this date, the Company has no basis to conclude the
litigation may be material to the Company's financial condition or business.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On February 25, 1998, the Company held a special meeting of its stockholders to
amend and restate the Company's Amended and Restated Certificate of
Incorporation to eliminate certain restrictions on the payment of dividends on
the Company's Common Stock and the Company's Series A Cumulative Convertible
Preferred Stock, change the dividend payment rate on the Preferred Stock and
eliminate the requirement that the Company redeem the Preferred Stock.
The number of votes cast for, against or withheld, as well as the number of
abstentions and broker non-votes of each class of capital stock entitled to vote
is set forth below:
<TABLE>
<CAPTION>
Class of Stock For Against Withheld Abstentions
<S> <C> <C> <C> <C>
Common 1,140,084 37,782 744,234 13,378
Preferred 236,258 5,832 5,614 8,744
</TABLE>
Based upon these results, the changes to the Company's Amended and Restated
Certificate of Incorporation was amended to reflect the changes referred to
above.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Registrant's Common Stock is traded on The NASDAQ Stock Market under the
symbol (ANDR) with quotes supplied by the National Market System of the National
Association of Securities Dealers, Inc. (NASDAQ).
The approximate number of record and beneficial holders of the Registrant's
Common Stock on May 8, 1998 was 625 and 1,100, respectively. The Company's high,
low and closing sales prices for the common equity, for each full quarterly
period within the two most recent fiscal years, are included below. The stock
prices shown, which were obtained from NASDAQ, represent prices between dealers
and do not include retail markups, markdowns or commissions and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
- --------------------------------------------- ---------------------- ------------------------ ----------------------
Year ended February 28, 1998 High Low Close
- --------------------------------------------- ---------------------- ------------------------ ----------------------
<S> <C> <C> <C>
First Quarter 5 1/2 4 1/2 5 1/8
Second Quarter 6 3/4 5 6 1/2
Third Quarter 10 1/4 6 1/4 7 5/8
Fourth Quarter 7 1/2 4 7/8 5 7/8
- --------------------------------------------- ---------------------- ------------------------ ----------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------- ---------------------- ------------------------ ----------------------
Year ended February 28, 1997 High Low Close
- --------------------------------------------- ---------------------- ------------------------ ----------------------
<S> <C> <C> <C>
First Quarter 6 1/2 3 3/4 6
Second Quarter 7 5 1/4 6 1/2
Third Quarter 7 3 1/4 5 1/4
Fourth Quarter 6 1/2 5 5 1/2
- --------------------------------------------- ---------------------- ------------------------ ----------------------
</TABLE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain financial data with respect to the
Company and is qualified in its entirety by the Consolidated Financial
Statements of the Company for the fiscal year ended February 28, 1998 contained
in Item 8 herein, (amounts in thousands, except per share data).
<TABLE>
<CAPTION>
- ------------------------------------ ---------------- ----------------- --------------- --------------- ----------------
Years ended February 1998 1997 1996 1995 1994
- ------------------------------------ ---------------- ----------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues (1) $28,868 $20,501 $19,437 $24,520 $17,024
- ------------------------------------ ---------------- ----------------- --------------- --------------- ----------------
Income (loss) from continuing
operations 1,770 334 (1,921) (397) (923)
- ------------------------------------ ---------------- ----------------- --------------- --------------- ----------------
Net income (loss) 2,212 299 1,933 (388) (868)
- ------------------------------------ ---------------- ----------------- --------------- --------------- ----------------
Income (loss) applicable to
common shares 1,772 22 2,389 (975) (1,468)
- ------------------------------------ ---------------- ----------------- --------------- --------------- ----------------
Income (loss) from continuing
operations per common share,
diluted .68 .03 (.76) (.90) (1.22)
- ------------------------------------ ---------------- ----------------- --------------- --------------- ----------------
Income (loss) per common
share, diluted .91 .01 1.23 (.50) (0.80)
- ------------------------------------ ---------------- ----------------- --------------- --------------- ----------------
Depreciation, amortization
and accretion 1,480 1,419 1,887 2,329 3,368
- ------------------------------------ ---------------- ----------------- --------------- --------------- ----------------
Total assets 44,771 37,677 38,798 43,679 48,590
- ------------------------------------ ---------------- ----------------- --------------- --------------- ----------------
Total debt 14,537 10,119 8,485 12,328 16,371
- ------------------------------------ ---------------- ----------------- --------------- --------------- ----------------
Redeemable preferred stock - 4,891 5,280 10,593 10,494
- ------------------------------------ ---------------- ----------------- --------------- --------------- ----------------
- ------------------------------------ ---------------- ----------------- --------------- --------------- ----------------
Common and other stockholders'
equity (2) 20,196 13,647 13,625 9,913 10,837
- ------------------------------------ ---------------- ----------------- --------------- --------------- ----------------
Book value per common share 7.97 7.05 7.04 5.13 5.62
- ------------------------------------ ---------------- ----------------- --------------- --------------- ----------------
</TABLE>
(1) The results of Digital GraphiX are included in 1994, 1995 and two months of
1996. Net sales and revenues, and income (loss) from continuing operations,
exclude the results of operations of the Company's Ultrasonic Cleaning Equipment
and Dental segments as a result of their sales in February 1998 and November
1995, respectively.
(2) 1998 amount includes preferred stock as a result of the elimination of
its mandatory redemption provisions.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
1998 vs. 1997
REVENUES
- --------
Total revenues from continuing operations of $28,868,000 for the fiscal year
ended February 28, 1998 (FY98) were 40.8% more than the $20,501,000 of revenues
recorded for the year ended February 28, 1997 (FY97). This increase represents
the combination of a 23.0% increase in sales generated by The J.M. Ney Company
(JM Ney), and an increase of $3,613,000 of investment and other income over the
net losses of $142,000 recorded in FY97.
JM Ney's increase in sales to $25,397,000 reflects growth in sales of contacts
for sensors used in the automotive industry, and increased sales of precious
metal materials, particularly materials for use in the manufacture of dental
implant components. Such sales growth during FY98 is reflected net of a 2%
decline in sales to the Company's former Dental segment.
Investment and other income totaled $3,471,000 for FY98, versus a loss of
$142,000 in FY97, as follows (000s omitted):
<TABLE>
<CAPTION>
FY98 FY97
<S> <C> <C>
Net gains from domestic investment portfolio $1,759 $1,032
Net gains from Russian and Eastern European portfolio 665 -
Interest and dividends 228 366
Rental income 376 342
Gain from Digital GraphiX 196 -
Loss from investments in Phoenix Shannon - (2,175)
Other, net 247 293
------- -------
$3,471 ($142)
</TABLE>
Gains from the Company's domestic investment portfolio increased due to a
rebound in the market value of the Company's investment in Centennial Cellular,
which had experienced a decline in value in FY97, and to continued growth in
value from the Company's portfolio of financial institutions. All gains from
this portion of the investment portfolio in each of the two most recent years
represented increases in net unrealized appreciation of the underlying
investments. Also, during FY98, the Company significantly expanded its
investment activities in Russia and Eastern Europe. This resulted in the
recording of net realized and unrealized gains of $665,000, net of valuation
allowances of $617,000 established for the foreign trading portfolio, and
$245,000 established for a Russian security held for longer term investment.
Such reserves were established to address volatility and liquidity concerns
within these markets.
During FY98, Digital GraphiX, Incorporated, an investment whose results had been
consolidated with those of the Company through April 1995, sold its net assets
and used the proceeds to repay notes, redeem its preferred stock, and issue
liquidating dividends on its common stock. As a result, the Company received
$196,000 in excess of the net carrying value of its investment.
During FY97, the Company wrote off $2,175,000 in the value of its investment in
the common stock of, and a note receivable from, Phoenix Shannon, p.l.c. which
had been received as part of the consideration for the sale of the net assets of
the Company's former Dental segment in FY96.
COST OF SALES
- -------------
Cost of sales totaled $17,040,000, or 67.1% of net sales in FY98, versus cost of
sales of $13,259,000, or 64.2% of net sales in FY97. The decline in the gross
margins from 35.8% to 32.9% was caused primarily by significant increases and
volatility in the price of palladium which is used in the majority of JM Ney's
products, and by increases in materials sales as a percentage of overall sales.
However, gross margins of $8,357,000 in FY98 represented a 13.2% increase over
FY97 levels.
During most of FY97, the price of palladium remained relatively stable between
$141 per troy ounce and $115 per troy ounce, with an increase at fiscal year end
to above $155 per ounce. Such a market condition enabled JM Ney to easily
replace the metal it had sold with metal of approximately equal value for LIFO
accounting purposes. However, during FY98, the price of palladium fluctuated
widely. Prices ranged from a low of $142 per troy ounce to a high of $240 per
ounce. During much of this period, the market viewed these price increases as
temporary, as reflected in the lower cost for palladium in future months.
Accordingly, for certain segments of its business, this price increase could not
be immediately passed on to JM Ney's customers. Although JM Ney had certain
hedging programs in place, such strategies did not cover all sales programs
involving significant quantities of palladium.
During the first quarter of FY99, the price of palladium has increased further.
JM Ney has utilized expanded metals hedging, financing and purchasing programs
to reduce the adverse exposure that this development may have on its results of
operations.
In addition, the Company's FY98 gross margin benefited from lower gold prices,
which served to slightly offset the impact of the effects of the palladium price
increases and volatility.
Also, during FY98, sales of precious metal materials, in the form of wire,
strip, and rod represented approximately 31.8% of sales, versus material sales
of 24.4% in FY97. Material products generally have lower average gross margins,
due to the commodity nature of the product, versus highly engineered parts and
components, which involve an increased amount of value-added processing, and
higher gross margins. Such sales mix contributed further to the lower average
gross margins during FY98.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses from continuing operations totaled
$6,260,000, or 8.5% more than the costs incurred during FY97. Costs of
approximately $128,000 incurred in the process of upgrading JM Ney's
manufacturing system to be Year 2000 compliant, an increase of $167,000 of
recruiting costs, including personnel fees and advertising, and legal costs
incurred in connection with the exchange of the Company's 10 1/2% Debentures and
change of the terms of its Preferred Stock all contributed to the growth in
these expenses.
RESEARCH AND DEVELOPMENT EXPENSES
- ---------------------------------
Research and development expenses increased from $1,228,000, or 5.9% of sales in
FY97 to $1,444,000, or 5.7% of sales in FY98. While increased material sales
served to lower the relative comparison, the absolute increase of 17.6% reflects
the cost of efforts to develop new proprietary alloys that have similar physical
attributes to existing alloys with lower palladium content to reduce exposure to
market fluctuations, and to work on new manufacturing processes which enable JM
Ney to offer product alternatives.
INTEREST EXPENSE
- ----------------
Interest expense increased from $790,000 in FY97 to $1,163,000 in FY98.
Increased borrowings under JM Ney's revolving line of credit to support both its
working capital requirements and those of Ney Ultrasonics served to increase
interest. In addition, significant increases in the leasing rates of palladium
and platinum also served to increase financing costs under its line of credit.
JM Ney was not exposed to these volatile interest rates to the extent that many
other companies using palladium were, thus this impact was contained.
Also, during the year, JM Ney closed on a $7.5 million seven-year subordinated
note that bears interest at the annual rate of 10.26%. Interest and amortization
of deferred financing costs for two months added to the interest expense total.
INCOME TAXES
- ------------
Income tax expense from continuing operations totaled $1,191,000 for FY98,
versus a tax benefit from continuing operations of $882,000 for FY97. The
current year expense included a net increase of $1,016,000 in deferred income
taxes payable. The effective tax rate for FY97 was favorably impacted by the
settlement of audits of prior state income tax returns.
DISCONTINUED OPERATIONS
- -----------------------
Effective February 28, 1998, the Company sold the net assets of Ney Ultrasonics
for approximately $3.5 million and additional contingent consideration. Net of
expenses incurred in the transaction, the Company recognized a gain of $97,000,
net of tax. For the year then ended, Ney Ultrasonics generated approximately
$345,000 of net income on sales of $5,713,000. During FY98 these operations
generated an increase in sales of 47.5% over FY97, which produced the first
operating profit in its history. The Company is optimistic that continuation of
the market penetration of the ultrasonic cleaning technology will result in
increased future profits in the form of contingent consideration from the sale.
PREFERRED DIVIDENDS
- -------------------
Preferred dividends, including the amortization of issuance costs, totaled
$477,000 during FY98, which is a 16.1% increase over the dividends of $411,000
accrued for FY97. The dividends per preferred share, which include a
participating dividend based on the operating income of JM Ney, including
earnings relating to Ney Ultrasonics and the former Dental segment, increased
from approximately $1.24 per share in FY97 to approximately $1.69 in FY98.
However, due to purchases of shares of preferred stock during both years, the
aggregate preferred dividends increased by a lower amount. Reversals of
previously accrued but unpaid dividends added $37,000 and $134,000 to income
applicable to common shareholders in FY98 and FY97, respectively.
As a result of the shareholder approval of the change in the terms of the
Preferred Stock, dividends that had been accrued from May 1993 through November
1997 were paid in February 1998.
NET INCOME
- ----------
As a result of the income of $1,770,000 generated from continuing operations,
income of $345,000 from discontinued operations, and the gain of $97,000 on the
sale of Ney Ultrasonics, total net income for FY98 was $2,212,000, versus net
income of $299,000 in FY97. After net preferred dividends, income applicable to
common shareholders for FY98 was $1,772,000, or $.92 per share basic, $.91
diluted, versus income applicable to common shareholders of $22,000, or $0.01
per basic and diluted share in FY97.
1997 VS. 1996
REVENUES
- --------
For the year ended February 28, 1997 (FY97), revenues from continuing operations
totaled $20,501,000, which were 5.5% more than revenues during the fiscal year
ended February 29, 1996 (FY96). This increase primarily reflects a 24.8%
increase in sales for The J.M. Ney Company (JM Ney), losses sustained from
investments in Phoenix Shannon, p.l.c., and the absence of sales from the
Company's former Video Products segment.
Sales from JM Ney were $20,643,000 during FY97, versus FY96 sales of
$16,544,000. Sales growth was generated in automotive, medical and other
industrial markets, which resulted from expansion of manufacturing capabilities
and effective marketing efforts. Additional sales growth was generated from
dental alloy fabrication services to the Company's former Dental segment, which
during FY96 was included for only three months after the sale of that division
to Phoenix Shannon. Sales from Digital GraphiX, Incorporated (DGI), the
Company's formerly consolidated Video Products segment, totaled $2,080,000
during the first two months of FY96. Due to an offering of DGI's common stock,
the Company's ownership was diluted and DGI's results beyond that date were not
consolidated with those of the Company. Accordingly, during FY97, this segment
did not generate any reported sales for the Company.
Investment and other income produced a net loss of $142,000 during FY97, versus
income of $813,000 in the prior fiscal year. A significant decline in the market
value of Phoenix Shannon common stock resulted in the complete write-off of
$2,175,000 of the Company's investment in Phoenix Shannon, including a $1
million note receivable. During FY96, the Company absorbed a $525,000 loss
relating to a decline in the market value of Phoenix Shannon's common stock.
Gains from common stocks, which primarily comprised investments in certain
financial institutions, produced net investment gains of $1,032,000 during FY97,
while these investment activities yielded $585,000 of net gains during FY96. In
addition, rental income increased from $281,000 in FY96 to $342,000 in FY97, due
primarily to a full year of revenue from the former Dental segment, which has
leased space in the Company's 100,000 square foot office and manufacturing
facility. Interest income of $342,000 in FY97 was 27.1% lower than the $469,000
recorded in FY96, due primarily to reduced interest related to the Company's
note receivable from DGI, which was partially offset by increased interest on
excess cash balances. The DGI note was partially converted to DGI's preferred
stock during FY97, and no accruals of dividend income were recorded. In
addition, fee income of $200,000 in FY97 added to the total of investment and
other income.
COST OF SALES
- -------------
Cost of sales of $13,259,000 in FY97 represented 64.2% of sales, while such
costs amounted to $12,016,000, or 64.5% of sales during FY96. The increased
gross margins, 35.8% versus 35.5%, represents the net of a 1.5% increase in
margins for JM Ney, and the absence of higher margin sales from the Video
Products segment, for which only modest sales were reported for FY96.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses of $5,772,000 during FY97 were
24.9% lower than the $7,683,000 of such expenses reported for FY96. A write-down
in FY96 of $1 million of the Company's investment in DGI, and approximately
$950,000 of legal and settlement costs relating to a suit filed against a former
subsidiary of the Company accounted for most of the higher costs in FY96.
Selling, general and administrative expenses totaled 28.2% of revenues in FY97
versus 39.5% in FY96.
RESEARCH AND DEVELOPMENT EXPENSES
- ---------------------------------
Research and development expenses decreased from $1,374,000 in FY96 to
$1,228,000 in FY97 due to the absence in FY97 of such expenses from DGI. Such
expenses, excluding DGI, were $1,041,000, or 6.3% of sales in FY96, versus 5.9%
of sales for FY97. The relative increase reflects efforts at JM Ney to develop
new precious metal alloys, and product processes.
INTEREST EXPENSE
- ----------------
Interest expense of $790,000 during FY97 represents a 36.1% decrease from
interest expense of $1,237,000 incurred during FY96. Principal payments in both
years on long-term obligations, including prepayments made during FY97 to
implement a Capital Stock Purchase Program, along with lower average outstanding
amounts under revolving credit agreements, resulted in the lower interest
expense in FY97.
INCOME TAX BENEFIT
- ------------------
An income tax benefit of $882,000 relating to continuing operations was recorded
in FY97 due to the $548,000 pre-tax loss and to the favorable settlement of a
state income tax audit relating to prior years which was the primary factor that
enabled the Company to reverse approximately $546,000 of accrued income taxes. A
tax benefit of $952,000 relating to $2,873,000 of losses from continuing
operations was recorded in FY96.
DISCONTINUED OPERATIONS
- -----------------------
During FY97, Ney Ultrasonics' operations produced a net loss of $35,000, versus
a net loss of $349,000 from this former segment in FY96. Market acceptance of
newly-introduced ultrasonic cleaning technology improved its sales and operating
results. In addition, during FY96, nine months of activities from the Company's
former Dental segment produced net income of $413,000, or $0.21 per share. A net
gain of $3,790,000, or $1.96 per share, was recorded in FY96 from the sale of
the net assets of this segment to Phoenix Shannon. This gain included $519,000
of a curtailment gain relating to JM Ney's defined benefit pension plan. Part of
the proceeds received from the sale of the Dental segment included 200,000
shares of Phoenix Shannon's stock, which were valued at $1,700,000 and a $1
million note receivable. As noted, during FY96 and FY97, the entire value of
this portion of the consideration was completely written off. Phoenix Shannon
was subsequently placed into bankruptcy and its assets, including the former
Dental segment, were sold. However, such proceeds were insufficient to enable
the Company to realize any value from either the note or the stock.
PREFERRED DIVIDENDS
- -------------------
The preferred dividend requirement, including the amortization of the issuance
discount, totaled $411,000 in FY97 versus $559,000 in FY96. The decrease
reflects the combination of fewer outstanding preferred shares in FY97 versus
FY96 due to share purchases in the fourth quarters of both FY96 and FY97, and
increased per-share dividends. Due to increased consolidated operating income of
The J.M. Ney Company, including the results of Ney Ultrasonics, and the gain on
the sale of the Dental segment, per-share dividends increased from $0.78 in FY96
to $1.24 in FY97.
NET INCOME
- ----------
For FY97, the Company reported net income of $299,000. After preferred
dividends, and reversal of preferred dividends due to the repurchase of shares,
income applicable to common shareholders was $22,000 or $0.01 per share. This
compares to net income of $1,933,000, including the gain on sale of the Dental
segment and the results of both discontinued operations. After preferred
dividends and the reversal of $1,015,000 of dividends from share purchases, FY96
income applicable to common shareholders was $2,389,000, or $1.23 per share.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At February 28, 1998, consolidated cash and short-term investments and
marketable securities totaled approximately $11,517,000, which was an increase
of $2,953,000 from the February 28, 1997 total of $8,564,000. At February 28,
1998, the marketable securities included approximately $5,611,000 of the common
stock of certain financial institutions, $493,000 of non-investment grade
municipal bonds, and $430,000 of the common stock of Centennial Cellular, which
had purchased certain cellular partnership interests from the Company in FY95.
This portfolio also included approximately $2,467,000 reported value of
marketable investments in an emerging Russian mutual fund, and a portfolio of
securities of companies located in the Ukraine and Poland. The reported value of
this portfolio is reflected net of a valuation reserve of $617,000, which was
established to address liquidity and market volatility concerns inherent in
those particular emerging markets.
During FY98, the Company made substantial investments in Russian and Eastern
European markets, including an investment with a recorded value of $980,000 in
AVISMA/VSMPO, a Russian titanium producer whose stock does not currently have a
reported market value due to the relative sparseness in the stock's trading
volume. This security is recorded at its cost less a valuation reserve of
$245,000. Including this investment, the Company's investment of $835,000 in the
Institute for Automated Systems and the above-reported marketable securities,
total Russian and Eastern European investments was $4,282,000, net of
aforementioned valuation reserves. This represents approximately 9.6% of assets
and 21.2% of total stockholders' equity.
During FY98, pursuant to shareholder approval, the Company exchanged $4,311,000
of its 10 1/2% Convertible Subordinated Debentures for an equal amount of new
notes which bear the same interest rate and conversion terms, but do not contain
restrictive covenants contained in the original issue. The new notes have a
longer average maturity, with the final maturity date being in 2007. Pursuant to
this exchange, the Company paid the remaining $456,000 of an Industrial Revenue
Bond and $1,387,000 principal value of the 10 1/2% Debentures that were not
tendered in the exchange. The exchange and redemption of the original notes
resulted in the elimination of a restriction concerning the payment of
dividends. Accordingly, in February 1998, approximately $1,222,000 of previously
accrued but unpaid dividends on preferred stock were paid.
The Company also received the consent of its shareholders to change the terms of
its Series A Cumulative Convertible Preferred Stock ("Preferred Stock"),
including elimination of the required redemption terms and an amendment of the
dividend rate to a fixed annual amount of $1.50 per share, paid quarterly. Prior
to the change, the Preferred Stock called for dividends based upon the earnings
of JM Ney (including the former Dental and Ultrasonics Cleaning segments).
Accordingly, such dividends could range from a minimum of $0.75 per share, to a
maximum of $1.75 per share. For FY98, such dividends totaled $1.69 per preferred
share.
During FY98, JM Ney entered into a seven-year $7,500,000 subordinated note with
a commercial bank that bears interest at 10.26% per annum. JM Ney used the
proceeds to make distributions to the Company, pay down existing obligations and
fund certain capital expenditures. The remaining funds and the increased
availability under its line of credit will be used for the acquisition of
another business, although no specific transaction has been identified. In
connection with issuing this note, JM Ney also granted the lender warrants to
acquire 34,000 and 6,000 shares of its common stock at $1.00 and $10.00 per
share, respectively. Concurrent with this note agreement, JM Ney also amended
the terms of its $6 million revolving credit agreement which expanded its
precious metals financing options, reduced JM Ney's interest rates for certain
borrowings under the line, and amended covenants to accommodate the new
financing.
During FY98, the prices of the precious metals that JM Ney utilizes in the
alloying and manufacturing of its products experienced significant volatility.
Primarily as a net result of an increase of approximately $100 per ounce of the
palladium content of its inventory, and a $60 per ounce decline in the gold
component of its inventory, JM Ney's LIFO reserve increased by $1,176,000 to
maintain the net recorded value of these inventories at their historical values.
As a result of covenants contained in its borrowing agreements, JM Ney is
restricted from paying dividends or otherwise transferring funds to the Company
outside the normal course of business, except as defined in certain agreements.
At February 28, 1998, JM Ney's working capital and net worth, net of liabilities
to the Company, totaled approximately $9.4 million and $6.8 million,
respectively. The Company believes income generated from its investments, or
funds generated from liquidation of existing investments and allowed payments
from JM Ney will be sufficient to meet its anticipated working capital and debt
service requirements for the foreseeable future.
<PAGE>
FORWARD LOOKING STATEMENTS
- --------------------------
This report contains forward-looking statements, which are subject to a number
of risks, and uncertainties that may cause actual results to differ materially
from expectations. Those uncertainties include, but are not limited to the
following:
The Company has expanded its investment and business development activities in
Russia and Eastern Europe. Economic and political developments in these
countries could significantly impact both the return on and the return of
capital employed in these regions. Anticipated contingent consideration from the
sale of Ney Ultrasonics is dependent upon the successful marketing of technology
developed while the Company owned Ney Ultrasonics. Changes in technology, or
shortfalls in the success of the buyer's marketing of this technology, could
affect the ultimate consideration to be received. The price and volatility of
precious metals, particularly palladium and gold, could impact the market for
many of JM Ney's products as users substitute less expensive materials.
YEAR 2000
- ---------
The Year 2000 compliance issues concern the inability of certain computerized
information systems to properly recognize date-sensitive information as the Year
2000 approaches. Systems that do not recognize such information could generate
erroneous data or cause systems to fail. The Company has upgraded its hardware
and is in the process of installing a new version of its software, which among
other benefits, will result in the Company being Year 2000 compliant. This
conversion is expected to be completed prior to the end of FY99. The Company has
also taken measures to ensure that other systems within its operations, as well
as the interface with its customers, suppliers and other vendors, are conducted
in a Year 2000 compliant environment. Approximately $128,000 of costs was
incurred during FY98 for this project. The Company estimates that the costs
anticipated to be incurred during the next fiscal year to complete this
conversion process will not exceed $300,000.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statement schedules are filed as part of Part IV, Item 14, of this
Annual Report on Form 10-K.
The Registrant's Consolidated Financial Statements for the fiscal year ended
February 28, 1998 are set forth below.
The following table summarizes certain financial data with respect to the
Company and is qualified in its entirety by the Company's Consolidated Financial
Statements for the fiscal year ended February 28, 1998 contained in this Item
(amounts in thousands, except per share data).
Selected Quarterly Financial Data
<TABLE>
<CAPTION>
1998 Quarterly Financial Data May 31 August 31 November 30 February 28
- --------------------------------------------------- ----------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales and revenues $6,338 $9,346 $6,396 6,788
Gross profit 2,073 1,938 2,226 2,120
Income (loss) from continuing operations 217 2,088 (283) (252)
Net income (loss) 267 2,111 (183) 17
Income (loss) applicable to common shares 141 2,040 (305) (104)
- --------------------------------------------------- ------------ ------------- ---------------- ---------------
Earnings (Loss) Per Diluted Common Share (1):
Continuing operations .05 .78 (.21) (.19)
Net income (loss) .07 .79 (.16) (.05)
- --------------------------------------------------- ------------ ------------- --------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
1997 Quarterly Financial Data May 31 August 31 November 30 February 28
- --------------------------------------------------- ----------- ------------- --------------- -----------------
<S> <C> <C> <C> <C>
Net sales and revenues $6,694 $4,775 $3,942 $5,090
Gross profit 2,200 1,657 1,774 1,753
Income (loss) from continuing operations 574 (376) (855) 991
Net income (loss) 619 (374) (941) 995
Income (loss) applicable to common shares 477 (474) (1,027) 1,046
- --------------------------------------------------- ------------ ------------- ---------------- -----------------
Earnings (Loss) Per Common Share:
Continuing Operations .22 (.25) (.49) 0.43
Net income (loss) .25 (.25) (.53) 0.43
- --------------------------------------------------- ------------- -------------- ----------------- -----------------
</TABLE>
(1) The sum of earnings per share for the four quarters may not equal
earnings per share for the total year due to certain items in the diluted
earnings per share calculation for an individual quarter that were anti-dilutive
for the total year.
<PAGE>
ANDERSEN GROUP, INC.
Consolidated Balance Sheets
February 28, 1998 and 1997
(in thousands, except share data)
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $2,516 $3,219
Marketable securities 9,001 5,345
Receivable from sale of subsidiary 3,521 -
Accounts and other receivables, less allowance for doubtful
accounts of $130 in 1998 and $190 in 1997 3,870 2,773
Inventories 8,076 9,040
Prepaid expenses and other assets 142 516
- ----------------------------------------------------------------------------------------------------------------------------
Total current assets 27,126 20,893
- -------------------------------------------------------------------------------------------------- -------------------------
Property, plant and equipment, net 9,443 9,336
Prepaid pension expense 4,665 4,274
Investments 1,815 2,181
Other assets 1,722 993
- ----------------------------------------------------------------------------------------------------------------------------
$44,771 $37,677
- ----------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 595 $ 773
Short-term borrowings 2,183 2,305
Accounts payable 951 1,398
Accrued liabilities 3,352 3,670
Deferred income taxes 1,286 564
- ----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 8,367 8,710
- ----------------------------------------------------------------------------------------------------------------------------
Long-term debt, less current maturities 4,459 7,041
Subordinated note payable, net of unamortized discount 7,300 -
Other long-term obligations 1,888 1,121
Deferred income taxes 2,561 2,267
Commitments and contingencies (Notes 17 and 20)
Redeemable cumulative convertible preferred stock,
no par value; authorized 800,000 shares; issued
789,628 shares; outstanding shares 265,192 in 1997;
unamortized discount of $81 in 1997; liquidation 4,891
preference $18.75 per share -
- ----------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Cumulative convertible preferred stock, no par value;
authorized 800,000 shares, outstanding 256,416 shares 4,769 -
Common stock, no par value; authorized 6,000,000 shares,
issued 1,958,478 shares in 1998 and 1997 2,103 2,103
Treasury stock, at cost, 21,800 shares in 1998 and 24,000
shares in 1997 (82) (90)
Additional paid-in capital 3,248 3,248
Retained earnings 10,158 8,386
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 20,196 13,647
- ----------------------------------------------------------------------------------------------------------------------------
$44,771 $37,677
- ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
ANDERSEN GROUP, INC.
Consolidated Statements of Operations
Years ended February 28, 1998, 1997
and February 29, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Net sales $25,397 $ 20,643 $18,624
Investment and other income (loss) 3,471 (142) 813
- -------------------------------------------------------------------------------------------------------------------------
28,868 20,501 19,437
- --------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 17,040 13,259 12,016
Selling, general and administrative 6,260 5,772 7,683
Research and development 1,444 1,228 1,374
Interest expense 1,163 790 1,237
- --------------------------------------------------------------------------------------------------------------------------
25,907 21,049 22,310
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes 2,961 (548) (2,873)
Income tax expense (benefit) 1,191 (882) (952)
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 1,770 334 (1,921)
Income (loss) from discontinued Ultrasonics
segment, net of income taxes (benefit) of
$221, ($22) and ($214), respectively 345 (35) (349)
Gain on sale of discontinued Ultrasonics
segment, net of income taxes of $84 97 - -
Income from discontinued Dental segment,
net of income taxes of $170 - - 413
Gain on sale of discontinued Dental segment, net
of income taxes of $2,041 - - 3,790
- --------------------------------------------------------------------------------------------------------------------------
Net income 2,212 299 1,933
Preferred dividend requirement (477) (411) (559)
Reversal of preferred dividends 37 134 1,015
- --------------------------------------------------------------------------------------------------------------------------
Income applicable to common shareholders $ 1,772 $ 22 $ 2,389
- --------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share:
BASIC
Continuing operations $.69 $.03 $ (.76)
Discontinued operations .18 (.02) .03
Gain on sales of discontinued segments .05 - 1.96
- --------------------------------------------------------------------------------------------------------------------------
Income per common share $.92 $.01 $ 1.23
- --------------------------------------------------------------------------------------------------------------------------
DILUTED
Continuing operations $.68 $.03 $ (.76)
Discontinued operations .18 (.02) .03
Gains on sales of discontinued segments .05 - 1.96
- --------------------------------------------------------------------------------------------------------------------------
Income per common share, diluted $.91 $.01 $1.23
- --------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
ANDERSEN GROUP, INC.
Consolidated Statements of Stockholders' Equity
Years ended February 28, 1998, 1997
and February 29, 1996
(in thousands, except share data)
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------- ------------------ ------------------ -----------------
<S> <C> <C> <C>
Preferred Stock
Beginning balance - - -
Reclassification due to removal of
redemption provisions of preferred
stock $4,769 - -
- -------------------------------------------- ------------------ ------------------ -----------------
$4,769 - -
- -------------------------------------------- ------------------ ------------------ -----------------
Common Stock, Outstanding Shares
Beginning balance 1,958,478 1,958,205 1,958,205
Shares issued from prior
conversion of preferred stock - 273 -
- -------------------------------------------- ------------------ ------------------ -----------------
1,958,478 1,958,478 1,958,205
- -------------------------------------------- ------------------ ------------------ -----------------
Common Stock
Beginning balance $2,103 $2,103 $2,103
Shares issued from prior
conversion of preferred stock - - -
- -------------------------------------------- ------------------ ------------------ -----------------
$2,103 $2,103 $2,103
- -------------------------------------------- ------------------ ------------------ -----------------
Additional Paid-In Capital
Beginning balance $3,248 $3,248 $1,924
Gain from redemption of preferred
stock - - 1,324
- -------------------------------------------- ------------------ ------------------ -----------------
$3,248 $3,248 $3,248
- -------------------------------------------- ------------------ ------------------ -----------------
Retained Earnings
Beginning balance $8,386 $8,364 $5,975
Net income 2,212 299 1,933
Preferred stock dividend and
accretion (477) (411) (559)
Reversal of preferred dividends and
accretion 37 134 1,015
- -------------------------------------------- ------------------ ------------------ -----------------
$10,158 $8,386 $8,364
- -------------------------------------------- ------------------ ------------------ -----------------
Treasury Stock
Beginning balance $(90) $(90) $(90)
Shares issued, at identified cost 8 -
- -------------------------------------------- ------------------ ------------------ -----------------
$(82) $(90) $(90)
- -------------------------------------------- ------------------ ------------------ -----------------
- -------------------------------------------- ------------------ ------------------ -----------------
Total stockholders' equity $20,196 $13,647 $13,625
- -------------------------------------------- ------------------ ------------------ -----------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
ANDERSEN GROUP, INC.
Consolidated Statements of Cash Flows
Years ended February 28, 1998, 1997
and February 29, 1996
(in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------- ------------- ------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $2,212 $ 299 $1,933
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation, amortization and accretion 1,480 1,419 1,887
Deferred income taxes 1,016 67 (479)
Gain on sale of Dental segment - - (3,790)
Gain on sale of Ney Ultrasonics (97) - -
Losses (gains) from securities (2,619) 1,149 (46)
Purchases of securities (2,218) (1,625) (3,576)
Proceeds from sales of securities 1,230 526 1,893
Pension (income) expense (391) (247) 8
Loss on disposal of property, plant and equipment - 58 1
Investment in Digital GraphiX - (87) 543
Changes in operating assets and liabilities, net of
changes from sale of Ney Ultrasonics in 1998 and sale of
Dental segment in 1996:
Accounts and notes receivable (2,048) 1,564 (1,205)
Inventories (386) (428) (2,941)
Prepaid expenses and other assets (97) (339) (806)
Accounts payable 507 (1,799) 2,006
Accrued liabilities and other long-term obligations (1,257) (930) (2,022)
- ----------------------------------------------------------- ------------- ------------- --------------
Net cash used in operating activities (2,516) (373) (6,594)
- ----------------------------------------------------------- ------------- ------------- --------------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment - 4 256
Purchase of property, plant and equipment (1,740) (1,191) (1,503)
Proceeds from sale of Dental segment, net of cash sold - - 16,848
Purchase of investments (1,225) - -
Proceeds from collection of investments 1,542 - -
- ----------------------------------------------------------- ------------- ------------- --------------
Net cash (used in) provided by investing activities (1,423) (1,187) 15,601
- ----------------------------------------------------------- ------------- ------------- --------------
Cash flows from financing activities:
Principal payments on long-term debt (2,760) (1,250) (642)
Proceeds from issuance of subordinated debt 7,500 - -
Redemptions of preferred stock (160) (392) (3,758)
Proceeds (payment) of short-term borrowing, net (122) 2,305 (3,200)
Dividends paid (1,222) - -
- ----------------------------------------------------------- ------------- ------------- --------------
Net cash provided by (used in) financing activities 3,236 663 (7,600)
- ----------------------------------------------------------- ------------- ------------- --------------
Net (decrease) increase in cash and cash equivalents (703) (897) 1,407
Cash and cash equivalents, beginning of year 3,219 4,116 2,709
- ----------------------------------------------------------- ------------- ------------- --------------
Cash and cash equivalents, end of year $2,516 $3,219 $4,116
- ------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Years ended February 28, 1998, 1997
and February 29, 1996
(1) Nature of Business
Andersen Group, Inc. (the Company) is a diversified holding company, which
invests in both marketable and illiquid securities of domestic and foreign-based
companies. It also owns a consolidated subsidiary, which manufactures electronic
connectors, components and precious metal materials for sale to the automotive,
defense, semiconductor and medical and dental markets.
(2) Summary of Significant Accounting Policies
Use of Estimates
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 and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Principles of Consolidation
The Company's financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents include funds held in investments with an original
maturity of three months or less.
Marketable Securities
The Company's marketable securities are carried as trading securities at market
value in accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities (SFAS 115). The
Company has established a valuation allowance of $617,000 at February 28, 1998
to provide for volatility and liquidity concerns relating to its marketable
investments in Russia and other eastern European countries. Any changes in the
valuation of the portfolio are reflected in the accompanying Consolidated
Statements of Operations.
<PAGE>
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the last-in, first-out (LIFO) method for precious metals and at standard costs
which approximate the first-in, first-out (FIFO) and average cost methods for
the balance of the inventories.
Property, Plant and Equipment
Property, plant and equipment, including capital leases, are stated at cost and
depreciated using the straight-line method over the estimated useful life of the
respective assets, as follows:
Buildings and improvements 10-50 years
Machinery and equipment 5-10 years
Furniture and fixtures 3-10 years
Unamortized Discounts
Unamortized discounts on redeemable convertible cumulative preferred stock and
subordinated notes payable are accreted using the effective interest method.
Income Taxes
Income taxes are determined using the asset and liability approach. This method
gives consideration to the future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities at
currently enacted tax rates.
Earnings per share
In accordance with Statement of Financial Accounting Standards No. 128 -
"Earnings Per Share" (SFAS 128), basic earnings per share is computed based upon
the weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed based upon the weighted average number of
common shares plus the assumed issuance of common shares for all potentially
diluted securities. See Note 13 for additional information and a reconciliation
of the basic and diluted earnings per share computations.
Inventory Hedging
The Company has entered into precious metal forward contracts as a hedge against
precious metal fluctuations for firm price deliveries. These contracts limit the
Company's exposure to both favorable and unfavorable precious metals price
fluctuations. Gains or losses on these contracts are recognized when the product
deliveries being hedged have been made. The Company also utilizes precious
metals leasing and deferred payment purchases of precious metals to manage the
price exposure of certain components of its inventory.
<PAGE>
Financial Statement Presentation
Certain reclassifications, and the restatement of the Consolidated Statements of
Operations to reflect Ney Ultrasonics Inc. as a discontinued operation due to
the sale of the net assets effective February 28, 1998, have been made to the
FY97 and FY96 financial statements in order to conform with the FY98
presentation.
(3) Marketable Securities
Marketable securities consist of the following (in thousands):
<TABLE>
<CAPTION>
February 28, 1998 February 28, 1997
----------------- -----------------
<S> <C> <C>
Common stock of savings banks $5,611 $3,508
Common stock of Centennial Cellular 430 263
CA Emerging Russia Fund 2,422 -
Portfolio of Ukraine stocks 314 -
Common stock of Bank Handlowey 348 -
Portfolio of Russian stocks - 500
Valuation reserve - foreign investments (617) -
Municipal bonds 493 488
Escrowed investments - sale of Dental segment - 586
------ ------
$9,001 $5,345
------ ------
</TABLE>
(4) Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
February 28, 1998 February 28, 1997
-------------------------------------------------------------------------------
<S> <C> <C>
Raw material $2,989 $3,111
Work in process 6,509 3,877
Finished goods 657 2,955
-------------------------------------------------------------------------------
10,155 9,943
LIFO Reserve 2,079 903
-------------------------------------------------------------------------------
$8,076 $9,040
-------------------------------------------------------------------------------
</TABLE>
At February 28, 1998 and February 28, 1997, inventories valued at LIFO cost
comprised 79% and 64% of total inventories, respectively. At February 28, 1998,
inventories valued at LIFO consisted of 9,620 troy ounces of gold, 16,714 troy
ounces of silver, 3,448 troy ounces of platinum and 16,713 troy ounces of
palladium. Such quantities of precious metals are net of 5,000 ounces of silver,
558 ounces of platinum and 2,000 ounces of palladium, which represents physical
quantities held but not owned by the Company's primary operating subsidiary, The
J.M. Ney Company (JM Ney), subject to leasing arrangements with the precious
metals division of JM Ney's primary bank. In addition, as a hedge for certain
portions of its inventory, JM Ney at February 28, 1998 had short-term borrowings
of 732 troy ounces of gold, 2,000 ounces of silver and 2,000 ounces of
palladium.
<PAGE>
(5) Discontinued Operations
Ney Ultrasonics Inc.
Effective February 28, 1998, the Company sold the net assets of Ney Ultrasonics
Inc. for approximately $3,521,000. As a result, the Company has recorded a gain
of $97,000, net of expenses relating to the transaction and income taxes of
$84,000. The Company expects to receive additional consideration, which is
contingent on the growth of the sales of products and technology transferred as
part of the sale.
The assets and liabilities sold are presented below (in thousands):
Accounts receivable, net $ 951
Inventories 1,350
Other current assets 63
Property and equipment 246
Other assets 153
------
2,763
Accounts payable and accrued liabilities 242
------
Net assets sold $2,521
Ney Ultrasonics' results of operations have been presented as discontinued
operations. Revenue from the segment totaled approximately $5,713,000,
$3,874,000 and $4,611,000 in FY98, FY97 and FY96, respectively.
Dental Segment
On November 28, 1995, the Company sold the assets and certain liabilities of its
Dental segment to Phoenix Shannon p.l.c. of Shannon, County Clare, Ireland and
recorded a gain of $3,790,000, net of expenses, and income taxes of $2,041,000.
The Company received $18.5 million in cash, part of which, under the terms of
the sale, was used to purchase 200,000 Phoenix Shannon Ordinary Shares and a
two-year, interest-bearing note for $1 million. Included in the gain on sale is
an increase of $519,000 in prepaid pension expense from a curtailment gain which
arose as a result of the transfer of the employees of the Dental segment to the
new employer.
During FY97, the $1 million note and the remaining value of the Phoenix Shannon
ordinary shares were written off, resulting in charges to investment income
totaling $2,175,000.
The results of operations of the Dental segment have been presented as
discontinued operations. Revenue from this segment totaled approximately $29.6
million during FY96.
<PAGE>
(6) Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
February 28, 1998 February 28, 1997
- ------------------------------------------------------ ------------------------------ ------------------------------
<S> <C> <C>
Land and improvements $1,056 $ 1,054
Buildings and improvements 9,392 8,783
Machinery and equipment 10,539 10,188
Furniture and fixtures 867 921
- ------------------------------------------------------ ------------------------------ -------------------------------
21,854 20,946
Less accumulated depreciation and
amortization 12,411 11,610
- ------------------------------------------------------ ------------------------------ -------------------------------
$9,443 $ 9,336
- ------------------------------------------------------ ------------------------------ -------------------------------
</TABLE>
Depreciation and amortization expense was $1,405,000, $1,393,000 and
$1,797,000 in FY98, FY97 and FY96, respectively.
At both February 28, 1998 and February 28, 1997, property, plant and equipment
includes $1,146,000 of machinery and equipment acquired under capital leases,
which expire through FY02, with related allowances for depreciation of $728,000
and $493,000, respectively.
(7) Investments
Investments consist of the following (in thousands):
<TABLE>
<CAPTION>
February 28, 1998 February 28, 1997
- --------------------------------------------------------- --------------------------- ------------------------------
<S> <C> <C>
Investment in Institute for Automated Systems $ 835 $ 835
Investment in AVISMA 980 -
Investment in Digital GraphiX, Incorporated - 1,346
- --------------------------------------------------------- --------------------------- -------------------------------
$ 1,815 $ 2,181
- --------------------------------------------------------- --------------------------- -------------------------------
</TABLE>
Digital GraphiX Incorporated
Prior to a May 1995 offering of its common stock, DGI was a wholly owned
subsidiary of the Company. After the transaction, the Company's ownership was
diluted to 19%, after which time the investment in DGI stock and debt was
recorded using lower of cost or market accounting.
During FY97, the Company reduced its investment in DGI through the formal
discharge of DGI's obligation to repay $2.2 million of a note payable, and
recorded a corresponding income tax benefit. During FY97, as part of a plan to
position DGI for ultimate sale, the Company invested an additional $250,000 to
purchase DGI common shares which increased the recorded value of its investment
to $1,346,000.
In FY98, the net assets of DGI were sold. Through payments of debts and
preferred stock and liquidating distributions on its common stock, the Company
was able to realize its carrying value and recognize a gain of $196,000.
Institute for Automated Systems
At both February 28, 1998 and February 28, 1997, the Company had an investment
of $835,000 in a joint venture, which has an equity interest in the Institute
for Automated Systems, a Russian telecommunications company that has plans to
develop a data transmission network throughout Russia. Costs expended in FY98 to
develop this investment were expensed in the Consolidated Statement of
Operations.
The Company's President and another Director are among a group of investors in
this joint venture.
AVISMA
During FY98, the Company invested approximately $1,225,000 in the common stock
of AVISMA, a Russian titanium producer. This investment is being recorded at its
cost, net of a valuation allowance of $245,000. Excluded from the recorded
balance are shares with a cost basis of approximately $775,000 purchased by
three of the Company's directors and an investment fund controlled by one of
these directors. Such shares are being held by the Company for administrative
convenience pending the issuance of new shares to be issued in connection with a
merger of AVISMA into VSMPO, a Russian titanium processing company.
(8) Short-term Borrowings
J.M. Ney has a $6.0 million demand revolving credit and deferred payment sales
agreement with two commercial banks. At February 28, 1998, $696,000 was
outstanding. The facility is secured by substantially all of JM Ney's assets. At
JM Ney's discretion, interest is charged at the bank's prime rate, which was
8.5% and 8.25% at February 28, 1998 and February 28, 1997, respectively, or at
LIBOR plus 1.75% if the borrowing is fixed for a period of time, or at 1.75%
over the bank's precious metals leasing rate if the borrowing is represented by
deferred payment purchases of precious metals. A fee of 0.25% is charged on the
unused balance of the facility. This agreement includes restrictive covenants
that limit the amount of dividends and distributions from JM Ney to the Company
and which require JM Ney to maintain a specified amount of stockholders' equity.
At February 28, 1998 the amount of net assets which JM Ney was restricted from
distributing to the Company totaled approximately $10,808,000.
In addition, at February 28, 1998, the Company had a $1,487,000 demand loan,
which was secured by a portion of the Company's portfolio of marketable
securities. Interest on this borrowing was charged at 7.75%.
<PAGE>
(9) Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
February 28, 1998 February 28, 1997
- --------------------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Employee compensation $ 449 $ 628
Accrued dividends 112 934
Income taxes 201 51
Accrued interest 314 265
Deferred hedging gains 346 42
Other 1,930 1,750
- --------------------------------------- ------------------------------------ ----------------------------------------
$3,352 $3,670
- --------------------------------------- ------------------------------------ ----------------------------------------
</TABLE>
(10) Long-term Debt and Subordinated Notes Payable
Long-term debt and subordinated notes payable consist of the following (in
thousands):
<TABLE>
<CAPTION>
February 28, 1998 February 28, 1997
- -------------------------------------------------------------------- ---------------------- --- ----------------------
<S> <C> <C>
Mortgage note payable, interest at 5.4%,
paid February 1998 $ - $ 575
Convertible subordinated debentures, due
October 2002; redeemed or exchanged in
February 1998 - 6,287
Convertible subordinated debentures, due October
2007; interest at 10.5%, payable semi-annually;
annual principal payments in varying amounts
through maturity; unsecured 4,311 -
Subordinated note payable of JM Ney due
December 2004; unsecured; quarterly interest
payments at 10.26% 7,500 -
Other 743 952
- -------------------------------------------------------------------- ---------------------- ----------------------
12,554 7,814
Less unamortized discount on subordinated
note payable 200 -
- -------------------------------------------------------------------- ---------------------- ----------------------
12,354 7,814
Less current maturities 595 773
- -------------------------------------------------------------------- ---------------------- ----------------------
$11,759 $7,041
- -------------------------------------------------------------------- ---------------------- ----------------------
</TABLE>
The terms of the 2007 convertible subordinated debentures call for the annual
redemption of approximately $431,000 of principal. The debentures are
convertible into common stock of the Company at any time prior to maturity,
unless previously redeemed, at $16.17 per share, subject to adjustment under
certain conditions. At February 28, 1998, 266,604 shares of common stock were
reserved for conversion.
In connection with the issuance of the subordinated note payable, JM Ney issued
warrants to the lender to acquire 34,000 shares of its common stock at an
exercise price of $1.00 per share, and 6,000 warrants with an exercise price of
$10.00 per share. The lender has an option to put the warrant back to J.M. Ney
at the earlier of December 2002 or the date of an initial public offering of
J.M. Ney's Common Stock on terms as defined in the agreement.
Maturities of long-term debt for each of the next five fiscal years and
thereafter are as follows (in thousands):
1999 $ 595
2000 569
2001 542
2002 548
2003 443
Thereafter 9,857
-------
$12,554
(11) Income Taxes
For FY98, FY97 and FY96, income tax expense (benefit) consists of the following
(in thousands):
<TABLE>
<CAPTION>
Fiscal Years 1998 1997 1996
- ------------ -------------------- --------------------- ------------------
<S> <C> <C> <C>
Current Federal $ 350 $(410) $ 360
Current State 130 (561) 296
Deferred Federal 940 62 360
Deferred State 76 5 29
-------------------- --------------------- ------------------
$1,496 $(904) $1,045
-------------------- --------------------- ------------------
</TABLE>
The difference between the actual income tax expense (benefit) and the income
tax expense (benefit) computed by applying the statutory Federal income tax rate
of 34% to income (loss) before taxes is attributable to the following (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- --------------------- ------------------
<S> <C> <C> <C>
Income tax expense (benefit) $1,261 $(206) $1,012
State income taxes, net of Federal benefit 206 107 196
Change in enacted tax rates - (264) -
Change in valuation allowance - - (483)
Adjustment of accrual for prior years' taxes - 546 319
Other 29 5 1
- ------------------------------------------------------- -------------------- --------------------- ------------------
$1,496 $(904) $1,045
- ------------------------------------------------------- -------------------- --------------------- ------------------
</TABLE>
During FY97, the Company settled a State income tax audit covering FY89 through
FY96. This settlement is the primary reason for the $546,000 benefit adjustment
of accrual for prior years' taxes reported in the above reconciliation.
<PAGE>
The principal components of the net deferred tax asset (liability) as of
February 28, 1998 and February 28, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
----------------------- --------------------------
<S> <C> <C>
Deferred tax liabilities:
Fixed asset basis differences $(1,229) $(1,288)
Inventory (1,486) (1,443)
Pension (1,726) (1,581)
Unrealized gains on marketable securities, net (470) -
Installment sale (30) (207)
- ------------------------------------------------------------------ ----------------------- --------------------------
Total deferred tax liabilities (4,941) (4,519)
- ------------------------------------------------------------------ ----------------------- --------------------------
Deferred tax assets:
Post-retirement benefits other than pensions 395 415
Unrealized losses on marketable securities, net - 177
Allowance for uncollectible receivables 48 440
Federal credit carry-forwards 337 302
Other 314 354
- ------------------------------------------------------------------ ----------------------- --------------------------
Total deferred tax assets 1,094 1,688
- ------------------------------------------------------------------ ----------------------- --------------------------
Net deferred tax liabilities $(3,847) $(2,831)
- ------------------------------------------------------------------ ----------------------- --------------------------
</TABLE>
At February 28, 1998 and 1997 the Company recorded no valuation allowance. The
Company believes that it is more likely than not that the sale of certain
assets, investment securities and certain real property, will generate
sufficient income to fully utilize its deferred tax assets. At February 28, 1998
the Company had $337,000 of Federal credit carry-forwards, $156,000 of which
were attributable to the alternative minimum tax and have no expiration date.
The remaining credits, totaling $181,000, expire from 1999 through 2002.
(12) Series A Cumulative Convertible Preferred Stock
During February 1998 the Company amended its Certificate of Incorporation to
modify the terms of the Company's Series A Preferred Stock (Preferred Stock) to
provide for a fixed dividend rate of $1.50 per preferred share and to eliminate
the mandatory redemption feature of the Preferred Stock.
During FY98, FY97 and FY96, the Company purchased 8,776, 24,283 and 299,561
shares, respectively, of its Preferred Stock at $18.25 per share in FY98, $16.15
per share in FY97, and at $12.25 per share in FY96. The FY98 and FY97 purchases
were part of a repurchase program, while in FY96 purchases were made under terms
of a voluntary tender offer. As a result of the purchases, the Company reversed
accrued dividends and accreted discounts of $37,000, $134,000 and $1,015,000 in
FY98, FY97 and FY96, respectively. In addition, in FY96, $1,324,000 of
additional paid-in capital was recorded to reflect the discount of the total
purchase cost, including expenses, from the original issue cost of the shares
purchased.
Quarterly dividend payments, ranging from $.1875 to $.4375 per share, were
accrued based upon the operating income of JM Ney, as defined. Approximately
$1.69, $1.24, and $.78 per preferred share of dividends were accrued during
FY98, FY97, and FY96, respectively.
The preferred shares increase in carrying value at a rate of approximately $.26
per share per year and, as such, approximately $40,000, $58,000, and $137,500 of
accretion were recorded as part of the preferred dividend requirement for FY98,
FY97 and FY96, respectively.
The preferred shares are convertible into the Company's common stock at any time
at a rate of 1.935 shares of common stock for each preferred share. At February
28, 1998, 496,165 shares of common stock have been reserved for conversion.
(13) Earnings Per Share
The computation of base and diluted earnings per share is as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------- ------------------ ---------------- -----------------
<S> <C> <C> <C>
Numerator for basic and diluted earnings per share
Income applicable to common shareholders $1,772 $ 22 $2,389
- --------------------------------------------------------------- ------------------ ---------------- -----------------
Denominator for basic earnings per share -
weighted average shares 1,935 1,934 1,934
Effect of dilutive securities - stock options 18 - -
- --------------------------------------------------------------- ------------------ ---------------- -----------------
Denominator for diluted earnings per share 1,953 1,934 1,934
- --------------------------------------------------------------- ------------------ ---------------- -----------------
Basic earnings per share $.92 $.01 $1.23
Diluted earnings per share $.91 $.01 $1.23
- --------------------------------------------------------------- ------------------ ---------------- -----------------
</TABLE>
For each of FY98, FY97 and FY96 the effects of the conversion of Preferred Stock
or the 10 1/2% Debentures have been excluded because the impacts of such
conversions would have been antidilutive.
(14) Stock Option Plans
The Company's incentive stock option plan provides for option grants to
directors and key employees at prices equal to at least 100% of the stock's fair
market value at date of grant. In addition, during FY97, a stock option plan was
put into effect under which options to acquire shares of JM Ney were granted in
both FY98 and FY97. The per share weighted average fair value of stock options
granted in 1998 under the JM Ney Plan was $6.22. The per share weighted average
fair value of stock options granted in 1997 under the Company and JM Ney plans
were $2.08 and $4.95, respectively on the dates of grant using the Black Scholes
option pricing model with the following weighted average assumptions: expected
dividend yield of 0%; risk-free interest rate of 6.5%; expected life of seven
years; and expected volatility of 33.3%.
<PAGE>
The Company has adopted the disclosure provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation". Accordingly, no compensation expense has been
recognized for the stock option plans. Had compensation cost for the Company's
stock option plans, including the JM Ney plan, been determined based on the fair
value on the grant date for awards during FY98 and FY97 consistent with the
provisions of SFAS No. 123, the Company's net earnings applicable to common
shares, and earnings per share would have been reduced to the proforma amounts
indicated below (amounts in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997
----------------------- --------------------
<S> <C> <C>
Net income (loss) applicable to common shareholders:
As reported $1,772 $ 22
Pro forma $1,581 $ (68)
Earnings (loss) per share - diluted:
As reported $.91 $.01
Pro forma $.81 $(.03)
</TABLE>
The assumption regarding the stock options issued during FY98 and FY97 was that
such options vest over periods ranging from one to three years. Proforma net
income reflects only options granted in FY98 and FY97. Therefore, the full
impact of calculating compensation cost for stock options under SFAS No. 123 is
not reflected in the proforma amounts because the compensation cost for options
granted prior to FY97 is not considered.
The Company reserved 149,700 shares of common stock for the exercise of stock
options. At February 28, 1998, the Company had 70,500 options available for
issuance under the plan. JM Ney has reserved 150,000 shares of its common stock
for the exercise of stock options, of which 3,700 were available for issuance at
February 28, 1998.
Activity under the Company's plans, including an expired plan, but excluding
J.M. Ney's plan, was as follows:
<TABLE>
<CAPTION>
Number Weighted Average Range of
Outstanding Options of Shares Exercise Price Exercise Prices
- ---------------------------------------- ------------------------- ------------------------ -------------------------
<S> <C> <C> <C> <C>
Balance at February 28, 1995 77,300 $8.40 $6.50 - $9.50
Canceled (37,600) $9.06 $7.00 - $9.00
- ---------------------------------------- ------------------------- ------------------------ -------------------------
Balance at February 29, 1996 39,700 $7.77 $6.50 - $9.38
Granted 75,000 $4.29 $3.81 - $6.13
Canceled (13,000) $7.50 $3.81 - $9.38
- ---------------------------------------- ------------------------- ------------------------ -------------------------
Balance at February 28, 1997 101,700 $5.02 $3.81 - $8.38
Exercised (2,200) $3.81 $3.81
Canceled (20,300) $5.43 $3.81 - $7.00
- ---------------------------------------- ------------------------- ------------------------ -------------------------
- ---------------------------------------- ------------------------- ------------------------ -------------------------
Balance at February 28, 1998 79,200 $4.95 $3.81 - $8.38
- ---------------------------------------- ------------------------- ------------------------ -------------------------
</TABLE>
At February 28, 1998, the range of exercise prices and the weighted average
remaining contractual life of the options was as follows:
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------------------------------------------
Weighted
Weighted Average Weighted
Range of Average Remaining Average
Exercise Number Exercise Contractual Number Exercise
Prices Outstanding Price Life Exercisable Price
- --------------------- ------------------ ------------------ --------------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$8.38 - $7.75 8,000 $8.22 3.0 years 8,000 $8.22
$7.00 - $5.38 22,900 $6.22 5.8 years 22,900 $6.22
$3.81 48,300 $3.81 8.1 years 45,800 $3.81
- --------------------- ------------------ ------------------ --------------------- ----------------- ----------------
79,200 $4.95 6.9 years 76,700 $4.99
- --------------------- ------------------ ------------------ --------------------- ----------------- ----------------
</TABLE>
Also, during FY98 and FY97, options to purchase 16,800 and 130,000 shares of JM
Ney, at exercise prices of $10.86 and $10.00 per share respectively, were
issued. During FY98, options to acquire 500 shares of JM Ney at $10.00 per share
were forfeited. At February 28, 1998, 38,841 of the 146,300 total outstanding JM
Ney options were exercisable. At February 28, 1998, the Company owned all
850,000 outstanding shares of JM Ney. There presently is no public market for JM
Ney's common stock.
(15) Retirement Plans
The Company maintains both noncontributory defined benefit and defined
contribution plans, which collectively cover substantially all full-time
employees. The defined contribution plans are funded annually through
contributions in amounts that can be deducted for Federal income tax purposes.
Benefits payable under all plans are based upon years of service and
compensation levels.
The plan assets, which are managed by third-party trustees, include equity
securities, government and corporate debt securities and other fixed income
obligations.
The following table sets forth the actuarially determined funded status of the
Company's defined benefit plan and amounts recognized in the Company's
Consolidated Balance Sheets (in thousands):
<TABLE>
<CAPTION>
February 28, 1998 February 28, 1997
- --------------------------------------------------------------- -------------------------- --------------------------
Actuarial present value of benefit obligations:
<S> <C> <C>
Vested $ 9,145 $8,970
Non-vested 72 68
- --------------------------------------------------------------- -------------------------- --------------------------
Accumulated benefit obligation 9,217 9,038
Effect of projected compensation increases 995 983
- --------------------------------------------------------------- -------------------------- --------------------------
Projected benefit obligation 10,212 10,021
Plan assets at fair value 18,087 16,815
- --------------------------------------------------------------- -------------------------- --------------------------
Plan assets in excess of projected benefit obligation 7,875 6,794
Unrecognized prior service cost (131) (141)
Unrecognized net gain on plan assets (3,079) (2,379)
- --------------------------------------------------------------- -------------------------- --------------------------
Prepaid pension expense $ 4,665 $4,274
- --------------------------------------------------------------- -------------------------- --------------------------
</TABLE>
For FY98, FY97 and FY96, the projected benefit obligations and pension income
were determined using the following assumptions:
<TABLE>
<CAPTION>
Fiscal Years 1998 1997 1996
- ------------ -------------------- ------------------- --------------------
<S> <C> <C> <C>
Discount rate 7.5% 7.5% 7.5%
Future compensation growth rate 5.5% 5.5% 5.5%
Long-term rate of return on plan assets 9.0% 8.0% 8.0%
</TABLE>
Net pension expense (income) for the Company's funded defined benefit plan for
FY98, FY97 and FY96 includes the following components:
<TABLE>
<CAPTION>
Fiscal Years 1998 1997 1996
- ------------ ------------------- ------------------- --------------------
<S> <C> <C> <C>
Service cost of benefits accrued $ 234 $ 253 $ 341
Interest cost on projected benefit obligations 736 723 806
Return on plan assets (2,294) (2,190) (2,130)
Unrecognized net gain 933 967 991
- ------------------------------------------------------- ------------------- ------------------- --------------------
Pension (income) expense $ (391) $ (247) $ 8
- ------------------------------------------------------- ------------------- ------------------- --------------------
</TABLE>
In addition, as discussed in Note 4, during 1996 prepaid pension expense
increased by $519,000 as a result of the curtailment gain recorded in connection
with the sale of the net assets of the Dental segment.
The Company also has a supplemental defined benefit plan, which covers a former
senior executive of JM Ney. There are no assets held by the plan. At February
28, 1998 and February 28, 1997, the actuarially determined status of the plan
and the amount recognized in the balance sheet was a vested accumulated and
projected benefit obligation of approximately $284,000 and $314,400,
respectively. For FY98, FY97, and FY96, a discount rate of 7.5% was used for
determining the projected benefit obligation.
Pension expense for all defined contribution plans totaled $122,000, $121,000,
and $143,000 in FY98, FY97 and FY96, respectively.
(16) Post-retirement Benefit Obligations
During FY93, the Company amended its retiree health care plan to include only
those retirees currently in the plan and discontinued the benefit for current
employees. The Company's cost of its unfunded retiree health care plan for FY98,
FY97 and FY96 was approximately $56,000, $53,000, and $55,000, respectively,
including interest. At February 28, 1998 and February 28, 1997, the accumulated
benefit obligation for post-retirement benefits was approximately $803,000 and
$823,000, respectively. At February 28, 1998, 32 retirees were receiving
benefits under this plan.
The accumulated benefit obligation was determined using the unit credit method
and assumed discount rates of 7.25% at both February 28, 1998 and February 28,
1997, respectively. At February 28, 1998 and February 28, 1997, the accumulated
benefit obligation was compiled using assumed health care cost trend rates of 9%
and 10%, respectively gradually declining to 5% in the year 2001 and thereafter
over the projected payout period of the benefits.
The estimated effect on the present value of the accumulated benefit obligation
at March 1, 1998 of a 1% increase each year in the health care cost trend rate
used would result in an estimated increase of approximately $61,000 in the
obligation.
(17) Leases
During FY97, the Company incurred capital lease obligations totaling $579,000 in
connection with lease agreements to acquire equipment. This non-cash financing
activity has been excluded from the FY97 Consolidated Statement of Cash Flows.
The Company leases various manufacturing and office facilities and equipment
under operating lease agreements expiring through December 2004. In addition,
the Company earns rental income from office space leased to tenants under
operating leases expiring through November 2000. Lease expense was $264,000,
$209,000, and $240,000 for FY98, FY97, and FY96, respectively, while rental
income totaled $376,000, $342,000, and $281,000 for FY98, FY97, and FY96,
respectively.
Future minimum lease payments and rental income under the terms of the leases
for each of the years ending February 28, are as follows (in thousands):
Lease Payments Rental Income
1999 $284 $412
2000 179 215
2001 125 102
2002 117 -
2003 88 -
Thereafter 106 -
-----------------------------------------------------------------------
(18) Business Segments and Export Sales
During FY98, the Company operated in two continuing segments, Electronics, which
comprises the operations of JM Ney, and Corporate, which includes the Company's
investment, real estate and corporate administrative activities. Operating
income consists of net sales, less cost of sales and selling, general and
administrative expenses directly allocated to the industry segments. Corporate
revenues consist of investment and other income not attributable to a specific
segment. Corporate identifiable assets include marketable securities and
short-term investments, and assets not directly attributable to JM Ney, or a
specific segment.
<PAGE>
Summarized financial information for business segment is as follows (in
thousands):
<TABLE>
<CAPTION>
FY98 FY97 FY96
---- ---- ----
<S> <C> <C> <C>
Net sales and revenues:
Electronics $25,397 $20,643 $16,544
Video Products ---- ---- 2,080
Corporate 3,471 (142) 813
------------- ------------ ------------
$28,868 $20,501 $19,437
------------- ------------ ------------
Operating income (loss):
Electronics $2,860 $2,589 $ 1,612
Video Products ---- ---- (177)
Corporate 1,264 (2,356) (3,071)
------------- ------------ ------------
$4,124 $ 242 $(1,636)
------------- ------------ ------------
Interest expense:
Electronics $ 468 $ 13 379
Corporate 695 777 858
------------- ------------ ------------
$1,163 $ 790 $ 1,237
------------- ------------ ------------
Identifiable assets:
Electronics $25,337 $22,467 $20,886
Ultrasonics ---- 1,798 1,911
Corporate 19,434 13,412 16,001
------------- ----------- ------------
$44,771 $37,677 $38,798
------------- ----------- ------------
Depreciation and amortization:
Electronics $1,126 $ 1,142 $1,363
Ultrasonics 139 95 76
Corporate 215 240 230
------------- ------------ ------------
$1,480 $1,477 $1,669
------------- ------------ ------------
Capital expenditures:
Electronics $1,597 $1,512 $1,239
Ultrasonics 109 234 66
Corporate 34 24 123
------------- ------------ ------------
$1,740 $1,770 $1,428
------------------------------------------------------------- ------------- ------------ ------------
</TABLE>
Export sales for FY98, FY97 and FY96 were $4,370,000, $3,417,000, and
$2,560,000, respectively. Such sales were made primarily to customers in Europe
and the Pacific Rim.
During FY98 sales to two customers accounted for 14.9% and 12.6% of net sales.
Sales to a third customer during FY97 accounted for 10.3% of net sales during
that year. No single customer accounted for more than 10% of sales during FY96.
(19) Estimated Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable, accounts
payable and other accrued liabilities are reasonable estimates of their fair
value based upon their current maturities. The carrying value of marketable
securities approximates fair value as determined by quoted market prices.
At February 28, 1998, JM Ney owned futures contracts to purchase 5,500 ounces of
palladium through June 1998 at an average price of $217.87, which had a fair
market value of $61,000. The value of these contracts has not been recorded at
February 28, 1998, as these contracts have been purchased to hedge firm price
orders. In addition, gains totaling $346,000 from expired or sold futures
contracts have been deferred from income recognition until the underlying orders
have been shipped.
The carrying value of short-term borrowing equals fair value as it reflects the
market value of the corresponding precious metals in which the liability is
denominated, or is at current market rates.
The carrying values of long-term debt issued by banks and capital lease
obligations approximate fair value based on interest rate and repayment terms,
and the extent to which the individual debts are secured. The fair value of the
Company's 10.5% convertible debentures approximates carrying value based upon
market interest rates, its subordinated status, and the market value of the
Company's common stock in relation to the conversion feature of the debt.
(20) Litigation
The Company is involved in various legal proceedings generally incidental to its
business. While the results of any litigation or regulatory issues contain an
element of uncertainty, management believes that the outcome of any known,
pending or threatened legal proceeding, or all of them combined, will not have a
material adverse effect on the Company's financial position or results of
operations.
(21) New Accounting Standards
Reporting Comprehensive Income
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS 130") was issued in June 1997 and is effective for financial
statements beginning after December 15, 1997. The statement establishes new
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general-purpose
financial statements. The impact of SFAS 130 on future financial statement
presentations will be to show comprehensive income.
Segment Reporting
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information ("SFAS 131") was issued in June 1997
and is effective for financial statements beginning after December 15, 1997.
This Statement establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. Management has not yet determined the
impact of SFAS 131 on future financial statement presentations.
(22) Supplemental Disclosure of Cash Flow Information
The information below supplements the cash flow data presented in the Company's
Consolidated Statements of Cash Flows (in thousands):
1998 1997 1996
---- ---- ----
Cash paid for
Interest $1,129 $863 $1,203
Income taxes, net $ 360 $ 85 $1,410
During FY98, the company exchanged $4,311,000 of its convertible subordinated
debentures due October 2002 for an equal amount of convertible subordinated
debentures due 2007. In addition to the extended average maturity of the notes,
the new notes do not contain the restrictive covenants that were present in the
original issue.
Interest and conversion terms of the old notes remain the same in the new notes.
As discussed in Note 5, effective February 28, 1998, the Company sold the net
assets of Ney Ultrasonics Inc. No consideration had been paid as of February 28,
1998, and accordingly the effects of this transaction have not been included in
the Consolidated Statements of Cash Flow. During March 1998, $2,400,000 of the
consideration was received and an additional $500,000 was placed in escrow. The
remaining portion of the purchase price is expected to be received during the
second quarter of FY99.
<PAGE>
Independent Auditors' Report
Deloitte and Touche LLP Letterhead
The Stockholders and Board of Directors
Andersen Group, Inc.:
We have audited the accompanying consolidated balance sheet of Andersen Group,
Inc. and subsidiaries as of February 28, 1998 and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Andersen Group, Inc.
and subsidiaries at February 28, 1998, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Hartford, Connecticut
April 16, 1998
<PAGE>
Independent Auditors' Report
KPMG Peat Marwick LLP Letterhead
The Board of Directors and Stockholders
Andersen Group, Inc.:
We have audited the accompanying consolidated balance sheet of Andersen Group,
Inc. and subsidiaries as of February 28, 1997 and the related consolidated
statements of operations, common and other stockholders' equity, and cash flows
for the years ended February 28, 1997 and February 29, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Andersen Group, Inc.
and subsidiaries at February 28, 1997, and the results of their operations and
their cash flows for the years ended in conformity with generally accepted
accounting principles.
/s/KPMG Peat Marwick LLP
Hartford, Connecticut
April 8, 1997
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
The information required by this Item is not applicable because it has been
previously reported in the Registrant's definitive Proxy Statement, dated
May 19, 1998.
PART III
Certain information required by Part III is omitted from this Report in that the
Registrant has filed a definitive proxy statement pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this Report and
certain information included therein is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is incorporated by reference to the
Registrant's definitive Proxy Statement, dated May, 19, 1998, and is
incorporated by reference to the Section in Part I hereof entitled, Executive
Officers of the Registrant.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to the
Registrant's definitive Proxy Statement, dated May 19, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The information required by this Item is incorporated by reference to the
Registrant's definitive Proxy Statement, dated May 19, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference to the
Registrant's definitive Proxy Statement, dated May 19, 1998.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.
(a)1. Consolidated Financial Statements applicable to the Registrant contained
in Item 8:
Pages
Consolidated Balance Sheets
as of February 28, 1998 and 1997 20
Consolidated Statements of Operations
for the years ended February 28, 1998, 1997 and
February 29, 1996 21
Consolidated Statements of Stockholders' Equity
for the years ended February 28, 1998, 1997
and February 29, 1996 22
Consolidated Statements of Cash Flows
for the years ended February 28, 1998, 1997
and February 29, 1996 23
Notes to Consolidated Financial Statements 24-40
Independent Auditors' Reports 41-42
(a)2. Consolidated Financial Statement Schedules:
Schedule
I Condensed Financial Information F-1 to F-5
II Valuation and Qualifying Accounts F-6
Note: Schedules other than those listed above, are omitted as not applicable,
not required, or the information is included in the Consolidated Financial
Statements or notes thereto.
(a)3. Exhibits required by Item 601 of Regulation S-K:
Exhibit
No. Description
- ------- -----------
3.1 Second Amended and Restated Certificate of Incorporation of the Registrant.*
3.2 Amended and Restated By-Laws of the Registrant as of April 18, 1997,
incorporated herein by reference to Exhibit 3.2 to the Registrant's
Annual Report on Form 10-K for the year ended February 28, 1997
(Commission File No. 0-1460).
4.1 Indenture, dated as of February 26, 1998, between the Registrant and The
Chase Manhattan Bank, as Trustee, in respect of $4,311,000, aggregate
principal amount, 10 1/2% Convertible Subordinated Debentures Due 2007.*
10.1 Andersen Group, Inc. Incentive Stock Option Plan incorporated herein by
reference to Appendix A to the Registrant's Post-Effective Amendment No.1
to Form S-8 (File No. 333-17659) filed February 27, 1997.
10.2 Andersen Group, Inc. Incentive and Non-Qualified Stock Option Plan
incorporated herein by reference to Appendix B to the Registrant's
Post-Effective Amendment No. 1 to Form S-8 (File No. 333-17659) filed
February 27, 1997.
10.3 Deferred Compensation Agreement, entered into as of September 30, 1992,
by and between the Registrant and Francis E. Baker, incorporated herein
by reference to Exhibit 10.26 of the Registrant's Annual Report on Form
10-K for the year ended February 28, 1995 (Commission File No. 0-1460).
10.4 Letter Agreement, dated March 7, 1993, between the Registrant and Ronald
N. Cerny, incorporated herein by reference to Exhibit 10.30 to the
Registrant's Annual Report on Form 10-K for the year ended February 28,
1995 (Commission File No. 0-1460).
10.5 Letter Agreements, dated February 23, 1995 and March 20, 1995, between
the Registrant and Ronald N. Cerny.
10.6 Asset Purchase Agreement among Phoenix Shannon p.l.c., Andersen Group,
Inc., The J.M. Ney Company and Ney Dental International, Inc. dated as
of August 10, 1995, incorporated herein by reference to Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ending
August 31, 1995 (Commission file No. 0-1460).
10.7 Amendment No. 1 to Asset Purchase Agreement by and among Phoenix Shannon
p.l.c., The J.M. Ney Company, Andersen Group, Inc. and Ney Dental
International, Inc. made as of October 30, 1995, incorporated herein by
reference to Exhibit 10.1 to the Registrant's current report on Form 8-K
dated December 13, 1995 (Commission file No. 0-1460).
10.8 Amendment No. 2 to Asset Purchase Agreement by and among Phoenix Shannon
p.l.c., The J. M. Ney Company, Andersen Group, Inc., and Ney Metals, Inc.
(f/k/a Ney Dental International, Inc.) made as of October 30, 1995,
incorporated herein by reference to Exhibit 10.2 to the Registrant's
current report on Form 8-K dated December 13, 1995 (Commission file
No.0-1460).
10.9 Revolving Credit and Deferred Payment Sales Agreement by and among The
J.M. Ney Company, Bank of Boston Connecticut and Rhode Island Hospital
Trust National Bank made as of the 8th day of October 1996, incorporated
herein by reference to exhibit 10.13 of the Registrant's Annual Report on
Form 10-K for the year ended February 28, 1997.
10.10 Securities Purchase Agreement dated as of December 29, 1997 by and between
The J.M. Ney Company and BankBoston, N.A.*
10.11 Asset Purchase Agreement made effective as of February 28, 1998 among CAE
U.S., Inc., Ney Ultrasonics Inc. and Andersen Group, Inc.*
10.12 Amendment Agreement dated as of December 29, 1997 by and among The J.M.
Ney Company ("Borrower"), BankBoston, N.A. (Successor by merger to Bank of
Boston Connecticut)("BankBoston") and Rhode Island Hospital Trust National
Bank ("RIHT" and, collectively, with BankBoston, the "Banks") with respect
to a Certain Revolving Credit and Deferred Payment Sales Agreement dated
as of October 8, 1996 by and among the Borrower and the Banks.*
21. Subsidiaries of the Registrant.*
23. Consent of Deloitte & Touche LLP.*
27.1 Financial Data Schedule.*
27.2 Restated Financial Data Schedule.*
27.3 Restated Financial Data Schedule.*
(b) Reports on Form 8-K.
A Form 8-K was filed on December 29, 1998 reporting, under Item 4
"Changes in Registrant's Certifying Accountant", a change in the
Company's independent certified public accountants. An amendment to Form
8-K was filed on January 9, 1998 filing a copy of the letter received
from KPMG Peat Marwick.
*Filed herein
<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.
ANDERSEN GROUP, INC. ANDERSEN GROUP, INC.
Registrant Registrant
/s/ Oliver R. Grace, Jr. /s/ Andrew M. O'Shea
- ------------------------- ---------------------
Oliver R. Grace, Jr., Principal Andrew M. O'Shea, Principal
Executive Officer Financial and Accounting Officer
May 28, 1998 May 29, 1998
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.
NAME TITLE DATE
/s/ Francis E. Baker Chairman, Secretary May 26, 1998
- -------------------- and
Francis E. Baker Director
/s/ Oliver R. Grace, Jr. President, Chief May 28, 1998
- ------------------------ Executive Officer
Oliver R. Grace, Jr. and Director
/s/ Peter N. Bennett Director May 24, 1998
- --------------------
Peter N. Bennett
/s/ John S. Grace Director May 27, 1998
- -----------------
John S. Grace
/s/ Louis A. Lubrano Director May 29, 1998
- --------------------
Louis A. Lubrano
/s/ James J. Pinto Director May 27, 1998
- ------------------
James J. Pinto
<PAGE>
Deloitte and Touche LLP Letterhead
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Andersen Group, Inc.:
We have audited the consolidated financial statements of Andersen Group, Inc.
and subsidiaries as of February 28, 1998 and for the year then ended, and have
issued our report thereon dated April 16, 1998; such report is included
elsewhere in this Form 10-K. Our audit also included the financial statement
schedules of Andersen Group, Inc. and subsidiaries, listed in Item 14 as of and
for the year ended February 28, 1998. These 1998 financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audit. In our opinion, such 1998 financial
statement schedules, when considered in relation to the basic 1998 consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
/s/ Deloitte and Touche LLP
Hartford, Connecticut
April 16, 1998
<PAGE>
KPMG Peat Marwick LLP Letterhead
The Board of Directors and Stockholders
Andersen Group, Inc.
Under date of April 8, 1997, we reported on the consolidated balance sheet of
Andersen Group, Inc. and subsidiaries as of February 28, 1997 and the related
consolidated statements of operations, common and other stockholders' equity,
and cash flows for the years ended February 28, 1997 and February 29, 1996, as
contained in the 1998 annual report to stockholders. These consolidated
financial statements and our report thereon are included in the Annual Report on
Form 10-K for 1998. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related financial
statement schedules as listed in the accompanying index as of February 28, 1997
and for the years ended February 28, 1997 and February 29, 1996. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, such 1997 and 1996 financial statement schedules, when
considered in relation to the basic 1997 and 1996 consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
/s/KPMG Peat Marwick LLP
------------------------
Hartford, Connecticut
April 8, 1997
<PAGE>
F-1
ANDERSEN GROUP, INC.
Schedule I - Condensed Financial Information
of the Registrant
Condensed Balance Sheets
February 28, 1998 and 1997
(amounts in thousands)
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------- ---------------------------- --------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,441 $ 2,304
Marketable securities 9,001 5,345
Receivable from sale of subsidiary 3,521 -
Accounts and other receivables, less allowance for doubtful
accounts 125 53
Prepaid expenses and other assets 5 390
- ------------------------------------------------------------------------- ---------------------------- --------------------------
Total current assets 14,093 8,092
- ------------------------------------------------------------------------- ---------------------------- --------------------------
Investment in The J. M. Ney Company 6,604 15,107
Subordinated note receivable from The J.M. Ney Company 4,000 -
Investment in Digital GraphiX, Incorporated - 1,346
Property, plant and equipment, net 2,629 2,748
Other assets 2,711 1,225
- ------------------------------------------------------------------------- ---------------------------- --------------------------
$30,037 $28,518
- ------------------------------------------------------------------------- ---------------------------- --------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 1,487 $ -
Current maturities of long-term debt 441 586
Accounts payable 297 101
Due to The J. M. Ney Company 656 316
Accrued liabilities 1,728 1,765
Deferred income taxes 161 564
- ------------------------------------------------------------------------- ---------------------------- --------------------------
Total current liabilities 4,770 3,332
- ------------------------------------------------------------------------- ---------------------------- --------------------------
Long-term debt, less current maturities 4,124 6,540
Other long-term liabilities 596 -
Deferred income taxes 351 108
Commitments and contingencies (Note 7)
Redeemable cumulative convertible preferred stock,
no par value; authorized 800,000 shares; issued
789,628 shares; outstanding 265,192 shares;
liquidation preference $18.75 per share - 4,891
- ------------------------------------------------------------------------- ---------------------------- --------------------------
Stockholders' equity:
Cumulative convertible preferred stock,
no par value; authorized 800,000 shares; issued
789,628 shares; outstanding 256,416 shares;
liquidation preference $18.75 per share 4,769 -
Common stock, no par value; authorized 6,000,000
shares, issued 1,958,478 shares 2,103 2,103
Additional paid-in capital 3,248 3,248
Retained earnings 10,158 8,386
- ------------------------------------------------------------------------- ---------------------------- --------------------------
20,278 13,737
Treasury stock, at cost, 21,800 shares in 1998 and 24,000 in 1997 (82) (90)
- ------------------------------------------------------------------------- ---------------------------- --------------------------
Total stockholders' equity 20,196 13,647
- ------------------------------------------------------------------------- ---------------------------- --------------------------
$30,037 $28,518
- ------------------------------------------------------------------------- ---------------------------- --------------------------
See accompanying notes to condensed financial information.
</TABLE>
<PAGE>
F-2
ANDERSEN GROUP, INC.
Schedule I Condensed Financial Information
Of the Registrant
Condensed Statements of Operations
Years ended February 28, 1998 and 1997
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------- ----------------------------------- ------------------------------------
<S> <C> <C>
Revenues:
Investment and other income $3,691 $ 267
- ------------------------------------------------------- ----------------------------------- ------------------------------------
Costs and expenses:
General and administrative 2,223 2,280
Interest expense 694 777
- ------------------------------------------------------- ----------------------------------- ------------------------------------
2,917 3,057
- ------------------------------------------------------- ----------------------------------- ------------------------------------
Income (loss) from continuing operations
before income taxes and equity in earnings
of The J.M. Ney Company 774 (2,790)
Income tax expense (benefit) 361 (1,778)
- ------------------------------------------------------- ----------------------------------- ------------------------------------
Income (loss) from continuing operations
before equity in earnings of
The J.M. Ney Company 413 (1,012)
Equity in earnings of The J.M. Ney Company 1,357 1,346
- ------------------------------------------------------- ----------------------------------- ------------------------------------
Income from continuing operations 1,770 334
Income from discontinued operations
net of income taxes 345 (35)
Gain on sale of discontinued segment
net of income taxes 97 -
- ------------------------------------------------------- ----------------------------------- ------------------------------------
Net income 2,212 299
Preferred dividend requirement (477) (411)
Reversal of preferred dividend 37 134
- ------------------------------------------------------- ----------------------------------- ------------------------------------
Income applicable to common shares $1,772 $ 22
- ------------------------------------------------------- ----------------------------------- ------------------------------------
Earnings (loss) per common share:
BASIC
Continuing operations $ 0.69 $ 0.03
Discontinued operations 0.18 (0.02)
Gain on sale of discontinued segment 0.05 0.00
- ------------------------------------------------------- ----------------------------------- ------------------------------------
Net income $ 0.92 $ 0.01
- ------------------------------------------------------- ----------------------------------- ------------------------------------
DILUTED
Continuing operations $ 0.68 $ 0.03
Discontinued operation 0.18 (0.02)
Gain on sale of discontinued segment 0.05 0.00
- ------------------------------------------------------- ----------------------------------- ------------------------------------
Net income $ 0.91 $ 0.01
- ------------------------------------------------------- ----------------------------------- ------------------------------------
See accompanying notes to condensed financial information.
</TABLE>
<PAGE>
F-3
ANDERSEN GROUP, INC.
Schedule I - Condensed Financial Information of the Registrant
Condensed Statements of Cash Flows
Years ended February 28, 1998 and 1997
(amounts in thousands)
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------- ------------------------------- --------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $2,212 $ 299
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in earnings of The J. M. Ney Company (1,357) (1,346)
Equity in earnings of Ney Ultrasonics (345) 35
Depreciation, amortization and accretion 216 167
Deferred income taxes 880 105
Gain on sale of Ney Ultrasonics (97) -
Net (gains) losses from securities (2,619) 1,149
Purchases of securities (2,218) (1,625)
Proceeds from sales of securities 1,230 526
Investment in Digital GraphiX - (87)
Changes in operating assets and liabilities
Accounts and notes receivable (72) 652
Prepaid expenses and other assets 372 (184)
Accounts payable, accrued liabilities and other
long-term obligations (409) (654)
- ----------------------------------------------------------- ------------------------------- --------------------------------
Net cash used in operating activities (2,207) (963)
- ----------------------------------------------------------- ------------------------------- --------------------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (34) (7)
Proceeds from collection of investments 1,542 -
Investment in other assets (1,225) -
- ----------------------------------------------------------- ------------------------------- --------------------------------
Net cash provided by (used in) investing activities 283 (7)
- ----------------------------------------------------------- ------------------------------- --------------------------------
Cash flows from financing activities:
Principal payments on long-term debt (2,561) (1,178)
Proceeds from short-term debt 1,486 -
Redemption of preferred stock (160) (392)
Dividends paid (1,222) -
Dividends received from The J. M. Ney Company 3,518 1,150
- ----------------------------------------------------------- ------------------------------- --------------------------------
Net cash provided by (used in) financing activities 1,061 (420)
- ----------------------------------------------------------- ------------------------------- --------------------------------
Net decrease in cash and cash equivalents (863) (1,390)
Cash and cash equivalents, beginning of year 2,304 3,964
- ----------------------------------------------------------- ------------------------------- --------------------------------
Cash and cash equivalents, end of year $1,441 $2,304
- ----------------------------------------------------------- ------------------------------- --------------------------------
Supplemental disclosure of cash flow information
Cash paid for:
Interest $ 766 $ 803
Income taxes, net $ 360 $ 85
- ----------------------------------------------------------- ------------------------------- --------------------------------
See accompanying notes to condensed financial information.
</TABLE>
<PAGE>
F-4
ANDERSEN GROUP, INC
Schedule I - Condensed Financial Information
of the Registrant
Notes to Condensed Financial Information
February 28, 1998 and 1997
NOTE 1 - GENERAL
The Condensed Financial Information presented herein is required because the
Registrant's wholly owned subsidiary, The J. M. Ney Company (JM Ney), entered
into a Revolving Credit and Deferred Payment Sales Agreement with two banks in
October 1996 and was subsequently amended December 30, 1997, which contained
covenants that limit the transfer of cash and other resources from JM Ney to the
Registrant.
The Condensed Financial Information of the registrant should be read in
conjunction with the Consolidated Financial Statements and the Notes to
Consolidated Financial Statements which are included in Item 8 herein. The
Condensed Financial Information of the Registrant include the accounts of
several wholly owned subsidiaries which are immaterial to the Registrant's
Condensed Financial Information.
NOTE 2 - TRANSACTIONS WITH AFFILIATES
The Registrant and its wholly owned subsidiaries share certain administrative
services. The costs of these services are allocated to the entity, which
receives the service. The following are among the types of services which have
been provided to the Registrant by JM Ney: maintenance, accounting, human
resources, management information systems and the rental of office space in JM
Ney's facility. Services provided by the Registrant to JM Ney include the
following: legal, tax, and business advisory services. In addition, during FY97
JM Ney paid the Registrant interest for the cost of capital used by JM Ney. Also
during the last two months of FY98, JM Ney paid the Registrant interest on a
junior subordinated note, and a management fee, which will extend into 1999. In
connection with JM Ney entering into the Revolving Credit and Deferred Payment
Sales Agreement referred to above, the Registrant and JM Ney entered into a Tax
Sharing Agreement, effective as of March 1, 1996, which requires JM Ney to pay
the Registrant an amount which may be equal to the maximum allowable amount of
any Federal and State income taxes for which JM Ney or any of its subsidiaries
would have been liable for in the particular year. During FY98, the Registrant
and JM Ney refined their accounting for deferred income taxes, which resulted in
a transfer of $1,041,000 of deferred tax obligations from the Registrant to JM
Ney. The Registrant files a consolidated Federal income tax return with its
subsidiaries. During FY98, JM Ney made a $4 million distribution to the
Registrant in the form of an 8% junior subordinated note due January 31, 2005.
Effective December, 1997, the Registrant and JM Ney also entered into a
Financial, Investment Banking and Professional Services Agreement under which,
subject to JM Ney's compliance with certain covenants, JM Ney will pay the
Registrant fees for defined services. The retainer for the first 15 months of
this agreement will be at the annual rate of $500,000. Thereafter, the retainer
will increase by $100,000 per year. The agreement runs through November 30,
2002.
NOTE 3 - SHORT TERM BORROWINGS
At February 28, 1998, the Registrant had a $1,487,000 demand loan, which was
secured by a portion of the Company's portfolio of marketable securities.
Interest on this borrowing was charged at 7.75%.
NOTE 4 - LONG TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
February 28, 1998 February 28, 1997
----------------------------- -----------------------------
<S> <C> <C>
Mortgage note payable; Interest at 5.4%, paid February 1998 - $ 575
Convertible subordinated debentures, due October 2002;
redeemed or exchanged in February 1998 - 6,287
Convertible subordinated debentures, due October 2007;
interest at 10.5%, payable semi-annually; annual
principal payments in varying amounts through $4,311 -
maturity, unsecured
Other 254 264
----------------------------- -----------------------------
4,565 7,126
Less current maturities 441 586
----------------------------- -----------------------------
$4,124 $6,540
----------------------------- -----------------------------
</TABLE>
<PAGE>
F-5
The terms of the 2007 convertible subordinated debentures call for the
annual redemption of approximately $431,000 of principal. The debentures are
convertible into common stock of the Company at any time prior to maturity,
unless previously redeemed, at $16.17 per share, subject to adjustment under
certain conditions. At February 28, 1998, 266,604 shares of common stock were
reserved for conversion.
Maturities of long-term debt for each of the next five fiscal years are as
follows (in thousands):
1999 $ 441
2000 441
2001 442
2002 443
2003 443
Thereafter 2,355
---------
$ 4,565
---------
NOTE 5 - CUMULATIVE CONVERTIBLE PREFERRED STOCK
See Note 12 to the Registrant's Consolidated Financial Statements for the fiscal
year ended February 28, 1998 contained in Item 8 herein.
NOTE 6 - CASH DIVIDENDS
The amount of cash dividends paid to the Registrant by Consolidated Subsidiaries
during fiscal years 1998 and 1997 was approximately $3,518,000 and $1,150,000,
respectively.
NOTE 7 - Litigation
The Registrant is involved in various legal proceedings generally
incidental to its business. While the results of any litigation or regulatory
issues contain an element of uncertainty, management believes that the outcome
of any known, pending or threatened legal proceeding, or all of them combined,
will not have a material adverse effect on the Company's financial position or
results of operations.
<PAGE>
F-6
Andersen Group, Inc.
Schedule II - Valuation and Qualifying Accounts
(Amounts in thousands)
<TABLE>
<CAPTION>
-----Additions-----------
Balance Charged to Charged Balance
beginning costs and to other end
Description of year expenses account Deductions of year
- -------------------------------------------------------------------------------------------------------------------------------
February 28, 1998
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts $190 17 (36) (d) (41) (a) $ 130
Reserve for returns $ 95 $ 95
Warranty reserve $ 70 (40) (30) (d) $ 0
- ------------------------------------------------------------------------------------------------------------------------------
February 28, 1997
Allowance for doubtful
accounts $124 76 (10) (a) $ 190
Reserve for returns $ 0 95 $ 95
Warranty reserve $100 (30) $ 70
- ------------------------------------------------------------------------------------------------------------------------------
February 29, 1996
Allowance for doubtful
accounts $360 97 (287) (b) (46)(a) $124
Warranty reserve $ 65 35 $100
Discontinued operation $ 63 (63) (c) $ 0
Deferred income tax
valuation allowance $483 (483) $ 0
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Write offs net of recoveries.
(b) Transferred in connection with sale of certain assets of Dental Segment. (c)
Eliminated in connection with reduction in stock ownership of Digital GraphiX in
May 1995.
(d) Transferred in connection with sale of certain assets of Ultrasonics
segment.
<PAGE>
E-1
EXHIBIT INDEX
Exhibit
No. Description Page No.
- ------- ----------- --------
3.1 Second Amended and Restated Certificate of Incorporation. E-2
4.1 Indenture, dated as of February 26, 1998, between the
Registrant and The Chase Manhattan Bank, as Trustee,
in respect of $4,311,000, aggregate principal amount,
10-1/2% Convertible Subordinated Debentures Due 2007.* E-3
10.10 Securities Purchases Agreement dated as of December 29, 1997.
by and between The J.M. Ney Company and BankBoston, N.A. E-4
10.11 Asset Purchase Agreement made effective as of February 28,1998
among CAE U.S., Inc., Ney Ultrasonics Inc.
and Andersen Group, Inc. E-5
10.12 Amendment Agreement dated as of December 29, 1997 by and among
The J.M. Ney Company ("Borrower"), BankBoston, N.A. (Successor
by merger to Bank of Boston Connecticut)("BankBoston") and Rhode
Island Hospital Trust National Bank ("RIHT" and, collectively,
with BankBoston, the "Banks") with respect to a Certain
Revolving Credit and Deferred Payment Sales Agreement dated as
of October 8, 1996 by and among the Borrower and the Banks. E-6
21. Subsidiaries of the Registrant. E-7
23. Consent of Deloitte & Touche LLP. E-8
27.1 Financial Data Schedule. E-9
27.2 Restated Financial Data Schedule. E-10
27.3 Restated Financial Data Schedule. E-11
E-2
EXHIBIT 3.1
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ANDERSEN GROUP, INC.
We, the subscribers, certify that we do hereby associate ourselves as a
body politic and corporate under the statute laws of the State of Connecticut;
and we further certify that:
FIRST: The name of the corporation is Andersen Group, Inc.
SECOND: The nature of the business to be transacted and the purposes to be
promoted and carried out by the corporation are as follows:
To engage in any lawful act or activity for which a
corporation may be organized under the provisions of the
Connecticut Business Corporation Act.
THIRD: The amount of the capital stock of said corporation hereby
authorized is six million(6,000,000) shares of common stock,
without par value, and eight hundred thousand (800,000) shares of
preferred stock, without par value, the terms of which are set
forth on Exhibit A attached hereto. The Board of Directors is
authorized to issue, from time to time, all such shares, to fix
and determine the terms, limitations and relative rights and
preferences of the preferred stock into series, to fix and
determine the variations among series to the extent permitted by
law and to provide that shares of the preferred stock, or any
thereof, may series be convertible into the same or a different
number of shares of common stock.
FOURTH: The amount of paid-in capital with which this corporation shall
commence business is $2,000.
FIFTH: The duration of the corporation is unlimited.
SIXTH: No stockholder of said corporation shall have any preemptive or
other right of subscription to any shares of any class of stock
of said corporation, issued or to be issued or sold, whether
now or hereafter authorized, or to any securities convertible into
stock of said corporation of any class, or to receive any such
shares or securities by way of dividend, other than right or
rights, if any, as the Board of Directors may determine; but any
shares of stock or convertible securities which the Board of
Directors may determine to offer for subscription to stockholders
may, at the discretion of the Board of Directors, be offered in
such proportions and to the holders of any one or more or all
classes of stock of the corporation then outstanding, and at such
price or prices as the Board of Directors may determine.
SEVENTH: A director of the corporation shall not be liable to the
corporation or its shareholders for breach of duty as a director
for monetary damages in an amount in excess of the compensation
received by such director for serving the corporation during the
year of such breach (or such lesser amount as may hereafter be
permitted by the Connecticut Business Corporation Act), except to
the extent such exemption from liability or limitation thereof is
not permitted under the Connecticut Business Corporation Act as
currently in effect or as the same may hereafter be amended. No
amendment, modification or repeal of this provision shall
adversely affect any right or protection of a director that exists
at the time of such amendment, modification or repeal.
<PAGE>
EXHIBIT A
STATEMENT FIXING AND DETERMINING THE
TERMS OF SHARES OF SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF ANDERSEN GROUP, INC.
The Series A Cumulative Convertible Preferred Stock of Andersen Group, Inc.
shall be subject to the following terms, limitations, relative rights and
preferences.
1. Designation. There shall be a series of Preferred Stock, the
designation of which shall be the "Series A Cumulative Convertible Preferred
Stock, without par value," hereinafter referred to as the Series A Stock and the
number of authorized shares constituting the Series A Stock shall be 800,000.
2. Dividends. (a) The holders of the Series A Stock shall be entitled
to receive, when and as declared by the Board of Directors but only out of funds
legally available therefor, cumulative cash dividends at the rate specified in
subparagraph (b) below, and no more, payable not later than 45 days after the
end of each fiscal quarter of the Company, commencing with the end of the fiscal
quarter during which the Series A Stock is initially issued. Such dividends
shall be subject to proportional adjustment if dividends are payable for any
part of a fiscal quarter. So long as any share of Series A Stock remains
outstanding no dividend or other distribution shall be paid or declared on any
shares of Common Stock, without par value (the "Common Stock"), of the Company,
other than dividends payable in shares of Common Stock of the Company, unless
all cumulative dividends on the Series A Stock shall have been paid or declared
and set apart for payment. Subject to the foregoing and not otherwise, such
dividends (payable in cash, stock or otherwise) as may be determined by the
Board of Directors may be declared and paid on the Common Stock from time to
time out of any funds legally available therefor, and the Series A Stock shall
not be entitled to participate in any such dividends or distributions whether
payable in cash, stock or otherwise.
(b) Cumulative dividends shall be payable at a quarterly rate
per share upon the Series A Stock in an amount equal to $0.375.
<PAGE>
3. Optional Redemption. All or any part of the Series A Stock may be
called for redemption by the Company at its option at any time or from time to
time on or after the day after the second anniversary of February 28, 1991 (the
"Effective Time"), by paying therefor in cash a redemption price equal to $17.75
per share in the case of any such redemption during the period commencing on the
day after such second anniversary and ending on the third anniversary of the
Effective Time, $18.00 per share in the case of any such redemption during the
period commencing on the day after such third anniversary and ending on the
fourth anniversary of the Effective Time, $18.25 per share in the case of any
such redemption during the period commencing on the day after such fourth
anniversary and ending on the fifth anniversary of the Effective Time, and
$18.75 per share in the case of any such redemption thereafter, in each case
plus accrued and unpaid dividends to the date fixed for redemption. At least
twenty (20) days' notice prior to the redemption date, by prepaid certified
mail, shall be given to the holders of record of the Series A Stock to be
redeemed, addressed to the last post office address shown on the records of the
Company. On the date fixed for redemption, and stated in such notice, such
holder of such Series A Stock shall surrender such holder's certificate or
certificates at the place designated in such notice and thereupon be entitled to
receive payment of the redemption price. If notice of redemption is duly given
and if funds for the redemption have been set aside prior to the redemption
date, notwithstanding the fact that a shareholder may have failed to surrender
the same, no dividend shall be payable on such shares after the date fixed for
redemption, and all rights with respect to shares so called for redemption shall
forthwith, after such date, terminate, except only the right of the holders to
receive the redemption price thereof, without interest. If fewer than all the
outstanding shares of Series A Stock are to be redeemed pursuant to this
paragraph, the number of shares to be redeemed shall be determined by the Board
of Directors of the Company, and such shares shall be redeemed pro rata from all
record holders of the Series A Stock in proportion to the number of such shares
held by such holders (rounding to the nearest whole share to avoid redemption of
fractional shares).
4. Voting Rights.
(a) General. The shares of Series A Stock shall not be
entitled to vote upon any matters upon which shareholders are entitled to vote,
except to the extent required by law, including the right to a class vote in the
event of any amendment to the Company's certificate of incorporation which
creates a new class of shares equal or senior to the Series A Stock or changes
an existing class of shares into a class equal or senior to the Series A Stock,
and except to the extent set forth in subparagraph (b) of this paragraph 4.
(b) Certain Voting Rights. If and whenever six quarterly
dividends or the equivalent (whether or not consecutive) payable on the Series A
Stock shall be in arrears whether or not earned or declared, the number of
Directors then constituting the Board of Directors of the Company shall be
increased by one and the holders of the Series A Stock, voting together as a
class, shall be entitled to elect the one additional Director at any annual
meeting of shareholders or a special meeting held in place thereof, or at a
special meeting of the holders of the Series A Stock called as hereinafter
provided. Whenever all arrears in dividends on the Series A Stock then
outstanding shall have been paid and dividends thereon for the current dividend
period shall have been paid or declared and set apart for payment, then the
right of the holders of the Series A Stock to elect such additional one Director
shall cease (but subject always to the same provisions for the vesting of such
voting rights in the case of any similar future arrearages in dividends), and
the term of office of any person elected as Director by the holders of the
Series A Stock shall forthwith terminate and the number of the Board of
Directors shall be reduced accordingly. At any time after such voting power
shall have been so vested in the Series A Stock, the Secretary of the Company
may, and upon the written request of any holder of shares of the Series A Stock
(addressed to the Secretary at the principal office of the Company) shall, call
a special meeting of the holders of the Series A Stock for the election of the
one Director to be elected by them as herein provided, such call to be made by
notice similar to that provided in the by-laws for a special meeting of the
shareholders or as required by law. If any such special meeting required to be
called as above provided shall not be called by the Secretary within twenty (20)
days after receipt of any such request, then any holder of shares of the Series
A Stock may call such meeting, upon the notice above provided, and for that
purpose shall have access to the stock books of the Company. The Director
elected at any such special meeting shall hold office until the next annual
meeting of the shareholders or special meeting held in place thereof if such
office shall not have previously terminated as above provided. In case any
vacancy shall occur with respect to the Director elected by the holders of the
Series A Stock, a successor shall be elected by the Board of Directors to serve
until the next annual meeting of the shareholders or special meeting held in
place thereof upon the nomination by the holders of the Series A Stock.
<PAGE>
5. Liquidation, Dissolution and Winding Up. In the event of any
liquidation, dissolution or winding up of the affairs of the Company, whether
voluntary or involuntary, the holders of the Series A Stock shall be entitled,
before any assets of the Company shall be distributed among or paid over to the
holders of the Common Stock, to be paid $18.75 per share together with any
accrued and unpaid dividends thereon, and to no more. If, upon such liquidation,
dissolution or winding up, the assets of the Company distributable as aforesaid
among the holders of the Series A Stock shall be insufficient to permit payment
to them of said amount, the entire assets shall be distributed ratably among the
holders of the Series A Stock issued and outstanding and having such priority.
<PAGE>
6. Conversion. (a) The holder of shares of Series A Stock shall have
the right, at its option, to convert one or more of such shares into fully paid
and nonassessable shares of Common Stock of the Company at any time and from
time to time after the date of issuance, at the rate of 1.875 shares of Common
Stock for each one share of Series A Stock or at the rate which results from the
making of any adjustment specified in subparagraph (e) hereof (the number of
shares of Common Stock issuable at any time, giving effect to the latest prior
adjustment pursuant to subparagraph (e) hereof, if any, in exchange for one
share of Series A Stock being hereinafter called the "Conversion Rate").
(b) The Series A Stock shall be convertible at the office of
any transfer agent of the Company, and at such other office or offices, if any,
that the Board of Directors may designate, into fully paid and nonassessable
shares of Common Stock at the Conversion Rate. In case of the redemption for any
shares of Series A Stock, such right of conversation shall cease and terminate,
as to the shares to be redeemed, at the close of business on the date fixed for
such redemption, unless default shall be made in the payment of the redemption
price for the shares to be so redeemed.
(c) In order to convert shares of Series A Stock into shares
of Common Stock pursuant to the right of conversion set forth in subparagraph
(a), the holder thereof shall surrender the certificate or certificates
representing Series A Stock, duly endorsed to the Company or in blank, at any
office herein above mentioned and shall give written notice to the Company at
said office that such holder elects to convert the same, stating in such notice
the name or names in which such holder wishes the certificate or certificates
representing shares of Common Stock to be issued. The Company shall, within five
business days, deliver at said office to such holder of Series A Stock, or to
such holder's nominee or nominees, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled as aforesaid,
together with cash to which such holder shall be entitled in lieu of fractional
shares in an amount equal to the same fraction of the Market Price (as
hereinafter defined) of a whole share of Common Stock on the business day
preceding the day of conversion. The Company shall make no payment or adjustment
on account of any dividends accrued on the shares of the Series A Stock
surrendered for conversion or any dividends upon shares of Common Stock issued
upon conversion, except that the registered holder of shares of Series A Stock
being converted shall be entitled to receive payment of any unpaid dividends
which have accrued on such shares for dividend periods up to the dividend
payment date immediately preceding such surrender for conversion at the time the
Company makes payment to other holders of the Series A Stock of accrued unpaid
dividends for such dividend periods; provided, that if the Company acquires at
any time all outstanding shares of Series A Stock, the Company shall on the date
of the acquisition of the last outstanding share, declare and pay such accrued
and unpaid dividends out of funds legally available therefor. Shares of Series A
Stock shall be deemed to have been converted as of the date of the surrender of
such shares for conversion as provided above, and the person or persons entitled
to receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date. Upon conversion of only a portion of the number of
shares covered by a certificate representing shares of Series A Stock
surrendered for conversion, the Company shall issue and deliver to, or upon the
written order of, the holder of the certificate so surrendered for conversion,
at the expense of the Company, a new certificate covering the number of shares
of Series A Stock representing the unconverted portion of the certificate so
surrendered, which new certificate shall entitle the holder thereof to the
rights of the shares of Series A Stock represented thereby to the same extent as
if the certificate theretofore covering such unconverted shares had not been
surrendered for conversion.
<PAGE>
(d) The issuance of certificates for shares of Common Stock
upon the conversion of shares of Series A Stock shall be made without charge to
the converting stockholder for any original issue or transfer tax in respect of
the issuance of such certificates and any such tax shall be paid by the Company.
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 shares of
Common stock in a name other than that in which the shares of Series A Stock so
converted were registered, and no such issue or delivery shall be made unless
and until the person requesting such issue has paid to the Company the amount of
any such tax or has established to the satisfaction of the Company that such tax
has been paid.
(e) The Conversion Rate shall be subject to the following
adjustments:
(i) If the Company shall declare and pay to the holders
of Common Stock a dividend or other distribution payable in shares of
Common Stock or Convertible Securities (as hereinafter defined), the Conversion
Rate in effect immediately prior thereto shall be adjusted so that the holders
of Series A Stock hereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock which such holder would have owned
or been entitled to receive after the declaration and payment of such dividend
or other distribution if such shares of Series A Stock had been converted
immediately prior to the record date for the determination of stockholders
entitled to receive such dividend or other distribution.
(ii) If the Company shall subdivide the outstanding shares of Common Stock
into a greater number of shares of Common Stock, or combine the outstanding
shares of Common Stock into a lesser number of shares, or issue by
reclassification of its shares of Common Stock any shares of the Company, the
Conversion Rate in effect immediately prior thereto shall be adjusted so that
the holders of Series Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock which such holder would
have owned or been entitled to receive after the happening of any of the events
described above if such shares of Series A Stock had been converted immediately
prior to the happening of such event on the day upon which such subdivision,
combination or reclassification, as the case may be, becomes effective.
<PAGE>
(iii) If the Company shall issue or sell any Additional Shares of Common
Stock for a consideration per share less than the Conversion Amount, then the
Conversion Rate shall be adjusted to the number determined by multiplying the
Conversion Rate in effect immediately prior to such issuance or sale by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance or sale of such Additional Shares
of Common Stock plus the number of such Additional Shares of Common Stock so
issued or sold, and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance or sale of such
Additional Shares of Common Stock plus the number of shares of Common Stock
which the aggregate consideration for such Additional Shares of Common Stock so
issued or sold would purchase at a consideration per share equal to the
Conversion Amount. For the purposes of this subparagraph (iii), the date as of
which the Conversation Amount shall be computed shall be the earlier of (x) the
date on which the Company shall enter into a firm contract for the issuance or
sale of such Additional Shares of Common Stock or (y) the date of the actual
issuance or sale of such shares.
<PAGE>
(iv) If the Company shall issue or sell any warrants or options or other
rights entitling the holders thereof to subscribe for or purchase either any
Additional Shares of Common Stock or evidences of indebtedness, shares of stock
or other securities which are convertible into or exchangeable, with or without
payment of additional consideration in cash or property, for Additional Shares
of Common Stock (such convertible or exchangeable evidences of indebtedness,
shares of stock or other securities hereinafter being called "Convertible
Securities"), and the consideration per share for which Additional Shares of
Common Stock may at any time thereafter be issuable pursuant to such warrants or
other rights or pursuant to the terms of such Convertible Securities (when added
to the consideration per share of Common Stock, if any, received for such
Convertible Securities, warrants or other rights), shall be less than the
Conversion Amount, then the Conversion Rate shall be adjusted as provided in
subparagraph (iii) on the basis that (x) the maximum number of Additional Shares
of Common Stock issuable pursuant to all such warrants or other rights or
necessary to effect the conversion or exchange of all such Convertible
Securities shall be deemed to have been issued and (y) the aggregate
consideration (plus the consideration, if any, received for such Convertible
Securities, warrants or other rights) for such maximum number of Additional
Shares of Common Stock shall be deemed to be the consideration received and
receivable by the Company for the issuance of such Additional Shares of Common
Stock pursuant to such warrants or other rights or pursuant to the terms of such
Convertible Securities.
(v) If the Company shall issue or sell Convertible
Securities and the consideration per share for which Additional Shares of Common
Stock may at any time thereafter be issuable pursuant to the terms of such
Convertible Securities shall be less than the Conversion Amount, then the
Conversion Rate shall be adjusted as provided in subparagraph (iii) on the basis
that (x) the maximum number of Additional Shares of Common Stock necessary to
effect the conversion or exchange of all such Convertible Securities shall be
deemed to have been issued and (y) the aggregate consideration for such maximum
number of Additional Shares of Common Stock shall be deemed to be the
consideration received and receivable by the Company for the issuance of such
Additional Shares of Common Stock pursuant to the terms of such Convertible
Securities. No adjustment of the Conversion Rate shall be made under this
subparagraph (v) upon the issuance of any Convertible Securities which are
issued pursuant to the exercise of any warrants or other rights, if such
adjustment shall previously have been made upon the issuance of such warrants or
other rights pursuant to subparagraph (iv).
(vi) For the purposes of subparagraphs (iv) and (v), the date as of which
the Conversion Amount shall be computed shall be the earliest of (x) the date of
which the Company shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive any warrants or other rights referred to in
subparagraph (iv) or to receive any Convertible Securities, (y) the date on
which the Company shall enter into a firm contract for the issuance of such
warrants or other rights or Convertible Securities or (z) the date of the actual
issuance of such warrants or other rights or Convertible Securities.
(vii) No adjustment of the Conversion Rate shall be made under subparagraph
(iii) upon the issuance of any Additional Shares of Common Stock which are
issued pursuant to the exercise of any warrants or other rights or pursuant to
the exercise of any conversion or exchange rights in any Convertible Securities,
if such adjustment shall previously have been made upon the issuance of such
warrants or other rights or upon the issuance of such Convertible Securities (or
upon the issuance of any warrants or other rights therefor), pursuant to
subparagraphs (iv) or (v).
<PAGE>
(viii) If any warrants or other rights (or any portions thereof) which
shall have given rise to any adjustment pursuant to subparagraph (iv) or
conversion rights pursuant to Convertible Securities which shall have given rise
to any adjustment pursuant to subparagraph (v) shall have expired or terminated
without the exercise thereof and/or if by reason of the terms of such warrants
or other rights or Convertible Securities there shall have been an increase or
increases, with the passage of time or otherwise, in the price payable upon the
exercise or conversion thereof, then the Conversion Rate hereunder shall be
readjusted (but to no greater extent than originally adjusted) on the basis of
(x) eliminating from the computation of any Additional Shares of Common Stock
corresponding to such warrants or other rights or conversion rights as shall
have expired or terminated, (y) treating the Additional Shares of Common Stock,
if any, actually issued or issuable pursuant to the previous exercise of such
warrants or other rights or of conversion rights pursuant to any Convertible
Securities as having been issued for the consideration actually received and
receivable therefor, and (z) treating any of such warrants or other rights or of
conversion rights pursuant to any Convertible Securities which remain
outstanding as being subject to exercise or conversion on the basis of such
exercise or conversion price as shall be in effect at the time; provided,
however, that any consideration which was actually received by the Company in
connection with the issuance or sale of such warrants or other rights shall form
part of the readjustment computation even though such warrants or other rights
shall have expired without the exercise thereof. (ix) To the extent that any
Additional Shares of Common Stock, any warrants or other rights to subscribe for
or purchase any Additional Shares of Common Stock, or any Convertible Securities
shall be issued for a cash consideration, the consideration received by the
Company therefor shall be deemed to be the amount of the cash received by the
Company therefor, or, if such Additional Shares of Common Stock, warrants or
other rights or Convertible Securities are offered by the Company for
subscription, the subscription price or, if such Additional Shares of Common
Stock, warrants or other rights or Convertible Securities are sold to
underwriters or dealers for public offering without a subscription offering, the
initial public offering price, in any such case excluding any amounts paid or
receivable for accrued interest or accrued dividends and without deduction of
any compensation, discounts or expenses paid or incurred by the Company for and
in the underwriting of, or otherwise in connection with, the issuance thereof.
If and to the extent that such issuance shall be for a consideration other than
cash, then, except as herein otherwise expressly provided, the amount of such
consideration shall be deemed to be the fair value of such consideration at the
time of such issuance as determined by the Board of Directors of the Company. If
Additional Shares of Common Stock shall be issued as part of a unit with
warrants or other rights, then the amount of consideration for the warrant or
other right shall be deemed to be the amount determined at the time of issuance
by the Board of Directors of the Company. If the Board of Directors of the
Company shall not make any such determination, the consideration for the warrant
or other right shall be deemed to be zero.
(x) In case the Company shall effect a reorganization, shall merge with or
consolidate into another corporation, or shall sell, transfer or otherwise
dispose of all or substantially all of its property, assets or business and,
pursuant to the terms of such reorganization, merger, consolidation or
disposition of assets, shares of stock or other securities, property or assets
of the Company, successor or transferee or an affiliate thereof or cash are to
be received by or distributed to the holders of Common Stock, then each holder
of Series A Stock shall be given a written notice from the Company informing
each holder of the terms of such reorganization, merger, consolidation, or
disposition of assets and of the record date, thereof for any distribution
pursuant thereto, at least ten days in advance of such record date, and each
holder of Series A Stock shall have the right thereafter to receive, upon
conversion of such Series A Stock, the number of shares of stock or other
securities, property or assets of the Company, successor or transferee or
affiliate thereof or cash receivable upon or as a result of such reorganization,
merger, consolidation or disposition of assets by a holder of the number of
shares of Common Stock equal to the Conversion Rate immediately prior to such
event, multiplied by the number of shares of Series A Stock as may be converted.
The provisions of this subparagraph (x) shall similarly apply to successive
reorganizations, mergers, consolidation or dispositions of assets.
(xi) The Company may make such increases in the conversion rate, so as to
increase the number of shares of Common Stock into which the Series A Stock may
be converted, in addition to those required by subparagraphs (i) - (v) and (x)
above, as it considers to be advisable in order that any event treated for
Federal income tax purposes as a dividend of stock or stock rights shall not be
taxable to the recipients.
(xii) The number of shares of Common Stock outstanding at any given time
shall not include shares owned or held by or for the account of the Company, and
the disposition of such shares shall be considered an issue or sale of Common
Stock for the purposes of this paragraph (e).
<PAGE>
(xiii) If a state of facts shall occur which, without being specifically
controlled by the provisions of this paragraph (e), would not in the reasonable
opinion of the Board of Directors fairly protect the conversion rights of the
Series A Stock in accordance with the essential intent and principles of such
provision, then the Board of Directors of the Company shall make an adjustment
in the application of such provisions, in accordance with such essential intent
and principles, so as to protect such conversion rights.
(xiv) Anything herein to the contrary notwithstanding, no adjustment in the
Conversion Rate shall be required unless such adjustment, either by itself
orwith other adjustments not previously made, would require a change of at
least1% in such rate; provided, however, that any adjustment which by reason of
this subparagraph (xiv) is not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
(xv) All calculations under this paragraph (e) shall be made to the nearest
one-thousandth of a share.
(xvi) Whenever the Conversion Rate shall be adjusted pursuant to this
paragraph (e), the Company shall forthwith cause to be delivered to each holder
of Series A Stock, a notice setting forth in reasonable detail the event
requiring the adjustment and the method by which such adjustment was calculated
(including a description of the basis on which the Board of Directors of the
Company determined the fair value of any consideration other than cash pursuant
to subparagraph (ix)) and specifying the new Conversion Rate, accompanied by a
letter of a firm of independent certified public accountants (which may be the
regular auditors of the Company) of recognized national standing selected by the
Board of Directors of the Company, stating that such firm has reviewed the
relevant provisions of this paragraph 6 and the Company's calculation of the new
Conversion Rate. In the case referred to in subparagraph (x), such notice shall
be issued describing the amount and kind of stock, securities, property or
assets or cash which shall be receivable upon conversion of the Series A Stock
after giving effect to the provision of such subparagraph (x).
(xvii) The Company shall provide the holders of the Series A Stock prompt
notice ofany tender or exchange offer made to holders of the Common Stock to the
extent such offer is subject to the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
(f) The Company shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued shares of Common
Stock, solely for the purposes of effecting the conversion of Series A Stock,
the full number of shares of Common Stock then deliverable upon the conversion
of all shares of Series A Stock at the time outstanding. The Company shall take
at all times such corporate action as shall be necessary in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the conversion of Series A Stock in accordance with the
provision hereof, free from all taxes, liens, charges and security interests
with respect to the issue thereof. The Company will, at its expense, use its
best efforts to cause such shares of Common Stock to be listed (subject to
issuance or notice of issuance on all stock exchanges, if any, on which the
Company's Common Stock may become listed.
(g) No fractional shares of Common Stock or scrip representing
fractional shares of Common Stock shall be issued upon any conversion of Series
A Stock, but, in lieu thereof, there shall be paid an amount in cash equal to
the same fraction of the Market Price of a whole share of Common Stock on the
business day preceding the day of conversion.
<PAGE>
7. Definitions
(a) "Additional Shares of Common Stock" shall mean all shares
of Common Stock of the Company issued by the Company after the Effective Time,
except (i) shares which may be issued pursuant to conversion of the Series A
Stock, and (ii) shares issued upon conversion of convertible securities
outstanding on the date of issuance of the Series A Stock, or upon the exercise
of options granted or to be granted with respect to up to 100,000 shares
pursuant to any stock option plan approved by the shareholders of the Company.
(b) "Conversion Amount" shall mean at any applicable date, the
amount equal to the quotient resulting from dividing $15.45 by the Conversion
Rate in effect on such date for the Series A Stock.
(c) "Market Price" of a share of Common Stock on any day shall
mean the average closing price of a share of Common Stock for the 15 consecutive
trading days preceding such day on the principal national securities exchange on
which the shares of Common Stock are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, the average
closing price of a share of Common Stock for the 15 consecutive trading days
preceding such day on the NASDAQ/National Market Systems, or if the shares of
Common Stock are not publicly traded, the Market Price for such day shall be the
Conversion Amount or the book value of a share of Common Stock of the Company as
disclosed in the last balance sheet of the Company regularly prepared by the
Company, whichever is higher.
8. Stated Value. The entire consideration received by the Company upon
issuance of the Series A Stock shall be allocated to capital surplus.
9. Shares Surrendered. Any shares of Series A Stock redeemed, purchased
or otherwise reacquired, or surrendered for conversion shall be canceled and
restored to the status of authorized but unissued shares of Preferred Stock of
the Company, but shall not thereafter be issued as shares of Series A Stock.
10. Reports to Holders. The Company shall transmit to the holders of
the Series A Stock copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the Securities and Exchange Commission may from time to time by rules and
regulations prescribe) which the Company may be required to file with the
Securities and Exchange Commission pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934, as amended, including, without limitation,
its Annual Reports to Shareholders, its Annual Reports on Form 10-K, its
Quarterly Reports on Form 10-Q and its Current Reports on Form 8-K. If the
Company is not required to file such information the Company shall transmit to
the holders of the Series A Stock, within 15 days after it would have been
required to file such information with the Securities and Exchange Commission,
financial statements, including any notes thereto, prepared in accordance with
generally accepted accounting principles, reasonably comparable to that which
the Company would have been required to include in such annual reports,
information, documents or other reports if the Company were subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended.
E-3
ANDERSEN GROUP, INC.
AND
THE CHASE MANHATTAN BANK
TRUSTEE
Indenture
Dated as of February 26, 1998
Up to $4,311,000
10 1/2 Convertible Subordinated Debentures Due 2007
<PAGE>
PART 1
Special Provisions
<PAGE>
TABLE OF CONTENTS*
Part 1
Parties....................................................................... 1
RECITALS OF THE COMPANY....................................................... 5
ARTICLE I Definitions And Other Provisions Of General Application............. 5
ss. 1-1. Certain Definitions.................................................. 5
"Common Stock" ............................................................... 5
"Senior Indebtedness" ........................................................ 6
ss.ss. 1-2. through 1-12. Miscellaneous Provisions........................ 6
ss. 1-13. Governing Law.................................................. 6
ARTICLE II Debenture Forms.................................................... 6
ss. 2-1. Forms Generally.................................................. 6
ss. 2-2. Form of Debenture................................................ 7
ARTICLE III The Debentures....................................................11
ss. 3-1. Title and Terms.................................................11
ss. 3-2. Denominations....................................................12
ss.ss. 3-3. through 3-9. Debenture Register, Record Data, etc...........12
ss. 3-10. Authentication and Delivery of Original Issue...................12
ARTICLE IV Redemption Of Debentures And Sinking Fund..........................14
ss. 4-1. Right of Redemption..............................................14
ss.ss. 4-2. through 4-8. Redemption Procedure..........................15
ARTICLE V Covenants..........................................................15
ss.ss. 5-1. through 5-7. Covenants.....................................15
ss. 5-8. Waiver of Covenants..............................................15
ss. 5-9. Accountants' Certificate.........................................15
ARTICLE VI Debentureholders' Lists And Reports By Trustee And Company.........15
ss.ss. 6-1. through 6-4. Lists-and Reports.............................15
ARTICLE VII Remedies..........................................................16
ss.ss. 7-1. through 7-14. Events of Default and Remedies..............16
ARTICLE VIII The Trustee......................................................16
ss.ss. 8-1. through 8-13. Concerning the Trustee........................16
ARTICLE IX Supplemental Indentures............................................16
ss.ss. 9-1. through 9-7. Supplemental Indentures.......................16
ARTICLE X Consolidation, Merger, Conveyance Or Transfer.......................16
ss.ss. 10-1. and 10-2. Consolidation, Merger, Conveyance or Transfer..16
ARTICLE XI Satisfaction And Discharge.........................................16
ss.ss. 11-1. and 11-2. Satisfaction and Discharge;
Application of Trust Money..................................16
ARTICLE XII Immunity Of Incorporators, Stockholders, Officers And Directors...18
ss. 12-1. Exemption from Individual Liability.............................18
ARTICLE XIII Subordination Of Debentures......................................18
ss. 13-1. Agreement of Subordination......................................18
ss. 13-2. Payments to Debentureholders....................................18
ss. 13-3. Subrogation of Debentures.......................................19
ss. 13-4. Authorization by Debentureholders...............................20
ss. 13-5. Notice to Trustee...............................................21
ss. 13-6. Trustee's Relation to Senior Indebtedness.......................22
ss. 13-7. No Impairment of Subordination..................................22
ARTICLE XIV Conversion Of Debentures..........................................22
ss. 14-1. Conversion Privilege............................................22
ss. 14-2. Exercise of Conversion Privilege................................23
ss. 14-3. No Conversion Adjustments.......................................24
ss. 14-4. Adjustment of Conversion Price..................................24
ss. 14-5. Fractions of Shares.............................................25
ss. 14-6. Effect of Mergers, etc., on Conversion Privilege................27
ss. 14-7. Notice of Adjustments...........................................27
ss. 14-8. Notice of Certain Events........................................28
ss. 14-9. Company to Reserve Common Stock; Listing; Registration..........29
ss. 14-10. Taxes on Conversions...........................................29
ss. 14-11. Responsibility of Trustee......................................30
<PAGE>
THIS INDENTURE dated as of February 26, 1998 between ANDERSEN GROUP,
INC., a Connecticut corporation (hereinafter called the "Company"), having its
principal executive offices at 1280 Blue Hills Avenue, Bloomfield, Connecticut
06002 and THE CHASE MANHATTAN BANK, a New York banking corporation (hereinafter
called the "Trustee"), having its Bond and Trustee Administration Office at 450
West 33rd Street, New York, New York, 10001 (hereinafter called the Principal
Corporate Trust Office) sets forth certain of its provisions in full and
incorporates other of its provisions by reference to the document (herein called
the "General Provisions") annexed hereto as Part 2, and such provisions as are
set forth in full and such provisions as are incorporated by reference
constitute a single instrument.
Whenever this instrument incorporates herein by reference, in whole or
in part or as hereby amended, any provision of the General Provisions, such
provision of the General Provisions shall be deemed to be a part of this
instrument as fully to all intents and purposes as though said provision had
been set forth in full in this instrument.
RECITALS OF THE COMPANY
The Company wishes to redeem up to $5,665,000 in aggregate principal
amount of its 10 1/2% Convertible Subordinated Debentures due 2002 (the "2002
Debentures"), and to issue up to $5,665,000 in aggregate principal amount of 10
1/2% Convertible Subordinated Debentures due 2007 (the "Debentures") in exchange
for such 2002 Debentures; and
All things necessary to make the Debentures, when executed and duly
issued by the Company and authenticated and delivered hereunder, the valid
obligations of the Company, and to make this Indenture a valid agreement of the
Company, in accordance with their and its terms, have been done.
Now, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Debentures by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Debentures, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
ss. 1-1. Certain Definitions.
Section 1.01 of the General Provisions is herein incorporated as part
of this ss. 1-1.
"Common Stock" means the Common Stock of the Company of the class
authorized at the date of this Indenture and stock of any other class into which
such presently authorized Common Stock may be changed and any other shares of
stock of the Company which do not have any priority in the payment of dividends
or upon liquidation over any other class of stock.
"Senior Indebtedness" means the principal of, and premium, if any, and
accrued and unpaid interest on (a) indebtedness of the Company for money
borrowed, whether outstanding on the date of execution of this Indenture or
thereafter created, incurred or assumed, other than all obligations of any kind
owed by the Company in respect of the 2002 Debentures, (b) guarantees by the
Company of indebtedness for money borrowed by or performance obligations due
from any other Person, whether outstanding on the date of execution of this
Indenture or thereafter created, incurred or assumed, (c) purchase money
indebtedness evidenced by notes, lease-purchase agreements or similar
instruments for the payment of which the Company is responsible or liable, by
guarantees or otherwise, whether outstanding on the date of execution of this
Indenture or thereafter created, incurred or assumed, (d) obligations of the
Company under any agreement to lease, or lease of, any real or personal property
which are required to be capitalized in accordance with generally accepted
accounting principles, or any other agreement to lease, or lease of, any real or
personal property which, by the terms thereof, are expressly designated as
Senior Indebtedness, whether outstanding on the date of execution of this
Indenture or thereafter created, incurred or assumed, (e) performance,
completion or similar bonds of the Company, and (f) modifications, renewals,
extensions and refundings of any such indebtedness, guarantees, obligations or
bonds; unless, in the instrument creating or evidencing the same or pursuant to
which the same is outstanding, it is provided that such indebtedness,
guarantees, obligations or bonds, or such modification, renewal, extension or
refunding thereof, are not superior in right of payment to the Debentures.
ss.ss. 1-2. through 1-12. Miscellaneous Provisions.
Sections 1.02 through 1.12 of the General Provisions are herein
incorporated as ss.ss. 1-2 through 1-12 hereof, respectively.
ss. 1-13. Governing Law.
This Indenture and the Debentures shall be construed in accordance with
and governed by the laws of the State of New York.
ARTICLE II
DEBENTURE FORMS
ss. 2-1. Forms Generally.
Section 2.01 of the General Provisions is herein incorporated as ss.
2-1. hereof.
ss. 2-2. Form of Debenture.
[FORM OF FACE OF DEBENTURE]
No. $
ANDERSEN GROUP, INC.
10 1/2% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2007
ANDERSEN GROUP, INC., a corporation duly organized and existing under
the laws of the State of Connecticut (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
_____________________, or registered assigns, the principal sum of
______________ Dollars, on October 15, 2007, and to pay interest on said
principal sum semiannually on April 15 and October 15 of each year, at the rate
of 10 1/2% per annum, from the April 15 or October 15, as the case may be, next
preceding the date of this Debenture to which interest has been paid, unless the
date hereof is a date to which interest has been paid, in which case from the
date of this Debenture, or unless no interest has been paid on the Debentures,
in which case from October 15, 1997 until payment of said principal sum has been
made or duly provided for and at such rate on any overdue principal and premium
and (to the extent that the payment of such interest shall be legally
enforceable) on any overdue installment of interest. Notwithstanding the
foregoing, when there is no existing default in the payment of interest on the
Debentures, if the date hereof is after a Regular Record Date (which shall be
the close of business on the March 31 or September 30, as the case may be, next
preceding an Interest Payment Date unless the Regular Record Date as so
determined would not be a Business Day, in which event it shall be the Business
Day next preceding) and before the next succeeding Interest Payment Date, this
Debenture shall bear interest from such Interest Payment Date; provided,
however, that if the Company shall default in the payment of interest due on
such Interest Payment Date, then this Debenture shall bear interest from the
next preceding Interest Payment Date to which interest has been paid, or, if no
interest has been paid on the Debentures, from October 15, 1997. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment Date
will, as provided in said Indenture, be paid to the Person in whose name this
Debenture (or one or more Predecessor Debentures) is registered at the Regular
Record Date for such Interest Payment Date. The principal of, and premium, if
any, and interest on this Debenture are payable in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts, at the office or agency of the Company in the
Borough of Manhattan, City and State of New York; provided, that interest may be
paid, at the option of the Company, by check mailed to the Person entitled
thereto at such Person's address last appearing on the Debenture Register. Any
interest not punctually paid or duly provided for shall be payable as provided
in the Indenture.
Reference is made to the further provisions of this Debenture set forth
on the reverse hereof, which shall have the same effect as though fully set
forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee by manual signature, this Debenture shall not be entitled to any
benefit under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
ANDERSEN GROUP, INC.
By
President
Dated:
[SEAL]
Attest:
Secretary
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Debentures referred to in the within-mentioned Indenture.
THE CHASE MANHATTAN BANK
as Trustee,
By
Authorized Officer
[FORM OF REVERSE OF DEBENTURE]
ANDERSEN GROUP, INC.
10 1/2% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2007
This Debenture is one of a duly authorized issue of Debentures of the
Company designated as its 10 1/2% Convertible Subordinated Debentures Due 2007
(herein called the "Debentures"), limited in aggregate principal amount of up to
$4,311,000, issued and to be issued under an Indenture dated as of February 26,
1998 (herein called the "Indenture"), between the Company and The Chase
Manhattan Bank (herein called the "Trustee", which term includes any successor
Trustee under the Indenture), to which Indenture and all indentures supplemental
thereto reference is hereby made for a statement of the respective rights
thereunder of the Company, the Trustee and the Holders of the Debentures, and
the terms upon which the Debentures are, and are to be, authenticated and
delivered.
The Debentures are subject to redemption through the operation of the
Mandatory Sinking Fund provided in the Indenture, on October 15, 1998, and on
each October 15 thereafter, to and including October 15, 2006, on notice as set
forth in the Indenture, at a Sinking Fund Redemption Price equal to 100% of the
principal amount thereof, together with accrued interest to the Redemption Date.
As provided in the Indenture, the transfer of this Debenture may be
registered on the Debenture Register of the Company, upon surrender of this
Debenture for registration of transfer at the office or agency of the Company in
the Borough of Manhattan, City and State of New York, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Debenture Registrar duly executed by, the registered Holder
hereof or his attorney duly authorized in writing, and thereupon one or more new
Debentures, of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferees.
The Debentures are issuable only as registered Debentures without
coupons in the denominations of $1,000 and integral multiples thereof. As
provided in the Indenture, and subject to certain limitations therein set forth,
Debentures are exchangeable for a like aggregate principal amount of Debentures
of different authorized denominations, as requested by the Holders surrendering
the same.
No service charge will be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment for registration of transfer of this
Debenture, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Debenture is registered as the owner
hereof for the purpose of receiving payment as herein provided and for all other
purposes, whether or not this Debenture be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
If any Event of Default shall occur and be continuing, the principal of
all the Debentures may be declared due and payable, and such declarations may be
in certain events rescinded, in the manner and with the effect provided in the
Indenture.
The indebtedness evidenced by the Debentures is, to the extent provided
in the Indenture, subordinate and subject in right of payment to the prior
payment in full of Senior Indebtedness, and this Debenture is issued subject to
the provisions of the Indenture with respect thereto. Each Holder of this
Debenture, by accepting the same, agrees to and shall be bound by such
provisions and authorizes the Trustee in his behalf to take such action as may
be necessary or appropriate to effectuate the subordination so provided and
appoints the Trustee his attorney-in-fact for such purpose.
Subject to the provisions of the Indenture, the Person in whose name
this Debenture is registered in the Debenture Register is entitled, at such
Person's option, at any time on or before October 15, 2007 (or, if this
Debenture or some portion hereof shall be called for redemption on a Redemption
Date through operation of the Mandatory Sinking Fund which is prior to such date
and the Company shall not thereafter default in making payment of the Sinking
Fund Redemption Price, then, with respect to this Debenture or such portion
hereof, on or before the close of business on the Redemption Date), to convert
the principal amount of this Debenture or any portion of the principal amount
hereof which is $1,000, or an integral multiple of $1,000, into shares of Common
Stock (as defined in the Indenture) of the Company at a conversion price equal
to $16.17 aggregate principal amount of Debentures for each share of Common
Stock (or at the current adjusted conversion price if an adjustment has been
made as provided in the Indenture), upon surrender of this Debenture to the
Company at its office or agency in the Borough of Manhattan, City and State of
New York, with written notice to the Company that the Holder of this Debenture
elects to convert this Debenture or a specified portion (as above provided)
hereof, and accompanied, if required by the Company or the Trustee, by a proper
assignment hereof in blank. If this Debenture is surrendered during any period
beginning subsequent to a Regular Record Date and ending at the opening of
business on the Interest Payment Date next following such Regular Record Date
(unless this Debenture or such portion hereof then being converted has been
called for redemption on a Redemption Date occurring during such period), it
shall also be accompanied by payment in New York Clearing House funds or other
funds reasonably acceptable to the Company of an amount equal to the interest
payable on such Interest Payment Date on the principal amount of this Debenture
then being converted. As provided in the Indenture, the conversion price is
subject to adjustment in certain events. Subject to the foregoing, no adjustment
is to be made upon any conversion for dividends on securities issued on such
conversion or for interest accrued hereon. As further provided in the Indenture,
in the case of any capital reorganization, certain reclassifications of the
Common Stock, the consolidation or merger of the Company with or into any other
corporation or the disposition of the properties and assets of the Company, as,
or substantially as, an entirety to any other corporation, this Debenture shall
thereafter cease to be convertible into Common Stock and shall be convertible
into shares of stock or other securities or property (including cash) to which
the holders of Common Stock are entitled upon such capital reorganization,
reclassification, consolidation, merger or disposition. No fractions of shares
or scrip representing fractions of shares will be issued on conversion, but an
adjustment in cash will be made for any fractional interest as provided in the
Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Debentures under the Indenture at
any time by the Company with the consent of the Holders of a majority in
aggregate principal amount of the Debentures at the time Outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Debentures at the time
Outstanding, on behalf of the Holders of all the Debentures, to waive compliance
by the Company with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such consent or waiver
by the Holder of this Debenture shall be conclusive and binding upon such Holder
and upon all future Holders of this Debenture and of any Debenture issued upon
the registration of transfer hereof or in exchange herefor or in lieu hereof
whether or not notation of such consent or waiver is made upon this Debenture.
Except with respect to the rights of the holders of Senior Indebtedness
set forth in this Debenture and in the Indenture, no reference herein to the
Indenture and no provision of this Debenture or of the Indenture shall alter or
impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of, and premium, if any, and interest on, this Debenture at
the time, place and rate, and in the coin or currency, herein prescribed.
No recourse shall be had for the payment of the principal of, or
premium, if any, or the interest on, this Debenture, or for any claim based
hereon, or otherwise in respect hereof, or based on or in respect of the
Indenture or any indenture supplemental thereto, against any incorporator,
stockholder, officer or director, as such, past, present or future, of 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.
All terms used in this Debenture which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
ARTICLE III
THE DEBENTURES
ss. 3-1. Title and Terms.
The aggregate principal amount of Debentures which may be authenticated
and delivered under this Indenture is limited to up to $4,311,000, except for
Debentures authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Debentures, as provided herein.
The Debentures shall be known and designated as the "10 1/2%
Convertible Subordinated Debentures Due 2007" of the Company. Their Stated
Maturity shall be October 15, 2007, and they shall bear interest, as set forth
below, at the rate per annum set forth in the preceding sentence, until the
principal thereof becomes due and payable, and at such rate on any overdue
principal and premium and (to the extent that the payment of such interest shall
be legally enforceable) on any overdue installment of interest.
Every Debenture shall be dated the date of its authentication and,
except as otherwise provided in this ss. 3-1, shall bear interest, payable
semiannually on April 15 and October 15 of each year, from the April 15 or
October 15, as the case may be, next preceding the date of such Debenture to
which interest on the Debentures has been paid, unless the date of such
Debenture is an April 15 or October 15 to which interest has been paid, in which
case from such date, or unless no interest has been paid on the Debentures, in
which case from October 15, 1997. However, when there is no existing default in
the payment of interest on the Debentures, each Debenture authenticated after
the Regular Record Date for any Interest Payment Date but prior to such Interest
Payment Date shall be dated the date of its authentication but shall bear
interest from such Interest Payment Date; provided, however, that if and to the
extent that the Company shall default in the payment of the interest due on any
Interest Payment Date, then such Debenture shall bear interest from the April 15
or October 15, as the case may be, to which interest has been paid, next
preceding such Interest Payment Date, unless no interest has been paid on the
Debentures, in which case from October 15, 1997.
The Regular Record Date referred to in ss. 3-7 for the payment of the
interest payable, and punctually paid or duly provided for, on any Interest
Payment Date shall be the close of business on the March 31 or September 30, as
the case may be, next preceding such Interest Payment Date unless the Regular
Record Date as so determined would not be a Business Day, in which event it
shall be the Business Day next preceding.
The Person in whose name any Debenture is registered at the Regular
Record Date with respect to an Interest Payment Date shall be entitled to
receive the interest payable on such Interest Payment Date (unless such
Debenture has been called for redemption on a Redemption Date which is prior to
such Interest Payment Date) notwithstanding the cancellation of such Debenture
upon any registration of transfer or exchange or conversion thereof subsequent
to such Regular Record Date and prior to such Interest Payment Date; provided,
however, that if and to the extent the Company shall default in the payment of
the interest due on any Interest Payment Date, such Defaulted Interest shall be
paid as provided in ss. 3-7.
The principal and the Sinking Fund Redemption Price of, and interest
on, the Debentures shall be payable at the office or agency of the Company in
the Borough of Manhattan, City and State of New York (herein called the "Place
of Payment"); provided, that interest may be paid, at the option of the Company,
by check mailed to the Person entitled thereto at such Person's address last
appearing on the Debenture Register.
The Debentures shall be redeemable and shall be entitled to the benefit
of and be redeemable for the Mandatory Sinking Fund as provided in Article IV.
The Debentures may not otherwise be redeemed at the option of the Company.
The Debentures shall be subordinated in right of payment to certain
other indebtedness of the Company as provided in Article XIII.
The Debentures shall be convertible as provided in Article XIV.
ss. 3-2. Denominations.
The Debentures shall be issuable as registered Debentures without
coupons in the denominations of $1,000 and integral multiples thereof.
ss.ss. 3-3. Through 3-9. Debenture Register, Record Data, etc.
Sections 3.03 through 3.09 of the General Provisions are herein
incorporated as ss.ss. 3-3 through 3-9 hereof, respectively.
ss. 3-10. Authentication and Delivery of Original Issue.
Forthwith upon the execution and delivery of this Indenture, or from
time to time thereafter, Debentures up to the aggregate principal amount of up
to $4,311,000 may be executed by the Company and delivered to the Trustee for
authentication upon original issue, and shall thereupon be authenticated and
delivered by the Trustee upon Company Order, without any further action by the
Company.
<PAGE>
ARTICLE IV
REDEMPTION OF DEBENTURES AND SINKING FUND
ss. 4-1. Right of Redemption.
(a ) The Company covenants that, on or prior to October 15, 1998, and
on or prior to each October 15 thereafter to and including October 15, 2006, it
will pay to the Trustee, in trust, as and for a mandatory sinking fund
(hereinafter called the "Mandatory Sinking Fund") to be held and applied by the
Trustee to the redemption of Debentures, an amount in cash (herein called the
"Mandatory Sinking Fund Payment") sufficient in each instance to redeem, at 100%
of the principal amount thereof (said percentage of principal amount being
hereinafter called the "Sinking Fund Redemption Price"), together with accrued
interest to the Redemption Date, an amount equal to 10% of the aggregate
principal amount of Debentures originally issued hereunder, as rounded off to
the nearest integral of $1,000; provided, however, that the obligation of the
Company to make any Mandatory Sinking Fund Payment in cash may, at the option of
the Company, and as specified by it in a Company Request on or before the August
15 next preceding any such October 15 (or such later date as shall be
satisfactory to the Trustee), be reduced and satisfied to the extent of the
Sinking Fund Redemption Price, together with accrued interest to the Redemption
Date, of any Debentures (a) acquired by the Company and delivered by the Company
to the Trustee for cancellation, (b) redeemed otherwise than through the
operation of the Mandatory Sinking Fund, or (c) converted pursuant to Article
XIV hereof, and in each case under clauses (a), (b) and (c) delivered, redeemed
or converted prior to any such August 15 (or such later date as shall be
satisfactory to the Trustee for receipt of such Company Request), and not
theretofore made the basis for the reduction of a Mandatory Sinking Fund
Payment.
(b ) As soon as practicable after August 15 in each year commencing
with 1998, the Trustee shall take the action herein specified to call for
redemption on the next succeeding October 15, at the Sinking Fund Redemption
Price, together with accrued interest to the Redemption Date, a principal amount
of Debentures sufficient to exhaust, as nearly as practicable, the sums then
held by it in the Mandatory Sinking Fund and to be paid to it prior to such
October 15 for the Mandatory Sinking Fund pursuant to ss.ss. 4-1(a),
respectively; provided, however, that if such sums aggregate less than $50,000,
such action shall not be taken except upon a Company Request. The Company hereby
irrevocably authorizes the Trustee to give notice in the name of the Company of
the redemption of such Debentures, in the manner and with the effect specified
in this Article IV.
(c ) The Company's obligation to make a Mandatory Sinking Fund Payment
on any October 15 shall automatically be reduced by an amount equal to the
Sinking Fund Redemption Price allocable, together with accrued interest to the
Redemption Date, to any Debentures or portions thereof called for redemption
pursuant to ss. 4-1(b) on such October 15 and surrendered for conversion
pursuant to Article XIV hereof; provided, that if the Trustee is not the
conversion agent for the Debentures, the Company or such conversion agent shall
give the Trustee written notice prior to the Redemption Date of the Debentures
or portions thereof so surrendered for conversion.
ss.ss. 4-2. Through 4-8. Redemption Procedure.
Sections 4.02 through 4.08 of the General Provisions are herein
incorporated as ss.ss. 4-2 through 4-8 hereof, respectively.
ARTICLE V
COVENANTS
ss.ss. 5-1. Through 5-7. Covenants.
Sections 5.01 through 5.07 of the General Provisions are herein
incorporated as ss.ss. 5-1 through 5-7 hereof, respectively.
ss. 5-8. Waiver of Covenants.
The Company may omit in any particular instance to comply with any
covenant or condition set forth in ss.ss. 5-6 or 5-7, if before or after the
time for such compliance the Holders of a majority in principal amount of the
Debentures at the time Outstanding shall, by Act of such Debentureholders,
either waive such compliance in such instance or generally waive compliance with
such covenant or condition, but no such waiver shall extend to or affect such
covenant or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in respect of any such covenant or condition shall remain in full
force and effect.
ss. 5-9. Accountants' Certificate.
At the time the statement required by ss. 5-4 is filed, the Company
will also file with the Trustee a letter or statement of the Independent
accountants who shall have certified the financial statements of the Company for
its preceding fiscal year in connection with the annual report of the Company to
its stockholders for such year to the effect that, in making the examination
necessary for certification of such financial statements, they have obtained no
knowledge of any default by the Company in the performance or fulfillment of any
covenant, agreement or condition set forth in ss. 5-6 in this Indenture, which
default remains uncured at the date of such letter or statement, or, if they
shall have obtained knowledge of any such uncured default, specifying in such
letter or statement such default or defaults and the nature thereof, it being
understood that such accountants shall not be liable directly or indirectly for
failure to obtain knowledge of any such default or defaults.
ARTICLE VI
DEBENTUREHOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
ss.ss. 6-1. through 6-4. Lists-and Reports.
Sections 6.01 through 6.04 of the General Provisions are herein
incorporated in ss.ss. 6-1 through 6-4 hereof, respectively.
The "reporting date" referred to in ss. 6-3 shall be July 1, commencing
July 1, 1999.
ARTICLE VII
REMEDIES
ss.ss. 7-1. through 7-14. Events of Default and Remedies.
Sections 7.01 through 7.14 of the General Provisions are herein
incorporated as ss.ss. 7-1 through 7-14 hereof, respectively.
ARTICLE VIII
THE TRUSTEE
ss.ss. 8-1. Through 8-13. Concerning the Trustee.
Sections 8.01 through 8.13 of the General Provisions are herein
incorporated as ss.ss. 8-1 through 8-13 hereof, respectively.
ARTICLE IX
SUPPLEMENTAL INDENTURES
ss.ss. 9-1. 0Through 9-7. Supplemental Indentures.
Sections 9.01 through 9.07 of the General Provisions are herein
incorporated as ss.ss. 9-1 through 9-7 hereof, respectively.
ARTICLE X
CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER
ss.ss. 10-1. And 10-2. Consolidation, Merger, Conveyance or Transfer.
Sections 10.01 and 10.02 of the General Provisions are herein
incorporated as ss.ss. 10-1 and 10-2 hereof, respectively.
ARTICLE XI
SATISFACTION AND DISCHARGE
ss.ss. 11-1. and 11-2. Satisfaction and Discharge; Application of Trust Money.
Sections 11.01 and 11.02 of the General Provisions are herein
incorporated as ss.ss. 11-1 and 11-2 hereof respectively.
<PAGE>
ARTICLE XII
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
ss. 12-1. Exemption from Individual Liability.
Section 12.01 of the General Provisions is herein incorporated as
ss.12-1 hereof.
ARTICLE XIII
SUBORDINATION OF DEBENTURES
ss. 13-1. Agreement of Subordination.
The Company covenants and agrees, and each Holder of Debentures issued
hereunder by his acceptance thereof likewise covenants and agrees, that all
Debentures shall be issued subject to the provisions of this Article XIII; and
each Person holding any Debenture, whether upon original issue or upon transfer
or assignment thereof, accepts and agrees to be bound by such provisions.
All Debentures 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.
ss. 13-2. Payments to Debentureholders.
No payment on account of principal of, or premium, if any, or interest
on, the Debentures (including any Mandatory Sinking Fund Payment) shall be made
if any default or event of default with respect to any Senior Indebtedness which
permits the holders thereof (or a trustee on their behalf) to accelerate the
maturity thereof shall have occurred and be continuing; provided, however, that
if such event or event of default with respect to any Senior Indebtedness shall
be remedied or cured by the Company or be waived by the holders of such Senior
Indebtedness, in each case pursuant to the terms thereof, so that the holders
thereof (or a trustee on their behalf) are not able to accelerate the maturity
thereof, then any such event or event of default shall be deemed to have been
remedied, cured or waived, and to be of no further force and effect, for all
purposes of this Article XIII without further action by the Trustee or any
Holder of Debentures.
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 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 or money's worth, in accordance with its terms,
before any payment is made on account of the principal, and premium, if any, or
interest on the Debentures; and upon any such dissolution or winding-up or
liquidation or reorganization 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 Debentures or the Trustee would be
entitled, except for the provisions of this Article XIII, shall be paid by the
Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or
other Person making such payment or distribution directly to the holders of
Senior Indebtedness or their 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, in money
or money's worth, 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 Debentures or to the Trustee on behalf of such
Holders of Debentures.
In the event that notwithstanding the preceding paragraphs, any payment
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, prohibited by the preceding paragraphs shall be
received by the Trustee or the Holders of the Debentures, such payment or
distribution shall be paid over or delivered to the Holders of Senior
Indebtedness or their 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, for application to the payment of all Senior Indebtedness remaining
unpaid to the extent necessary to pay all Senior Indebtedness in full in money
or money's worth in accordance with its terms, after giving effect to any
concurrent payment or distribution to or for the holders of such Senior
Indebtedness.
For purposes of this Article XIII, 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 XIII with
respect to the Debentures 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 any such reorganization or
readjustment, and (ii) the rights of the holders of the Senior Indebtedness 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 in Article X hereof shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this ss. 13-2 if
such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article X hereof.
Nothing in this ss. 13-2 shall apply to claims of, or payments to, the Trustee
under or pursuant to ss. 8-7.
ss. 13-3. Subrogation of Debentures.
Subject to the payment in full of all Senior Indebtedness, the rights
of the Holders of the Debentures shall be subrogated 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 Debentures
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 Debentures or the Trustee would be
entitled except for the provisions of this Article XIII, and no payment over
pursuant to the provisions of this Article XIII to the holders of Senior
Indebtedness by Holders of the Debentures or the Trustee, shall, as between the
Company, its creditors other than holders of Senior Indebtedness, and the
Holders of the Debentures, be deemed to be a payment by the Company to or on
account of the Senior Indebtedness. It is understood that the provisions of this
Article XIII are and are intended solely for the purpose of defining the
relative rights of the Holders of the Debentures, on the one hand, and the
holders of the Senior Indebtedness, on the other hand.
Nothing contained in this Article XIII or elsewhere in this Indenture
or in the Debentures is intended to or shall impair, as between the Company, its
creditors other than the holders of Senior Indebtedness, and the Holders of the
Debentures, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders of the Debentures the principal of, and premium, if any,
and interest on the Debentures 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 Debentures and creditors of the Company other than
the holders of Senior Indebtedness, nor shall anything herein prevent the
Trustee or the Holder of any Debenture from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article XIII 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 XIII, the Trustee and the Holders of the Debentures shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which such 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
Debentures, 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 XIII.
The terms "paid in full" and "payment in full" as used in this Article
XIII with respect to Senior Indebtedness mean the receipt, in cash or securities
(taken at their market value at the time of the receipt thereof), of the
principal amount of the Senior Indebtedness (and any premium due thereon) and
full interest thereon to the date of such payment of principal and all other
amounts due to holders of Senior Indebtedness pursuant to the provisions of the
instruments providing therefor.
ss. 13-4. Authorization by Debentureholders.
Each Holder of a Debenture by his acceptance thereof authorizes and
directs the Trustee in his behalf to take such action as may be necessary or
appropriate to effectuate as between the Holders and the holders of Senior
Indebtedness the subordination provided in this Article XIII and appoints the
Trustee his attorney-in-fact for any and all such purposes.
ss. 13-5. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment of moneys to
or by the Trustee in respect of the Debentures pursuant to the provisions of
this Article XIII. Notwithstanding the provisions of this Article XIII or any
other provision of this Indenture, the Trustee shall not be charged with
knowledge of the existence of any fact which would prohibit the making of any
payment of moneys to or by the Trustee in respect of the Debentures pursuant to
the provisions of this Article XIII, unless and until the Trustee shall have
received written notice thereof at its Principal Corporate Trust Office from the
Company or a holder or holders of Senior Indebtedness or from any representative
or representatives therefor, together with proof satisfactory to the Trustee of
the holding of such Senior Indebtedness or of such capacity as representative or
representatives therefor; and, prior to the receipt of any such written notice,
the Trustee shall be entitled in all respects conclusively to assume that no
such fact exists; provided, that if on or before the third Business Day prior to
the date upon which by the terms hereof any such moneys may become payable for
any purpose (including, without limitation, the payment of the principal of, and
premium, if any, or interest on, any Debenture, and any amounts deemed to be
immediately due and payable upon the execution of any instrument acknowledging
satisfaction and discharge of this Indenture, as provided in Article XI hereof),
the Trustee shall not have received with respect to such moneys the notice
provided for in this ss. 13-5, then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to receive such
moneys 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.
The Trustee 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 any Representative or representatives therefor) to establish
that such notice has been given by a holder of Senior Indebtedness or a
representative or representatives 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 XIII, 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 XIII, 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; nor shall the Trustee be
charged with knowledge of the curing or waiver of any default of the character
specified in ss. 13-2 or that any event or any condition preventing any payment
in respect of the Debentures shall have ceased to exist unless and until the
Trustee shall have received an Officers' Certificate to such effect.
ss. 13-6. Trustee's Relation to Senior Indebtedness.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article XIII 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 ss. 8-13 or elsewhere in this Indenture shall
deprive the Trustee 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 XIII, 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 the Trustee shall
not be liable to any holder of Senior Indebtedness if it shall pay over or
deliver to Holders of Debentures, the Company or any other Person moneys or
assets to which any holder of Senior Indebtedness shall be entitled by virtue of
this Article XIII or otherwise.
ss. 13-7. 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.
ARTICLE XIV
CONVERSION OF DEBENTURES
ss. 14-1. Conversion Privilege.
The Holder of any Debenture shall have the right at his option, at any
time (except that, with respect to any Debentures or portion thereof which shall
be called for redemption, such right shall terminate at the close of business on
the Redemption Date of such Debenture or portion thereof, unless the Company
shall default in payment due upon redemption thereof), to convert, subject to
the terms and provisions of this Article XIV, the principal of such Debenture or
any portion of the principal amount thereof which is $1,000 or an integral
multiple of $1,000 into shares of Common Stock of the Company at a conversion
price equal to $16.17 aggregate principal amount of Debentures for each share of
Common Stock or, in case an adjustment of such price has taken place pursuant to
the provisions of this Article XIV, then at the price as last adjusted (referred
to herein as the "conversion price"), upon surrender of such Debenture to the
Company at its office or agency in the Borough of Manhattan, City and State of
New York, together with written notice of election executed by the Holder of
such Debenture (hereinafter referred to as the "conversion notice") to convert
such Debenture or a specified portion (as above provided) thereof, specifying
the name or names in which the shares of Common Stock deliverable upon such
conversion shall be registered, with the addresses of the Person (and taxpayer
identification numbers, if applicable) so named, and, if so required by the
Company or the Trustee, duly endorsed or accompanied by a written instrument or
instruments of transfer in form satisfactory to the Company and the Debenture
Registrar duly executed by the Holder or his attorney duly authorized in
writing. Any Debentures so surrendered during any period beginning subsequent to
a Regular Record Date and ending at the opening of business on the Interest
Payment Date next following such Regular Record Date (excluding Debentures or
portions thereof called for redemption on a Redemption Date occurring during
such period) shall also be accompanied by payment in New York Clearing House
funds or other funds reasonably acceptable to the Company of an amount equal to
the interest payable on such Interest Payment Date on the principal amount of
such Debentures then being converted. For convenience, the conversion of the
principal of any Debenture into Common Stock is herein sometimes referred to as
the "conversion" of such Debenture.
ss. 14-2. Exercise of Conversion Privilege.
As promptly as practicable after the surrender, as herein provided, of
any Debenture for conversion and the receipt of the conversion notice, as herein
provided, relating thereto, and, if applicable, the payment of the funds
provided for in ss.ss. 14-1 and 14-10 hereof, the Company shall deliver or cause
to be delivered at said office or agency, to or upon the written order of the
Holder of the Debenture so surrendered, a certificate or certificates
representing the number of fully-paid and non-assessable shares of Common Stock
into which such Debenture (or portion thereof) may be converted in accordance
with the provisions of this Article XIV, registered in such name or names as are
specified in the conversion notice, together with any cash payable in respect of
a fractional share. In case any Debenture of a denomination greater than $1,000
shall be surrendered for partial conversion, the Company shall execute and the
Trustee shall authenticate and deliver to or upon the written order of the
Holder of the Debenture so surrendered, without charge to such Holder (subject
to the provisions of ss. 14-10 hereof), a new Debenture or Debentures in
authorized denominations in an aggregate principal amount equal to the
unconverted portion of the surrendered Debenture. Subject to the following
provisions of this paragraph, such conversion shall be deemed to have been
effected at the close of business on the date when such Debenture shall have
been surrendered for conversion together with the conversion notice and any
funds required by ss.ss. 14-1 and 14-10 hereof, so that the rights of the Holder
of such Debenture as such Holder shall cease at such time and the Person or
Persons entitled to receive the shares of Common Stock upon conversion of such
Debenture shall be treated for all purposes as having become the record holder
or holders of such shares of Common Stock at such time and such conversion shall
be at the conversion price in effect at such time; provided, however that no
such surrender on any date when the stock transfer books of the Company shall be
closed shall be effective to constitute the Person or Persons entitled to
receive the shares of Common Stock upon such conversion as the record holder or
holders of such shares of Common Stock on such date, but such surrender shall be
effective to constitute the Person or Persons entitled to receive such shares of
Common Stock as the record holder or holders thereof for all purposes at the
opening of business on the next succeeding Business Day on which such stock
transfer books are open but such conversion shall nevertheless be at the
conversion price in effect at the close of business on the date when such
Debenture shall have been so surrendered together with the conversion notice and
any funds required by ss.ss. 14-1 and 14-10 hereof.
If the last day for the exercise of the conversion right at the place
of surrender shall not be a Business Day, then the last day for the exercise of
such right at such place shall be the next succeeding Business Day.
ss. 14-3. No Conversion Adjustments.
Subject to ss. 14-1, no payment or adjustment shall be made upon any
conversion in respect of any interest accrued on any Debenture surrendered for
conversion on or prior to a Regular Record Date or any dividends on the Common
Stock delivered upon conversion.
ss. 14-4. Adjustment of Conversion Price.
The conversion price shall be subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend in shares of its
capital stock, (ii) subdivide its outstanding shares of Common Stock, (iii)
combine its outstanding shares of Common Stock into a smaller number of shares,
or (iv) issue by reclassification of its shares of Common Stock any shares of
the Company, the conversion price in effect immediately prior thereto shall be
adjusted so that the Holder of any Debenture thereafter surrendered for
conversion shall be entitled to receive the number of shares of the Company
which he would have owned or have been entitled to receive after the happening
of any of the events described above, had such Debenture been converted
immediately prior to the happening of such event. Such adjustment shall be made
whenever any of the events listed above shall occur. An adjustment made pursuant
to this Subdivision (a) shall become effective retroactively immediately after
the record date in the case of a dividend and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(b) In case the Company shall issue rights or warrants to all holders
of its Common Stock entitling them (for a period expiring within 45 days after
the record date mentioned below) to subscribe for or purchase shares of Common
Stock at a price per share less than the current market price per share of
Common Stock (as defined in Subdivision (d) below) at the record date mentioned
below, the price per share at which the Debentures may thereafter be converted
into Common Stock shall be determined by dividing the price per share for which
the Debentures were theretofore convertible into Common Stock by a fraction of
which the numerator shall be the number of shares of Common Stock outstanding on
the date of issuance of such rights or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase, and of which the
denominator shall be the number of shares of Common Stock outstanding on the
date of issuance of such rights or warrants 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. Such adjustment shall be made whenever such rights
or warrants are issued, and shall become effective retroactively immediately
after the record date for the determination of stockholders entitled to receive
such rights or warrants.
(c) In case the Company shall distribute to all holders of its Common
Stock evidences of its indebtedness or assets (excluding cash dividends or other
cash distributions treated as dividends under state law) or rights or warrants
to subscribe (excluding those referred to in Subdivision (b) above), then in
each such case the price per share at which the Debentures may thereafter be
converted into Common Stock shall be determined by dividing the price per share
for which the Debentures were theretofore convertible into Common Stock by a
fraction of which the numerator shall be the current market price per share of
Common Stock (as defined in Subdivision (d) below) on the date of such
distribution, and of which the denominator shall be such current market price
per share of Common Stock, less the then fair market value (as determined by the
Board of Directors of the Company, whose determination shall be conclusive, and
described in a statement, which will have the applicable resolutions of the
Board of Directors attached thereto, filed with the Trustee) of the portion of
the assets or evidences of indebtedness so distributed or of such subscription
rights or warrants applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
retroactively immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(d) For the purpose of any computation under Subdivisions (b) and (c)
above, the current market price per share of Common Stock at any date shall be
deemed to be the average of the daily closing prices for the thirty consecutive
business days commencing forty-five business days before the date in question.
The closing price for each day shall be (i) if the Common Stock is listed or
admitted to trading on a national securities exchange, the closing price on the
NYSE-Consolidated Tape (or any successor composite tape reporting transactions
on national securities exchanges) or, if such a composite tape shall not be in
use or shall not report transactions in the Common Stock, the last reported
sales price regular way on the principal national securities exchange on which
the Common Stock is listed or admitted to trading (which shall be the national
securities exchange on which the greatest number of shares of the Common Stock
has been traded during such 30 consecutive business days), or, if there is no
transaction on any such day in any such situation, the mean of .the bid and
asked prices on such day or (ii) if the Common Stock is not listed or admitted
to trading on any such exchange, the closing price, if reported, or, if the
closing price is not reported, the average of the closing bid and asked prices
as reported by the National Association of Securities Dealers Automated
Quotation System (NASDAQ) or a similar source selected from time to time by the
Company for the purpose.
(e) No adjustment in the conversion price shall be required unless
such adjustment would require an increase or decrease of at least 1% of such
price; provided, however, that any adjustments which by reason of this
Subdivision (e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this ss. 14-4
shall be made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be.
ss. 14-5 . Fractions of Shares.
No fractional shares or scrip representing fractional shares shall be
issued upon the conversion of any Debenture or Debentures. If any fractional
interest in a share of Common Stock would, except for the provisions of this ss.
14-5, be deliverable upon the conversion of any Debenture or Debentures, the
Company shall, in lieu of delivering a fractional share therefor, adjust such
fractional interest by paying the Holder of such surrendered Debenture or
Debentures an amount in cash equal (computed to the nearest cent) to the closing
price of such fractional interest (computed as provided in the second sentence
of ss. 14-4(d) hereof) on the business day prior to the date of conversion.
<PAGE>
ss. 14-6. Effect of Mergers, etc., on Conversion Privilege.
In case of any capital reorganization, of any reclassification of the
Common Stock (other than a reclassification covered by ss. 14-4(a)(iv)) of the
Company or in case of the consolidation or merger of the Company with or into
any other corporation or of the sale, lease or other disposition of the
properties and assets of the Company as, or substantially as, an entirety to any
other corporation, there shall be no adjustment of the conversion price pursuant
to ss. 14-4 hereof but each Debenture shall, after such capital reorganization,
reclassification of Common Stock, consolidation, merger or sale, lease or other
disposition, be convertible into the kind and amount of shares of stock or other
securities or property (including cash) to which the holder of the number of
shares of Common Stock deliverable (immediately prior to the time of such
capital reorganization, reclassification of Common Stock, consolidation, merger,
sale, lease or other disposition) upon conversion of such Debentures would have
been entitled upon such capital. reorganization, reclassification of Common
Stock, consolidation, merger, sale, lease or other disposition; and, in any such
case, if necessary, appropriate adjustment shall be made in the application of
the provisions set forth in this Article XIV with respect to the rights and
interests thereafter of the Holders of the Debentures, to the end that the
provisions set forth in this Article XIV shall thereafter correspondingly be
made applicable, as nearly as may be reasonable, in relation to any shares of
stock or other securities or property thereafter deliverable on the conversion
of the Debentures. Any such adjustment shall be made and set forth in a
supplemental indenture, which shall conform to the Trust Indenture Act as in
effect at the date of execution of such supplemental indenture, executed by the
Company and the Trustee and approved as being accurately determined in
accordance with this ss. 14-6 by a certificate of a firm of Independent public
accountants; and any adjustment so approved shall for all purposes hereof
conclusively be deemed to be an appropriate adjustment.
The above provisions of this ss. 14-6 shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers, sales,
leases or other dispositions.
Notice of the execution of such supplemental indenture shall be given
by mail to the Holders of the Debentures within 30 days after the execution of
such supplemental indenture.
The Trustee shall not be under any responsibility to determine the
correctness of any provisions contained in any such supplemental indenture
relating either to the kind or amount of shares of stock or securities or
property receivable by Holders upon the conversion of their Debentures after any
such reorganization, reclassification, consolidation, merger, sale, lease or
other disposition or to any adjustment to be made with respect thereto, but may
accept as conclusive evidence of the correctness of any such provisions, and
shall be protected in relying upon, a certificate of a firm of Independent
public accountants with respect thereto furnished to it by the Company.
ss. 14-7. Notice of Adjustments.
Whenever the conversion price is adjusted as herein provided, the
Company shall promptly file with the Trustee a certificate of a firm of
Independent public accountants with respect thereto setting forth the conversion
price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment. Subject to the provisions of ss. 8-1, the Trustee
shall be under no duty or responsibility with respect to any such certificate
except to exhibit the same from time to time to any Holder desiring an
inspection thereof.
The Company shall also forthwith cause to be mailed to each Holder a
notice stating that the conversion price has been adjusted and setting forth the
adjusted conversion price and shall deliver a copy thereof to each conversion
agent other than the Trustee.
ss. 14-8. Notice of Certain Events.
In case:
(a) the Company shall declare a dividend payable, or shall make any
other distribution of its Common Stock payable, on or after February 26, 1998
(excluding cash dividends or other cash distributions treated as dividends under
state law and stock splits in the form of stock dividends); or
(b) the Company shall authorize the granting on or after February 26, 1998
to all the holders of its Common Stock of rights or warrants to subscribe for or
purchase any shares of stock of any class or of any other rights or warrants; or
(c) of any capital reorganization or reclassification on or after
February 26, 1998, of the Common Stock of the Company (other than a subdivision
or combination or change in the par value of its outstanding Common Stock), or
of any consolidation or merger on or after said date to which the Company is a
party and for which approval of any stockholders of the Company is required, or
of the sale, lease or other disposition on or after said date of all or
substantially all of the assets of the Company, in the event any such
consolidation, merger or sale will result in a change in the shares held by the
holders of Common Stock; or
(d) of the voluntary or involuntary dissolution, liquidation or winding-up
of the Company on or after February 26, 1998,
then the Company shall cause to be filed with the Trustee and at the office of
each conversion agent and, except in the case of events referred to in
subsection (a) above, shall cause to be mailed to the Holders of the Debentures,
as promptly as possible but in any event at least 10 days prior to the
applicable record date, entitlement date or effective 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 granting of rights (the "record
date"), or, if a record is not to be taken, the date or anticipated date as of
which the holders of Common Stock of record to be entitled to such dividend,
distribution or granting of rights are to be determined (the "entitlement
date"), or (y) the date or anticipated date on which such capital
reorganization, reclassification, consolidation, merger, sale, lease or other
disposition, dissolution, liquidation or winding-up is expected to become
effective (the "effective date"), and which notice, in the case of the notice
specified in clause (y), shall also state the date as of which it is expected
that holders of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities or other property deliverable upon such
capital reorganization, reclassification, consolidation, merger, sale, lease or
other disposition, dissolution, liquidation or winding-up.
ss. 14-9. Company to Reserve Common Stock; Listing; Registration.
The Company covenants that it will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its authorized
but unissued Common Stock or its issued Common Stock held in its treasury, or
both, for the purpose of effecting conversions of Debentures, the full number of
shares of Common Stock then deliverable upon the conversion of all Outstanding
Debentures not theretofore converted; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all said Outstanding Debentures, the Company will take such
corporate action as may in the opinion of its counsel be necessary to increase
its authorized but unissued Common Stock to such number of shares as shall be
sufficient for that purpose.
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 Debentures, the Company will take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully-paid and non-assessable shares of
such Common Stock at such adjusted conversion price.
The Company convenants that if any shares of Common Stock reserved for
conversions of Debentures require listing upon any national securities exchange
before such shares may be delivered upon conversion, the Company will in good
faith, and as expeditiously as possible, endeavor to cause such shares to be
duly listed.
The Company will in good faith endeavor to effect any registration of
the shares of Common Stock deliverable upon conversion of the Debentures that
may be required under the Securities Act of 1933, as amended, or any successor
Federal law in connection with the issuance of any such shares, and any
amendments or supplements to such registration that may be so required, and in
good faith and as promptly as possible endeavor to cause any other registration
with, and to obtain any approval by, any governmental authority under any
applicable laws that may be required before such shares may be so delivered;
provided, however, that nothing in this ss. 14-9 shall be deemed to affect in
any way the obligation of the Company to convert Debentures as provided in this
Article XIV.
The Company covenants that, subject to the effectiveness of any
registration and the obtaining of any approval referred to herein, all Common
Stock which may be delivered upon conversions of Debentures will upon delivery
be duly and validly issued and fully-paid and nonassessable.
ss. 14-10. Taxes on Conversions.
The Company will pay any and all documentary, stamp or similar issue or
transfer taxes payable in respect of the issue or delivery of shares of Common
Stock on conversions of Debentures pursuant hereto; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any registration of transfer involved in the issue or delivery of Common Stock
in a name other than that of the Holder of the Debentures to be converted, and
no such issue or delivery shall be made unless and until the Person requesting
such issue has paid to the Company the amount of any such tax or has
established, to the satisfaction of the Company, that such tax has been paid.
ss. 14-11. Responsibility of Trustee.
Neither the Trustee nor any conversion agent shall at any time be under
any duty or responsibility to any Holder of Debentures to determine whether any
fact exists which may require any adjustment of the conversion price, or with
respect to the nature or extent 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. Neither the Trustee nor any
conversion agent shall be accountable with respect to the registration, 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 Debenture; and neither the Trustee nor any conversion agent
makes any representation with respect thereto. Neither the Trustee nor any
conversion agent shall be responsible for any failure of the Company to issue or
transfer or deliver any Common Stock or stock certificates or other securities
or property or to make any cash payment upon the surrender of any Debenture for
the purpose of conversion or to comply with any of the covenants of the Company
contained in this Article XIV.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
ANDERSEN GROUP, INC.
By:/S/ Francis E. Baker
--------------------
FRANCIS E. BAKER
Chairman of the Board
Attest: /s/ Bernard F. Travers, III
---------------------------
BERNARD F. TRAVERS, III
Assistant Secretary
THE CHASE MANHATTAN BANK
By: /s/ Frank Grippo
----------------
FRANK GRIPPO
Vice President
Attest:
/s/ Gemmel Richards
-------------------
GEMMEL RICHARDS
Assistant Secretary
<PAGE>
STATE OF CONNECTICUT)
) ss.: Bloomfield
COUNTY OF HARTFORD )
On this 3rd day of March, 1998, before me personally came FRANCIS E. BAKER,
to me known, who, being by me duly sworn, did depose and say that he resides at
8356 Sego Lane, Vero Beach, FL; that he is Chairman of the Board of ANDERSEN
GROUP, INC., one of the corporations described in and which executed the above
instrument; that he knows the corporate seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
authority of the Board of Directors of said corporation; and that he signed his
name thereto by like authority.
/s/ Connie Boyd
---------------
My commission expires 11/30/01
(NOTARY SEAL]
STATE OF NEW YORK )
) ss.: New York
COUNTY OF NEW YORK
On this 27th day of February, 1998 before me personally came Frank Grippo,
to me known, who, being by me duly sworn, did depose and say that he resides at
Montgomery, NY; that he is a Vice-President of THE CHASE MANHATTAN BANK, one of
the corporations described in and which executed the foregoing instrument; that
he knows the seal of said corporation; that the seal affixed to said instrument
is such corporate seal; that it was affixed by authority of the Board of
Directors of said corporation; and that he signed his name thereto by like
authority.
[NOTARY SEAL]
Emily Fayan
------------
My commission expires 12/31/99
<PAGE>
PART 2
General Provisions
<PAGE>
TABLE OF CONTENTS*
Part 2
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Page
Section 1.01. Definitions 1A
"this Indenture" and certain other items........................1A
"Act" 1A
"Affiliate".....................................................1A
"Authorized Newspaper"..........................................2A
"Bankruptcy Act"................................................2A
"Board of Directors"............................................2A
"Board Resolution"..............................................2A
"Business Day"..................................................2A
"Commission"....................................................2A
"Company" 2A
"Company Request" and "Company Order"...........................2A
"Debentureholder" or "Holder"...................................2A
"Debenture Register" and "Debenture Registrar"..................2A
"Event of Default"..............................................2A
"Independent"...................................................3A
"Interest Payment Date".........................................3A
"Maturity" 3A
"Officers' Certificate".........................................3A
"Opinion of Counsel"............................................3A
"Outstanding....................................................3A
"Paying Agent"..................................................4A
"Person" 4A
"Place of Payment"..............................................4A
"Predecessor Debentures"........................................4A
"Principal Corporate Trust Office"..............................4A
"Redemption Date"...............................................4A
"Redemption Price"..............................................4A
"Regular Record Date"...........................................4A
"Responsible Officer"...........................................5A
"Special Record Date"...........................................5A
"Stated Maturity"...............................................5A
"Trustee" 5A
"Trust Indenture Act" or "TIA"..................................5A
"Vice President"................................................5A
Section 1.02. Compliance Certificates and Opinions............................5A
Section 1.03. Form of Documents Delivered to Trustee..........................6A
Section 1.04. Acts of Debentureholders........................................6A
Section 1.05. Notices, etc., to Trustee and Company...........................7A
Section 1.06 Notices to Debentureholders; Waiver.............................7A
Section 1.07. Conflict with Trust Indenture Act...............................8A
Section 1.08. Effect of Headings and Table of Contents........................8A
Section 1.09. Successors and Assigns..........................................8A
Section 1.10. Separability Clause.............................................8A
Section 1.11. Benefits of Indenture...........................................8A
Section 1.12. Legal Holidays..................................................8A
ARTICLE TWO
DEBENTURE FORMS
Section 2.01. Forms Generally.................................................9A
Section 2.02. Form of Debenture...............................................9A
ARTICLE THREE
THE DEBENTURES
Section 3.01. Title and Terms.................................................9A
Section 3.02. Denominations...................................................9A
Section 3.03. Execution, Authentication and Delivery.........................10A
Section 3.04. Temporary Debentures...........................................10A
Section 3.05. Registration, Registration of Transfer and Exchange............10A
Section 3.06. Mutilated, Destroyed, Lost and Stolen Debentures...............11A
Section 3.07. Payment of Interest............................................12A
Section 3.08. Persons Deemed Owners..........................................13A
Section 3.09. Cancellation...................................................13A
ARTICLE FOUR
REDEMPTION OF DEBENTURES
Section 4.01. Right of Redemption............................................14A
Section 4.02. Applicability of Article.......................................14A
Section 4.03. Intentionally Omitted..........................................14A
Section 4.04. Selection by Trustee of Debentures to be Redeemed..............14A
Section 4.05. Notice of Redemption...........................................15A
Section 4.06. Deposit of Redemption Price....................................16A
Section 4.07. Debentures Payable on Redemption Date..........................16A
Section 4.08. Debentures Redeemed in Part....................................16A
ARTICLE FIVE
COVENANTS
Section 5.01. Payment of Principal, Premium and Interest.....................16A
Section 5.02. Maintenance of Office or Agency................................17A
Section 5.03. Money for Debenture Payments to Be Held in Trust...............17A
Section 5.04. Statement as to Compliance.....................................18A
Section 5.05 Corporate Existence............................................18A
Section 5.06. Payment of Taxes and Other Claims..............................18A
Section 5.07. Maintenance of Properties......................................19A
ARTICLE SIX
DEBENTUREHOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 6.01. Company to Furnish Trustees Names and Addresses
of Debentureholders.........................................19A
Section 6.02. Preservation of Information; Communications to
Debentureholders............................................19A
Section 6.03. Reports by Trustee.............................................20A
Section 6.04. Reports by Company.............................................22A
ARTICLE SEVEN
REMEDIES
Section 7.01. Events of Default..............................................22A
Section 7.02. Acceleration of Maturity; Rescission and Annulment.............23A
Section 7.03. Collection of Indebtedness and Suits for Enforceability
by Trustee..................................................24A
Section 7.04. Trustee May File Proofs of Claim...............................25A
Section 7.05. Trustee May Enforce Claims Without Possession of Debentures....25A
Section 7.06. Application of Money Collected.................................26A
Section 7.07. Limitation on Suits............................................26A
Section 7.08. Unconditional Right of Debentureholders to Receive Principal;
Premium and Interest and to Convert.........................27A
Section 7.09. Restoration of Rights and Remedies.............................27A
Section 7.10. Rights and Remedies Cumulative.................................27A
Section 7.11. Delay or Omission Not Waiver...................................27A
Section 7.12. Control by Debentureholders....................................28A
Section 7.13. Waiver of Past Defaults........................................28A
Section 7.14. Undertaking for Costs..........................................28A
Section 7.15. Waiver of Stay or Extension Laws...............................29A
ARTICLE EIGHT
THE TRUSTEE
Section 8.01. Certain Duties and Responsibilities............................29A
Section 8.02. Notice of Defaults.............................................30A
Section 8.03. Certain Rights of Trustee......................................30A
Section 8.04. Not Responsible for Recitals or Issuance of Debentures.........31A
Section 8.05. May Hold Debentures............................................31A
Section 8.06. Money Held in Trust............................................32A
Section 8.07. Compensation and Reimbursement.................................32A
Section 8.08. Disqualification; Conflicting Interests........................32A
Section 8.09. Corporate Trustee Required; Eligibility........................32A
Section 8.10. Resignation and Removal; Appointment of Successor..............33A
Section 8.11. Acceptance of Appointment by Successor.........................34A
Section 8.12. Merger, Conversion, Consolidation or Succession to
Business of Trustee.........................................34A
Section 8.13. Preferential Collection of Claims Against Company..............35A
ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 9.01. Supplemental Indentures Without Consent of Debentureholders....38A
Section 9.02. Supplemental Indentures With a Consent of Debentureholders.....39A
Section 9.03. Execution of Supplemental Indentures...........................40A
Section 9.04. Effect of Supplemental Indentures..............................40A
Section 9.05. Conformity with Trust Indenture Act............................40A
Section 9.06. Reference in Debentures to Supplemental Indentures.............40A
Section 9.07. Modification of Subordination Provisions.......................40A
ARTICLE TEN
CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER
Section 10.01. Company May Consolidate, etc., Only on Certain Terms..........41A
Section 10.02. Successor Corporation Substituted.............................41A
ARTICLE ELEVEN
SATISFACTION AND DISCHARGE
Section 11.01. Satisfaction and Discharge of Indenture.......................42A
Section 11.02. Application of Trust Money....................................43A
ARTICLE TWELVE
IMMUNITY OF INCORPORATORS, STOCKHOLDERS OFFICERS AND DIRECTORS
Section 12.01. Exemption from Individual Liability...........................43A
<PAGE>
TABLE SHOWING REFLECTION IN GENERAL PROVISIONS OF
CERTAIN PROVISIONS OF TRUST INDENTURE ACT OF 1939
Reflected in General Provisions
Section Page
TIA
ss. 303 (1)................................... 1.01(5) 1A
(10)................................... 1.01 1A
(12)................................... 8.13(c)(5) 35A
(13)................................... 1.01 1A
(13)................................... 1.01 1A
ss. 310(a)(1).................................. 8.09 33A
(a)(2)................................. 8.09 33A
(a)(3)................................. Not Applicable
(a)(4)................................. Not Applicable
(b).................................... 8.08 33A
ss. 311(a)..................................... 8.13(a) 35A
(b).................................... 8.13(b) 37A
(b)(2)................................. 6.03(a)(2) 21A
6.03(b) 21A
ss. 312(a) .................................... 6.01 19A
6.02(a) 19A
(b)..................................... 6.02(b) 20A
(c)..................................... 6.02(c) 20A
ss. 313(a)..................................... 6.03(a) 21A
(b)..................................... 6.03(b) 21A
(c)..................................... 6.03(a) 21A
6.03(b) 21A
(d)..................................... 6.03(c) 22A
<PAGE>
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.01. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the term "this Indenture" means this instrument as
originally executed or as it may from time to time be supplemented or
amended by one or more indentures supplemental hereto entered into
pursuant to the applicable provisions hereof;
(2) all references in this instrument to designated
"Articles", "Sections" and other subdivisions are to the designated
Articles, Sections and other subdivisions of this instrument as
originally executed. The words "herein", "hereof", and "hereunder" and
other words of similar import refer to this Indenture as a whole and
not to any particular Article, Section or other subdivision;
(3) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the
singular;
(4) the terms defined in Part 1 of this Indenture shall have,
for purposes of the General Provisions, the meanings assigned to them
in Part 1 of this Indenture;
(5) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(6) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles; and
(7) any reference in the General Provisions to any particular
Article or Section or other subdivision of the General Provisions which
is incorporated in this Indenture shall be a reference to the Article
or Section or other subdivision of this Indenture incorporating such
particular Article, Section or other subdivision.
Certain terms, used principally in Article Eight, are defined in that
Article.
"Act" when used with respect to any Debentureholder has the meaning
specified in Section 1.04.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authorized Newspaper" means a newspaper of general circulation in the
relevant area, printed in the English language and customarily published on each
Business Day, whether or not published on Saturdays, Sundays or holidays.
Whenever successive weekly publications in an Authorized Newspaper are
authorized hereunder they may be made (unless otherwise expressly provided
herein) on the same or different days of the week and in the same or different
Authorized Newspapers.
"Bankruptcy Act" means Title 11 of the United States Code and any other
similar applicable Federal law.
"Board of Directors" means either the Board of Directors of the Company
or any duly authorized committee of that Board.
"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 and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each day which is neither a Saturday, Sunday nor
other day on which banking institutions in the pertinent Place of Payment are
authorized or obligated by law or executive order to close.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Securities Exchange Act of 1934, as
amended, or if at any time after the execution of this instrument such
Commission is not existing and performing the duties now assigned to it under
the Trust Indenture Act, then the body performing such duties on such date.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor corporation shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor corporation.
"Company Request" and "Company Order" mean, respectively, a written
request or order signed in the name of the Company by its Chairman of the Board,
President, or a Vice President, and by its Treasurer, an Assistant Treasurer,
Controller, an Assistant Controller, Secretary, or an Assistant Secretary, and
delivered to the Trustee.
"Debentureholder" or "Holder" when used with respect to any Debenture
means the Person in whose name such Debenture is registered in the Debenture
Register.
"Debenture Register" and "Debenture Registrar" have the respective
meanings specified in Section 3.05.
"Event of Default" has the meaning specified in Article Seven.
"Independent" when used with respect to any specified Person means such
a Person who (1) is in fact independent, (2) does not have any direct financial
interest or any material indirect financial interest in the Company or in any
other obligor upon the Debentures or in any Affiliate of the Company or of such
other obligor, and (3) is not connected with the Company or such other obligor
or any Affiliate of the Company or of such other obligor, as an officer,
employee, promoter, underwriter, trustee, partner, director or Person performing
similar functions. Whenever it is herein provided that any Independent Person's
opinion or certificate shall be furnished to the Trustee, such Person shall be
appointed by a Company Order and approved by the Trustee in the exercise of
reasonable care, and such opinion or certificate shall state that the signer has
read this definition and that the signer is Independent within the meaning
hereof.
"Interest Payment Date" means the Stated Maturity of an instalment of
interest on the Debentures.
"Maturity" when used with respect to any Debenture means the date on
which the principal of such Debenture becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, the President or a Vice President, and by the Treasurer, an Assistant
Treasurer, the Controller, an Assistant Controller, the Secretary or an
Assistant Secretary of the Company, and delivered to the Trustee. Wherever this
Indenture requires that an Officers' Certificate be signed also by an engineer
or an accountant or other expert, such engineer, accountant or other expert
(except as otherwise expressly provided in this Indenture) may be in the employ
of the Company, and shall be acceptable to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may
(except as otherwise expressly provided in this Indenture) be counsel for the
Company, and shall be acceptable to the Trustee.
"Outstanding" when used with respect to Debentures means, as of the
date of determination, all Debentures theretofore authenticated and delivered
under this Indenture, except:
(i) Debentures theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Debentures, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent in trust for the Holders of such
Debentures, provided that, if such Debentures are to be redeemed,
notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been
made; and
(iii) Debentures in exchange for or in lieu of which other
Debentures have been authenticated and delivered pursuant to this
Indenture unless proof satisfactory to the Trustee is presented that
any such Debentures are held by Persons in whose hands such Debentures
are valid, binding and legal obligations;
provided, however, that Holders of Debentures which cease to be Outstanding by
reason of a call for redemption prior to their Stated Maturity shall
nevertheless be entitled to convert the same or any portion thereof up to and
including the close of business on the Redemption Date in accordance with
Article XIV hereof; and provided further, that in determining whether the
Holders of the requisite principal amount of Debentures Outstanding have given
any request, demand, authorization, direction, notice, consent or waiver
hereunder, Debentures owned by the Company or any other obligor upon the
Debentures or any Affiliate of the Company or such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Debentures which the
Trustee knows to be so owned shall be so disregarded. Debentures so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Debentures and that the pledgee is not the Company or any
other obligor upon the Debentures or any Affiliate of the Company or such other
obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Debentures on behalf of
the Company.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Place of Payment" means any city or any political subdivision thereof
designated as such in ss. 3-1.
"Predecessor Debentures" of any particular Debenture means every
previous Debenture evidencing all or a portion of the same debt as that
evidenced by such particular Debenture, and for the purposes of this definition,
any Debenture authenticated and delivered under Section 3.06 in lieu of a lost,
destroyed or stolen Debenture shall be deemed to evidence the same debt as the
lost, destroyed or stolen Debenture.
"Principal Corporate Trust Office" means the Principal Corporate Trust
Office of the Trustee, which at the date of this Indenture is at the location
set forth in the first paragraph of this Indenture, or the principal corporate
trust office of any successor Trustee hereunder.
"Redemption Date" when used with respect to any Debenture to be
redeemed means the date fixed for such redemption pursuant to this Indenture.
"Redemption Price" when used with respect to any Debenture to be
redeemed means the price at which it is to be redeemed pursuant to this
Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the date specified in ss. 3-1.
"Responsible Officer" when used with respect to the Trustee means the
chairman or vice-chairman of the board of directors, the chairman or
vice-chairman of the executive committee of the board of directors, the
president, any vice-president, the secretary, any assistant secretary, the
treasurer, any assistant treasurer, the cashier, any assistant cashier, any
senior trust officer, any trust officer or assistant trust officer, the
controller and any assistant controller or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"Special Record Date" for the payment of any Defaulted Interest (as
defined in Section 3.07) means the date fixed by the Trustee pursuant to Section
3.07.
"Stated Maturity" when used with respect to any Debenture or any
instalment of interest thereon means the date specified in such Debenture as the
fixed date on which the principal of such Debenture or such instalment of
interest is due and payable.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939,
as amended, as in force at the date as of which this instrument was executed.
"Vice President" when used with respect to the Company or the Trustee
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
SECTION 1.02. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take
any action under any provision 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, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
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, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 1.03. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.04. Acts of Debentureholders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Debentureholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Debentureholders in person or by
agent duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Trustee, and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Debentureholders signing such instrument or instruments. Proof of execution of
any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Indenture and (subject to Section 8.01)
conclusive in favor of the Trustee and the Company, if made in the manner
provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by an officer of a corporation or a member of a partnership, on
behalf of such corporation or partnership, such certificate or affidavit shall
also constitute sufficient proof of his authority. The fact and date of the
execution of any such instrument or writing, or the authority of the Person
executing the same, may also be proved in any other manner which the Trustee
deems sufficient.
(c) The ownership of Debentures shall be proved by the Debenture
Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Debenture shall bind such Holder and
the Holder of every Debenture issued upon the registration of transfer thereof
or in exchange therefor or in lieu thereof, in respect of anything done or
suffered to be done by the Trustee, any Debenture Registrar, any Paying Agent or
the Company in reliance thereon, whether or not notation of such action is made
upon such Debenture.
SECTION 1.05. Notices, etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Debentureholders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with
(1) the Trustee by any Debentureholder or by the Company shall
be sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Principal Corporate
Trust Office, or
(2) the Company by the Trustee or by any Debentureholder shall
be sufficient for every purpose hereunder (except as provided in
Section 7.01(4)) if in writing and mailed, first-class, postage
prepaid, to the Company addressed to it at the address of its principal
executive offices specified in the first paragraph of this Indenture or
at any other address previously furnished in writing to the Trustee by
the Company.
SECTION 1.06. Notices to Debentureholders; Waiver.
Where this Indenture provides for notice to Debentureholders of any
event, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class, postage prepaid, to
each Debentureholder affected by such event, at his address as it appears on the
Debenture Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice. In any case where
notice to Debentureholders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular
Debentureholder shall affect the sufficiency of such notice, with respect to
other Debentureholders. Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Debentureholders shall be filed
with the Trustee, but such filing shall not be a condition precedent to the
validity of any action taken in reliance upon such waiver.
In case, by reason of the suspension of or irregularities in regular
mail service or the suspension of publication of any Authorized Newspaper, or by
reason of any other cause, it shall be impracticable to either mail notices or
make publication of any notice in an Authorized Newspaper or Authorized
Newspapers as required by this Indenture, then any manner of giving notice as
shall be made with the approval of the Trustee shall constitute a sufficient
giving or publication of such notice.
SECTION 1.07. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with another
provision which is required to be included in this Indenture by any of the
provisions of TIA, such required provision shall control.
SECTION 1.08. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 1.09. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 1.10. Separability Clause.
In case any provision in this Indenture or in the Debentures shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 1.11. Benefits of Indenture.
Nothing in this Indenture or in the Debentures, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, the holders of Senior Indebtedness, to the extent provided in Article
XIII, and the Debentureholders, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
SECTION 1.12. Legal Holidays.
In any case where the date of any Interest Payment Date or a Redemption
Date, or the Stated Maturity of any Debenture, or the last date on which a
Holder has the right to convert his Debenture (or the right to convert his
Debenture at a particular conversion price or rate) shall not be a Business Day,
then (notwithstanding any other provision of the Debentures or this Indenture)
payment of the principal of (and premium, if any) or interest on, or conversion
of, any Debentures 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 nominal
date of any such Interest Payment Date or Redemption Date or Stated Maturity, or
on such last date for conversion, and no interest shall accrue for the period
from and after such nominal date.
ARTICLE TWO
DEBENTURE FORMS
SECTION 2.01. Forms Generally.
The Debentures and the certificates of authentication thereon shall be
in substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon, as may be
required to comply with the rules of any securities exchange, or as may,
consistently herewith, be determined by the officers executing such Debentures,
as evidenced by their execution of the Debentures. Any portion of the text of
any Debenture may be set forth on the reverse thereof, with an appropriate
reference thereto on the face of the Debenture.
The definitive Debentures shall be printed, lithographed or engraved or
produced by any combination of these methods on steel engraved borders or may be
produced in any other manner permitted by the rules of any securities exchange,
all as determined by the officers executing such Debentures, as evidenced by
their execution of such Debentures.
SECTION 2.02. Form of Debenture.
The form of Debenture appears in ss. 2-2.
ARTICLE THREE
THE DEBENTURES
SECTION 3.01. Title and Terms.
Provisions in this regard appear in ss. 3-1.
SECTION 3.02. Denominations.
Provisions in this regard appear in ss. 3-2.
SECTION 3.03. Execution, Authentication and Delivery.
The Debentures shall be executed on behalf of the Company by its
Chairman of the Board, its President or one of its Vice Presidents under its
corporate seal reproduced thereon and attested by its Secretary or one of its
Assistant Secretaries. The signature of any of these officers on the Debentures
may be manual or facsimile.
Debentures bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Debentures or did not
hold such offices at the date of such Debentures.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Debentures executed by the Company to
the Trustee for authentication; and the Trustee shall authenticate and deliver
such Debentures as in this Indenture provided and not otherwise.
No Debenture shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose, unless there appears on such Debenture a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Debenture shall be conclusive evidence, and the only evidence, that such
Debenture has been duly authenticated and delivered hereunder.
SECTION 3.04. Temporary Debentures.
Pending the preparation of definitive Debentures, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Debentures which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any denominations, substantially of the tenor of the
definitive Debentures in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Debentures may determine, as evidenced by their execution of such
Debentures.
If temporary Debentures are issued, the Company will cause definitive
Debentures to be prepared without unreasonable delay. After the preparation of
definitive Debentures, the temporary Debentures shall be exchangeable for
definitive Debentures upon surrender of the temporary Debentures at the office
or agency of the Company in the Place of Payment without charge to the Holder.
Upon surrender for cancellation of any one or more temporary Debentures the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a like principal amount of definitive Debentures of authorized
denominations. Until so exchanged the temporary Debentures shall in all respects
be entitled to the same benefits under this Indenture as definitive Debentures.
SECTION 3.05. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Principal Corporate Trust
Office of the Trustee a register (herein sometimes referred to as the "Debenture
Register") in which, subject to such reasonable regulations as it may prescribe,
the Company shall provide for the registration of Debentures and the
registration of transfers of Debentures. The Trustee is hereby appointed
"Debenture Registrar" for the purpose of registering Debentures and transfers of
Debentures as herein provided.
Upon surrender for registration of transfer of any Debenture at the
office or agency in a Place of Payment, the Company shall execute, and the
Trustee shall authenticate and deliver, in the name of the designated transferee
or transferees, one or more new Debentures of any authorized denominations, of a
like aggregate principal amount.
At the option of the Holder, Debentures may be exchanged for other
Debentures of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Debentures to be exchanged at such office or
agency. Whenever any Debentures are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Debentures
which the Debentureholder making the exchange is entitled to receive.
All Debentures issued upon any registration of transfer or exchange of
Debentures shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Debentures
surrendered upon such registration of transfer or exchange.
Every Debenture presented or surrendered for registration of transfer
or exchange or conversion shall (if so required by the Company or the Trustee)
be duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Debenture Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Debentures, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Debentures, other than
exchanges pursuant to Section 3.04 or 9.06 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Debentures during a period beginning at the opening of
business 15 days before the day of the mailing of notice of redemption of
Debentures selected for redemption under Section 4.04 and ending at the close of
business on the day of such mailing, or (ii) to register the transfer of or
exchange of any Debenture so selected for redemption in whole or in part;
provided, that nothing herein contained shall be deemed to restrict the right to
convert any Debenture or portion thereof, at any time in accordance with Article
XIV.
SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Debentures.
If (i) any mutilated Debenture is surrendered to the Trustee, or if the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Debenture, and (ii) there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Debenture has been acquired by a bona fide purchaser, the
Company shall execute and upon its request the Trustee shall authenticate and
deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or
stolen Debenture, a new Debenture of like tenor and principal amount, bearing a
number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Debenture has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Debenture, pay such Debenture.
Upon the issuance of any new Debenture 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 Debenture issued pursuant to this Section in lieu of any
destroyed, lost or stolen Debenture shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Debenture shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Debentures duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Debentures.
SECTION 3.07. Payment of Interest.
Interest on any Debenture which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Debenture (or one or more Predecessor Debentures) is registered
on the Regular Record Date for such interest specified in Section 3.01.
Any interest on any Debenture which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Registered
Holder on the relevant Regular Record Date by virtue of having been such Holder;
and such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in Clause (1) or Clause (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Debentures (or their
respective Predecessor Debentures) 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
proposed to be paid on each Debenture and the date of the proposed
payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, 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
15 nor less than 10 days prior to the date of the proposed payment and
not less than 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 Debentureholder at his address as
it appears in the Debenture Register, not less than 10 days prior to
such Special Record Date. The Trustee may, in its discretion, in the
name and at the expense of the Company, cause a similar notice to be
published at least once in an Authorized Newspaper in each Place of
Payment, but such publication shall not be a condition precedent to the
establishment of such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor
having been mailed as aforesaid, such Defaulted Interest shall be paid
to the Persons in whose names the Debentures (or their respective
Predecessor Debentures) are registered at the close of business on such
Special Record Date (irrespective of whether such Debentures or
portions thereof are converted into Common Stock of the Company after
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 on which the Debentures may be listed, and upon
such notice as may be required by such exchange, if after notice given
by the Company to the Trustee of the proposed payment pursuant to this
Clause, such payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Debenture
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Debenture shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Debenture.
SECTION 3.08. Persons Deemed Owners.
Prior to due presentment for registration of transfer of any Debenture,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the person in whose name any registered as the owner of such Debenture for the
purpose of receiving payment of principal of (and premium, if any), and (subject
to Section 3.07) interest on, such Debenture, for the purpose of conversion and
for all other purposes whatsoever, whether or not such Debenture be overdue, and
neither the Company, the Trustee, nor any agent of the Company or the Trustee
shall be affected by notice to the contrary.
SECTION 3.09. Cancellation.
All Debentures surrendered for payment, registration of transfer,
exchange, redemption or conversion shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly cancelled by
it. The Company may at any time deliver to the Trustee for cancellation any
Debentures previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and all Debentures so delivered
shall be promptly cancelled by the Trustee. No Debentures shall be authenticated
in lieu of or in exchange for any Debentures cancelled as provided in this
Section, except as expressly permitted by this Indenture. All cancelled
Debentures held by the Trustee shall be disposed of as directed by a Company
Order.
ARTICLE FOUR
REDEMPTION OF DEBENTURES
SECTION 4.01. Right of Redemption.
Provisions in this regard appear in ss. 4-1.
SECTION 4.02. Applicability of Article.
Redemption of Debentures required by any provision of this Indenture,
shall be made in accordance with such provision and this Article.
SECTION 4.03. Intentionally Omitted
SECTION 4.04. Selection by Trustee of Debentures to be Redeemed.
If less than all the Debentures are to be redeemed, the particular
Debentures to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Debentures not previously
called for redemption, by such method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
of the principal of Debentures of a denomination larger than $1,000. The
portions of the principal of Debentures so selected for partial redemption shall
be equal to $1,000 or the smallest authorized denomination of the Debentures,
whichever is greater, or an integral multiple thereof. If any Debenture selected
for partial redemption is converted in part before the termination of the
conversion right with respect to the portion of the Debenture so selected, the
converted portion of such Debenture shall be deemed (so far as may be) to be the
portion selected for redemption.
The Trustee shall promptly notify the Company in writing of the
Debentures selected for redemption and, in the case of any Debenture selected
for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Debentures shall relate,
in the case of any Debenture redeemed or to be redeemed only in part, to the
portion of the principal of such Debenture which has been or is to be redeemed.
Upon any redemption of less than all the Debentures, the Company and
the Trustee may treat as Outstanding Debentures surrendered for conversion
during the period of 15 days next preceding the mailing of a notice of
redemption, and need not treat as Outstanding any Debenture authenticated and
delivered during such period in exchange for the unconverted portion of any
Debenture converted in part during such period.
SECTION 4.05. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Debentures to be redeemed, at his address appearing in
the Debenture Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all Outstanding Debentures are to be
redeemed, the identification (and, in the case of partial redemption,
the respective principal amounts) of the Debentures to be redeemed from
the Holder to whom the notice is given,
(4) that on the Redemption Date the Redemption Price will
become due and payable upon each such Debenture, and that interest
thereon shall cease to accrue on said date,
(5) the place where such Debentures are to be surrendered for
payment of the Redemption Price, which shall be the office or agency of
the Company in each Place of Payment,
(6) that such Debentures are to be redeemed through operation
of the Sinking Fund,
(7) the current conversion price of the Debentures, the place
or places where such Debentures may be surrendered for conversion, and
shall specify the time at which the right to convert the Debentures or
portions thereof to be redeemed will terminate in accordance with this
Indenture, and
(8) the period during which an amount equivalent to the
semiannual interest is payable by the Holder to the Company upon
conversion of any Debenture called for redemption and the amount so
payable with respect to each $1,000 principal amount of Debentures.
Notice of redemption of Debentures to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
<PAGE>
SECTION 4.06. Deposit of Redemption Price.
On or prior to any Redemption 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 and hold in trust as provided in Section 5.03) an amount of
money sufficient to pay the Redemption Price of all the Debentures which are to
be redeemed on that date. If any Debenture called for redemption is converted
pursuant to Article XIV, any money so deposited with the Trustee or a Paying
Agent for the redemption of such Debenture shall be paid to the Company upon
Company Request, or if then so segregated and held in trust by the Company,
shall be discharged from such trust.
SECTION 4.07. Debentures Payable on Redemption Date
Notice of redemption having been given as aforesaid, the Debentures so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified and on such date (unless the Company shall
default in the payment of the Redemption Price) such Debentures shall cease to
bear interest. Upon surrender of such Debentures for redemption in accordance
with said notice, such Debentures shall be paid by the Company at the Redemption
Price. Installments of interest whose Stated Maturity is on or prior to the
Redemption Date shall be payable to the Holders of such Debentures registered as
such on the relevant record dates according to their terms and the provisions of
Section 3.07.
If any Debenture called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Debenture.
SECTION 4.08. Debentures Redeemed in Part.
Any Debenture which is to be redeemed only in part shall be surrendered at
the office or agency of the Company in a Place of Payment (with, if the Company
or the Trustee so requires, due 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 Debenture without service charge, a new Debenture or Debentures, of any
authorized denomination as requested by such Holder in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Debentures so surrendered.
ARTICLE FIVE
COVENANTS
SECTION 5.01. Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of (and premium,
if any) and interest on the Debentures in accordance with the terms of the
Debentures and this Indenture.
SECTION 5.02. Maintenance of Office or Agency.
The Company will maintain one or more offices or agencies in each Place
of Payment where Debentures may be presented or surrendered for payment, where
Debentures may be surrendered for registration of transfer or exchange or for
conversion and where notices and demands to or upon the Company in respect of
the Debentures and this Indenture may be served. The Company will give prompt
written notice to the Trustee of the location, and of any change in the
location, of any such office or agency. If at any time the Company shall fail to
maintain any such 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 Principal Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee its agent to receive all such presentations,
surrenders, notices and demands.
SECTION 5.03. Money for Debenture Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (and premium, if any) or interest
on any of the Debentures, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal (and premium, if
any) or interest so becoming due until such sums shall be paid to such Persons
or otherwise disposed of as herein provided, and will promptly notify the
Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, on
or prior to each due date of the principal of (and premium, if any) or interest
on any Debentures, deposit with (or make available to) a Paying Agent a sum
sufficient to pay the principal (and premium, if any) or interest so becoming
due, such sum to be held in trust for the benefit of the Persons entitled to
such principal, premium or interest, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of its action or failure
so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will
(1) hold all sums held by it for the payment of principal of
(and premium, if any) or interest on Debentures in trust for the
benefit of the Persons entitled thereto until such sums shall be paid
to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or
any other obligor upon the Debentures) in the making of any payment of
principal (and premium, if any) or interest; and
(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any Debenture and remaining unclaimed for three years after
such principal (and premium, if any) or interest has become due and payable
shall be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Debenture
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in an Authorized Newspaper in
each Place of Payment, notice that such money remains unclaimed and that, after
a date specified therein, which shall be not less than 30 days from the date of
such publication, any unclaimed balance of such money then remaining will be
repaid to the Company.
SECTION 5.04. Statement as to Compliance.
The Company will deliver to the Trustee, within 120 days after the end of
each fiscal year, a written statement signed by the Chairman of the Board, the
President or a Vice President and by the Treasurer, an Assistant Treasurer, the
Controller or an Assistant Controller of the Company, stating, as to each signer
thereof, that
(1) a review of the activities of the Company during such year
and of performance under this Indenture has been made under his
supervision, and
(2) to the best of his knowledge, based on such review, the
Company has fulfilled all its obligations under this Indenture
throughout such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known
to the signer and the nature and status thereof.
SECTION 5.05. Corporate Existence.
Subject to Article Ten, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights (charter and statutory) and franchises; provided, however,
that the Company shall not be required to preserve any right or franchise if the
Company shall determine that the preservation thereof is no longer desirable in
the conduct of the business of the Company and that the loss thereof is not
disadvantageous in any material respect to the Debentureholders.
SECTION 5.06. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon its income, profits or property, and
(2) all lawful claims for labor, materials and supplies which, if unpaid, might
by law become a lien upon its property; provided, however, that the Company
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings.
SECTION 5.07. Maintenance of Properties.
The Company will cause all its properties used or useful in the conduct
of its business to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this Section shall prevent the
Company from discontinuing the operation and maintenance of any of its
properties if such discontinuance is, or if the discontinuance is a part of, or
a step contemplated by, a transaction which is or was, in the judgment of the
Company, desirable in the conduct of its business and not disadvantageous in any
material respect to the Debentureholders.
ARTICLE SIX
DEBENTUREHOLDERS' LISTS AND REPORTS BY TRUSTEE
AND COMPANY
SECTION 6.01. Company to Furnish Trustee Names and Addresses of Debentureholders
The Company will furnish or cause to be furnished to the Trustee (a)
semiannually, not more than 15 days after each Regular Record Date, a list, in
such form as the Trustee may reasonably require, of the names and addresses of
the Holders of Debentures as of such Regular Record Date, and (b) at such other
times as the Trustee may request in writing, within 30 days after receipt by the
Company of any such request, a list of similar form and content as of a date not
more than 15 days prior to the time such list is furnished; provided, however,
that if and for so long as the Trustee is the Debenture Registrar, no such list
shall be required to be furnished.
SECTION 6.02. Preservation of Information; Communications to Debentureholders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders of Debentures contained in the
most recent list furnished to the Trustee as provided in Section 6.01 and, if
applicable, the names and addresses of Holders of Debentures received by the
Trustee in its capacity as Debenture Registrar. The Trustee may destroy any list
furnished to it as provided in Section 6.01 upon receipt of a new list so
furnished.
(b) If three or more Holders of Debentures (hereinafter referred to as
"applicants") apply in writing to the Trustee and furnish to the Trustee
reasonable proof that each such applicant has owned a Debenture for a period of
at least six months preceding the date of such application, and such application
states that the applicants desire to communicate with other Holders of
Debentures with respect to their rights under this Indenture or under the
Debentures and is accompanied by a copy of the form of proxy or other
communication which such applicants propose to transmit, then the Trustee shall,
within five Business Days after the receipt of such application, at its
election, either
(i) afford such applicants access to the information preserved at
the time by the Trustee in accordance with Section 6.02(a), or
(ii) inform. such applicants as to the approximate number of Holders of
Debentures whose names and addresses appear in the information preserved at the
time by the Trustee in accordance with Section 6.02(a), and as to the
approximate cost of mailing to such Debentureholders the form of proxy or other
communication, if any, specified in such application.
If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants (a
copy of which shall be promptly furnished by the Trustee to the Company), mail
to each Debentureholder whose name and address appear in the information
preserved at the time by the Trustee in accordance with Section 6.02(a), a copy
of the form of proxy or other communication which is specified in such request,
with reasonable promptness after a tender to the Trustee of the material to be
mailed and of payment, or provision for the payment, of the reasonable expenses
of mailing, unless within five days after such tender, the Trustee shall mail to
such applicants and file with the Commission together with a copy of the
material to be mailed, a written statement to the effect that, in the opinion of
the Trustee, such mailing would be contrary to the best interests of the Holders
of Debentures or would be in violation of applicable law. Such written statement
shall specify the basis of such opinion. If the Commission, after opportunity
for a hearing upon the objections specified in the written statement so filed,
shall enter an order refusing to sustain any of such objections or if, after the
entry of an order sustaining one or more of such objections, the Commission
shall find, after notice and opportunity for hearing, that all the objections so
sustained have been met and shall enter an order so declaring, the Trustee shall
mail copies of such material to all such Debentureholders with reasonable
promptness after the entry of such order and the renewal of such tender;
otherwise the Trustee shall be relieved of any obligation or duty to such
applicants respecting their application.
(c) Every Holder of the Debentures, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
shall be held accountable by reason of the disclosure of any such information as
to the names and addresses of the Holders of Debentures in accordance with
Section 6.02(b), regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under Section 6.02(b).
SECTION 6.03. Reports by Trustee.
(a) The term "reporting date", as used in this Section, means the date
specified in Article VI. Within 60 days after the reporting date in each year,
the Trustee shall transmit by mail to all Debentureholders, as their names and
addresses appear in the Debenture Register, a brief report dated as of such
reporting date with respect to:
(1) its eligibility under Section 8.09 and its qualification
under Section 8.08, or in lieu thereof, if to the best of its knowledge
it has continued to be eligible and qualified under said Sections, a
written statement to such effect;
(2) the character and amount of any advances (and if the
Trustee elects so to state, the circumstances surrounding the making
thereof) made by the Trustee (as such) which remain unpaid on the date
of reporting, and for the reimbursement of which it claims or may claim
a lien or charge, prior to that of the Debentures, on any property or
funds held or collected by it as Trustee, except that the Trustee shall
not be required (but may elect) to report such advances if such
advances so remaining unpaid aggregate not more than 1/2 of 1% of the
principal amount of the Debentures Outstanding on the date of such
reporting;
(3) the amount, interest rate and maturity date of all other
indebtedness owing by the Company (or by any other obligor on the
Debentures) to the Trustee in its individual capacity, on the reporting
date, with a brief description of any property held as collateral
security therefor, except an indebtedness based upon a creditor
relationship arising in any manner described in Section 8.13 (b) (2),
(3), (4) or (6);
(4) the property and funds, if any, physically in the
possession of the Trustee as such on the reporting date;
(5) any additional issue of Debentures which the Trustee has
not previously reported; and
(6) any action taken by the Trustee in the performance of its
duties hereunder which it has not previously reported and which in its
opinion materially affects the Debentures, except action in respect of
a default, notice of which has been or is to be withheld by the Trustee
in accordance with Section 8.02.
(b) The Trustee shall transmit by mail to all Debentureholders, as
their names and addresses appear in the Debenture Register, a brief report with
respect to the character and amount of any advances (and if the Trustee elects
so to state, the circumstances surrounding the making thereof) made by the
Trustee (as such) since the date of the last report transmitted pursuant to
Subsection (a) of this Section (or if no such report has yet been so
transmitted, since the date of execution of this instrument) for the
reimbursement of which it claims or may claim a lien or charge, prior to that of
the Debentures, on property or funds held or collected by it as Trustee, and
which it has not previously reported pursuant to this Subsection, except that
the Trustee shall not be required (but may elect) to report such advances if
such advances remaining unpaid at any time aggregate 10% or less of the
principal amount of the Debentures Outstanding at such time, such report to be
transmitted within 90 days after such time.
(c) A copy of each such report shall, at the time of such transmission
to Debentureholders, be filed by the Trustee with each stock exchange upon which
the Debentures are listed, and also with the Commission. The Company will notify
the Trustee when the Debentures are listed on any stock exchange.
SECTION 6.04. Reports by Company.
The Company will
(1) file with the Trustee, within 15 days after the Company is required
to file the same with the Commission, copies of the annual reports and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may from time to time by rules and regulations
prescribe) which the Company may be required to file with the Commission
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934,
as amended; or, if the Company is not required to file information, documents or
reports pursuant to either of said Sections, then it will file with the Trustee
and the Commission, in accordance with rules and regulations prescribed from
time to time by the Commission, such of the supplementary and periodic
information, documents and reports which may be required pursuant to Section 13
of the Securities Exchange Act of 1934, as amended, in respect of a security
listed and registered on a national securities exchange as may be prescribed
from time to time in such rules and regulations;
(2) file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such additional
information, documents and reports with respect to compliance by the Company
with the conditions and covenants of this Indenture as may be required from time
to time by such rules and regulations; and
(3) transmit by mail to all Debentureholders as their names and
addresses appear in the Debenture Register, within 30 days after the filing
thereof with the Trustee, such summaries of any information, documents and
reports required to be filed by the Company pursuant to paragraphs (1) and (2)
of this Section as may be required by rules and regulations prescribed from time
to time by the Commission.
ARTICLE SEVEN
REMEDIES
SECTION 7.01. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article XIII hereof or be voluntary or
involuntary or be effected by operation of law pursuant to any judgment, decree
or order of any court or any order, rule or regulation of any administrative or
governmental body):
(1) default in the payment of any interest upon any Debenture
when the same becomes due and payable, and continuance of such default
for a period of 30 days; or
(2) default in making any Mandatory Sinking Fund Payment, when
the same becomes due and payable, and continuance of such default for a
period of 30 days; or
(3) default in the payment of the principal of (or premium, if
any, on) any Debenture at its Maturity, except any Maturity occurring
by reason of a call for redemption through the Mandatory Sinking Fund;
or
(4) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or
warranty a. default in whose performance or whose breach is elsewhere
in this Section specifically dealt with), and continuance of such
default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the Company by the Trustee or to
the Company and the Trustee by the Holders of at least 10% in principal
amount of the Outstanding Debentures, a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder; or
(5) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Company in an involuntary
case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of the
Company or for any substantial part of its property, or ordering the
winding-up or liquidation of its affairs and such decree or order shall
remain unstayed and in effect for a period of 60 consecutive days; or
(6) the Company shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or shall consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the
appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator (or other similar official)
of the Company or for any substantial part of its property, or shall
make any general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any
corporate action in furtherance of any of the foregoing.
SECTION 7.02. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default occurs and is continuing, then and in every such
case the Trustee or the Holders of not less than one-third (33.33%) in principal
amount of the Debentures Outstanding may declare the principal of all the
Debentures to be immediately due and payable, by a notice in writing to the
Company (and to the Trustee if given by the Debentureholders), and upon any such
declaration such principal shall become immediately due and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of Debentures Outstanding, by written notice to the Company
and the Trustee, may rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue instalments of interest on all
Debentures,
(B) the principal of (and premium, if any, on) any
Debentures which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate
borne by the Debentures,
(C) to the extent that payment of such interest is
lawful, interest upon overdue instalments of interest at the
rate borne by the Debentures, and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel; and
(2) all Events of Default, other than the non-payment of the principal
of Debentures which have become due solely by such acceleration, have been cured
or waived as provided in Section 7.13.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 7.03. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if
(1) default is made in the payment of any instalment of
interest on any Debenture when such interest becomes due and payable
and such default continues for a period of 30 days, or
(2) default is made in any Mandatory Sinking Fund Payment,
when the same becomes due and payable, and such default continues for a
period of 30 days, or
(3) default is made in the payment of the principal of (or
premium, if any, on) any Debenture at the Maturity thereof, except any
Maturity occurring by reason of a call for redemption through the
Mandatory Sinking Fund,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Debentures, the whole amount then due and payable on such
Debentures for principal (and premium, if any) and interest, with interest upon
the overdue principal (and premium, if any) and, to the extent that payment of
such interest shall be legally enforceable, upon overdue instalments of
interest, at the rate borne by the Debentures; and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon the Debentures and collect the
monies adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Debentures, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Debentureholders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 7.04. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Debentures or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Debentures
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 on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in
respect of the Debentures and to file such other papers or documents as
may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and
of the Debentureholders allowed in such judicial proceeding, and
(ii) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator or sequestrator (or
other similar official in any such judicial proceeding is hereby
authorized by each Debentureholder 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 Debentureholders, to pay to the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 8.07.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Debentureholder any
plan of reorganization, arrangement, adjustment or composition affecting the
Debentures or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Debentureholder in any such proceeding.
SECTION 7.05. Trustee May Enforce Claims Without Possession of Debentures.
All rights of action and claims under this Indenture or the Debentures
may be prosecuted and enforced by the Trustee without the possession of any of
the Debentures or the production thereof in any proceeding relating thereto, and
any such 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 Debentures in respect of which such
judgment has been recovered.
SECTION 7.06. Application of Money Collected
Subject to the provisions of Article XIII hereof, any money collected
by the Trustee pursuant to this Article shall be applied in the following order,
at the date or dates fixed by the Trustee and in case of the distribution of
such money on account of principal (or premium, if any) or interest, upon
presentation of the Debentures, and the notation thereon of 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 8.07;
SECOND: To the payment of the amounts then due and unpaid upon the
Debentures for principal (and premium, if any) and interest, in respect of which
or for the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and payable on
such Debentures, for principal (and premium, if any) and interest, respectively;
and
THIRD: The balance, if any, to the Company or other Person or Persons
entitled thereto.
SECTION 7.07. Limitation on Suits.
No Holder of any Debenture shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of
the Outstanding Debentures shall have made written requests to the
Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Debentures;
it being understood and intended that no one or more Holders of Debentures 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 Holders of Debentures or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Indenture,
except in the manner herein provided and for the equal and ratable benefit of
all the Holders of Debentures.
SECTION 7.08. Unconditional Right of Debentureholders to Receive Principal,
Premium and Interest and to Convert.
Subject to the provisions of Article XIII hereof, but notwithstanding
any other provision in this Indenture, the Holder of any Debenture shall have
the right which is absolute and unconditional to receive payment of the
principal of (and premium, if any) and (subject to Section 3.07) interest on
such Debenture on the respective Stated Maturities expressed in such Debenture
(or, in the case of redemption, on the Redemption Date) and to institute suit
for the enforcement of any such payment and the right to convert such Debenture
in accordance with Article XIV and to institute suit for its enforcement, and
such rights shall not be impaired without the consent of such Holder.
SECTION 7.09. Restoration of Rights and Remedies.
If the Trustee or any Debentureholder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Debentureholder, then and in every such case the Company,
the Trustee and the Debentureholders shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the
Debentureholders shall continue as though no such proceeding had been
instituted.
SECTION 7.10. Rights and Remedies Cumulative.
Except as provided in Section 3.06, no right or remedy herein conferred
upon or reserved to the Trustee or to the Debentureholders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or- employment of any
other appropriate right or remedy.
SECTION 7.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Debenture
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to the Debentureholders may be exercised from time to time,
and as often as may be deemed expedient, by the Trustee or by the
Debentureholders, as the case may be.
SECTION 7.12. Control by Debentureholders.
The Holders of a majority in principal amount of the Outstanding
Debentures 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 that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction; provided,
however, that the Trustee need not take any action which it determines
will involve it in personal liability or be unjustly prejudicial to the
Holders of Debentures not consenting.
SECTION 7.13. Waiver of Past Defaults.
The Holders of a majority in principal amount of the Outstanding
Debentures may on behalf of the Holders of all the Debentures waive any past
default hereunder and its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest or any Debenture, or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Debenture affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 7.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Debenture
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; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Debentureholder, or group of
Debentureholders, holding in the aggregate more than 10% in principal amount of
the Outstanding Debentures, or to any suit instituted by any Debentureholder for
the enforcement of the payment of the principal of (or premium, if any) or
interest on any Debenture on or after the respective Stated Maturities expressed
in such Debenture (or, in the case of redemption, on or after the Redemption
Date) or for the enforcement of a right to the conversion of any Debenture.
SECTION 7.15. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE EIGHT
THE TRUSTEE
SECTION 8.01. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture; but in the case of any such certificates or opinions
which by any provision 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) In case an Event of Default has occurred and is continuing, 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.
(c) 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 wilful misconduct, except that
(1) this Subsection shall not be construed to limit the effect
of Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
request or the direction of the Holders of a majority in principal
amount of the Outstanding Debentures 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
(4) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to
it.
(d) Whether or not therein expressly so 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.
SECTION 8.02. Notice of Defaults.
Within 90 days after the occurrence of any default hereunder, the
Trustee shall transmit by mail to all Debentureholders, as their names and
addresses appear in the Debenture Register, notice of such default hereunder
known to the Trustee, unless such default shall have been cured or waived;
provided, however, that, except in the case of a default in the payment of the
principal of, (or premium, if any) or interest on any Debenture or in the
payment of any sinking or purchase fund instalment, the Trustee shall be
protected in withholding such notice if and so long as the board of directors,
the executive committee or 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 Debentureholders; and provided, further, that
in the case of any default of the character specified in Section 7.01(4), no
such notice to Debentureholders shall be given until at least 60 days after the
occurrence thereof. For the purpose of this Section, the term "default" means
any event which is, or after notice or lapse of time or both would become, an
Event of Default.
SECTION 8.03. Certain Rights of Trustee.
Except as otherwise provided in Section 8.01:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate;
(d) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Debentureholders pursuant to this Indenture,
unless such Debentureholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such
request or direction;
(f) 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; and
(g) 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 with due care by it hereunder.
SECTION 8.04. Not Responsible for Recitals or Issuance of Debentures.
The recitals contained herein and in the Debentures, except the
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Debentures. The Trustee shall not be accountable for the use or
application by the Company of Debentures or the proceeds thereof.
SECTION 8.05. May Hold Debentures.
The Trustee, any Paying Agent, Debenture Registrar or any other agent
of the Company, in its individual or any other capacity, may become the owner or
pledgee of Debentures and, subject to Sections 8.08 and 8.13, may otherwise deal
with the Company with the same rights it would have if it were not Trustee,
Paying Agent, Debenture Registrar or such other agent.
SECTION 8.06. Money Held in Trust.
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 as otherwise
agreed with the Company.
SECTION 8.07. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time
reasonable compensation for all services rendered by it
hereunder (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of
an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the
Trustee in accordance with any provision of this Indenture
(including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such
expense, disbursement or advance as may be attributable to its
negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it
harmless against, any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of or
in connection with the acceptance or administration of this
trust, including the costs and expenses of defending itself
against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder.
As security for the performance of the obligations of the Company under
this Section, the Trustee shall have a lien prior to the Debentures upon all
property and funds held or collected by the Trustee as such, except funds held
in trust for the payment of principal of (and premium, if any or interest on
Debentures.
SECTION 8.08. Disqualification; Conflicting Interests.
The Trustee shall comply with Section 310 of the TIA. The provisions of
Section 310 of the TIA shall also apply to the Company, as obligor of the
Debentures.
SECTION 8.09. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or of any State, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $5,000,000, subject to
supervision or examination by Federal or State authority and having its
Principal Corporate Trust Office in the place specified in the first paragraph
of this Indenture or, if such place is not the City of New York, New York, in
the City of New York, New York, if there be a corporation in any such city
willing to act upon reasonable and customary terms and conditions. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of the aforesaid supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
corporation 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 and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 8.11.
(b) The Trustee may resign at any time by giving written notice thereof
to the Company. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Debentures, delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 8.08 after
written request therefor by the Company or by any Debentureholder who
has been a bona fide Holder of a Debenture for at least six months, or
(2) the Trustee shall cease to be eligible under Section 8.09
and shall fail to resign after written request therefor by the Company
or by any such Debentureholder, 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, (i) the Company by a Board Resolution may
remove the Trustee, or (ii) subject to Section 7.14, any
Debentureholder who has been a bona fide Holder of a Debenture 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 of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Debentures
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Debentureholders and accepted appointment in the manner hereinafter provided,
any Debentureholder who has been a bona fide Holder of a Debenture for at least
six months may, on behalf of such Holder and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor. Trustee by mailing written
notice of such event by first-class mail, postage prepaid, to the Holders of
Debentures as their names and addresses appear in the Debenture Register. Each
notice shall include the name of the successor Trustee and the address of its
Principal Corporate Trust Office.
(g) Any Trustee ceasing to act shall, nevertheless, retain its prior
claim upon all property or funds collected by such Trustee to secure any amounts
then due it pursuant to Section 8.07.
SECTION 8.11. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee, and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder, subject nevertheless to its lien, if any,
provided for in Section 8.07. Upon request of any such successor Trustee, the
Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 8.12. Merger, Conversion, Consolidation or Succession to Business of
Trustee.
Any corporation 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 succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Debentures shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Debentures so authenticated with the same
effect as if such successor Trustee had itself authenticated such Debentures.
SECTION 8.13. Preferential Collection of Claims Against Company.
(a) Subject to Subsection (b) of this Section, if the Trustee shall be
or shall become a creditor, directly or indirectly, secured or unsecured, of the
Company within four months prior to a default, as defined in Subsection (c) of
this Section, or subsequent to such a default, then, unless and until such
default shall be cured, the Trustee shall set apart and hold in a special
account for the benefit of the Trustee individually, the Holders of the
Debentures and the holders of other indenture securities (as defined in
Subsection (c) of this Section):
(1) an amount equal to any and all reductions in the amount
due and owing upon any claim as such creditor in respect of principal
or interest, effected after the beginning of such four months' period
and valid as against the Company and its other creditors, except any
such reduction resulting from the receipt or disposition of any
property described in paragraph (2) of this Subsection, or from the
exercise of any right of set-off which the Trustee could have exercised
if a petition in bankruptcy had been filed by or against the Company
upon the date of such default; and
(2) all property received by the Trustee in respect of any
claim as such creditor, either as security therefor, or in satisfaction
or composition thereof, or otherwise, after the beginning of such four
months period, or an amount equal to the proceeds of any such property,
if disposed of, subject, however, to the rights, if any, of the Company
and its other creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of the Trustee
(A) to retain for its own account (i) payments made on account
of any such claim by any Person (other than the Company) who is liable
thereon, and (ii) the proceeds of the bona fide sale of any such claim
by the Trustee to a third person and (iii) distributions made in cash,
securities or other property in respect of claims filed against the
Company in bankruptcy or receivership or in proceedings for
reorganization pursuant to the Bankruptcy Act or applicable State law;
(B) to realize, for its own account, upon any property held by
it as security for any such claim, if such property was so held prior
to the beginning of such four months' period;
(C) to realize, for its own account, but only to the extent of
the claim hereinafter mentioned, upon any property held by it as
security for any such claim, if such claim was created after the
beginning of such 4 months period and such property was received as
security therefor simultaneously with the creation thereof, and if the
Trustee shall sustain the burden of proving that at the time such
property was so received the Trustee had no reasonable cause to believe
that a default as defined in Subsection (c) of this Section would occur
within four months; or
(D) to receive payment on any claim referred to in paragraph
(B) or (C), against the release of any property held as security for
such claim as provided in paragraph (B) or (C), as the case may be, to
the extent of the fair value of such property.
For the purposes of paragraphs, (B), (C,) and (D), property substituted
after the beginning of such four months' period for property held as security at
the time of such substitution shall, to the extent of the fair value of the
property released, have the same status as the property released, and, to the
extent that any claim referred to in any of such paragraphs is created in
renewal of or in substitution for or for the purpose of repaying or refunding
any preexisting claim of the Trustee as such creditor, such claim shall have the
same status as such pre-existing claim.
If the Trustee shall be required to account, the funds and property
held in such special account and the proceeds thereof shall be apportioned
between the Trustee, the Debentureholders and the holders of other indenture
securities in such manner that the Trustee, the Debentureholders and the holders
of other indenture securities realize, as a result of payments from such special
account and payments of dividends on claims filed against, the Company in
bankruptcy or receivership or in proceedings for reorganization pursuant to the
Bankruptcy Act, or applicable State law, the same percentage of their respective
claims figured before crediting to the claim of the Trustee anything on account
of the receipt by it from the Company of the funds and property in such special
account and before crediting to the respective claims of the Trustee and the
Debentureholders and the holders of other indenture securities dividends on
claims filed against the Company in bankruptcy or receivership or in proceedings
for reorganization pursuant to the Bankruptcy Act or applicable State law, but
after crediting thereon receipts on account of the indebtedness represented by
their respective claims from all sources other than from such dividends and from
the funds and property so held in such special account. As used in this
paragraph, with respect to any claim, the term "dividends" shall include any
distribution with respect to such claim, in bankruptcy or receivership or
proceedings for reorganization pursuant to the Bankruptcy Act or applicable
State law, whether such distribution is made in cash, securities, or other
property, but shall not include any such distribution with respect to the
secured portion, if any, of such claim. The court in which such bankruptcy,
receivership or proceedings for reorganization is pending shall have
jurisdiction (i) to apportion between the Trustee and the Debentureholders and
the holders of other indenture securities, in accordance with the provisions of
this paragraph, the funds and property held in such special account and proceeds
thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to
the provisions of this paragraph due consideration in determining the fairness
of the distributions to be made to the Trustee and the Debentureholders and the
holders of other indenture securities with respect to their respective claims,
in which event it shall not be necessary to liquidate or to appraise the value
of any securities or other property held in such special account or as security
for any such claim, or to make a specific allocation of such distributions as
between the secured and unsecured portions of such claims, or otherwise to apply
the provisions of this paragraph as a mathematical formula.
Any Trustee which has resigned or been removed after the beginning of
such four months period shall be subject to the provisions of this Subsection as
though such resignation or removal had not occurred. If any Trustee has resigned
or been removed prior to the beginning of such four months period, it shall be
subject to the provisions of this Subsection if and only if the following
conditions exist:
(i) the receipt of property or reduction of claim, which would
have given rise to the obligation to account, if such Trustee had
continued as Trustee, occurred after the beginning of such four months
period; and
(ii) such receipt of property or reduction of claim occurred
within four months after such resignation or removal.
(b) There shall be excluded from the operation of Subsection (a) of
this Section a creditor relationship arising from:
(1) the ownership or acquisition of securities issued under
any indenture, or any security or securities having a maturity of one
year or more at the time of acquisition by the Trustee;
(2) advances authorized by a receivership or bankruptcy court
of competent jurisdiction, or by this Indenture, for the purpose of
preserving any property which shall at any time be subject to the lien
of this Indenture or of discharging tax liens or other prior liens or
encumbrances thereon, if notice of such advances and of the
circumstances surrounding the making thereof is given to the
Debentureholders at the time and in the manner provided in this
Indenture;
(3) disbursements made in the ordinary course of business in
the capacity of trustee under an indenture, transfer agent, registrar,
custodian, paying agent, fiscal agent or depositary, or other similar
capacity;
(4) an indebtedness created as a result of services rendered
or premises rented, or an indebtedness created as a result of goods or
securities sold in a cash transaction as defined in Subsection (c) of
this Section;
(5) the ownership of stock or of other securities of a
corporation organized under the provisions of Section 25(a) of the
Federal Reserve Act, as amended, which is directly or indirectly a
creditor of the Company; or
(6) the acquisition, ownership, acceptance or negotiation of
any drafts, bills of exchange, acceptances or obligations which fall
within the classification of self-liquidating paper as defined in
Subsection (c) of this Section.
(c) For the purposes of this Section only:
(1) The term "default" means any failure to make payment in
full of the principal of or interest on any of the Debentures or upon
the other indenture securities when and as such principal or interest
becomes due and payable.
(2) The term "other indenture securities" means securities
upon which the Company is an obligor outstanding under any other
indenture (i) under which the Trustee is also trustee, (ii) which
contain provisions substantially similar to the provisions of this
Section, and (iii) under which a default exists at the time of the
apportionment of the funds and property held in such special account.
(3) The term "cash transaction" means any transaction in which
full payment for goods or securities sold is made within seven days
after delivery of the goods or securities in currency or in checks or
other orders drawn upon banks or bankers and payable upon demand.
(4) The term "self-liquidating paper" means any draft, bill of
exchange, acceptance or obligation which is made, drawn, negotiated or
incurred by the Company for the purpose of financing the purchase,
processing, manufacturing, shipment, storage or sale of goods, wares or
merchandise and which is secured by documents evidencing title to,
possession of, a lien upon, the goods, wares or merchandise or the
receivables or proceeds arising from the sale or the goods, wares or
merchandise previously constituting the security, provided the security
is received by the Trustee simultaneously with the creation of the
creditor relationship with the Company arising from the making,
drawing, negotiating or incurring of the draft, bill of exchange,
acceptance or obligation.
(5) The term "Company" means any obligor upon the Debentures.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 9.01. Supplemental Indentures. Without Consent of Debentureholders.
Without the consent of the Holders of any Debentures, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another corporation to the
Company, and the assumption by any such successor of the covenants of
the Company herein and in the Debentures contained; or
(2) to add to the covenants of the Company, for the benefit of
the Holders of the Debentures, or to surrender any right or power
herein conferred upon the Company; or
(3) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture which shall not adversely affect
the interests of the Holders of the Debentures; or
(4) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under TIA, or under any similar Federal
statute hereafter enacted, and to add to this Indenture such other
provisions as may be expressly permitted by TIA, excluding, however,
the provisions referred to in Section 316(a)(2) of TIA as in effect at
the date as of which this instrument was executed or any corresponding
provisions in any similar Federal statute hereafter enacted; or
(5) to make provision with respect to the conversion rights of
Holders of Debentures pursuant to the requirements of Article XIV
hereof.
SECTION 9.02. Supplemental Indentures With Consent of Debentureholders.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Debentures, by Act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders of the Debentures under this
Indenture; provided, however, that no such supplemental indenture shall, without
the consent of the Holder of each Outstanding Debenture affected thereby:
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Debenture, or reduce the principal
amount thereof or the rate of interest thereon or any premium payable
upon the redemption thereof, or change any Place of Payment where, or
the coin or currency in which, any Debenture or the interest thereon is
payable, or impair the right to institute suit for the enforcement of
any such payment on or after the Stated Maturity thereof (or, in the
case of redemption, on or after the Redemption Date); or
(2) reduce the percentage in principal amount of the
Outstanding Debentures, the consent of whose Holders is required for
any such supplemental indenture or the consent of whose Holders is
required for any waiver (of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences)
provided for in this Indenture; or
(3) modify any of the provisions of this Section or Section
7.13, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without
the consent of the Holder of each Debenture affected thereby.
(4) adversely affect the right to convert the Debentures as
provided in Article XIV hereof.
It shall not be necessary for any Act of Debentureholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 9.03. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 8.01) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not
(except to the extent required in the case of a supplemental indenture entered
into under Section 9.01(4)) be obligated to, enter into any such supplemental
indenture which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
SECTION 9.04. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Debentures theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 9.05. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of TIA as then in effect if this Indenture shall
then be qualified under TIA.
SECTION 9.06. Reference in Debentures to Supplemental Indentures.
Debentures authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear 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 Debentures so modified as to conform, in the opinion of the Trustee and the
Board of Directors, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Debentures.
SECTION 9.07. Modification of Subordination Provisions.
No supplemental indenture shall directly or indirectly modify any
provision of this Indenture so as to affect adversely the rights of any holder
of Senior Indebtedness at the time outstanding without the written consent of
such holder.
<PAGE>
ARTICLE TEN
CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER
SECTION 10.01. Company May Consolidate, etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other
corporation or convey or transfer its properties and assets substantially as an
entirety to any Person, unless
(1) the corporation formed by such consolidation or into which
the Company is merged or the Person which acquires by conveyance or
transfer the properties and assets of the Company substantially as an
entirety shall be a corporation organized and existing under the laws
of the United States of America or any State or the District of
Columbia, and shall expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form satisfactory to
the Trustee, the due and punctual payment of the principal of (and
premium, if any) and interest on all the Debentures and the performance
of every covenant of this Indenture on the part of the Company to be
performed or observed and all applicable provisions of Article XIV
shall be compiled with by such corporation or Person, as the case may
be;
(2) immediately after giving effect to such transaction, no
Event of Default, and no event which, after notice or lapse of time, or
both, would become an Event of Default, shall have happened and be
continuing;
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that such
consolidation, merger, conveyance or transfer and such supplemental
indenture comply with this Article and that all conditions precedent
herein provided for relating to such transaction have been complied
with.
SECTION 10.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any conveyance, or transfer of the
properties and assets of the Company substantially as an entirety in accordance
with Section 10.01, the successor corporation formed by such consolidation or
into which the Company is merged or to which such conveyance or transfer is made
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture with the same effect as if such successor
corporation had been named as the Company herein; and the Company (which term
shall for this purpose mean the Person named as the "Company" in the first
paragraph of this instrument or any successor corporation which shall have
theretofore become such in the manner prescribed in Section 10.01) shall be
discharged from all liability under this Indenture and in respect of the
Debentures and may be dissolved and liquidated; provided, however, that in the
case of a transfer or lease, the predecessor Company shall not be released from
the obligation to pay the principal of, Redemption Price, if applicable, and
premium, if any, and interest on the Debentures.
<PAGE>
ARTICLE ELEVEN
SATISFACTION AND DISCHARGE
SECTION 11.01. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect .(except as to any
surviving rights of registration of transfer or exchange or conversion of
Debentures herein expressly provided for and rights to receive payments of
interest thereon), and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(A) all Debentures theretofore authenticated and
delivered (other than (i) Debentures which have been
destroyed, lost or stolen and which have been replaced or paid
as provided in Section 3.06, and (ii) Debentures for whose
payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as
provided in Section 5.03) have been delivered to the Trustee
for cancellation; or
(B) all such Debentures not theretofore delivered to
the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within 1 year, or
(iii) are to be called for redemption within 1 year
under arrangements satisfactory to the Trustee for the giving
of notice of redemption by the Trustee in the name, and at the
expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has deposited
or caused to be deposited with the Trustee, as trust funds in trust for
the purpose, an amount (said amount to be deemed to be and to be
immediately due and payable to the Holders of Debentures) sufficient to
pay and discharge the entire indebtedness on such Debentures not
theretofore delivered to the Trustee for cancellation, for principal
(and premium, if any) and interest to the date of such deposit (in the
case of Debentures which have become due and payable), or to the Stated
Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 8.07 shall survive. The
Trustee shall give notice to the Holders of Debentures Outstanding of the
immediate availability of the amount referred to in clause (1) of this Section
11.01.
SECTION 11.02. Application of Trust Money.
All money deposited with the Trustee pursuant to Section 11.01 shall be
held in trust and applied by it, in accordance with the provisions of the
Debentures and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent), as the
Trustee may determine, to the Persons entitled thereto, of the principal (and
premium, if any) and interest for whose payment such money has been deposited
with the Trustee; but such money need not be segregated from other funds except
to the extent required by law.
ARTICLE TWELVE
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
SECTION 12.01. Exemption from Individual Liability.
No recourse under or upon any obligation, covenant or agreement of this
Indenture, or of any Debenture, or for any claim based thereon or otherwise in
respect thereof, shall be had against any incorporator, stockholder, officer or
director, as such, past, present or future, of the Company or of any successor
corporation, either directly or through the Company, 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 this Indenture and the
obligations issued hereunder are solely corporate obligations of the Company,
and that no such personal liability whatever shall attach to, or is or shall be
incurred by, the incorporators, stockholders, officers or directors, as such, of
the Company or of any successor corporation, or any of them, because of the
creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any of
the Debentures or implied therefrom; and that any and all such personal
liability, either at common law or in equity or by constitution or statute, of,
and any and all such rights and claims against, every such incorporator,
stockholder, officer or director, as such, because of the creation of the
indebtedness hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in this Indenture or in any of the Debentures
or implied therefrom, are hereby expressly waived and released as a condition
of, and as a consideration for, the execution of this Indenture and the issue of
such Debentures.
- --------
* The Table of Contents is not part of the Indenture.
E-4
Exhibit 10.10
SECURITIES PURCHASE AGREEMENT
THE J.M. NEY COMPANY
Ney Industrial Park
Bloomfield, Connecticut 06002
As of December 29, 1997
BankBoston, N.A.
100 Pearl Street
Hartford, Connecticut 06103
Ladies and Gentlemen:
The undersigned, The J.M. Ney Company, a Delaware corporation (the
"Company"), hereby agrees with BankBoston as follows:
1. DEFINITIONS.
For all purposes of this Agreement the following terms shall have the
meanings set forth herein or elsewhere in the provisions hereof:
Affiliate. Affiliate shall mean any Person that would be considered to
be an affiliate of the Company or BankBoston under Rule 144(a) of the Rules and
Regulations of the Securities and Exchange Commission, as in effect on the date
hereof, if the Company or BankBoston were issuing securities; provided, however,
that BankBoston shall not be an Affiliate of the Company or any of its
Subsidiaries for the purposes of this Agreement.
Applicable Prepayment Charge. Applicable Prepayment Charge shall mean:
(a) with respect to a prepayment of the Note made concurrently with the
completion of an IPO, an amount equal to the difference obtained by: (x) the
product of (i) the principal amount of the Note so prepaid multiplied by (ii)
the percentage set forth in the table below opposite the period in which such
prepayment is made:
Period Percentage
From the Closing Date through December 28, 2001
6%
From December 29, 2001 through December 28,
2002 4%
From December 29, 2002 through December 28,
2003 2%
<PAGE>
From and after December 29, 2003
0%
minus (y) the amount of net proceeds, if any, actually received by
BankBoston in connection with the repurchase or exercise of the Warrants.
(b) with respect to a prepayment of the Note other than concurrently
with the completion of an IPO, an amount equal to the product of (i) the
principal amount of the Note so prepaid multiplied by (ii) the percentage set
forth in the table below opposite the period in which such prepayment is made:
Period Percentage
From the Closing Date through December 28, 2001
3%
From December 29, 2001 through December 28,
2002 2%
From December 29, 2002 through December 28,
2003 1%
From and after December 29, 2003
0%
Balance Sheet Date. August 31, 1997.
Bank Affiliate. See Section 15.1.
BankBoston. BankBoston, N.A., a national banking association, and its
successors and assigns.
BankBoston Appraisal. See Section 11.4(b).
BankBoston Appraiser. See Section 11.4(b).
BankBoston's Special Counsel. Bingham Dana LLP.
Bank Holding Company Act. See Section 15.1.
Broker. A broker who trades for the Company's account in commodities
futures, forwards or other contracts or instruments related to commodities and
who is reasonably acceptable to the Senior Lenders.
<PAGE>
Broker Accounts. The accounts maintained by the Company or any of the
Subsidiaries with any Broker for trading in commodities futures, forwards or
other contracts or instruments related to commodities.
Business Day. Any day on which banking institutions in Hartford,
Connecticut are open for the transaction of banking business.
Capital Assets. Fixed assets, both tangible (such as land, buildings,
fixtures, machinery and equipment) and intangible (such as patents, copyrights,
trademarks, franchises and good will).
Capital Expenditures. Amounts paid or indebtedness incurred by the
Company or any of its Subsidiaries in connection with the purchase or lease by
such Person of Capital Assets that would be required to be capitalized and shown
on the balance sheet of such Person in conformity with generally accepted
accounting principles.
Capital Lease. Leases under which the Company or any of its
Subsidiaries is the lessee or obligor, the discounted future rental payment
obligations under which are required to be capitalized on the balance sheet of
the lessee or obligor in conformity with generally accepted accounting
principles.
CERCLA. See definition of "Environmental Laws.".
Charter. Charter shall include the articles or certificate of
incorporation, statute, constitution, joint venture or partnership agreement or
articles or other organizational document of any Person other than an
individual, each as from time to time amended or modified.
Closing. See Section 2.3.
Closing Date. See Section 2.3.
Code. Code shall mean the Internal Revenue Code of 1986, any successor
statute of similar import, and the rules and regulations thereunder,
collectively and as from time to time amended and in effect.
Collateral. See Section 3.7.
Commission. Commission shall mean the Securities and Exchange Commission.
<PAGE>
Common Shares. Common Shares shall mean (a) the Common Stock issued or
issuable to BankBoston upon exercise of the Warrant, (b) any capital stock or
other securities into which or for which such Common Stock shall have been
converted or exchanged pursuant to any recapitalization, reorganization or
merger of the Company and (c) any shares of capital stock issued with respect to
the foregoing pursuant to a stock split or stock dividend; provided that no
Common Shares which have been sold pursuant to a Public Sale shall be considered
to be outstanding Common Shares or Securities hereunder.
Common Stock. Common Stock shall mean the voting common stock of the
Company, $.01 par value per share, and in addition, any capital stock or other
securities into which or for which Common Stock shall have been converted or
exchanged pursuant to any recapitalization, reorganization or merger of the
Company.
Company. See preamble.
Company Appraisal. See Section 11.4(b).
Company Appraiser. See Section 11.4(b).
Company Security Agreement. The Security Agreement of even date herewith
between the Company and BankBoston.
Consolidated or consolidated. Consolidated or consolidated shall mean,
with reference to any term defined herein, that term as applied to the accounts
of the Company and all of its Subsidiaries, consolidated in accordance with
generally accepted accounting principles.
Consolidated Financial Obligations. With respect to any period, an
amount equal to the sum of all payments on Indebtedness that become due and
payable or that are to become due and payable during such period pursuant to any
agreement or instrument to which the Company or any of its Subsidiaries is a
party relating to the borrowing of money or the obtaining of credit or in
respect of Capital Leases (including, without limitation, Deferred Payment Sale
Interest, as such term is defined in the Credit Agreement); provided, that for
the purpose of calculating the Company's compliance with the terms of the
financial covenants set forth in ss.7.24 hereof, Consolidated Financial
Obligations shall not include interest accrued on the outstanding principal
amount of subordinated Permitted Indebtedness due and owing to Andersen Group,
Inc. Demand obligations shall be deemed to be due and payable during any fiscal
year during which such obligations are outstanding.
Consolidated Net Income (or Net Loss). The consolidated net income (or
net loss) of the Company and its Subsidiaries, after deduction of all expenses,
taxes, and other proper charges, determined in conformity with generally
accepted accounting principles.
Consolidated Total Liabilities. All liabilities of the Company and its
Subsidiaries determined on a consolidated basis in conformity with generally
accepted accounting principles (including, without limitation, Deferred Payment
Sale Interest, as such term is defined in the Credit Agreement) and all
Indebtedness of the Company and its Subsidiaries, to the extent not so
classified.
<PAGE>
Credit Agreement. Credit Agreement shall mean the Credit Agreement
dated as of October 8, 1996, among the Company and the Senior Lenders, as such
Credit Agreement may be amended, extended or renewed from time to time in
accordance with the provisions of Sections 6.11 and 7.29.
Default. Default shall mean an event or condition which with the passage of
time or giving of notice, or both, would become an Event of Default.
Disposal (or Disposed). Disposal (or Disposed) shall have the meaning
specified in RCRA and regulations promulgated thereunder; provided, that in the
event RCRA is amended so as to broaden the meaning of such term defined thereby,
such broader meaning shall apply as of the effective date of such amendment and
provided further, to the extent that the laws of a state wherein the Property
lies establishes a meaning for "Disposal" (or "Disposed") which is broader than
specified in RCRA, such broader meaning shall apply.
Distribution. Distribution shall mean (a) the declaration or payment of
any dividend on or in respect of any shares of any class of capital stock of the
Company or other specified Person; (b) the purchase, redemption or other
retirement of any shares of any class of capital stock of the Company or other
specified Person, directly or indirectly or otherwise; or (c) any other
distribution on or in respect of any shares of any class of capital stock of the
Company or other specified Person.
EBIT. The sum of (a) Consolidated Net Income (or Net Loss) for any
period, plus (b) any income taxes (as calculated in accordance with the Tax
Sharing Agreement) or interest expense of the Company and its Subsidiaries for
such period, all as determined in conformity with generally accepted accounting
principles.
EBITDA. The sum of (a) Consolidated Net Income (or Net Loss) for any
period, plus (b) any income taxes (as calculated in accordance with the Tax
Sharing Agreement) or interest expense of the Company and its Subsidiaries for
such period, plus (c) depreciation and amortization of the Company and its
Subsidiaries for such period, plus (d) to the extent deducted in determining
EBITDA, accrued and unpaid subordinated management fees payable for such period
by the Company to Andersen Group, Inc. and permitted pursuant to Sections
7.14(l) and 7.27, all as determined in conformity with generally accepted
accounting principles.
Environmental Laws. Any judgment, decree, order, law, license, rule or
regulation pertaining to environmental matters, including without limitation,
those arising under the Resource Conservation and Recovery Act ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 as
amended ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986
("SARA"), the Federal Clean Water Act, the Federal Clean Air Act, the Toxic
Substances Control Act, or any state or local statute, regulation, ordinance,
order or decree relating to health, safety or the environment.
<PAGE>
EPA. The United States Environmental Protection Agency.
Equity Securities. The Warrants and any Common Shares which have been
issued upon the exercise of the Warrants.
ERISA. ERISA shall mean the federal Employee Retirement Income Security
Act of 1974, any successor statute of similar import, and the rules and
regulations thereunder, collectively and as from time to time amended and in
effect.
ERISA Affiliate. Any Person which is treated as a single employer with
the Company under ss.414 of the Code.
ERISA Reportable Event. A reportable event with respect to a Guaranteed
Pension Plan within the meaning of ss.4043 of ERISA and the regulations
promulgated thereunder as to which the requirement of notice has not been
waived.
Events of Default. See Section 10.1.
Fair Market Value. See Section 11.4(b).
Financing Agreements. Financing Agreements shall include this
Agreement, the Securities, the Registration Rights Agreement, the Tax Sharing
Agreement, the Security Documents, the Subordination Agreement and any and every
other present or future instrument or agreement from time to time entered into
between the Company or any of its Subsidiaries and BankBoston or any other
holder of the Securities which relates to this Agreement or is stated to be a
Financing Agreement, as from time to time amended or modified, and all
certificates delivered by or on behalf of the Company to BankBoston or any other
holder of the Securities in connection herewith or therewith.
Fixed Rate. The fixed interest rate per annum equal to ten and twenty-six
- -one-hundredths of one percent (10.26%).
Formula Value. See Section 11.4(c).
generally accepted accounting principles. Accounting principles which
are (a) consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors and/or the American Institute of
Certified Public Accountants, as in effect from time to time, (b) applied on a
basis consistent with prior periods, and (c) such that a certified public
accountant would, insofar as the use of accounting principles is pertinent, be
in a position to deliver an unqualified opinion as to financial statements in
which such principles have been properly applied; provided, that for purposes of
compliance with Section 7.24 hereof, generally accepted accounting principles
shall mean such principles as in effect for the fiscal year of the Company ended
February 28, 1997. Notwithstanding anything to the contrary in the foregoing,
the Company shall base its accounting and financial calculations (including
without limitation those pursuant to ss.7.24) on the "first-in, first-out" or
"FIFO" method. Financial statements may be prepared using the "last-in,
first-out" or "LIFO" method, but shall for purposes of BankBoston be adjusted to
the "first-in, first-out" or "FIFO" method.
<PAGE>
Guaranteed Pension Plan. Any employee pension benefit plan within the
meaning of ss.3(2) of ERISA maintained or contributed to by the Company or any
ERISA Affiliate the benefits of which are guaranteed on termination in full or
in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer
Plan.
Hedging Policy. See Section 7.14.
Indebtedness. Indebtedness shall mean all obligations, contingent and
otherwise, that in conformity with generally accepted accounting principles
should be classified upon the obligor's balance sheet as liabilities, or to
which reference should be made by footnotes thereto, including in any event to
the extent not so classified: (a) all debt and similar monetary obligations,
whether direct or indirect; (b) all liabilities secured by any mortgage, pledge,
security interest, lien, charge or other encumbrance existing on property owned
or acquired subject thereto by the obligor, whether or not the liability secured
thereby shall have been assumed; (c) indebtedness arising under or in connection
with any judgment; and (d) all guarantees, endorsements and other contingent
obligations whether direct or indirect in respect of indebtedness of others,
including any obligation to supply funds to or in any manner to invest in,
directly or indirectly, the debtor, to purchase indebtedness, or to assure the
owner of indebtedness against loss, through an agreement to purchase goods,
supplies, or services for the purpose of enabling the debtor to make payment of
the indebtedness held by such owner or otherwise, and the obligations to
reimburse the issuer in respect of any letters of credit.
Investments. Investments shall mean all expenditures made and all
liabilities incurred (contingently or otherwise) for the acquisition of stock or
Indebtedness of, or for loans, advances, capital contributions or transfers of
property to, or in respect of any guaranties (or other commitments as described
under Indebtedness), or obligations of, any Person. In determining the aggregate
amount of Investments outstanding at any particular time: (a) the amount of any
Investment represented by a guaranty shall be taken at not less than the
principal amount of the obligations guaranteed and still outstanding; (b) there
shall be included as an Investment all interest accrued with respect to
Indebtedness constituting an Investment unless and until such interest is paid;
(c) there shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, redemption, retirement,
repayment, liquidating dividend or liquidating distribution); (d) there shall
not be deducted in respect of any Investment any amounts received as earnings on
such Investment, whether as dividends, interest or otherwise, except that
accrued interest included as provided in the foregoing clause (b) may be
deducted when paid; and (e) there shall not be deducted from the aggregate
amount of Investments any decrease in the value thereof.
<PAGE>
IPO. IPO shall mean the initial public offering pursuant to an effective
registration statement under the Securities Act of shares of Common Stock.
Lien. Lien shall mean any encumbrance, mortgage, pledge, lien, charge
or other security interest of any kind upon any property or assets of any
character, or upon the income or profits therefrom.
Major Holder. Major Holder shall mean the holder or holders at the
relevant time (excluding the Company) of at least 10% of the total number of
then outstanding Common Shares (with each holder of then issued and outstanding
Warrants being treated for purposes of the determination of Major Holders as if
such holder was the holder of that number of Common Shares into which such
Warrants would be converted at the time of determination pursuant to the
Company's Charter and such Warrants).
Majority Holders. Majority Holders shall mean the holder or holders at
the relevant time (excluding the Company) of at least 51% of the total number of
then outstanding Common Shares (with each holder of then issued and outstanding
Warrants being treated for purposes of the determination of Majority Holders as
if such holder was the holder of that number of Common Shares into which such
Warrants would be converted at the time of determination pursuant to the
Company's Charter and such Warrants).
Management Agreement. That certain Financial, Investment Banking and
Professional Services Agreement dated as of December 1, 1997 between the
Company and Andersen Group, Inc.
Maximum Rate. See Section 3.5(c).
Mortgage. The Mortgage Deed, Security Agreement and Fixture Filing of even
date herewith executed and delivered by the Company to BankBoston.
Multiemployer Plan. Any multiemployer plan within the meaning of ss.3(37)
of ERISA maintained or contributed to by the Company or any ERISA Affiliate.
Negotiation Period. See Section 11.4(b).
Note. Note shall mean the $7,500,000 Senior Subordinated Note of the
Company issued pursuant to Section 2.1 hereof and any other Note or Notes
transferred to any other holders pursuant to Section 16 hereof.
Obligations. All indebtedness, obligations and liabilities of every
kind and nature of the Company or any of its Subsidiaries to BankBoston,
existing on the date of this Agreement or arising thereafter, direct or
indirect, joint or several, absolute or contingent, matured or unmatured,
liquidated or unliquidated, secured or unsecured, arising by contract, operation
of law or otherwise, including, without limitation, those obligations arising or
incurred under this Agreement or any of the other Financing Documents and the
Company's obligations to pay the Repurchase Price as provided herein or other
instruments at any time evidencing any thereof, but excluding obligations and
liabilities related exclusively to the Equity Securities (other than obligations
to pay the Repurchase Price).
<PAGE>
Patent Assignment. The Patent Collateral Assignment and Security Agreement
of even date herewith between the Company and BankBoston.
PBGC. PBGC shall mean the Pension Benefit Guaranty Corporation created by
ss.4002 of ERISA and any successor entity or entities having similar
responsibilities.
Permitted Indebtedness. Any Indebtedness that is permitted pursuant to
Section 7.14.
Permitted Liens. Any Liens that are permitted pursuant to Section 7.15.
Person. Person shall mean an individual, partnership, corporation,
association, trust, joint venture, unincorporated organization, and any
government, governmental department or agency or political subdivision thereof.
Precious Metals. Gold measured in troy ounces having a fineness of not
less than .995; silver measured in troy ounces having a fineness of not less
than .999; and platinum and palladium measured in troy ounces having a fineness
of not less than .9995, in each case without regard to whether such metal is in
bullion form or is contained in or processed into other materials which contain
elements other than such Precious Metal; provided that, for the purposes hereof,
the term "Precious Metals" refers only to the number of ounces of the applicable
metal, and not to any other contents of such materials.
Property. Property means the properties owned, leased or operated by the
Company and its Subsidiaries.
Public Sale. Public Sale shall mean any sale of Common Stock to the
public pursuant to a public offering registered under the Securities Act or to
the public through a broker pursuant to the provisions of Rule 144 (or any
successor rule) adopted under the Securities Act.
Purchase Price. See Section 2.2.
Purchased Securities. See Section 2.2.
Put Closing Date. See Section 11.2.
<PAGE>
Put Date. The earliest to occur of the following events: (i) repayment
in full of the Note, (ii) the maturity of the Note (whether by stated maturity,
acceleration or otherwise), (iii) the fifth anniversary of the Closing Date,
(iv) any issuance by the Company of any capital stock (other than the Warrant
Shares and shares of Common Stock issued pursuant to the options and warrants
listed on Schedule 4.3(b)) for less than fair market value as determined by an
appraiser satisfactory to BankBoston, or (v) the consummation of an IPO by the
Company. For purposes of clause (iv) above, the "fair market value" of the
shares of Common Stock to be issued pursuant to options and warrants shall be
determined as of the date of grant of such option or warrant, and the
consideration paid for such shares shall equal the sum of (x) the cash price (if
any) paid by the grantee for such option or warrant, plus (y) the exercise price
specified in such option or warrant.
Put Notice. See Section 11.1.
RCRA. See definition of "Environmental Laws."
Real Estate. All real property at any time owned or leased (as lessee or
sublessee) by the Company or any of its Subsidiaries.
Registration Rights Agreement. Registration Rights Agreement shall mean
the Registration and Preemptive Rights Agreement, dated as of the date hereof
among the Company, BankBoston and Andersen Group, Inc., in the form of Exhibit E
hereto.
Related Agreements. Related Agreements shall mean, collectively, the
Securities, the Registration Rights Agreement, the Charter of the Company, the
Credit Agreement, the Senior Loan Documents, the Security Documents and the
Subordination Agreement.
Release. Release shall have the meaning specified in CERCLA and
regulations promulgated thereunder; provided, that in the event CERCLA is
amended so as to broaden the meaning of such term defined thereby, such broader
meaning shall apply as of the effective date of such amendment and provided
further, to the extent that the laws of a state wherein the Property lies
establishes a meaning for "Release" which is broader than specified in CERCLA,
such broader meaning shall apply.
Repurchase Price. See Section 11.4(a).
Rescission Notice. See Section 11.3.
Securities. Securities shall mean the Note, the Warrants and the Common
Shares.
<PAGE>
Securities Act. Securities Act shall mean the Securities Act of 1933,
as amended, or any successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
Security Documents. See Section 3.7.
Senior Indebtedness. Senior Indebtedness shall mean the Indebtedness of the
Company to the Senior Lenders arising under the Senior Loan Documents.
Senior Lenders. Senior Lenders shall mean BankBoston, N.A. and Rhode Island
Hospital Trust National Bank, as the lenders party to the Credit Agreement (and
shall not include any of their respective successors or assigns).
Senior Loan Documents. Senior Loan Documents shall mean the "Loan
Documents" as such term is defined in the Credit Agreement, as the same may be
amended, restated, modified or supplemented from time to time in accordance with
the provisions of Sections 6.11 and 7.29 hereof.
Subordinated Payments. See Section 7.27.
Subordination Agreement. See Section 7.27.
Subsidiary. Subsidiary shall mean any corporation, association, trust,
or other business entity of which the designated parent shall at any time own,
directly or indirectly through a Subsidiary or Subsidiaries, at least a majority
(by number of votes) of the outstanding Voting Stock or equity interests.
Tax Sharing Agreement. The Tax Sharing Agreement effective as of March 1,
1996 between Andersen Group, Inc. and the Company.
Test Period. See Section 11.4(c).
Third Appraiser. See Section 11.4(b).
Transfer Notice. See Section 16.2.
Unfunded Accrued Benefits. With respect to any "employee pension
benefit plan" (as defined in Section 3(2) of ERISA) at any time, the amount (if
any) by which (a) the present value of all vested liabilities under such
employee pension benefit plan exceeds (b) the fair market value of plan assets,
all determined as of the most recent valuation date for such employee pension
benefit plan.
Unrepurchased Securities. See Section 11.3.
Warrants. Warrants shall mean the Warrants of the Company issued to
BankBoston pursuant to Section 2.1 hereof and any other Warrants transferred to
any other holders pursuant to Section 16 hereof; provided that no Warrants which
have been sold pursuant to a Public Sale shall be considered to be outstanding
Warrants or Securities hereunder.
<PAGE>
Warrant Stock. Common Stock issued to BankBoston upon exercise of the
Warrant.
ss.1.1. Rules of Interpretation.
(a) A reference to any document or agreement shall include such document or
agreement as amended, modified or supplemented from time to time in accordance
with its terms and the terms of this Agreement.
(b) The singular includes the plural and the plural includes the singular.
(c) A reference to any law includes any amendment or modification to such
law.
(d) A reference to any Person includes its permitted successors and
permitted assigns.
(e) Accounting terms not otherwise defined herein have the meanings
assigned to them by generally accepted accounting principles applied on a
consistent basis by the accounting entity to which they refer.
(f) The words "include", "includes" and "including" are not limiting.
(g) All terms not specifically defined herein or by generally accepted
accounting principles, which terms are defined in the Uniform Commercial Code as
in effect in the State of Connecticut, have the meanings assigned to them
therein.
(h) Reference to a particular "ss." refers to that section of this
Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of like import
shall refer to this Agreement as a whole and not to any particular section or
subdivision of this Agreement.
2. SALE AND PURCHASE OF PURCHASED SECURITIES.
2.1. Sale and Purchase of Purchased Securities. The Company
agrees to issue and sell to BankBoston and, subject to all of the terms and
conditions hereof and in reliance on the representations and warranties set
forth or referred to herein, BankBoston agrees to purchase (i) the Senior
Subordinated Note of the Company, in the principal amount of $7,500,000, in the
form of Exhibit A hereto; and (ii) Warrant Nos. W-1 and W-2 for the purchase of
up to an aggregate of 40,000 shares of Common Stock, each in the form of Exhibit
B hereto.
<PAGE>
2.2. Purchase Price. The aggregate purchase price for the
Securities purchased pursuant to Section 2.1 (the "Purchased Securities") is
$7,500,000 (the "Purchase Price"). BankBoston and the Company agree that the
purchase price for the Note is $7,499,999 and the purchase price for the
Warrants is $1, and shall be treated as such for federal, state and local income
tax purposes.
2.3. Closing. The closing of the purchase and sale of the
Purchased Securities (the "Closing") will take place at the offices of Bingham
Dana LLP, 100 Pearl Street, Hartford, Connecticut 06103, at 10:00 a.m. on
December 29, 1997, or at such other time, date and place as the parties hereto
may agree upon (the "Closing Date"). At the Closing, the Company will deliver to
BankBoston the Purchased Securities against payment by BankBoston of the
Purchase Price in immediately available funds. Each of the Purchased Securities
will be issued to BankBoston or any nominee specified by BankBoston on or before
the Closing Date and registered in BankBoston's name or the name of such
specified nominee in the records of the Company.
2.4. Use of Proceeds. The proceeds from the sale of the
Purchased Securities hereunder will be used solely for working capital and
general corporate purposes. Company further agrees that it will not use any part
of the proceeds from the sale of the Purchased Securities to purchase or carry
any "margin security" or "margin stock", as such terms are defined in any
regulation, rule or interpretation of the Board of Governors of the Federal
Reserve System.
3. PRINCIPAL AND INTEREST PAYMENTS ON NOTE; SUBORDINATION; SECURITY.
3.1. Mandatory Principal Repayments. The Company agrees to
repay the principal amount of the Note in one installment on the earliest to
occur of (i) December 29, 2004, or (ii) the date upon which the Senior
Indebtedness is fully and finally repaid and the commitments to lend under the
Senior Loan Documents are terminated, or (iii) the date upon which the Senior
Indebtedness is refinanced with loans made by any lenders other than the Senior
Lenders.
3.2. Prepayments. The Company, upon not less than 15 nor more
than 30 days' prior written notice to the holder of the Note of the date and
amount of optional prepayment, may prepay from time to time all or any portion
(in integral multiples of $500,000) of the principal amount of the Note;
provided that no prepayment of the Note may be made under this Agreement prior
to the sixth anniversary of the Closing Date except upon payment to the holder
thereof of the Applicable Prepayment Charge (including, without limitation, any
prepayment resulting from the acceleration of the Note under Section 10.2
hereof); and provided further that no optional prepayment of the Note may be
made under this Agreement prior to the third anniversary of the Closing Date
unless such prepayment is made concurrently with the completion of an IPO; and
provided further that any optional prepayments made concurrently with the
completion of an IPO shall be full (and not partial) prepayments of all amounts
due under the Note; and provided further that if (x) the Company prepays the
Note on or after December 29, 2002, (y) such prepayment is made solely as a
result of the unwillingness of the Senior Lenders to extend the maturity date of
the Senior Indebtedness beyond December 29, 2002, and (z) the unwillingness of
the Senior Lenders to extend the maturity of the Senior Indebtedness is not a
direct or indirect result of any defaults or threatened defaults by the Company
or its affiliates hereunder or under the Senior Loan Documents, then in such
case the Company shall not be required to pay the Applicable Prepayment Charge
in connection with such prepayment of the Note. The principal amount of any Note
designated for prepayment in any notice of optional prepayment permitted by this
Section 3.2 shall become due and payable on the date fixed for prepayment in
such notice, together with all accrued and unpaid interest thereon. No
prepayment of the Note will reduce the amount of the Warrants issued to
BankBoston.
<PAGE>
3.3. Presentation or Surrender of Note. The Company may, as a
condition to making any prepayment of the Note, require the holder thereof to
present such Note at the place specified in the Note for payment of the
principal thereof, for notation thereon of the amount and date of such
prepayment, or, if the Note is prepaid in full, to surrender the same to the
Company.
3.4. No Reborrowing or Other Prepayments. Except as expressly
permitted by Section 3.2, the principal of the Note may not be prepaid. No
amount repaid or prepaid pursuant to Section 3.1 or 3.2 may be reborrowed under
the Note.
3.5. Interest Payments.
(a) Subject to Section 3.5(b) hereof, the unpaid principal
amount of the Note outstanding from time to time shall bear interest from the
Closing Date until the maturity of the Note at a rate equal to the Fixed Rate.
Interest on the Note shall be calculated on the basis of twelve 30-day months
and a 360 day year, and shall be payable quarterly in arrears on the first day
of each calendar quarter, commencing on the first such date to occur after the
Closing Date, and at the maturity of the Note.
(b) Overdue principal and (to the extent permitted by
applicable law) overdue interest on the Note shall bear interest at a rate equal
to 2% per annum in excess of the Fixed Rate, payable on demand and compounded
monthly, until such amount shall be paid in full.
(c) It is not intended by the holder of the Note, and nothing
contained in this Agreement or the Note shall be deemed, to establish or require
the payment of a rate of interest in excess of the maximum rate permitted by
applicable federal, state or other law (the "Maximum Rate") and, to prevent such
an occurrence, any agreement which may now or hereafter be in effect between the
Company and the holder of the Note regarding the payment of fees or interest to
such holder is hereby limited by the provisions of this Section 3.5(c). If, in
any month, the effective interest rate applicable to the principal outstanding
under the Note, absent the Maximum Rate limitation contained herein, would have
exceeded the Maximum Rate, then the effective interest rate applicable to the
Note for that month shall be the Maximum Rate, and, if in any subsequent month,
the effective interest rate would otherwise be less than the Maximum Rate, then
the effective interest rate applicable to the Note for such month shall be
increased to the Maximum Rate until such time as the amount of interest paid
hereunder equals the amount of interest which would have been paid in respect of
the Note if the same had not been limited by the Maximum Rate. In the event
that, upon payment in full of the principal outstanding under the Note, the
total amount of interest paid or accrued in respect of the Note under the terms
of this Agreement is less than the total amount of interest which would have
been paid or accrued in respect of the Note had the interest not been limited
hereby to the Maximum Rate, then the Company shall, to the extent permitted by
such applicable federal, state or other law, pay to the holder of the Note an
amount equal to the excess, if any, of (i) the lesser of (A) the amount of
interest which would have been charged in respect of the Note if the Maximum
Rate had, at all times, been in effect with respect to the Note and (B) the
amount of interest which would have accrued in respect of the Note had the
effective interest rate applicable with respect to the Note at all times not
been limited hereunder by the Maximum Rate over (ii) the amount of interest
actually paid or accrued in respect of the Note held by such holder under this
Agreement. In the event that the holder of the Note receives, collects or
applies as interest any sum in excess of the Maximum Rate, such excess amount
shall be applied to the reduction of principal outstanding under the Note and if
no such principal is then outstanding, such excess or part thereof remaining,
shall be paid to the Company.
<PAGE>
3.6. Subordination. NOTWITHSTANDING ANY OTHER PROVISION OF
THIS AGREEMENT, THE PAYMENT OF PRINCIPAL AND INTEREST ON THE NOTE AND OTHER
INDEBTEDNESS OF THE COMPANY HEREUNDER IS AND SHALL BE JUNIOR AND SUBORDINATED IN
RIGHT OF PAYMENT TO THE PRIOR PAYMENT OF ALL SENIOR INDEBTEDNESS IN ACCORDANCE
WITH THE TERMS HEREOF.
3.7. Security. The payment and performance of the Company's
obligations under this Agreement, the Note and any other Financing Agreements
shall at all times will be secured by the following (collectively, the
"Collateral"): second priority perfected liens on and security interests
(subject only to the first priority Liens in favor if the Senior Lenders
pursuant to the Senior Loan Documents) in (i) all property and assets of the
Company and its Subsidiaries, including, without limitation, all inventory
(including all Precious Metals), accounts, accounts receivable, chattel paper,
instruments, documents of the Company and its Subsidiaries, and all general
intangibles of the Company and books and records relating to the foregoing; (ii)
all other assets in which the Company at any time grants a security interest to
BankBoston for any other indebtedness (subject to any prior lien securing such
other indebtedness); and (iii) all proceeds and products of the foregoing. The
Company shall, and shall cause each of its Subsidiaries to, execute such
security agreements, assignments, and other documents (including, without
limitation, the Mortgage, the Patent Assignment, the Company Security Agreement
and any guaranties and security documents required pursuant to Section 7.28) as
may be requested from time to time by BankBoston in order to further evidence or
perfect the rights of BankBoston and obligations of the Company and its
Subsidiaries with respect to the Collateral (such security agreements,
assignments, and other documents being collectively referred to herein as the
"Security Documents"). Notwithstanding the foregoing, Ney Ultrasonics Inc. shall
be required to enter into Security Documents only as required under Section
7.28.
4. REPRESENTATIONS AND WARRANTIES.
In order to induce BankBoston to enter into this Agreement and to
purchase the Purchased Securities, the Company hereby represents and warrants
that, both immediately before and immediately after giving effect to the
Closing:
4.1. Corporate Authority.
(a) Incorporation; Good Standing. Each of the Company and its Subsidiaries
(i) is a corporation duly organized, validly existing and in good standing under
the laws of its state of incorporation, (ii) has all requisite corporate power
to own its property and conduct its business as now conducted and as presently
contemplated, and (iii) is in good standing as a foreign corporation and is duly
authorized to do business in each jurisdiction where such qualification is
necessary except where a failure to be so qualified would not have a material
adverse effect on the business, assets or financial condition of the Company or
such Subsidiary.
(b) Authorization. The execution, delivery and performance of this
Agreement and the other Financing Agreements to which the Company or any of its
Subsidiaries is or is to become a party and the transactions contemplated hereby
and thereby (i) are within the corporate authority of such Person, (ii) have
been duly authorized by all necessary corporate proceedings, (iii) do not
conflict with or result in any breach or contravention of any provision of law,
statute, rule or regulation to which the Company or any of its Subsidiaries is
subject or any judgment, order, writ, injunction, license or permit applicable
to the Company or any of its Subsidiaries and (iv) do not conflict with or
require approval under any provision of the corporate charter or bylaws of, or
any agreement or other instrument binding upon, the Company or any of its
Subsidiaries (other than those already obtained by the Company on or prior to
the date hereof).
<PAGE>
(c) Enforceability. The execution and delivery of this Agreement and the
other Financing Agreements to which the Company or any of its Subsidiaries is or
is to become a party will result in valid and legally binding obligations of
such Person enforceable against it in accordance with the respective terms and
provisions hereof and thereof, except as enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights and except to the
extent that availability of the remedy of specific performance or injunctive
relief or any other equitable remedy is subject to the discretion of the court
before which any proceeding therefor may be brought.
4.2. Governmental Approvals. The execution, delivery and
performance by the Company and any of its Subsidiaries of this Agreement and the
other Financing Agreements to which the Company or any of its Subsidiaries is or
is to become a party and the transactions contemplated hereby and thereby do not
require the approval or consent of, or filing with, any governmental agency or
authority other than those already obtained.
4.3. Capitalization.
(a) Capital Stock. At Closing, the authorized capital stock of
the Company consists solely of 1,100,000 shares of Common Stock. On the Closing
Date, after giving effect to the transactions contemplated hereby and by the
Related Agreements, the Company will have no outstanding capital stock other
than 850,000 shares of Common Stock, all of which will be owned as set forth in
Schedule 4.3(a) hereto and will be duly authorized, validly issued, fully paid
and non-assessable.
(b) Options, Etc. Except for the Warrants and other than as
disclosed on Schedule 4.3(b) hereto, the Company does not have any outstanding
rights (either pre-emptive or other) or options to subscribe for or purchase
from the Company and no warrants or other agreements providing for or requiring
the issuance by the Company of, any capital stock or any securities convertible
into or exchangeable for its capital stock.
(c) Reservation, Etc. Sufficient shares of authorized but
unissued shares of Common Stock have been reserved by appropriate corporate
action by the board of directors of the Company in connection with the
prospective exercise of the Warrants. The issuance of the Warrants (i) will not
require any further corporate action by the stockholders or directors of the
Company (other than, in the event the number of shares of Common Stock to be
purchased under the Warrants is adjusted as provided in the Warrants, the
reservation by the Company of additional shares of Common Stock for issuance
upon exercise of the adjusted Warrants), (ii) will not be subject to pre-emptive
rights in any present or future stockholders of the Company and (iii) will not
conflict with any provision of any agreement to which the Company is a party or
by which it is bound. All Common Stock, when issued upon exercise of the
Warrants in accordance with their terms, as provided in the Company's Charter,
will be duly authorized, validly issued, fully paid and non-assessable.
<PAGE>
4.4. Subsidiaries. Except as otherwise set forth on Schedule
4.4 hereto, the Company does not have any Subsidiaries and does not own or hold
of record and/or beneficially any shares of any class of the capital stock of
any corporations. The Company does not own any legal and/or beneficial interests
in any partnerships, business trusts or joint ventures or in any other
unincorporated trade or business enterprises. Except as set forth on Schedule
4.4, all outstanding capital stock of each such Subsidiary is owned as set forth
on Schedule 4.4 hereto free and clear of any Lien other than Permitted Liens, is
validly issued and outstanding, fully paid and non-assessable, and there are no
commitments for the purchase or sale of, and no options, warrants or other
rights to subscribe for or purchase, any securities of any such Subsidiary.
4.5. Title to Properties; Leases. Except as indicated on
Schedule 4.5 hereto, the Company and its Subsidiaries own all of the assets
reflected in the consolidated balance sheet of the Company and its Subsidiaries
as at the Balance Sheet Date or acquired since that date (except property and
assets sold or otherwise disposed of in the ordinary course of business since
that date), subject to no rights of others, including any mortgages, leases,
conditional sales agreements, title retention agreements, liens or other
encumbrances except Permitted Liens.
4.6. Financial Statements. There has been furnished to
BankBoston consolidated and consolidating balance sheets and consolidated and
consolidating statements of income of Andersen Group, Inc. and its Subsidiaries
(including the Company) for the fiscal year ended February 28, 1997, and as at
the end of each of the first two fiscal quarters of the fiscal year ending
February 28, 1998, and as at the Balance Sheet Date. Such balance sheets and
statements of income have been prepared in conformity with generally accepted
accounting principles and fairly present the financial condition of Andersen
Group, Inc. and the Company as at the close of business on the dates thereof and
the results of operations for the periods reported therein. There are no
material contingent liabilities of the Company or any of its Subsidiaries as of
either of such dates which were not disclosed in such balance sheets and the
notes related thereto.
4.7. No Material Changes, Etc. Since the Balance Sheet Date
there has occurred no materially adverse change in the financial condition or
business of the Company and its Subsidiaries as shown on or reflected in the
consolidated balance sheet of the Company and its Subsidiaries as at the Balance
Sheet Date, or the consolidated statement of income for the six (6) fiscal month
period then ended, other than changes in the ordinary course of business that
have not had any materially adverse effect either individually or in the
aggregate on the business or financial condition of the Company or any of its
Subsidiaries.
4.8. Franchises, Patents, Copyrights, Etc. Each of the Company
and its Subsidiaries possesses all franchises, patents, copyrights, trademarks,
trade names, licenses and permits, and rights in respect of the foregoing,
adequate for the conduct of its business substantially as now conducted without
conflict with any rights of others.
<PAGE>
4.9. Litigation. Except as set forth in Schedule 4.9 hereto,
there are no actions, suits, proceedings or investigations of any kind pending
or threatened against the Company or any of its Subsidiaries before any court,
tribunal or administrative agency or board that, if adversely determined, might,
either in any case or in the aggregate, materially adversely affect the
properties, assets, financial condition or business of the Company and its
Subsidiaries considered as a whole or materially impair the right of the Company
and its Subsidiaries, considered as a whole, to carry on business substantially
as now conducted by them, or result in any substantial liability not adequately
covered by insurance, or for which adequate reserves are not maintained on the
consolidated balance sheet of the Company and its Subsidiaries, or which
question the validity of this Agreement or any of the other Financing
Agreements, or any action taken or to be taken pursuant hereto or thereto.
4.10. No Materially Adverse Contracts, Etc. Neither the
Company nor any of its Subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation that
has or is expected in the future to have a materially adverse effect on the
business, assets or financial condition of the Company and its Subsidiaries
considered as a whole. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement that has or is expected to have any
materially adverse effect on the business of the Company and its Subsidiaries
considered as a whole.
4.11. Compliance with Other Instruments, Laws, Etc. Neither
the Company nor any of its Subsidiaries is in violation of any provision of its
Charter, bylaws, or any agreement or instrument to which it may be subject or by
which it or any of its properties may be bound or any decree, order, judgment,
statute, license, rule, regulation or law (including, without limitation,
Environmental Laws and ERISA), in any of the foregoing cases in a manner that
could result in the imposition of substantial penalties or materially and
adversely affect the financial condition, properties or business of the Company
and its Subsidiaries taken as a whole.
4.12. Tax Status. The Company and its Subsidiaries (a) have
made or filed all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which any of them is subject,
(b) have paid all taxes and other governmental assessments and charges shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and by appropriate proceedings and (c) have set
aside on their books provisions reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
<PAGE>
4.13. No Event of Default. No Default or Event of Default has
occurred and is continuing.
4.14. Holding Company and Investment Company Acts. Neither the
Company nor any of its Subsidiaries is (a) a "holding company", or a "subsidiary
company" of a "holding company", or an affiliate" of a "holding company", as
such terms are defined in the Public Utility Holding Company Act of 1935; (b) an
"investment company", or an "affiliated company" or a "principal underwriter" of
an "investment company", as such terms are defined in the Investment Company Act
of 1940; (c) a "commodity trading adviser," a "commodity pool operator" or a
"futures commission merchant" within the meaning of the Commodity Futures
Trading Commission Act of 1974, as amended.
4.15. Regulations U and X. The proceeds of the sale of the
Purchased Securities hereunder shall be used for working capital and general
corporate purposes of the Company. No portion of any such proceeds is to be used
for the purpose of purchasing or carrying any "margin security" or "margin
stock" as such terms are used in Regulations U and X of the Board of Governors
of the Federal Reserve System, 12 C.F.R. Parts 221 and 224.
4.16. Insurance. The Company and each of its Subsidiaries
maintain with financially sound and reputable insurers insurance with respect to
their properties and business against such casualties and contingencies as are
in accordance with the general practices of businesses engaged in similar
activities in similar geographic areas and in amounts, containing such terms, in
such forms and for such periods as are reasonable and prudent.
4.17. Broker Accounts. Attached hereto as Schedule 4.17 is a
true, correct and complete listing of all of the Broker Accounts of the Company.
4.18. Disclosure. The representations and warranties herein do
not contain any untrue statement of a material fact and do not omit any facts
necessary to make the statements contained in such representations and
warranties not misleading.
ss.4.19. Obligations as Senior Subordinated Debt. All
Indebtedness of the Company to BankBoston in respect of this Agreement
(including the principal of and interest due under the Note and all payments due
in connection with the Warrants) will constitute "Senior Subordinated Debt"
under the terms of the Subordination Agreement.
<PAGE>
5. INVESTMENT REPRESENTATION.
BankBoston represents and warrants to the Company that BankBoston is
(i) an "accredited investor" as defined in Rule 501 promulgated under the
Securities Act, and (ii) acquiring the Purchased Securities for investment and
not with a view to selling or otherwise distributing the Purchased Securities;
provided, however, that the disposition of BankBoston's property shall at all
times be and remain in BankBoston's control, subject to the provisions of
Section 16 hereof.
6. CONDITIONS TO PURCHASE.
BankBoston's obligation to purchase the Purchased Securities pursuant
to this Agreement is subject to compliance by the Company with its agreements
herein contained, and to the satisfaction, on or prior to the Closing Date, of
the following conditions:
6.1. Financing Agreements. Each of the Financing Agreements
shall have been duly executed and delivered by the respective parties thereto,
shall be in full force and effect and shall be in form and substance
satisfactory to BankBoston. BankBoston shall have received a fully executed copy
of each such document.
6.2. Certified Copies of Charter Documents. BankBoston shall
have received from the Company a copy, certified by a duly authorized officer of
the Company to be true and complete on the Closing Date, of each of (a) its
Charter as in effect on such date of certification, and (b) its by-laws as in
effect on such date, and (c) a certificate, dated not more than ten (10) days
prior to the Closing Date, of the Secretary of State of each state in which the
Company is incorporated or qualified to do business as to the Company's
corporate good standing or qualification to do business in such state, as the
case may be.
6.3. Corporate Action. All corporate action necessary for the
valid execution, delivery and performance by the Company of this Agreement and
the other Financing Agreements to which it is or is to become a party shall have
been duly and effectively taken, and evidence thereof satisfactory to BankBoston
shall have been provided to BankBoston.
6.4. Incumbency Certificate. BankBoston shall have received
from the Company an incumbency certificate, dated as of the Closing Date, signed
by a duly authorized officer of the Company, and giving the name and bearing a
specimen signature of each individual who shall be authorized: (a) to sign, in
the name and on behalf of the Company, each of the Financing Agreements to which
the Company is or is to become a party; and (b) to give notices and to take
other action on its behalf under the Financing Agreements.
6.5. Financial Condition. BankBoston shall be satisfied that
the financial information previously delivered to it fairly presents the
business and financial condition of the Company and its Subsidiaries as at the
close of business on the Balance Sheet Date and the results of operations for
the periods covered by such information, and that there has been no material
adverse change in the business, assets, nature of assets, financial condition,
operations or prospects of the Company and/or its Subsidiaries since such date.
<PAGE>
6.6. Opinion of Counsel. BankBoston shall have received a
favorable legal opinion addressed to BankBoston, dated as of the Closing Date,
in form and substance satisfactory to BankBoston, including opinions with
respect to the Company, the Financing Agreements, and the transactions
contemplated by this Agreement.
6.7. Security Documents. The Company and its Subsidiaries
shall have (a) executed and delivered to BankBoston the Security Documents and
(b) taken all steps reasonably required to effect and perfect BankBoston's
security interests in the Collateral.
6.8. Representations True; No Event of Default. Each of the
representations and warranties of any of the Company and its Subsidiaries
contained in this Agreement, the other Financing Agreements or in any document
or instrument delivered pursuant to or in connection with this Agreement shall
be true and no Default or Event of Default shall have occurred. BankBoston shall
have received a certificate of the Company signed by an authorized officer of
the Company to such effect.
6.9. Legality; Governmental Authorization. The purchase of the
Purchased Securities shall not be prohibited by any applicable law or
governmental order or regulation. All necessary consents, approvals, licenses,
permits, orders and authorizations of, or registrations, declarations and
filings with, any governmental or administrative agency or of or with any other
Person (including without limitation, any consents required under any material
contracts) required to be provided or obtained prior to the Closing Date and
with respect to any of the transactions contemplated by this Agreement or any of
the Related Agreements shall have been duly obtained or made and shall be in
full force and effect. BankBoston shall have received copies of all necessary
regulatory approvals and evidence of compliance with all state and federal laws,
including but not limited to Regulation U and state and federal securities laws,
applicable to any of the parties to the transactions.
6.10. [Intentionally Omitted]
6.11. Senior Debt Financing. The Senior Loan Documents shall
be in full force and effect, no default shall have occurred thereunder, and the
Credit Agreement shall have been amended pursuant to an amendment in form and
content satisfactory to BankBoston, to permit the transactions contemplated by
this Agreement.
<PAGE>
6.12. No Material Change. There shall not have been, or
threatened to be, any material damage to or loss or destruction of any
properties owned or leased by the Company or any of its Subsidiaries (whether or
not covered by insurance) or any material adverse change in the business, assets
or financial condition of the Company and its Subsidiaries, taken as a whole, or
imposition of any applicable and enforceable laws, rules or regulations which
would have a material adverse effect on the business, assets or financial
condition of the Company or any of its Subsidiaries.
6.13. No Litigation. No restraining order or injunction shall
prevent the transactions contemplated by this Agreement and no action, suit or
proceeding shall be pending or threatened before any court or administrative
body in which it will be, or is, sought to restrain or prohibit or to obtain
damages or other relief in connection with this Agreement or the consummation of
the transactions contemplated hereby.
6.14. Proceedings and Documents. All proceedings in connection
with the transactions contemplated by this Agreement, the other Financing
Agreements and all other documents incident thereto shall be satisfactory in
substance and in form to BankBoston and BankBoston's Special Counsel, and
BankBoston and such counsel shall have received all information and such
counterpart originals or certified or other copies of such documents as
BankBoston may reasonably request.
7. COVENANTS APPLICABLE TO THE COMPANY WHILE NOTE IS OUTSTANDING.
The Company covenants that, until all of the Indebtedness of the
Company with respect to the Note has been paid in full, the Company will comply
and will cause each of its Subsidiaries to comply with the following provisions
unless otherwise consented to in writing by the holder of the Note.
7.1. Punctual Payment. The Company will duly and punctually
pay or cause to be paid the principal and interest on the Note and all other
amounts provided for in this Agreement and the other Financing Agreements to
which the Company or any of its Subsidiaries is a party, all in accordance with
the terms of this Agreement and such other Financing Agreements.
7.2. Maintenance of Office. The Company will maintain its
chief executive office in Bloomfield, Connecticut, or at such other place in the
United States of America as the Company shall designate upon written notice to
BankBoston, where notices, presentations and demands to or upon the Company in
respect of the Financing Agreements to which the Company is a party may be given
or made.
<PAGE>
7.3. Records and Accounts. The Company will (a) keep, and
cause each of its Subsidiaries to keep, true and accurate records and books of
account in which full, true and correct entries will be made in conformity with
generally accepted accounting principles and (b) maintain adequate accounts and
reserves for all taxes (including income taxes), depreciation, depletion,
obsolescence and amortization of its properties and the properties of its
Subsidiaries, contingencies, and other reserves. The Company shall base its
accounting and financial calculations (including without limitation those
pursuant to ss.7.24) on the "first-in, first-out" or "FIFO" method.
7.4. Financial Statements, Certificates and Information. The Company will
deliver to BankBoston at the Company's expense:
(a) as soon as practicable, but in any event not later than
ninety (90) days after the end of each fiscal year of the Company, the
consolidated and reviewed consolidating balance sheets of Andersen Group, Inc.
and its Subsidiaries (including, without limitation, the Company and its
Subsidiaries) as at the end of such year, and the related consolidated and
reviewed consolidating statements of income and consolidated statement of cash
flow for such year, each setting forth in comparative form the figures for the
previous fiscal year and all such consolidated statements to be in reasonable
detail, prepared in conformity with generally accepted accounting principles,
and accompanied by a review thereof (or, if requested at any time by BankBoston,
an unqualified (except for non-material qualifications acceptable to BankBoston)
audit thereof) by independent certified public accountants satisfactory to
BankBoston, which statements shall be accompanied by annual projections
submitted by the management of the Company in form and detail acceptable to
BankBoston;
(b) as soon as practicable, but in any event not later than
forty-five (45) days after the end of each calendar quarter, copies of the
unaudited consolidated and consolidating balance sheets of the Company and its
Subsidiaries as at the end of such quarter, and the related consolidated and
consolidating statements of income and consolidated statements of cash flow for
the portion of the Company's fiscal year then elapsed, and aging reports with
respect to accounts receivable and accounts payable, all in reasonable detail
and prepared in conformity with generally accepted accounting principles,
together with a certification by the principal financial or accounting officer
of the Company that the information contained in such financial statements
fairly presents the financial position of the Company and its Subsidiaries on
the date thereof (subject to customary year-end adjustments);
(c) simultaneously with the delivery of the financial
statements referred to in subsections (a) and (b) above, a statement certified
by the principal financial or accounting officer of the Company in form and
substance reasonably satisfactory to BankBoston and setting forth in reasonable
detail computations evidencing compliance with the covenants contained in
Section 7.24 and (if applicable) reconciliations to reflect changes in generally
accepted accounting principles since the Balance Sheet Date;
<PAGE>
(d) prior to the effectiveness of an IPO, promptly upon the
mailing or filing thereof, copies of all financial statements, reports and proxy
statements mailed to the public shareholders of Andersen Group, Inc. or any
controlling stockholder of the Company, and copies of all registration
statements and Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange
Commission (or any successor thereto) or any national securities exchange by
Andersen Group, Inc. or any controlling stockholder of Andersen Group, Inc.;
(e) after the effectiveness of an IPO, promptly upon the
mailing or filing thereof, copies of all financial statements, reports and proxy
statements mailed to the public shareholders of the Company, and copies of all
registration statements and Forms 10-K, 10-Q and 8-K filed with the Securities
and Exchange Commission (or any successor thereto) or any national securities
exchange by the Company or any controlling stockholder of the Company;
(f) contemporaneously with the same being provided to the
Senior Lenders, such other financial data and other information as are provided
to the Senior Lenders; and
(g) from time to time such other financial data and
information (including accountants' management letters) as BankBoston may
reasonably request.
7.5. Notices.
(a)Defaults. The Company will promptly notify BankBoston in writing of the
occurrence of any Default or Event of Default. If any Person shall give any
notice or take any other action in respect of a claimed default (constituting an
Event of Default) under this Agreement or any other note, evidence of
indebtedness, indenture or other obligation to which or with respect to which
the Company or any of its Subsidiaries is a party or obligor (including the
Credit Agreement), whether as principal, guarantor, surety or otherwise, the
Company shall forthwith give written notice thereof to BankBoston, describing
the notice or action and the nature of the claimed default.
(b) Notice of Litigation and Judgments. The Company will, and will cause
each of its Subsidiaries to, give notice to BankBoston in writing within fifteen
(15) days of becoming aware of any litigation or proceedings threatened in
writing or any pending litigation and proceedings affecting the Company or any
of its Subsidiaries or to which the Company or any of its Subsidiaries is or
becomes a party involving an uninsured claim against the Company or any of its
Subsidiaries that could reasonably be expected to have a materially adverse
effect on the Company and its Subsidiaries considered as a whole and stating the
nature and status of such litigation or proceedings. The Company will, and will
cause each of its Subsidiaries to, give notice to BankBoston, in writing, in
form and detail satisfactory to BankBoston, within ten (10) days of any judgment
not fully covered by insurance, final or otherwise, against the Company or any
of its Subsidiaries in an amount in excess of $1,000,000.
<PAGE>
7.6. Corporate Existence; Maintenance of Properties. The
Company will do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence, rights and franchises and those
of its Subsidiaries. It (a) will cause all of its properties and those of its
Subsidiaries used or useful in the conduct of its business or the business of
its Subsidiaries to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment, (b) will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times, and (c) will, and will cause each of its Subsidiaries to, continue
to engage primarily in the businesses now conducted by them and in related
businesses; provided that nothing in this Section 7.6 shall prevent the Company
from discontinuing the operation and maintenance of any of its properties or any
of those of its Subsidiaries if such discontinuance is, in the judgment of the
Company, desirable in the conduct of its or their business and that do not in
the aggregate materially adversely affect the business of the Company and its
Subsidiaries on a consolidated basis.
7.7. Insurance. The Company will, and will cause each of its
Subsidiaries to, maintain with financially sound and reputable insurers
insurance with respect to its properties and business against such casualties
and contingencies as shall be in accordance with the general practices of
businesses engaged in similar activities in similar geographic areas and in
amounts, containing such terms, in such forms and for such periods as may be
reasonable and prudent.
7.8. Taxes. The Company will, and will cause each of its
Subsidiaries to, duly pay and discharge, or cause to be paid and discharged,
before the same shall become overdue, all taxes, assessments and other
governmental charges imposed upon it and its real properties, sales and
activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies that if unpaid might by law
become a lien or charge upon any of its property; provided that any such tax,
assessment, charge, levy or claim need not be paid if the validity or amount
thereof shall currently be contested in good faith by appropriate proceedings
and if the Company or such Subsidiary shall have set aside on its books adequate
reserves with respect thereto; and provided further that the Company and each
Subsidiary of the Company will pay all such taxes, assessments, charges, levies
or claims forthwith upon the commencement of proceedings to foreclose any lien
that may have attached as security therefor.
7.9. Inspection of Properties and Books, Etc. The Company
shall permit BankBoston and its representatives and consultants to (a) visit and
inspect any of the properties of the Company or any of its Subsidiaries, (b)
examine the books of account of the Company and its Subsidiaries (and to make
copies thereof and extracts therefrom), (c) conduct examinations and
verifications of the assets of the Company and all systems and procedures of the
Company, including those systems and procedures relating to tracking and
valuation of Precious Metals and to cash management, (d) if an Event of Default
shall have occurred and be continuing or if BankBoston shall have notice or
knowledge of any violation of Environmental Laws, to conduct environmental
inspections of the properties and assets of the Company and its Subsidiaries and
(e) discuss the affairs, finances and accounts of the Company and its
Subsidiaries with, and to be advised as to the same by, its and their officers,
all at such reasonable times and intervals as BankBoston may reasonably request.
<PAGE>
7.10. Compliance with Laws, Contracts, Licenses, and Permits.
The Company will, and will cause each of its Subsidiaries to, comply in all
material respects with (a) the applicable laws and regulations wherever its
business is conducted, including all Environmental Laws, ERISA, and occupational
and safety laws; (b) the provisions of its Charter and by-laws, (c) all
agreements and instruments by which it or any of its properties may be bound and
(d) all applicable decrees, orders, and judgments. If any authorization,
consent, approval, permit or license from any officer, agency or instrumentality
of any government shall become necessary or required in order that the Company
or any of its Subsidiaries may fulfill any of its obligations hereunder or any
of the other Financing Agreements to which the Company or such Subsidiary is a
party, the Company will, or (as the case may be) will cause such Subsidiary to,
immediately take or cause to be taken all reasonable steps within the power of
the Company or such Subsidiary to obtain such authorization, consent, approval,
permit or license and furnish BankBoston with evidence thereof.
7.11. Use of Proceeds. The Company will use the proceeds from
the sale of the Purchased Securities hereunder solely for working capital and
general corporate purposes.
7.12. Margin Calls in Respect of Futures Contracts. The
Company shall, and shall cause each of the Subsidiaries to, meet all initial and
variation margin calls and make all other payments required in respect of
futures contracts acquired by the Company and the Subsidiaries, respectively, on
any commodities exchange as promptly as may be necessary in order that such
futures contracts shall remain in full force and effect. Furthermore, the
Company shall not, nor shall it permit or suffer any of the Subsidiaries to,
close out any of its futures contracts, except in the normal course of its
business operations.
7.13. Further Assurances. The Company will, and will cause
each of its Subsidiaries to, cooperate with BankBoston and execute such further
instruments and documents as BankBoston shall reasonably request to carry out to
their satisfaction the transactions contemplated by this Agreement and the other
Financing Agreements, including without limitation maintaining the second
priority security interest of BankBoston in the Collateral (subject only to the
first priority security interest in favor of the Senior Lenders pursuant to the
Senior Loan Documents).
<PAGE>
7.14. Restrictions on Indebtedness. The Company will not, and
will not permit any of its Subsidiaries to, create, incur, assume, guarantee or
be or remain liable, contingently or otherwise, with respect to any Indebtedness
other than:
(a) Indebtedness to BankBoston and its Affiliates arising under any of the
Financing Agreements;
(b) the Senior Indebtedness;
(c) current liabilities incurred in the ordinary course of business not
incurred through (i) the borrowing of money, or (ii) the obtaining of credit
except for credit on an open account basis customarily extended and in fact
extended in connection with normal purchases of goods and services;
(d) Indebtedness in respect of taxes, assessments, governmental charges or
levies and claims for labor, materials and supplies to the extent that payment
therefor shall not at the time be required to be made in accordance with the
provisions of Section 7.8;
(e) Indebtedness in respect of judgments or awards that have been in force
for less than the applicable period for taking an appeal so long as execution is
not levied thereunder or in respect of which the Company or such Subsidiary
shall at the time in good faith be prosecuting an appeal or proceedings for
review and in respect of which a stay of execution shall have been obtained
pending such appeal or review;
(f) endorsements for collection, deposit or negotiation and warranties of
products or services, in each case incurred in the ordinary course of business;
(g) Indebtedness owed to the Company by a Subsidiary of the Company;
(h) Indebtedness under non-speculative hedge arrangements satisfactory
to BankBoston designed to hedge against fluctuations in the price of Precious
Metals, and interest rates covering the notional amount set forth in the trading
and hedging policies of the Company with respect to Precious Metals, financial
futures, foreign currencies, futures or options (the "Hedging Policy"), all of
which shall be reasonably satisfactory to BankBoston;
(i) Other Indebtedness to BankBoston and its Affiliates;
(j) Indebtedness owed by the Company to a Subsidiary of the Company;
<PAGE>
(k) Indebtedness incurred in connection with Capital Leases
with third party financial institutions other than BankBoston; provided, that
the aggregate principal amount of all such Indebtedness shall not exceed the
amount permitted by the Senior Loan Documents;
(l) Subordinate Indebtedness to Andersen Group, Inc. that satisfies each of
the following conditions: (a) the obligation to repay such Indebtedness is
evidenced by a written agreement between the Company (or its Subsidiary, as
applicable) and Andersen Group, Inc., and (b) the Company (or its Subsidiary, as
applicable) and Andersen Group, Inc. shall have entered into a Subordination
Agreement in form and substance satisfactory to BankBoston in respect of such
Indebtedness; and
(m) Any other Indebtedness that is permitted pursuant to Section 8.1 of the
Credit Agreement.
7.15. Restrictions on Liens. The Company will not, and will
not permit any of its Subsidiaries to, (a) create or incur or suffer to be
created or incurred or to exist any lien, encumbrance, mortgage, pledge, charge,
restriction or other security interest of any kind upon any of its property or
assets of any character whether now owned or hereafter acquired; (b) transfer
any of such property or assets or the income or profits therefrom for the
purpose of subjecting the same to the payment of Indebtedness or performance of
any other obligation in priority to payment of its general creditors; (c)
acquire, or agree or have an option to acquire, any property or assets upon
conditional sale or other title retention or purchase money security agreement,
device or arrangement; (d) suffer to exist for a period of more than thirty (30)
days after the same shall have been incurred any Indebtedness or claim or demand
against it that if unpaid might by law or upon bankruptcy or insolvency, or
otherwise, be given any priority whatsoever over its general creditors; (e)
sell, assign, pledge or otherwise transfer any accounts, contract rights,
general intangibles, chattel paper or instruments, with or without recourse; or
(f) enter into or permit to exist any arrangement or agreement which directly or
indirectly prohibits the Company or such Subsidiary from creating or incurring
any lien, encumbrance, mortgage, pledge, charge, restriction or other security
interest of any kind provided that the Company and any Subsidiary of the Company
may create or incur or suffer to be created or incurred or to exist:
(i) liens in favor of the Company on all or part of the assets of
Subsidiaries of the Company securing Indebtedness owing by Subsidiaries of the
Company to the Company;
(ii) liens to secure taxes, assessments and other government charges in
respect of obligations not overdue or liens on properties to secure claims for
labor, material or supplies in respect of obligations not overdue;
<PAGE>
(iii) deposits or pledges made in connection with, or to secure payment of,
workmen's compensation, unemployment insurance, old age pensions or other social
security obligations;
(iv) liens on properties in respect of judgments or awards, the
Indebtedness with respect to which is permitted by Section 7.14(e);
(v) liens of carriers, warehousemen, mechanics and materialmen, and other
like liens on properties, in existence less than 60 days from the date of
creation thereof in respect of obligations not overdue;
(vi) encumbrances on Real Estate consisting of easements, rights of way,
zoning restrictions, restrictions on the use of real property and defects and
irregularities in the title thereto, landlord's or lessor's liens under leases
to which the Company or a Subsidiary of the Company is a party, and other minor
liens or encumbrances, none of which encumbrances, restrictions, defects,
irregularities and liens interferes materially with the use of the property
affected in the ordinary conduct of the business of the Company and its
Subsidiaries, and all of which do not individually or in the aggregate
materially affect the value or marketability of any Real Estate or have a
materially adverse effect on the business of the Company individually or of the
Company and its Subsidiaries on a consolidated basis;
(vii) liens in favor of BankBoston and its Affiliates securing the payment
of the Obligations and other Indebtedness due and owing to BankBoston and such
Affiliates;
(viii) liens in favor of the Senior Lenders pursuant to the Senior Loan
Documents;
(ix) security interests in personal property acquired by the Company or its
Subsidiaries after the date hereof to secure Capital Lease Indebtedness of the
type and amount permitted by Section 7.14(k) in connection with the acquisition
of such property, which security interests cover only the personal property so
acquired; and
(x) any other liens and security interests that are permitted pursuant to
Section 8.1 of the Credit Agreement.
7.16. Restrictions on Investments. The Company will not, and
will not permit any of its Subsidiaries to, make or permit to exist or to remain
outstanding any Investment, including without limitation any Investment in a
partnership or joint venture, except Investments in:
(a) marketable direct or guaranteed obligations of the United States of
America and its agencies that mature within five (5) years from the date of
purchase by the Company;
<PAGE>
(b) demand deposits, certificates of deposit, bankers acceptances and time
deposits (x) of United States banks having total assets in excess of
$1,000,000,000 or (y) which deposits, certificates and acceptances are fully
insured by the Federal Deposit Insurance Corporation;
(c) securities commonly known as "commercial paper" issued by a corporation
organized and existing under the laws of the United States of America or any
state thereof that at the time of purchase have been rated and the ratings for
which are not less than "P 1" if rated by Moody's Investors Services, Inc., and
not less than "A 1" if rated by Standard and Poor's;
(d) Investments existing on September 30, 1997 and listed on Schedule 7.16
hereto;
(e) Investments by the Company in Subsidiaries existing on the date hereof;
(f) Investments consisting of loans and advances to employees for moving,
entertainment, travel and other similar expenses in the ordinary course of
business not to exceed $50,000 in the aggregate at any time outstanding;
(g) Investments permitted by Section 7.17; and
(h) Other Investments in an aggregate amount not in excess of $500,000 at
any time consisting of the issued and outstanding capital stock of savings and
loan associations having total assets of not less than $250,000,000.
7.17. Merger, Consolidation and Acquisition and Disposition of Assets.
(a) The Company will not, and will not permit any of its Subsidiaries to,
become a party to any merger or consolidation, or agree to or effect any asset
acquisition or stock acquisition other than (i) the sale of inventory and
leasing of equipment in the ordinary course of business; (ii) the merger or
consolidation of one or more of the Subsidiaries of the Company with and into
the Company, (iii) the merger or consolidation of two or more Subsidiaries of
the Company, provided, that, if a merger or consolidation occurs between a
Subsidiary that is partially owned by the Company and a Subsidiary that is
wholly owned by the Company, the wholly owned Subsidiary shall be the surviving
entity, and (iv) acquisitions permitted pursuant to Section 8.4(a) of the Credit
Agreement.
<PAGE>
(b) The Company will not, and will not permit any of its Subsidiaries to,
become a party to or agree to or effect any disposition of assets, other than
the disposition of obsolete or worn-out assets in the ordinary course of
business, consistent with past practices. Notwithstanding the foregoing, and
subject to the following proviso, the Company may dividend and transfer to
Andersen Group, Inc. (or, in the case of the assets described in the following
clause (y), transfer to Ney Ultrasonics Inc.) each of the following: (x) the
stock of Ney Ultrasonics Inc. and (y) after delivery to BankBoston of a pro
forma asset statement approved by BankBoston, the personal property used
primarily by Ney Ultrasonics Inc. in its Ultrasonics business with an aggregate
value not to exceed the value shown on such asset statement and approved by
BankBoston; provided, that (i) the aggregate unpaid principal and interest in
respect of all loans made by the Company to Ney Ultrasonics Inc. does not exceed
$750,000 as of the applicable date of such dividend, (ii) after giving effect to
such dividend, the Company shall retain all rights to repayment of such loans
theretofore made by the Company to Ney Ultrasonics Inc., and (iii) Andersen
Group, Inc. shall agree in writing that the net proceeds of the sale of Ney
Ultrasonics Inc. shall be applied first to pay off such loans made by the
Company to Ney Ultrasonics Inc. prior to any other application of such net sale
proceeds.
7.18. Sale and Leaseback. The Company will not, and will not
permit any of its Subsidiaries to, enter into any arrangement, directly or
indirectly, whereby the Company or any Subsidiary of the Company shall sell or
transfer any property owned by it in order then or thereafter to lease such
property or lease other property that the Company or any Subsidiary of the
Company intends to use for substantially the same purpose as the property being
sold or transferred.
7.19. No Restrictions on Pledge or Upstreaming. The Company
will not, and will not permit any of its Subsidiaries to, agree with any third
party to limit, prohibit or restrict in any way (a) the ability or right of the
Company or any of its Subsidiaries to grant to BankBoston liens on or security
interests in any of their respective properties and assets, or (b) the ability
or right of any of the Subsidiaries of the Company to transfer money or other
assets to the Company at any time.
7.20. ERISA Compliance. Neither the Company nor any of its
subsidiaries will at any time permit any pension plan or other employee benefit
plan maintained by it that is subject to ERISA to:
(a) engage in any "prohibited transaction" as defined in the Code;
(b) incur any "accumulated funding deficiency" as defined in Section 302 of
ERISA; or
(c) terminate under circumstances which result in the imposition of a lien
on the property of the Company or any of its Subsidiaries.
<PAGE>
7.21. Transactions with Affiliates. Neither the Company nor
any of its Subsidiaries will enter into any transaction, including without
limitation the purchase, sale or exchange of property or the rendering of any
service, with any Affiliate except in the ordinary course of business and
pursuant to the reasonable requirements of the Company's or such Subsidiary's
business and upon fair and reasonable terms no less favorable to the Company or
such Subsidiary than the Company or such Subsidiary would obtain in a comparable
arm's length transaction with a person or entity which is not an Affiliate,
provided that in no event shall any such transaction involve loans or extensions
of credit to or other investments in any such Affiliate except such Indebtedness
and other Investments that are expressly permitted by this Agreement.
Notwithstanding anything to the contrary in this Section 7.21, the Company may
(x) make payments to Andersen Group, Inc. pursuant to the Tax Sharing Agreement,
as provided in Section 7.22 below, (y) enter into the Management Agreement with
Andersen Group, Inc. as provided in Sections 7.14 and 7.27, and (z) issue a note
in an aggregate principal amount of up to $4,000,000 to Andersen Group, Inc. as
provided in Sections 7.14 and 7.27, provided that the Company shall in no event
fail to comply with Sections 7.14, 7.22 and 7.27.
7.22. Dividends and Distributions. The Company shall not make
any dividend or distribution to or for the benefit of its shareholders;
provided, that as long as (a) no Default or Event of Default has occurred, and
(b) after giving effect to such dividend or distribution, the Company will be in
compliance with all of its covenants in Section 7.24 herein, the Company may
make payments to Andersen Group, Inc., in any fiscal year of the Company ending
on or after February 28, 1997 in an aggregate amount equal to the amount of any
required payments under the Tax Sharing Agreement; and provided further that (i)
the Company may repurchase the Equity Securities in accordance with Sections
10.2 and 11 hereof, (ii) the Company may pay dividends to the holders of Common
Stock pro rata solely in shares of Common Stock, (iii) the Company may dividend
the stock and assets of Ney Ultrasonics Inc. to Andersen Group, Inc. in
accordance with ss.7.17, (iv) the Company may, upon the termination of an
employee's employment with the Company, repurchase the Common Stock previously
purchased by such employee pursuant to employee stock option agreements and (v)
the Company may make dividends or distributions if permitted by ss.8.9 of the
Credit Agreement.
7.23. Tax Sharing Agreement. The Company will not amend,
modify or waive in any material respect any term or condition of the Tax Sharing
Agreement effective as of March 1, 1996 between Andersen Group, Inc. and the
Company (the "Tax Sharing Agreement") without the prior written consent of
BankBoston.
7.24. Certain Financial Covenants. The Company and its
Subsidiaries will comply with each of the covenants set forth on Schedule 7.24
hereto.
<PAGE>
7.25. Charter Amendments. The Charter of the Company and its
Subsidiaries shall not be amended or modified in any manner that might
materially and adversely affect BankBoston's rights in respect of the Equity
Securities. Provided that the parties (other than BankBoston) are in compliance
with the provisions of the Financing Agreements and the Related Agreements, and
that no default under the Financing Agreements or Related Agreements would be
caused thereby, amending the Charter of the Company to increase the authorized
number of shares of Common Stock shall not in and of itself be deemed to
materially and adversely affect BankBoston's rights in respect of the Equity
Securities.
7.26. Subsidiary Stock. The Company shall not (i) directly or
indirectly sell, assign, pledge or otherwise encumber or dispose of any shares
of capital stock or other equity securities of any of its Subsidiaries except to
qualify directors if required by applicable law and except in pledge to the
Senior Lender or BankBoston or (ii) permit any of its Subsidiaries directly or
indirectly to sell, assign, pledge or otherwise encumber or dispose of any
shares of capital stock or other equity securities of any of its Subsidiaries
(including such Subsidiary), except to the Company, another wholly-owned
Subsidiary of the Company or to qualify directors if required by applicable law.
The Company will not permit any of its Subsidiaries to issue any shares of
capital stock to any Person other than the Company or any of its other
wholly-owned Subsidiaries. Nothing in this Section 7.26 shall prohibit the
Company from dividending the stock of Ney Ultrasonics Inc. to Andersen Group,
Inc. in accordance with this Agreement.
ss.7.27. Payments to Andersen Group. The Company will not (and
will not permit any of its Subsidiaries to) repay any Indebtedness held by, pay
any management fees due to, or make any other payments (other than Distributions
permitted hereunder) (the "Subordinated Payments") to Andersen Group, Inc.;
provided, that the Company may (and shall) make Subordinated Payments in respect
of such subordinated management fees and interest accrued on such subordinated
Indebtedness as earned or accrued quarterly in arrears so long as: (a) the
obligation to pay such Subordinated Payments shall be evidenced by a written
agreement between the Company (or such Subsidiary, as applicable) and Andersen
Group, Inc., (b) the Company or such Subsidiary and Andersen Group, Inc. shall
have entered into a Subordination Agreement in form and substance satisfactory
to BankBoston with respect to the payment of any Subordinated Payments (a
"Subordination Agreement"), (c) both before and after giving effect to such
payment, no Default or Event of Default shall have occurred and be continuing
under the Financing Documents, (d) both before and after giving effect to such
payment, the Company's Consolidated Net Income for the fiscal quarter ending
immediately preceding such date of payment is not less than $1.00 (as evidenced
by a certificate delivered by the Company to BankBoston prior to making such
payment), and (e) both before and after giving effect to such payment, the
difference between (x) the Company's Consolidated Net Income for the fiscal
quarter ending immediately preceding such date of payment minus (y) the amount
of such payment, is not less than $1.00 (as evidenced by a certificate delivered
by the Company to BankBoston prior to making such payment).
<PAGE>
7.28. Disposition of Ney Ultrasonics Inc. If the Company shall
not have completed the distribution of the stock of Ney Ultrasonics Inc. to
Andersen Group, Inc. in accordance with the last sentence of ss.7.17 on or prior
to April 1, 1998, then on April 1, 1998, the Company shall cause Ney Ultrasonics
Inc. to execute and deliver to BankBoston a guaranty, a security agreement, a
lessor's agreement, UCC financing statements and such other guaranty and
security documents as BankBoston shall reasonably require, each in form and
substance acceptable to BankBoston, and otherwise take all actions and file or
record all documents reasonably required by BankBoston in order to grant
BankBoston a second priority (subject only to the first priority liens pursuant
to the Senior Loan Documents), perfected lien on all of the assets and
properties of Ney Ultrasonics Inc. as security for the Company's obligations
under this Agreement, the Note and any other Financing Agreements.
7.29. Amendment of Senior Debt Documents, Etc. Neither the
Company nor any of its Subsidiaries shall agree to any material amendment or
modification of, or grant any waiver or fail to enforce any of its material
rights pursuant to the Credit Agreement or any of the Senior Loan Documents,
including without limitation, any terms of such documents relating to principal
amount, maturity, amortization, interest or fees, without in each case
BankBoston's prior written consent.
7.30. Intellectual Property Schedules. On or prior to January
22, 1998, the Company shall provide to BankBoston the following updated
schedules to the following Security Documents, each in form and substance
satisfactory to BankBoston: (i) Schedule 3 to that certain Security Agreement
dated as of December 29, 1997 between the Company and BankBoston, (ii) Schedule
A to that certain Trademark Collateral Security and Pledge Agreement dated as of
December 29, 1997 between the Company and BankBoston, and (iii) Schedule A to
that certain Patent Collateral Assignment and Security Agreement dated as of
December 29, 1997 between the Company and BankBoston.
8. COVENANTS APPLICABLE WHILE THE EQUITY SECURITIES ARE OUTSTANDING.
The Company covenants that, as long as at least 25% of the Equity
Securities initially issued or issuable hereunder remain outstanding, the
Company will comply with the following provisions:
8.1. General. The Company will comply with and will cause each
of its Subsidiaries to comply with the provisions of Sections 7.21 and 7.25
hereof.
<PAGE>
8.2. Rights to Attend Meetings. The Company will call and hold
a meeting of its board of directors at least once each fiscal quarter. The
Company will give one representative designated by the Majority Holders of the
Equity Securities at least five days' prior written notice (or such shorter
notice as is given to the Company's outside directors) of any proposed meeting
(or action by written consent) of the board of directors of the Company (except
written consents executed solely in connection with the establishment of bank
accounts or other purely administrative matters), such notice in all cases to be
in the form and manner such notice is given to the Company's directors. Such
representative will be entitled to attend as an observer at any such meeting or,
if a meeting is held by telephone conference, to participate therein for the
purpose of listening thereto.
8.3. Other Information. From time to time upon the request of
any representative designated by the Majority Holders of Equity Securities, the
Company will furnish to such representative such information regarding the
business, affairs, prospects and financial condition of the Company and its
Subsidiaries as such representative may reasonably request. Such representative
shall have the right during normal business hours to examine the books and
records of the Company and its Subsidiaries to make copies, notes and abstracts
therefrom, and to make an independent examination of the books and records of
the Company and its Subsidiaries.
8.4. Confidentiality. BankBoston and each Major Holder will
hold in confidence, and will not use (except to evaluate its investment in the
Company), all confidential or proprietary information of the Company and its
Subsidiaries provided or made available to BankBoston and such Major Holder
pursuant to this Section 9 until such time as such information has become
publicly available other than as a consequence of any breach by BankBoston or a
Major Holder of its confidentiality obligations hereunder.
9. [INTENTIONALLY OMITTED]
10. DEFAULTS.
10.1. Events of Default. Holders of the Securities will be
entitled to exercise the remedies provided by Section 10.2 hereof in accordance
with the terms thereof if any one or more of the following events ("Events of
Default") shall occur:
(a) the Company shall fail to make any payment of interest
within five (5) days after the same shall become due, or the Company shall fail
to make any payment of principal on the Note as the same shall become due,
whether at maturity or by acceleration or otherwise; or
(b) The Company shall fail to pay the Repurchase Price for any
Equity Securities as and when required pursuant to Section 11 hereof (after
giving effect to the provisions of Section 11.3); or
(c) The Company or any of its Subsidiaries shall fail to
perform or observe any of the covenants applicable to it set forth in Sections
7.5(a) or (b), 7.14 through 7.29 or 8 hereof; or
<PAGE>
(d) The Company or any of its Subsidiaries shall fail to
perform or observe any covenant, agreement or provision set forth in this
Agreement or any covenant, agreement, or provision to be performed or observed
by it under any Financing Agreements, other than those provisions set forth in
Sections 10.1(a), (b) and (c) above, and such failure shall not be rectified or
cured to BankBoston's satisfaction within thirty (30) days after written notice
from BankBoston; or
(e) any representation or warranty made by the Company or any
of its Subsidiaries to BankBoston in connection with this Agreement or any other
Financing Agreement or any amendment to this Agreement or any other Financing
Agreement shall prove to have been false in any material respect on the date as
of which it was made or deemed to have been made or repeated; or
(f) The Company or any of its Subsidiaries shall fail (i) to
pay when due, or within any applicable period of grace, any obligation for
borrowed money or credit received (including without limitation the Senior
Indebtedness) and/or in respect of any Capital Leases in an aggregate amount in
excess of $500,000 or fail to observe or perform any material term, covenant or
agreement contained in any agreement by which it is bound, evidencing or
securing borrowed money or credit received (including without limitation the
Senior Indebtedness) and/or in respect of any Capital Leases, in an aggregate
amount in excess of $500,000 for such period of time as would permit (assuming
the giving of appropriate notice if required) the holder or holders thereof or
of any obligations issued thereunder to accelerate the maturity thereof, or (ii)
to perform and observe any of the covenants or provisions required to be
performed or observed by it pursuant to the Credit Agreement or the Senior Loan
Documents, and in either case such failure results in the acceleration of the
maturity of the Company's obligations thereunder in an aggregate amount in
excess of $500,000; or
(g) the Company or any of its Subsidiaries shall make an
assignment for the benefit of creditors, or admit in writing its inability to
pay or generally fail to pay its debts as they mature or become due, or shall
petition or apply for the appointment of a trustee or other custodian,
liquidator or receiver of the Company or any of its Subsidiaries or of any
substantial part of the assets of the Company or any of its Subsidiaries or
shall commence any case or other proceeding relating to the Company or any of
its Subsidiaries under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation or similar law of any
jurisdiction, now or hereafter in effect, or shall take any action to authorize
or in furtherance of any of the foregoing, or if any such petition or
application shall be filed or any such case or other proceeding shall be
commenced against the Company or any of its Subsidiaries and the Company or any
of its Subsidiaries shall indicate its approval thereof, consent thereto or
acquiescence therein or such petition or application shall not be dismissed
within sixty (60) days of the filing thereof;
<PAGE>
(h) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating the Company or any of its
Subsidiaries bankrupt or insolvent, or approving a petition in any such case or
other proceeding, or a decree or order for relief is entered in respect of the
Company or any Subsidiary of the Company in an involuntary case under federal
bankruptcy laws as now or hereafter constituted;
(i) there shall remain in force, undischarged, unsatisfied,
unstayed and unbonded (to the reasonable satisfaction of BankBoston), for more
than sixty (60) days, whether or not consecutive, any final judgment against the
Company and/or any of its Subsidiaries that, with other outstanding final
judgments, undischarged and unbonded (to the reasonable satisfaction of
BankBoston), against the Company or any of its Subsidiaries exceeds in the
aggregate $1,000,000;
(j) with respect to any pension plan, an ERISA Reportable
Event shall have occurred and BankBoston shall have determined in its reasonable
discretion that such event reasonably could be expected to result in liability
of the Company and/or any of its Subsidiaries to the PBGC or such pension plan
in an aggregate amount exceeding $1,000,000 and such event in the circumstances
occurring reasonably could constitute grounds for the termination of such
pension plan by the PBGC or for the appointment by the appropriate United States
District Court of a trustee to administer such pension plan; or a trustee shall
have been appointed by the United States District Court to administer such
pension plan; or the PBGC shall have instituted proceedings to terminate such
pension plan;
(k) if any of the Financing Agreements shall be canceled,
terminated, revoked or rescinded otherwise than in accordance with the terms
thereof or with the express prior written agreement, consent or approval of
BankBoston, or any action at law, suit in equity or other legal proceeding to
cancel, revoke or rescind any of the Financing Agreements shall be commenced by
or on behalf of the Company or any of its Subsidiaries party thereto or any of
their respective stockholders, or any court or any other governmental or
regulatory authority or agency of competent jurisdiction shall make a
determination that, or issue a judgment, order, decree or ruling to the effect
that, any one or more of the Financing Agreements is illegal, invalid or
unenforceable in accordance with the terms thereof;
(l) the Company or any of its Subsidiaries shall be enjoined,
restrained or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting any material part of its
business and such order shall continue in effect for more than thirty (30) days;
(m) there shall occur for more than thirty (30) days the loss,
suspension or revocation of, or failure to renew, any license or permit now held
or hereafter acquired by the Company or any of its Subsidiaries if such loss,
suspension, revocation or failure to renew would have a material adverse effect
on the business or financial condition of the Company or such Subsidiary; or
<PAGE>
(n) Andersen Group, Inc., shall, at any time prior to the
effectiveness of an IPO of the Company, legally or beneficially own less than a
majority of the issued and outstanding voting stock of the Company (other than
pursuant to BankBoston's exercise of the Warrant).
10.2. Remedies.
(a) Subject to Section 3.6, upon the occurrence and
continuance of any of the Events of Default under Section 10.1 hereof, in each
and every such case, the holder of the Note may proceed to protect and enforce
its rights by suit in equity, action at law and/or other appropriate proceedings
either for specific performance of any covenant, provision or condition
contained or incorporated by reference in this Agreement or in the Note or any
of the Security Documents, including as permitted by applicable law the
obtaining of the ex parte appointment of a receiver, or in aid of the exercise
of any power granted in this Agreement or in the Note or any of the Security
Documents, and (unless there shall have occurred an Event of Default under
Section 10.1(h) hereof, in which case the unpaid balance of the Note shall
automatically become due and payable) may by notice to the Company, declare all
or any part of the unpaid principal amount of the Note then outstanding to be
forthwith due and payable, and thereupon such unpaid principal amount or part
thereof, together with interest accrued thereon and any Applicable Prepayment
Charge and all other sums, if any, payable under this Agreement or the Note or
the Security Documents shall become so due and payable without presentation,
presentment, protest or further demand or notice of any kind, all of which are
hereby expressly waived, and such holder may proceed to enforce payment of such
amount or part thereof or any other legal or equitable right in such manner as
it may elect. No remedy herein conferred herein is intended to be exclusive of
any other remedy and each and every remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute or any other provision of law.
(b) Upon the occurrence and continuance of (A) any of the
Events of Default under Sections 10.1(c) (with respect to a breach of Sections
7.21 and/or 7.25, each as incorporated by reference into Section 8.1) or (B) any
failure of the Company to pay the Repurchase Price as and when required pursuant
to Section 11 (after giving effect to the provisions of Section 11.3) or (C) any
material breach by any party (other than BankBoston) of the Registration Rights
Agreement or the Warrant or any other Financing Agreement then in effect, in
each and every such case, (i) the Majority Holders of the Equity Securities may
proceed to protect and enforce its or their rights by suit in equity, action at
law and/or other appropriate proceeding for specific performance of any
covenant, provision or condition contained or incorporated by reference in this
Agreement or in any Related Agreement or (in the case of a breach under clause
(B) above, and to the extent not prohibited by applicable laws) in any Security
Document, or in aid of the exercise of any power granted in this Agreement or
any Related Agreement or (in the case of a breach under clause (B) above, and to
the extent not prohibited by applicable laws) in any Security Document, and (ii)
the Majority Holders of the Equity Securities may give a Put Notice to the
Company pursuant to Section 11 hereof and at any time after the giving of such
Put Notice, the theretofore unexercised "put" rights set forth in Section 11
hereof shall, to the extent not already exercisable, be deemed to have become
<PAGE>
immediately exercisable and the Majority Holders of Equity Securities may in
such Put Notice to the Company declare all or part of such theretofore
unexercised "put" rights to be forthwith exercised and due and payable,
whereupon the Repurchase Price for the Equity Securities subject thereto shall
become so due and payable without presentation, presentment, protest or further
demand or notice of any kind, all of which are expressly waived, and any such
holder or holders may proceed to enforce payment of such amount or part thereof
in such manner as it or they may elect. No remedy herein conferred herein is
intended to be exclusive of any other remedy and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or any other provision
of law. Notwithstanding the foregoing, after (x) full and final repayment of all
amounts due in connection with the Notes (including all principal, interest, and
prepayment premiums, if any) and (y) (to the extent that BankBoston exercises
its rights to put the Equity Securities under Section 11.1 contemporaneously
with repayment of the Notes) satisfaction of any obligations to repay the
Repurchase Price, BankBoston shall release the Collateral from the lien of the
Security Documents, and thereupon the provisions of this Section 10.2(b) shall
no longer apply to any enforcement by BankBoston of the liens and security
interests created pursuant to the Security Documents.
10.3. Waivers. Each of the Company and its Subsidiaries hereby
waives, to the extent not prohibited by applicable law, (a) all presentments,
demands for performance and notices of nonperformance (except to the extent
specifically required by the provisions hereof), (b) any requirement of
diligence or promptness on the part of any holder of Securities in the
enforcement of its rights under the provisions of this Agreement, the Company's
Charter, or any Financing Agreement, and (c) any and all notices of every kind
and description which may be required to be given by any statute or rule of law.
10.4. Course of Dealing. No course of dealing between the
Company or any of its Subsidiaries on the one hand, and BankBoston or any holder
of Securities, on the other hand, shall operate as a waiver of any of
BankBoston's or its rights under this Agreement, the Company's Charter, or any
Financing Agreement. No delay or omission in exercising any right under this
Agreement, the Company's Charter, or any Financing Agreement shall operate as a
waiver of such right or any other right. A waiver on any one occasion shall not
be construed as a bar to or waiver of any right or remedy on any other occasion.
<PAGE>
11. REPURCHASE OF EQUITY SECURITIES.
11.1. Right to Put Equity Securities. At any time, but only on
one occasion, on or after the Put Date, or on such earlier date as may be
determined under Section 10.2(b) hereof, BankBoston may, by notice to the
Company (a "Put Notice"), elect to sell to the Company (and the Company hereby
agrees to repurchase from BankBoston), at the Repurchase Price specified in
Section 11.4 hereof, such Equity Securities as are specified in the Put Notice.
For all purposes of this Section 11, each Warrant shall be treated as the number
of Common Shares for which it is then exercisable.
11.2. Put Closing. The put closing shall, subject to the terms
of ss.10.2(b) take place at the offices of the Company at 10:00 a.m. local time
on a date (a) not more than 120 days after the date a Put Notice is received by
the Company as the Company shall specify by notice to BankBoston, or at such
later time as Fair Market Value shall have been determined under Section 11.4(b)
hereof, or (b) at such other time and place as BankBoston and the Company may
agree upon (a "Put Closing Date"). At the put closing BankBoston will deliver to
the Company a certificate or certificates evidencing all of the Equity
Securities then to be purchased by the Company (properly endorsed or accompanied
by stock powers or, in the case of any Warrant, assignments, with signature(s)
guaranteed or similar appropriate documentation of authority to transfer)
against payment of the Repurchase Price to BankBoston in the manner specified in
Section 11.3 hereof. Except to the extent prohibited by applicable law, prior to
the Put Closing Date, the Company will provide BankBoston with all material
available information regarding the Company reasonably requested by BankBoston.
11.3. Payment. The Company shall pay the Repurchase Price at
any closing under Section 11.2 hereof out of funds legally available therefor in
cash or immediately available funds. If legally available funds are not
sufficient to pay the Repurchase Price in full at any closing, the failure to
pay the portion of the Repurchase Price for which legally available funds are
not available shall not constitute an Event of Default. In the event that any
portion of the Repurchase Price is not paid either in cash or immediately
available funds, BankBoston shall retain all BankBoston's rights hereunder and
with respect to the Equity Securities, as to that number of shares of Warrant
Stock or portion of the Warrants exercisable for that number of shares as such
unpaid portion represents (the "Unrepurchased Securities"), until such time as
the unpaid portion of the Repurchase Price and interest thereon, determined as
set forth below, shall be paid to BankBoston in full. If the Repurchase Price is
not paid on or prior to the Put Closing Date, BankBoston shall be entitled, by
notice to the Company (the "Rescission Notice"), to rescind BankBoston's put of
such Unrepurchased Securities pursuant to Section 11.1. Unless and until the
Company receives a Rescission Notice, the unpaid portion of the Repurchase Price
allocable to the Unrepurchased Securities shall remain an obligation of the
Company and shall become due and payable, in cash or immediately available
funds, as soon as there are funds legally available therefor. Interest shall
accrue from the date 120 days after the date on which the Company receives the
applicable Put Notice on any unpaid portion of the Repurchase Price at the per
annum rate that is 2% in excess of the Fixed Rate, compounded on a monthly basis
to the extent permitted by law and payable on demand.
<PAGE>
11.4. Repurchase Price for Equity Securities.
(a) Repurchase Price. The repurchase price (the "Repurchase Price") shall
be an amount equal to:
(i) in the case of each Common Share, the quotient obtained by dividing (A)
the greater of the Formula Value of the Company's common stock equity (as
determined pursuant to Section 11.4(c) hereof) or the Fair Market Value of the
Company's common stock equity (as determined pursuant to Section 11.4(b)
hereof), calculated as of the date of the related Put Notice under Section 11.1
hereof, respectively, plus, the aggregate consideration to be paid to the
Company upon the exercise of all then exercisable outstanding warrants, options
or convertible securities pursuant to which the Company is then obligated to
issue Common Stock by (B) the sum of (1) the number of shares of Common Stock
then outstanding plus (2) the number of shares of Common Stock then issuable
upon exercise of then outstanding warrants, options or convertible securities,
in each case to the extent then exercisable; and
(ii) in the case of each Warrant, (A) the product of the Repurchase Price
per Common Share then purchasable thereunder as determined under this Section
11.4(a) multiplied by the number of such shares then purchasable thereunder,
minus (B) the aggregate exercise price for such shares.
(b) Fair Market Value. For a period of 20 days after the date of any Put
Notice (the "Negotiation Period"), each party hereto agrees to negotiate in good
faith to reach agreement upon the fair market value of the Company's common
stock equity (the "Fair Market Value"). In the event that the parties are unable
to agree upon the Fair Market Value by the end of the Negotiation Period, the
Fair Market Value of the Company's common stock equity shall be determined for
purposes of this Section 11.4(b) initially by an appraiser of nationally
recognized standing selected by the Company (the "Company Appraiser") and whose
appraisal (the "Company Appraisal") shall be furnished to BankBoston within 30
days after the end of the Negotiation Period. If BankBoston does not object to
such determination within 15 days after receipt of such notice, the fair market
value determined by the Company Appraiser shall be the Fair Market Value. If
BankBoston objects to the Fair Market Value determined by the Company Appraiser,
BankBoston may select an Appraiser of nationally recognized standing (the
"BankBoston Appraiser") who shall review the determination of the Company
Appraiser and issue a report thereon (the "BankBoston Appraisal"), within 30
days after delivery to BankBoston of the Company Appraisal. Within 10 days after
delivery to the Company of the BankBoston Appraisal, the Company Appraiser and
the BankBoston Appraiser shall meet in order to resolve any questions or
differences with respect to the Fair Market Value. If such Appraisers agree on a
Fair Market Value of the Company's common stock equity, such Fair Market Value
shall be the Fair Market Value. If no agreement is reached, such Appraisers
shall select an appraiser of nationally recognized standing (the "Third
Appraiser") within five days after such meeting. Fair Market Value shall then be
<PAGE>
determined by the Third Appraiser within 30 days after delivery to the Company
of the BankBoston Appraisal, and the determination of the Third Appraiser shall
be conclusive and binding upon the Company and BankBoston. Fair Market Value
shall in all cases be calculated by determining the Fair Market Value of the
entire common stock equity interest of the Company taken as a whole, without
premium for control or discounts for minority interests or restrictions on
transfer. All expenses of the Company Appraiser shall be borne by the Company;
all expenses of the BankBoston Appraiser shall be borne by BankBoston; and all
expenses of the Third Appraiser shall be borne equally by the Company and
BankBoston.
(c) Formula Value. The Formula Value of the Company's common stock equity
at any particular date of determination shall be an amount calculated by adding
(1) the product obtained by (i) multiplying the number five (5) by (ii) the
difference obtained by (x) the Company's EBITDA for the twelve (12) full
calendar months immediately preceding such date (the "Test Period") minus (y)
the lesser of (A) the aggregate amount of non-discretionary, required
maintenance capital expenditures made by the Company during the Test Period and
(B) the aggregate amount of the Company's depreciation expense during the twelve
(12) calendar month period immediately preceding the Test Period, plus (2) the
sum of the Company's and its Subsidiaries' cash balances and cash equivalents on
hand as of such date, and minus (3) the aggregate amount of Indebtedness for
borrowed money outstanding as of such date and not prohibited by this Agreement.
12. SUBSEQUENT HOLDERS OF SECURITIES.
Whether or not any express assignment has been made in this Agreement,
the provisions of this Agreement and the Financing Agreements that are for
BankBoston's benefit as the holder of any Securities are also for the benefit
of, and enforceable by, all subsequent holders of Securities. If BankBoston
transfers any interest in the Common Shares to a transferee such that at any
time more than one Person shall hold the Common Shares, then any action or
decision provided herein to be taken or made by BankBoston during any such time
in respect of the Common Shares shall be taken or made by the holders of at
least 51% of the total number of then outstanding Common Shares. If BankBoston
transfers any interest in the Warrants to a transferee such that at any time
more than one Person shall hold the Warrants, then any action or decision
provided herein to be taken or made by BankBoston during any such time in
respect of the Warrants shall be taken or made by the holders of at least 51% of
the total number of then outstanding Common Shares issuable upon exercise of the
Warrants. If BankBoston transfers any interest in the Note to a transferee such
that at any time more than one Person shall hold the Note, then any action or
decision provided herein to be taken or made by BankBoston during any such time
in respect of the Note shall be taken or made by the holders of at least 51% of
the aggregate principal amount of the Note.
<PAGE>
13. REGISTRATION RIGHTS.
BankBoston shall have certain registration rights with respect to the
Equity Securities as set forth in the Registration Rights Agreement.
14. REGISTRATION AND TRANSFER OF SECURITIES.
14.1. Registration, Transfer and Exchange of Note.
(a) The Company shall keep at its principal office a register
in which shall be entered the name and address of the registered holder of the
Note issued by it and particulars of the Note held by it and of all transfers of
such Note. References to the "holder" or "holder of record" of the Note shall
mean the payee thereof unless the payee shall have presented the Note to the
Company for transfer and the transferee shall have been entered in said register
as a subsequent holder, in which case the terms shall mean such subsequent
holder. The ownership of the Note shall be proven by such register and the
Company may conclusively rely upon such register.
(b) The holder of a Note may at any time and from time to time
prior to maturity or redemption thereof surrender the Note held by it for
exchange or (subject to compliance with the applicable provisions of Section 16
hereof) transfer at said office of the Company. Within a reasonable time
thereafter and without expense (other than transfer taxes, if any) to such
holder, the Company shall issue, at its expense, in exchange therefor another
Note or Notes, dated the date to which interest has been paid on the surrendered
Note, for the same aggregate principal amount as the unpaid principal amount of
the Note or Notes so surrendered (subject to the applicable holder's endorsement
or execution of any documents reasonably requested by the Company to evidence
the cancellation of any surrendered Note), having the same maturity and rate of
interest, containing the same provisions and subject to the same terms and
conditions as the Note or Notes so surrendered. Each such new Note shall be in
the denominations and registered in the name of such person or persons as the
holder of such surrendered Note or Notes may designate in writing, and such
exchange shall be made in a manner such that no additional or lesser amount of
principal or interest shall result. The Company will pay shipping and insurance
charges, from and to each holder's principal office, involved in the exchange or
transfer of any Note.
(c) Each Note issued hereunder, whether originally or in
substitution for, or upon transfer or exchange of, any Note shall be registered
on the date of execution thereof by the Company. The registered holder of record
shall be deemed to be the owner of the Note for all purposes of this Agreement.
All notices given hereunder to the holder of record shall be deemed validly
given if given in the manner specified in Section 18 hereof.
<PAGE>
14.2. Registration, Transfer and Exchange of Warrants.
(a) The Company shall keep at its principal office a register
in which shall be entered the names and addresses of the holders of Warrants
issued by it and particulars of the respective Warrants held by them and of all
transfers of such Warrants. References to the "holder" or "holder of record" of
any Warrant shall mean the holder thereof unless the holder shall have presented
such Warrant to the Company for transfer and the transferee shall have been
entered in said register as a subsequent holder, in which case the terms shall
mean such subsequent holder. The ownership of any of the Warrants shall be
proven by such register and the Company may conclusively rely upon such
register.
(b) The holder of any of the Warrants may at any time and from
time to time prior to exercise, repurchase or redemption thereof surrender any
Warrant held by it for exchange or (subject to compliance with Section 16
hereof) transfer at said office of the Company. On surrender for exchange of the
Warrants, properly endorsed, to the Company, the Company at its expense will
issue and deliver to or on the order of the holder thereof a new warrant or
warrants of like tenor, in the name of such holder or, upon payment by such
holder of any applicable transfer taxes, as such holder may direct, calling in
the aggregate on the face or faces thereof for the number of Common Shares
called for on the face or faces of the Warrants so surrendered. The Company will
pay shipping and insurance charges, from and to each holder's principal office,
involved in the exchange or transfer of any Warrant.
(c) Each Warrant issued hereunder, whether originally or in
substitution for, or upon transfer or exchange of, any Warrant shall be
registered on the date of execution thereof by the Company. The registered
holder of record shall be deemed to be the owner of the Warrant for all purposes
of this Agreement. All notices given hereunder to the holder of record shall be
deemed validly given if given in the manner specified in Section 18 hereof.
14.3. Replacement of Securities. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Security and, in the case of any such loss, theft or
destruction, upon delivery of an indemnity bond in such reasonable amount as the
Company may determine (or, in the case of any Security held by BankBoston or
another institutional holder, an unsecured indemnity agreement from BankBoston
or such other holder reasonably satisfactory to the Company) or, in the case of
any such mutilation, upon the surrender of such Security for cancellation to the
Company at its principal office, the Company, at its own expense, will execute
and deliver, in lieu thereof, a new Security of like tenor, dated in the case of
a Note so that there will be no loss of interest. Any Security in lieu of which
any such new Security has been so executed and delivered by the Company shall
not be deemed to be outstanding for any purpose of this Agreement.
<PAGE>
15. REGULATORY RESTRICTIONS.
15.1. Bank Holding Company Act. No Person which is a bank
holding company or a subsidiary of a bank holding company (a "Bank Affiliate")
as defined in the Bank Holding Company Act of 1956, as amended, or other
applicable banking laws of the United States of America and the rules and
regulations promulgated thereunder (the "Bank Holding Company Act") shall
exercise its rights to acquire Common Stock, if, after giving effect to such
acquisition, the Bank Affiliate, together with its Affiliates, would own more
than five percent (5%) of the outstanding voting securities the Company.
Notwithstanding the foregoing, to the extent not inconsistent with the Bank
Holding Company Act, such acquisition rights may be exercised or shares of
Common Stock may otherwise be acquired in the event that:
(a) The Company shall vote to merge or consolidate with or
into any other Person and after giving effect to such merger or consolidation
the Bank Affiliate would not own more than five percent (5%) of the outstanding
voting securities of the surviving corporation;
(b) said holder desires to sell shares of Common Stock to be
obtained by such acquisition in connection with any proposed purchase of Common
Stock by another Person (other than a Bank Affiliate); or
(c) said holder exercises its registration rights pursuant to
the Registration Rights Agreement and the registration statement resulting
therefrom is effective.
15.2. Statement of Compliance. For purposes of this Agreement,
a written statement of BankBoston or any of its Affiliates acquiring Common
Stock, delivered to the Company upon acquisition of any shares of Common Stock,
to the effect that BankBoston or its Affiliate, as the case may be, is legally
entitled to exercise its rights to purchase securities of the Company and that
such exercise will not violate or contravene any law or regulation or any
judgment, decree or order of any governmental authority then applicable to
BankBoston or such Affiliate, as the case may be, shall be conclusive and
binding upon the Company and shall absolutely obligate and bind the Company to
deliver, in accordance with the other terms and provisions hereof, certificates
or other appropriate instruments representing the securities so purchased.
16. RESTRICTIONS ON TRANSFER.
16.1. General Restriction. The Securities shall be
transferable to Permitted Transferees only upon the satisfaction of the
conditions set forth below in this Section 16. For purposes of this Section
16.1, a "Permitted Transferee" shall mean a Person (other than a natural person)
that constitutes an "accredited investor" as defined in Rule 501 promulgated
under the Securities Act.
<PAGE>
16.2. Notice of Transfer. Prior to any transfer of any
Securities, the holder thereof shall be required to give written notice to the
Company describing in reasonable detail the manner and terms of the proposed
transfer and the identity of the proposed transferee (the "Transfer Notice"),
accompanied by (a) an opinion of BankBoston's Special Counsel addressed to the
Company or other counsel reasonably acceptable to the Company, that such
transfer may be effected without registration of such Securities under the
Securities Act and applicable state securities laws, and (b) the written
agreement of the proposed transferee to be bound by all of the provisions hereof
and of the Financing Agreements, applicable to holders of such Securities
hereunder or thereunder.
16.3. Restrictive Legends. Except as otherwise permitted by
this Section 16, each Security shall bear the legend specified for such Security
in Schedule 16.3 hereto and any other legend required by law or regulation.
16.4. Termination of Restrictions. The restrictions imposed by
this Section 16 upon the transferability of Securities shall terminate as to any
particular Securities when such Securities shall have been effectively
registered under the Securities Act or sold pursuant to a Public Sale. Whenever
any of such restrictions shall terminate as to any Securities, the holder
thereof shall be entitled to receive from the Company, at such Person's expense,
new Securities without such legends except that any legend required by law or
regulation will be removed only upon delivery to the Company of an opinion of
counsel of the type referred to in clause (a) of Section 16.2 hereof to the
effect that such legend may be removed.
17. EXPENSES; INDEMNITY.
(a) The Company hereby agrees to pay on demand all reasonable
out-of-pocket expenses incurred by BankBoston, in connection with the
transactions contemplated by this Agreement and the Related Agreements and in
connection with any amendments or waivers (whether or not the same become
effective) hereof or thereof and all reasonable out-of-pocket expenses incurred
by BankBoston or any holder of any Security issued hereunder in connection with
the enforcement of any rights hereunder, under any other Related Agreement or
with respect to any Security, including without limitation (i) the cost and
expenses of preparing and duplicating this Agreement, each other Financing
Agreement and Related Agreement and the Securities; (ii) the cost of delivering
to BankBoston's principal offices, insured to BankBoston's satisfaction, the
Securities sold to BankBoston hereunder and any Securities delivered to
BankBoston in exchange therefor or upon any exercise, conversion or substitution
thereof; (iii) the reasonable fees, expenses and disbursements of BankBoston's
Special Counsel in connection with the transactions contemplated by this
Agreement and the Related Agreements and any amendments, modifications,
approvals, consents or waivers hereunder or thereunder; (iv) the reasonable
fees, expenses and disbursements of BankBoston's accountants and other
consultants, in connection with BankBoston's due diligence investigation of the
<PAGE>
Company prior to the execution of this Agreement or following the occurrence of
a default hereunder; (v) all documentary stamp and similar taxes at any time
payable in respect of this Agreement, any other Related Agreement or the
issuance of any of the Securities; and (vi) all reasonable out-of-pocket
expenses (including without limitation reasonable attorneys' fees and costs,
travel and lodging expenses related to board attendance, observation or
inspection, and reasonable consulting, accounting, appraisal, investment banking
and similar professional fees and charges) incurred by BankBoston in connection
with (A) the exercise, enforcement or preservation of rights under this
Agreement or any of the Related Agreements against the Company or any of its
Subsidiaries or the administration thereof whether before or after the
occurrence of a Default or Event of Default and (B) any litigation, proceeding
or dispute whether arising hereunder or otherwise, in any way related to
BankBoston's relationship with the Company or its Subsidiaries.
(b) The Company hereby further agrees to indemnify, exonerate
and hold BankBoston and BankBoston's stockholders, officers, directors,
employees and agents free and harmless from and against any and all actions,
causes of action, suits, losses, liabilities, damages and expenses (including,
without limitation, reasonable attorneys' fees and disbursements), incurred in
any capacity by any of the indemnitees as a result of or relating to (A) any
transaction financed or to be financed in whole or in part directly or
indirectly with proceeds from the sale of any of the Securities, or (B) the
execution, delivery, performance or enforcement of this Agreement (including,
without limitation, any failure by the Company to comply with any of its
covenants hereunder), the Related Agreements or any instrument contemplated
hereby or thereby, except, in each such case, for any such liabilities arising
from any indemnitee's breach of this Agreement, gross negligence or willful
misconduct.
(c) The Company hereby indemnifies BankBoston against and
agrees that it will hold BankBoston harmless from any claim, demand or liability
for any broker's, finder's or placement fees or lender's incentive fees alleged
to have been incurred in connection with the transactions contemplated by this
Agreement or the Related Agreements.
(d) The obligations of the Company under this Section 17 shall
survive payment or transfer of the Securities and the termination of this
Agreement.
18. NOTICES.
Any notice or other communication in connection with this Agreement,
any other Financing Agreement or the Securities shall be deemed to be delivered
if in writing (or in the form of a telex or telecopy) addressed as provided
below (a) when actually delivered, telexed or telecopied to said address or (b)
in the case of a letter, three business days shall have elapsed after the same
shall have been deposited in the United States mails, postage prepaid and
registered or certified:
<PAGE>
if to the Company, at The J.M. Ney Company, Ney Industrial Park,
Bloomfield, Connecticut 06002, Attention: Andrew M. O'Shea, Chief Financial
Officer, or at such other address for notice as the Company shall last have
furnished in writing to the Person giving the notice;
if to BankBoston, at 100 Pearl Street, Hartford, Connecticut 06103,
Attention: Kevin Flaherty, Senior Vice President, or such other address for
notice as BankBoston shall last have furnished in writing to the Person giving
the notice; and
If to any other holder of record of any Security, to it at its address set
forth in the applicable register referred to in Section 14 hereof.
19. SURVIVAL OF COVENANTS.
All covenants, agreements, representations and warranties made herein
or in any other document referred to herein or delivered to BankBoston pursuant
hereto shall be deemed to have been relied on by BankBoston, notwithstanding any
investigation made by BankBoston or on BankBoston's behalf, and shall survive
the execution and delivery to BankBoston hereof and of the Securities.
20. AMENDMENTS AND WAIVERS.
Any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of the Company and each holder of a Note and the Majority Holders of the
Equity Securities, respectively, with respect to any provision of this Agreement
which by its terms operates for the benefit of such respective holders. Any term
of the Note may be amended and the observance of any term of the Notes may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only with the written consent of the Company and the holder of
such Note with respect to whom such amendment or waiver is made. Notwithstanding
the foregoing, (a) without the prior written consent of each holder of Equity
Securities with respect to whom such amendment or waiver is made, no such
amendment or waiver shall extend the scheduled date of any required repurchase
of such respective Securities held by such holder or reduce the repurchase price
payable thereon, (b) without the written consent of the aforesaid percentage of
Securities reduce the aforesaid percentage of Securities the holders of which
are required to consent to any such amendment or waiver, or (c) without the
written consent of the percentage of the holders of each Security required to
exercise the remedies provided in Section 10.2 hereof, increase such required
percentage. Any amendment or waiver effected in accordance with this Section 20
shall be binding upon each holder of any Security sold pursuant to this
Agreement and the Company.
<PAGE>
21. CONSENT TO JURISDICTION.
THE COMPANY HEREBY AGREES TO SUBMIT TO THE NON-EXCLUSIVE JURISDICTION
OF THE COURTS IN AND OF THE STATE OF CONNECTICUT, AND CONSENTS THAT SERVICE OF
PROCESS WITH RESPECT TO ALL COURTS IN AND OF THE STATE OF CONNECTICUT MAY BE
MADE BY REGISTERED MAIL TO IT AT ITS ADDRESS SET FORTH ON PAGE 1 HEREOF.
22. RIGHT TO PUBLICIZE.
The Company hereby acknowledges that BankBoston will have the right to
publicize its investment in the Company as contemplated hereby by means of a
tombstone advertisement or other customary advertisement in newspapers and other
periodicals.
23. WAIVER OF JURY TRIAL.
THE COMPANY HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE TO A JURY
TRIAL IN ANY SUIT, ACTION OR PROCEEDING EXISTING UNDER OR RELATING TO THIS
AGREEMENT, THE SECURITIES OR ANY OF THE OTHER FINANCING AGREEMENTS.
24. GOVERNING LAW.
THIS AGREEMENT AND EACH OF THE OTHER FINANCING AGREEMENTS ARE CONTRACTS
UNDER THE LAWS OF THE STATE OF CONNECTICUT AND SHALL FOR ALL PURPOSES BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID STATE (EXCLUDING
THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE COMPANY AGREES THAT ANY
SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING
AGREEMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF CONNECTICUT OR ANY
FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF
SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE COMPANY
BY MAIL AT THE ADDRESS SPECIFIED IN ss.18. THE COMPANY HEREBY WAIVES ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY
SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.
<PAGE>
25. COMMERCIAL TRANSACTION; PREJUDGMENT REMEDY WAIVER.
THE COMPANY REPRESENTS, WARRANTS AND ACKNOWLEDGES THAT THE TRANSACTION
OF WHICH THIS LOAN AGREEMENT AND THE OTHER FINANCING AGREEMENTS ARE A PART IS A
"COMMERCIAL TRANSACTION" WITHIN THE MEANING OF CHAPTER 903A OF CONNECTICUT
GENERAL STATUTES, AS AMENDED. THE COMPANY HEREBY WAIVES ITS RIGHT TO NOTICE AND
PRIOR COURT HEARING OR COURT ORDER UNDER CONNECTICUT GENERAL STATUTES SECTIONS
52-278a ET. SEQ. AS AMENDED OR UNDER ANY OTHER STATE OR FEDERAL LAW WITH RESPECT
TO ANY AND ALL PREJUDGMENT REMEDIES BANKBOSTON MAY EMPLOY TO ENFORCE THEIR
RIGHTS AND REMEDIES HEREUNDER AND UNDER THE OTHER FINANCING AGREEMENTS. MORE
SPECIFICALLY, COMPANY ACKNOWLEDGES THAT BANKBOSTON'S AND/OR ITS ATTORNEY MAY,
PURSUANT TO CONN. GEN. STAT. ss.52-278f, ISSUE A WRIT FOR A PREJUDGMENT REMEDY
WITHOUT SECURING A COURT ORDER. THE COMPANY ACKNOWLEDGES AND RESERVES ITS RIGHT
TO NOTICE AND A HEARING SUBSEQUENT TO THE ISSUANCE OF A WRIT FOR PREJUDGMENT
REMEDY AS AFORESAID AND BANKBOSTON ACKNOWLEDGES COMPANY'S RIGHT TO SAID HEARING
SUBSEQUENT TO THE ISSUANCE OF SAID WRIT.
26. MISCELLANEOUS.
This Agreement and the other Financing Agreements set forth the entire
understanding of the parties hereto with respect to the transactions
contemplated hereby and supersede any prior written or oral understandings with
respect thereto. The invalidity or unenforceability of any term or provision
hereof shall not affect the validity or enforceability of any other term or
provision hereof. The headings in this Agreement are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof. THIS
AGREEMENT MAY BE EXECUTED IN ANY NUMBER OF COUNTERPARTS WHICH TOGETHER SHALL
CONSTITUTE ONE INSTRUMENT, AND SHALL BIND AND INURE TO THE BENEFIT OF THE
PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS.
<PAGE>
If the foregoing corresponds with BankBoston's understanding of our
agreement, kindly sign this letter and the accompanying copies thereof in the
appropriate space below and return one counterpart of the same to the Company,
at the address first listed above.
Very truly yours,
THE J.M. NEY COMPANY
By: /s/ Andrew M. O'Shea
--------------------
Title: Chief Financial Officer
Accepted and agreed to:
BANKBOSTON, N.A.
By: /s/ Kevin Flaherty
------------------
Title: Senior Vice President
E-5
Exhibit 10.11
ASSET PURCHASE AGREEMENT
EFFECTIVE AS OF
February 28, 1998
among
CAE U.S. INC.
(Buyer)
and
NEY ULTRASONICS INC.
(Seller)
and
ANDERSEN GROUP, INC.
(Andersen)
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is effective as of February
28, 1998, among CAE U.S. INC., a Delaware corporation ("Buyer"), NEY ULTRASONICS
INC., a Delaware corporation ("Seller") and ANDERSEN GROUP, INC., a Connecticut
corporation ("Andersen").
R E C I T A L S:
The Seller desires to sell to Buyer, and Buyer desires to acquire from
the Seller, all of the assets used by Seller in the operation of its business,
except as specifically excluded herein (the "Business") for the consideration
and on the terms and conditions set forth in this Agreement.
Andersen is the ultimate parent company of Seller and has agreed to
make certain representations and warranties contained in this Agreement and
indemnify the Buyer pursuant to the terms hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and undertakings hereinafter set forth, the parties hereto, intending
to be legally bound, do hereby agree as follows:
1. DEFINITIONS
Certain capitalized terms used in this Agreement have the
meanings specified in the Glossary attached hereto. Other capitalized terms are
defined in the body of this Agreement.
2. SALE AND TRANSFER OF ASSETS
2.1 ASSETS
(a) Subject to the terms and conditions of this Agreement, at the Closing,
the Seller will sell, transfer and convey all of the following assets to Buyer,
and Buyer will purchase all of the following assets and business from the
Seller:
(i) all inventory, including without limitation, raw materials,
work-in-progress, finished goods and replacement parts (collectively, the
"Inventory") which exists on the Closing Date (as defined below);
(ii) all office supplies, maintenance supplies, packaging materials, spare
parts and similar items of the Business (collectively, the "Office Supplies")
which exist on the Closing Date (as defined below);
(iii) all accounts, accounts receivable, notes and notes receivable
relating to the Business existing on the Closing Date which are payable to the
<PAGE>
Seller, including any security held by the Seller for the payment thereof (the
accounts, accounts receivable, notes and notes receivable, including any related
security therein, to be transferred to the Buyer pursuant hereto are
collectively referred to herein as the "Accounts Receivable");
(iv) all prepaid expenses of the Seller relating to the Business existing
on the Closing Date other than those related to Excluded Assets (as defined
below).
(v) all rights of the Seller under the contracts, agreements, leases,
licenses and other instruments relating to the Business all as set forth in Part
3.17(a) and Part 3.17(b) of the Disclosure Schedule (as defined below);
(vi) originals or copies of all of the Seller's books, records and
accounts, correspondence, production records, technical, accounting,
manufacturing and procedural manuals, customer lists, employment records,
studies, reports or summaries relating to any environmental conditions or
consequences of any operation relating to the Business, present or former, as
well as all studies, reports or summaries relating to any environmental aspect
or the general condition of the Assets (as defined below), and any confidential
information which has been reduced to writing relating to or arising out of the
Business;
(vii) all rights of the Seller under express or implied warranties from the
suppliers of the Business;
(viii) all of the machinery, computer and other equipment, tools, hardware,
maintenance, machinery and equipment and furniture, vehicles, and personal
property relating to the Business owned, leased or used by the Seller on the
Closing Date unless specifically excluded herein as an Excluded Asset (as
defined below), whether or not reflected as capital assets in the accounting
records of the Seller relating to the Business (collectively, the "Fixed
Assets");
(ix) all of the Seller's right, title and interest in and to all
Intellectual Property Assets, as defined in Section 3.22; and
(x) except as specifically provided in Subsection 2.1(b) hereof, all other
assets, properties, claims, rights and interests of the Seller relating to the
Business which exist on the Closing Date, of every kind and nature and
description, whether tangible or intangible, real, personal or mixed.
(b) Notwithstanding the provisions of paragraph (a) above, the assets to be
transferred to the Buyer under this Agreement shall not include those assets
listed in Part 2.1(b) of the Disclosure Schedule (the "Excluded Assets").
<PAGE>
(c) The Inventory, Office Supplies, Accounts Receivable, Assumed Contracts,
Fixed Assets, Intellectual Property Assets, Software and other properties,
assets and business of the Seller relating to the Business described in
paragraph (a) above, other than the Excluded Assets, shall be referred to
collectively as the "Assets."
2.2 ASSUMPTION OF LIABILITIES
(a) On and after the Closing Date, the Buyer shall be responsible for and
hereby assumes and agrees to perform, pay and discharge the following
liabilities, obligations and commitments of the Seller relating to the Business
(the "Assumed Liabilities"):
(i) all trade accounts payable and accrued expenses of the Seller relating
to the Business incurred in the ordinary course of business through the Closing
Date, other than liabilities and liens for Taxes or deferred Taxes, accounts
payable which are outstanding for more than three (3) months as of the Closing
Date and accounts payable that are contingent or are not fixed in amount as of
the Closing Date;
(ii) all obligations of the Seller relating to the Business continuing
after the Closing under the Assumed Contracts set forth in Part 3.17(a) of the
Disclosure Schedule;
(iii) all other liabilities and obligations of the Seller specifically set
forth in Part 2.2 of the Disclosure Schedule; and
(iv) any liability in respect of product liability, product warranty and
other claims and obligations respecting products and services as contemplated in
Section 2.3(a).
(b) The Buyer shall not at the Closing assume or agree to perform, pay or
discharge, and the Seller shall remain unconditionally liable for, all
obligations, liabilities and commitments, fixed or contingent, of the Seller
other than the Assumed Liabilities including, but not limited to, all
pre-Closing Date obligations and liabilities of the Seller, of any nature
whatsoever.
(c) Notwithstanding any provision herein to the contrary, the Buyer shall
be solely liable for the prompt and full discharge of the Assumed Liabilities
and also for any liabilities arising from, or in connection with the Assets
acquired by the Buyer after the consummation of the transactions contemplated
hereby.
(d) For greater certainty, and without limiting the generality of Section
2.2(b), Seller shall remain liable for and shall pay, satisfy, discharge,
perform and fulfill, all other obligations and liabilities of Seller which are
not Assumed Liabilities existing, accrued or accruing (whether direct or
indirect, known or unknown) as at the Closing (the "Excluded Liabilities"),
including, without limitation, the following obligations and liabilities:
(i) any liability for Taxes payable, collectible or remittable by the
Seller in respect of the Business and the Assets in respect of the period prior
to the Closing Date, and, for greater certainty real property and other similar
Taxes levied with respect to the Assets for a taxable period that includes but
does not end on the Closing Date shall be apportioned between the Seller and the
Buyer such that the Seller shall be liable for the amount determined by
multiplying the Taxes to be apportioned by a fraction, the numerator of which is
the number of days in the taxable period up to and including the Closing Date
and the denominator of which is the total number of days in the period, and the
Buyer shall be liable for the balance.
(ii) any liability owing to any lender of the Seller, including without
limitation, any bank overdrafts or bank indebtedness and any indebtedness or
liabilities owing under any trust indenture, mortgage, promissory note, loan
agreement, guaranty or other contract for the borrowing of money;
(iii) any liability in respect of a Contract not disclosed in this
Agreement;
(iv) any liability of Seller owing to Buyer or any Affiliate of Buyer;
(v) any liability or obligation in respect of the causes of action and
grievances described in the Disclosure Schedules;
(vi) any liability or obligation relating to the Excluded Assets; and
(vii) any intercompany payables from Seller to any Affiliate of Seller.
2.3 PRODUCT LIABILITY AND WARRANTY OBLIGATIONS
(a) The Buyer shall assume any and all Liability arising out of or
resulting from any product liability, product warranty and other claims,
liabilities and obligations arising from the products manufactured by the
Seller.
(b) The Seller shall indemnify and hold harmless the Buyer from and against
any and all Liability, subject to the limitations provided in Section 2.3(c)
arising out of Section 2.3(a) to the extent that such Liability relates to:
(i) products manufactured, sold or delivered and/or services provided, by
the Seller in connection with the shop order numbers identified on Part 2.3(a)
of the Disclosure Schedule;
(ii) any Recurring Defect (as defined below) existing on or before the
Closing Date and contained in the Inventory comprising the Assets, whether such
Liability arose before or after the Closing and whether known or unknown as of
the Closing Date. Recurring Defect shall mean a specific defect in workmanship,
design or component that arises in twenty-five percent (25%) or more of a
particular type of product sold by the Seller.
Notwithstanding anything contained herein to the contrary, with respect to
any claim that may involve an obligation by the Seller pursuant to this Section
2.3(b), the Buyer shall provide the Seller with an opportunity to assess the
claim and comment on its validity and the proposed response by the Buyer.
(c) For purposes of calculating the indemnity provided in Section 2.3(b),
all product warranty work shall be performed by Buyer at Buyer's Loaded Labor
Cost plus material cost and reasonable out-of-pocket expenses, including freight
costs, travel, lodging and meals. In any such case, provided such product
warranty obligation was a valid and enforceable obligation or liability of the
Seller and the claim in respect thereof was valid, the Seller shall reimburse
the Buyer forthwith following demand by the Buyer for all costs set forth herein
incurred by the Buyer in repairing or replacing products.
(d) Notwithstanding the foregoing, nothing contained in this Section 2.3
shall affect the rights of the Buyer under Section 9 hereof in respect of any
Liability suffered or incurred by it as a result of or arising out of any
inaccuracy of any representation or warranty.
2.4 ADDITIONAL SELLER LIABILITIES
[RESERVED]
2.5 PURCHASE PRICE
Subject to the adjustment as set forth in Section 2.10, the purchase price
("Purchase Price") for the Assets will be Two Million Nine Hundred Thousand and
00/100 Dollars ($2,900,000.00) and shall be payable as follows:
(a) Two Million Four Hundred Thousand and 00/100 Dollars ($2,400,000.00)
shall be paid in immediately available funds at the Closing; and
(b) the remainder of the Purchase Price shall be paid into escrow pursuant
to the terms of the Escrow Agreement (as hereinafter defined) and disbursed in
accordance with Section 2.10 of this Agreement.
2.6 OTHER CONSIDERATION
In addition to the payment of the Purchase Price, Buyer shall enter into
the Technology Assignment Agreement in the form of Exhibit 2.6 attached hereto
(the "Technology Assignment Agreement").
<PAGE>
2.7 CLOSING
The closing of the purchase and sale of the Assets (the "Closing") provided
for in this Agreement will take place at the offices of Edwards & Angell, 750
Main Street, Hartford, Connecticut 06103 at 10:00 a.m. (local time) on March 4,
1998 or at such other time and place as the parties may agree. Subject to the
provisions of Section 8.1(d), failure to consummate the purchase and sale
provided for in this Agreement on the date and time and at the place determined
pursuant to this Section 2.7 will not result in the termination of this
Agreement and will not relieve any party of any obligation under this Agreement.
2.8 APPORTIONMENT
If the amounts of any common area charges under real property leases
transferred to the Buyer have not been determined at the Closing Date, they
shall be apportioned on the basis of such charges assessed for the preceding
year, with a reapportionment upon and in the event of any new apportionment or
valuation method or scheme; and if such charges which are to be apportioned
shall thereafter be reduced, the amount of such reduction shall be apportioned
between the Buyer and the Seller.
2.9 CLOSING OBLIGATIONS
(a) At the Closing, the Seller will deliver to Buyer:
(i) the Bill of Sale in the form of Exhibit 2.9(a)(i) (the "Bill of Sale");
(ii) the assignments and such other certificates, documents and instruments
of sale, transfer, conveyance and assignment as Buyer and its counsel may
reasonably request;
(iii) the Technology Assignment Agreement in form and substance
satisfactory to the Buyer;
(iv) a certificate executed by the Seller and Andersen representing and
warranting to Buyer that Seller's and Andersen's representations and warranties
in this Agreement were accurate in all respects as of the date of this Agreement
and are accurate in all respects as of the Closing Date as if made on the
Closing Date (giving full effect to any supplements to the Disclosure Schedules
that were delivered by the Seller to Buyer prior to the Closing Date in
accordance with this Agreement);
(v) the Disclosure Schedule in form and substance satisfactory to the
Buyer;
<PAGE>
(vi) the New Lease as set forth in Section 5.8(a);
(vii) the Escrow Agreement in the form of Exhibit 2.9(a)(vii) (the "Escrow
Agreement");
(viii) the Trademark Assignment Agreement in the form of Exhibit
2.9(a)(viii) (the "Trademark Assignment Agreement"); and
(ix) the Agreement and Use of Name and Logo, in the form of Exhibit
2.9(a)(ix).
(b) At the Closing, Buyer will deliver to the Seller:
(i) the Purchase Price in accordance with Section 2.5;
(ii) a certificate executed by Buyer to the effect that, each of Buyer's
representations and warranties in this Agreement were accurate in all respects
as of the date of this Agreement and are accurate in all respects as of the
Closing Date as if made on the Closing Date (giving full effect to any
supplements to the Disclosure Schedule that were delivered by the Buyer to
Seller prior to the Closing Date in accordance with this Agreement);
(iii) the Technology Assignment Agreement executed by Buyer;
(iv) the New Lease as set forth in Section 5.8(a) executed by the Buyer;
(v) the Escrow Agreement;
(vi) the Trademark Assignment Agreement; and
(vii) the Agreement and Use of Name and Logo.
2.10 PURCHASE PRICE ADJUSTMENT
(a) Buyer and Seller have based the Purchase Price on the assumption that
(i) the Capital Employed of the Seller contained on the August 1, 1997 Balance
Sheet was One Million Nine Hundred Thousand and 00/100 Dollars ($1,900,000.00)
("Estimated Capital Employed"); and (ii) the Operating Income of the Seller for
the period ending Februaryy28, 1998 will be Four Hundred Sixty-Eight Thousand
and 00/100 Dollars ($468,000.00) ("Estimated Operating Income"). The Purchase
Price will be adjusted as follows: (i) if the Capital Employed shown on the
Closing Financial Statements exceeds the Estimated Capital Employed, the
Purchase Price shall be increased dollar-for-dollar by the amount of the
increase; (ii) if the Capital Employed shown on the Closing Financial Statements
is less than the Estimated Capital Employed, the Purchase Price shall be reduced
dollar-for-dollar by the amount of the decrease; (iii) if the Operating Income
on the Closing Financial Statements exceeds the Estimated Operating Income, the
Purchase Price shall not be adjusted; and (iv) if the Operating Income on the
Closing Financial Statements, after giving effect to the audit adjustment
referred to in Section 2.11(c), is less than Four Hundred Twenty One Thousand
and 00/100 Dollars ($421,000.00), the Purchase Price shall be reduced Five and
00/100 Dollars ($5.00) for every One Dollar ($1.00) of the amount of the
difference between the Operating Income on the Closing Financial Statements
after giving effect to such adjustments in Section 2.11(c), and the Estimated
Operating Income.
(b) Solely for purposes of calculating the adjustment to Operating Income
referred to in Section 2.10(a)(iv) in connection with the preparation of the
Closing Financial Statements, there shall be a post closing adjustment equal to
the difference between (i) the amount of revenue, cost and income recognized by
Seller in preparing the Closing Financial Statements, for the Pratt and Whitney
job, and two Johnson & Johnson jobs (shop order numbers 34244 and 34905) and
(ii) the final revenue, cost and income attributable to the Pratt & Whitney job
and the Johnson & Johnson jobs (shop order numbers 34244 and 34905).
(c) The amount of the adjustment to the Purchase Price set forth in Section
2.10(a) shall be added to the sum of Five Hundred Thousand and 00/100 Dollars
($500,000.00), if an increase is due, and subtracted from the sum of Five
Hundred Thousand and 00/100 Dollars ($500,000.00), if a reduction is due, and
paid by Buyer in accordance with the time periods set forth in Section 2.11
below. If the amount of the adjustment pursuant to Section 2.10(a) exceeds Five
Hundred Thousand and 00/100 Dollars ($500,000.00), and is a reduction, Seller
shall pay the additional amount in excess of Five Hundred Thousand and 00/100
Dollars ($500,000.00) to Buyer in accordance with the time periods set forth in
Section 2.11 below.
2.11 ADJUSTMENT PROCEDURE
(a) The Seller will prepare and the Buyer's Auditors, Price Waterhouse
L.L.P., will audit the Closing Financial Statements of the Seller. The Seller
will deliver the Closing Financial Statements to Buyer and the Buyer's Auditor
within forty-five (45) days after the Closing Date. The Buyer and the Buyer's
Auditor shall have forty-five (45) days after receipt of the Closing Financial
Statements from the Seller to review the Closing Financial Statements and
deliver to the Buyer and the Seller the Auditor's Report stating that the
Closing Financial Statements fairly present (1) the Balance Sheet and the
statement of Net Assets of Seller at February 28, 1998 in conformity with
Generally Accepted Accounting Principles applied on a consistent basis with the
past practices of Seller and with the August 1, 1997 Balance Sheet and (2) the
Operating Income of Seller for the fiscal year ended February 28, 1998 in
conformity with Generally Accepted Accounting Principles applied on a consistent
basis with the past practices of the Seller and with Seller's Operating Income
Statement for the five (5) months ended July 31, 1997 and the March 1997
Forecast. If within ten (10) days following delivery of the Auditor's Report,
either party has not given notice of its objection to the Closing Financial
Statements (such notice must contain a statement of the basis of such
objection), then the Capital Employed and Operating Income reflected in the
Closing Financial Statements will be used in computing the adjustment amount set
forth in Section 2.10(c). If either party gives such notice of objection, the
Buyer and the Seller shall attempt in good faith to resolve the matter or
matters in dispute. If the Buyer and the Seller, notwithstanding such good faith
effort, shall have failed to resolve the matter or matters in dispute within
twenty (20) business days after receipt of the written notice of dispute, then
any remaining disputed matters shall be finally and conclusively determined by
an independent auditing firm of recognized national standing (the "Arbiter")
selected by the Buyer and the Seller, which shall be Arthur Andersen L.L.P.,
unless such firm shall have a conflict of interest with the Buyer or the Seller
which is not waived by the appropriate party. Promptly, but not later than
twenty (20) business days after its acceptance of its appointment, the Arbiter
shall determine (based upon a review of work papers and other documents and
information relating to the disputed issues as the Arbiter may request) only
those issues in dispute and shall render a report as to the disputes, which
report shall be conclusive and binding upon the parties hereto. If within twenty
(20) business days of the receipt of a written notice of dispute the parties
determine that Arthur Andersen cannot serve as the Arbiter because of a conflict
of interest with either the Buyer or the Seller and the parties cannot agree
upon a substitute within such period, the parties shall submit the matter of the
selection of the Arbiter to the American Arbitration Association ("AAA") for
resolution. Any such arbitration shall take place in, and shall be in accordance
with the Commercial Arbitration Rules of the AAA in Hartford, Connecticut. Each
of the Buyer and the Seller shall promptly select a single arbitrator and file
with the AAA a notice of appointment. The two (2) arbitrators so chosen shall
select a third arbitrator who shall act as chairperson of the arbitration. If
either the Buyer or the Seller should abstain from selecting an arbitrator, or
should the two arbitrators selected above fail to select a third, then at the
request of either party, the President of the AAA shall select an arbitrator, to
fill the vacant position within ten (10) business days of such request. The
arbitration panel shall thereafter select the Arbiter, and the Buyer and the
Seller agree to cooperate with the arbitration panel to facilitate the speedy
selection of the Arbiter. The fees and expenses of the arbitration panel shall
be borne fifty percent (50%) by the Buyer and fifty percent (50%) by the Seller.
In resolving any disputed item, the Arbiter may not assign a value to any
particular item greater than the greatest value for such item claimed by either
party or less than the smallest value for such item claimed by either party in
each case, as presented to the Arbiter. The fees and disbursements of the
Arbiter shall be allocated between the Buyer and the Seller based upon the
percentage ratio that the sum of the net amounts subject to dispute resolved
against each of the parties bears to the total of the net amounts subject to
dispute. For this purpose, the "net amounts subject to dispute" shall represent
the difference between the amount of such items as proposed by the Buyer and the
corresponding amount of such items proposed by the Seller, in each case as
submitted to the Arbiter.
(b) On the tenth (10th) business day following the date on which the
Closing Financial Statements are agreed to in accordance with Section 2.11(a),
the final determination of the Purchase Price Adjustment shall be made, and paid
in accordance with Section 2.10(c).
(c) For purposes of complying with the terms set forth herein, each party
shall cooperate with and promptly make available to the other party and its
auditors and representatives, all information, records, data, auditors' working
papers, and access to its personnel, shall permit access to its facilities and
shall permit the other party and its auditors and representatives to make copies
of all information, records, data and auditors' working papers, in each case as
may be reasonably required in connection with the analysis of the Closing
Financial Statements, the calculation of the Capital Employed and Operating
Income and the resolution of any dispute(s) thereunder. Buyer acknowledges that
the Percentage-of-Completion Method of Accounting shall be used in the
preparation of the Closing Financial Statements in connection with shop orders
related to the Pratt and Whitney job and the Johnson & Johnson jobs (shop order
numbers 34244 and 34905). Seller represents that the Johnson & Johnson jobs are
scheduled for substantial completion in February 1998 and actual delivery in
February or March 1998 and the Pratt & Whitney job is scheduled for actual
delivery in April 1998. Seller agrees that the consideration required to be paid
by Buyer under the Technology Assignment Agreement shall not apply to the Pratt
and Whitney job and the Johnson and Johnson jobs (shop order numbers 34244 and
34905).
Buyer and Seller agree that any audit adjustments (excluding the
adjustment pursuant to Section 2.10(b) proposed by Buyer's Auditor to the
Closing Financial Statements will be included only to the extent such audit
adjustments exceed Ten Thousand and 00/100 Dollars ($10,000.00) and such audit
adjustments will not include any adjustments to (1) the Intellectual Property
Assets, as long as the Intellectual Property Assets are accounted for
consistently with the past practices of Seller (2) Taxes and (3) Environmental
Laws.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND ANDERSEN
The Seller and Andersen, jointly and severally, represent and
warrant to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING
(a) The Seller is a corporation duly organized, validly existing and in
good standing under the laws of Delaware, with full corporate power and
authority to conduct its business as it is now being conducted and to own or use
the properties and assets that it purports to own or use. The Seller is
qualified to do business and is in good standing as a foreign corporation under
the laws of each jurisdiction in which it is required to be so qualified, except
where its failure to qualify would not have Material Adverse Effect on the
Business.
(b) Andersen is a corporation duly organized, validly existing and in good
standing under the laws of Connecticut, with full corporate power and authority
to conduct its business as it is now being conducted and to own or use the
properties and assets that it purports to own or use. Andersen is qualified to
do business and is in good standing as a foreign corporation under the laws of
each jurisdiction in which it is required to be so qualified, except where its
failure to qualify would not have a Material Adverse Effect on Andersen.
<PAGE>
(c) The Seller and Andersen have delivered to Buyer copies of its
respective Organizational Documents, as currently in effect, and such
Organization Documents have not been amended, modified or terminated.
3.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation of
the Seller and Andersen, enforceable against the Seller and Andersen in
accordance with its terms. Each of Seller and Andersen has the full corporate
power and authority to execute and deliver this Agreement and the other
documents contemplated to be executed and delivered at the Closing by the Seller
and Andersen and to perform its respective obligations under this Agreement and
such other documents.
(b) Except as set forth in Part 3.2 of the Disclosure Schedule, neither the
execution and delivery of this Agreement nor the consummation or performance of
any of the transactions contemplated hereby will, directly or indirectly (with
or without notice or lapse of time):
(i) contravene, conflict with, or result in
a violation of (A) any provision of the
Organizational Documents of the Seller or Andersen,
or (B) any resolution adopted by the Board of
Directors of Andersen or Seller or the stockholders
of the Seller;
(ii) contravene, conflict with, or result in
a violation of, or give any Governmental Body or
other Person the right to challenge any of the
transactions contemplated hereby or to exercise any
remedy or obtain any relief under, any Legal
Requirement or any Order to which the Seller or
Andersen may be subject;
(iii) contravene, conflict with, or result
in a violation of any of the terms or requirements
of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or
modify, any material Governmental Authorization that
is held by the Seller or that otherwise relates to
the Seller's Business;
(iv) cause Buyer to become subject to, or to
become liable for the payment of any Tax (except as
relates to Buyer's ownership of the Assets or conduct
of the Seller's Business after the Closing);
(v) cause any of the Seller's Assets to be
reassessed or revalued by any taxing authority or
other Governmental Body (except as relates to Buyer's
purchase or ownership of the Seller's Assets or
conduct of the Seller's Business after the Closing);
<PAGE>
(vi) contravene, conflict with, or result in
a violation or breach of any provision of, or give
any Person the right to declare a default or exercise
any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify,
any material Contract; or
(vii) result in the imposition or creation
of any Encumbrance upon or with respect to any of the
Seller's Assets.
Except as set forth in Part 3.2 of the Disclosure Schedule, the Seller
is not required to give any notice to or obtain any Consent from any
Person in connection with the execution and delivery of this Agreement
or the consummation or performance of any of the transactions
contemplated hereby.
3.3 OWNERSHIP OF SELLER
The Stockholders set forth in Part 3.3 of the Disclosure Schedule are and
will be on the Closing Date all of the record and beneficial owners and holders
of all of the issued and outstanding shares of Seller. There are no outstanding
or authorized options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights or other contracts that could require Seller
to issue, sell or otherwise cause to become outstanding any of its capital
stock. There are no outstanding or authorized stock appreciation, phantom stock,
or other similar agreements with respect to Seller except as disclosed in Part
3.3 of the Disclosure Schedule.
3.4 FINANCIAL STATEMENTS
(a) The Seller has delivered to the Buyer (or will deliver to the Buyer in
accordance with this Agreement) (i) unaudited Operating Income statements of the
Seller for the fiscal years ended February 1997 and 1998 and (ii) the interim
Operating Income statements of the Seller for periods within Seller's fiscal
year ending February 28, 1998, including, the Seller's Operating Income
statements of Seller for the five months ended July 31, 1997 dated August 1,
1997 (the "Income Statements"), copies of which are attached to Part 3.4(a) of
the Disclosure Schedule. Such Income Statements fairly present in all material
respects the results of operations of the Seller for the periods referred to in
such Income Statements in conformity with Generally Accepted Accounting
Principles applied on a basis consistent with the past practices of the Seller
(except for certain inter-company allocations reflected on Part 3.4(a) of the
Disclosure Schedule which are consistent with the past practices of the Seller
and except for the absence of income tax expense or benefit).
(b) The Seller has delivered to the Buyer (or will deliver to the Buyer in
accordance with this Agreement) (i) Balance Sheet of Seller as of February 28,
1997 and the Balance Sheet and statement of Net Assets of Seller at February 28,
1998, and (ii) the August 1, 1997 Balance Sheet, (collectively the "Balance
Sheet Information"), copies of which are attached to Part 3.4(b) of the
Disclosure Schedule. The Balance Sheet Information (i) was prepared based upon
the books of accounts and other financial records of the Seller, (ii) presents
fairly the Balance Sheet Information of the Seller as of the date thereof in
conformity with Generally Accepted Accounting Principles applied on a basis
consistent with the past practices of the Seller, and (iii) as of the Closing
Date, the Balance Sheet Information will include all adjustments that are
necessary for a fair presentation of the such information as of the date hereof.
3.5 BOOKS AND RECORDS
The books of account, minute books, stock record books and other records of
the Seller or the relevant portions of such documents relating to Seller, copies
of which have been made available to Buyer, are true, complete, accurate and
correct in all respects and have been maintained in accordance with sound
business practices, including the maintenance of an adequate system of internal
controls.
3.6 TITLE TO ASSETS; ENCUMBRANCES
(a) Except as otherwise indicated in Parts 3.6 or 3.22 of the Disclosure
Schedule, the Seller has good and marketable title to, or a valid leasehold
interest in and has the right to convey, all the Assets owned by it, located on
the Property or shown on the August 1, 1997 Balance Sheet or acquired after the
date thereof, including all of the Assets reflected in the Financial Statements
(except for personal property sold since the date of the Financial Statements,
as the case may be, in the Ordinary Course of Business), and all of the Assets
purchased or otherwise acquired by the Seller since the date of such Financial
Statements (except for personal property acquired and sold since the date of
such Financial Statements in the Ordinary Course of Business and consistent with
past practice). All of the Assets are free and clear of all Encumbrances other
than the Permitted Encumbrances. The delivery to the Buyer of the instruments of
transfer of ownership contemplated by this Agreement will vest good and
marketable title to the Assets in the Buyer, free of any Encumbrances, except
Permitted Encumbrances.
(b) Upon the consummation of the transactions contemplated by this
Agreement, the Buyer will own, lease or have the legal right to use all the
Assets (used in the conduct of the Business or otherwise owned, leased or used
by the Seller) and, with respect to Assumed Contracts, will become a party to or
enjoy the right to the benefits of all contracts, agreements and other
arrangements relating to the conduct of the Business or otherwise retain
Seller's interest in the Assets without incurring any material penalty or other
materially adverse consequence, including, without limitation, any material
increase in rentals, royalties, or licenses or other fees imposed as a result
of, or arising from, the consummation of the transactions contemplated by this
Agreement. Immediately following the Closing, the Buyer shall own and possess
all documents, books, records, agreement and financial data or the relevant
portions of such documents of any sort used by the Seller in the conduct of the
Business or otherwise.
(c) The Assets and the Excluded Assets constitute all the properties,
assets and rights forming a part of, used, held or intended to be used in, and
all such properties, assets and rights as are necessary in the conduct of, the
Business.
<PAGE>
3.7 REAL PROPERTY
(a) All real property (including, without limitation, all interests in and
rights to real property) and improvements located thereon which are leased by
Seller and used in connection with the Seller's Business are listed on the
Disclosure Schedule in Section 3.7 in response to this section (the "Real
Property"). Seller does not own any Real Property.
(b) With respect to the Real Property that is leased by Seller, which is
identified on the Disclosure Schedule:
(i) Seller has delivered to Buyer a true and
complete copy of every lease and sublease to which
Seller is a tenant or subtenant (the "Leases"), and
shall describe each Lease on the Disclosure Schedule
by listing the name of the landlord or sublandlord, a
description of the lease premises, the commencement
and expiration dates of the current term, the
security deposited by Seller with the landlord or
sublandlord, if any, the monthly rental (including
base and all additional rents), and whether Seller
may assign the Lease to Buyer (if the consent of the
landlord or sublandlord is required for such an
assignment, that should be set forth on the
Disclosure Schedule); and
(ii) each Lease is, and at Closing shall be,
in full force and effect and has not been assigned,
modified, supplemented or amended except as listed on
the Disclosure Schedule in Section 3.7, and neither
Seller nor the landlord or sublandlord under any
Lease is in default under any of the Leases, and no
circumstances or state of facts presently exists
which, with the giving of notice or passage of time,
or both, would permit the landlord or sublandlord
under any Lease to terminate any lease.
(c) Except as disclosed on Part 3.7(c) of the Disclosure Schedules, to the
Seller's Knowledge, the water, electric, gas and sewer utility services and the
septic tank and storm drainage facilities currently available to the Real
Property have been properly and lawfully operated and are adequate for the
present use of the Real Property by Seller in conducting the Seller's Business,
are not being appropriated by Seller but rather are being supplied to Seller by
utility companies or municipalities pursuant to valid and enforceable contracts,
and there is no condition which will result in the termination of the present
access from the Real Property to such utility services and other facilities.
(d) Seller has not received any notices, oral or written, from any
governmental body, and otherwise has no Knowledge that the assessed value of the
Real Property has been determined to be greater than that upon which any tax was
paid for the 1997 tax year applicable to each such tax, or from any insurance
carrier of Seller of fire hazards with respect to the Real Property or any
portion thereof is affected by any assessment which is or may become payable in
annual installments, of which one or more is then payable or has been paid, then
for the purpose of this Agreement, all the unpaid installments of any such
assessment including, without limitation, those which are to become due and
payable after Closing, shall be deemed to be liens on the Real Property and
shall be paid or discharged at or prior to Closing.
(e) Seller has not received any notices, oral or written, and otherwise has
no Knowledge, that any governmental body having the power of eminent domain over
the Real Property has commenced or intends to exercise the power of eminent
domain or a similar power with respect to all or any part of the Real Property.
If between the date of this Agreement and Closing, the Real Property or any
portion thereof or interest therein shall be taken or condemned as a result of
the exercise of the power of eminent domain, or if a governmental body having
the power of eminent domain informs Seller or the Buyer that it intends to take
or condemn all or part of the Real Property then the Buyer may elect to
terminate this Agreement. If the Buyer does not elect to terminate this
Agreement (a) the Buyer shall have the sole right, in the name of Seller, if the
Buyer so elects, to negotiate for, claim, consent and receive all damages on
account thereof, (b) Seller shall be relieved of its obligation to convey to the
Buyer the Real Property taken or condemned, (c) at Closing, Seller shall assign
to the Buyer all of Seller's rights to all damages payable for such taking or
injury of the Real Property and shall pay to the Buyer all damages theretofore
paid to Seller by reason thereof, and (d) following Closing, Seller shall give
the Buyer such further assurances of such rights and assignment as the Buyer may
from time to time reasonably request.
(f) The Real Property and the present uses thereof
comply with all Regulations of
all governmental bodies having jurisdiction over the Real Property, and Seller
has received no notices, oral or written, from any governmental body, and
otherwise has no Knowledge, that the Real Property or any improvements erected
or situated thereon, or the uses conducted thereon or therein, violate any
regulations of any governmental body having jurisdiction over the Real Property.
(g) The improvements located on the Real Property are in good condition and
are structurally sound, and all mechanical and other systems located therein are
in good operating condition, subject to normal wear, and no condition exists
requiring material repairs, alterations or corrections.
(h) Between the date of this Agreement and Closing, Seller shall not sell,
mortgage or encumber the Real Property, or do or permit any act which diminishes
title to or value of the Real Property.
(i) To the Seller's Knowledge, no work for municipal improvements has been
commenced on or in connection with the Real Property or any street adjacent
thereto. To the Seller's Knowledge, no assessment for public improvements has
been made against the Real Property which remains unpaid. To the Seller's
Knowledge, no notice from any county, township or other governmental body has
been served upon the Real Property or received by Seller requiring or calling
attention to the need for any work, repair, construction, alteration or
installation on or in connection with the Real Property which has not been
complied with.
<PAGE>
3.8 CONDITION AND SUFFICIENCY OF ASSETS
(a) Section 3.8 of the Disclosure Schedule sets forth a true, correct and
complete list of all Fixed Assets, including a description and the book value
thereof. The Fixed Assets of the Seller are structurally sound, are in good
operating condition and repair, ordinary wear and tear excepted, and are
adequate for the uses to which they are being put, and none of such Fixed Assets
are in need of maintenance or repairs except for ordinary, routine maintenance
and repairs that are not material in nature or cost. The Fixed Assets are
sufficient for the continued conduct of the Seller's Business after the Closing
in substantially the same manner as conducted prior to the Closing.
3.9 ACCOUNTS RECEIVABLE
All Accounts Receivable of Seller that are reflected on the Seller's
Closing Date Financial Statements or on the aged list of receivables that
identifies as of such date had been outstanding (i) current (ii) one to fifteen
(15) days past due (iii) sixteen (16) to sixty (60) days past due, (iv)
sixty-one (61) to ninety (90) days past due, and (v) over ninety (90) days past
due represent or will represent valid obligations arising from sales actually
made or services actually performed in the Ordinary Course of Business. Unless
paid prior to the Closing Date, the Accounts Receivable are or will be as of the
Closing Date current and collectible. There is no contest, claim, or right of
set-off, other than returns in the Ordinary Course of Business, under any
contract or arrangement with any obligor of an Accounts Receivable relating to
the amount or validity of such Accounts Receivable. Part 3.9 of the Disclosure
Schedule contains a complete and accurate list of all Accounts Receivable as of
the Closing Date.
3.10 INVENTORY
All Inventory of the Seller, whether or not reflected in the Closing
Financial Statements, has been maintained in the Ordinary Course of Business,
consists of tangible property that is, of a good and merchantable quality,
quantity and condition, usable and saleable in the Ordinary Course of Business
and is valued under the job order cost system in accordance with Generally
Accepted Accounting Principles consistent with past practice based upon the
Ordinary Course of Business of the Seller, and is not subject to any write-down
or write-off. As of the Closing Date, Seller is not under any liability or
obligation to any Person with respect to the return of Inventory sold or
delivered prior to Closing.
3.11 NO UNDISCLOSED LIABILITIES
Except as set forth in Part 3.11 of the Disclosure Schedule, the Seller has
no liabilities or obligations of any nature (whether absolute, accrued,
contingent, or otherwise) except for liabilities or obligations reflected or
reserved against in the Closing Financial Statements and current liabilities
incurred in the Ordinary Course of Business since the respective dates thereof.
<PAGE>
3.12 TAXES
(a) The Seller, Andersen or Ney has filed or caused to be filed or will
file or cause to be filed (on a timely basis, giving effect to allowable
extensions, since April 20, 1992) all Tax Returns that are or were required to
be filed by or with respect to the Seller or the Seller's Business, pursuant to
applicable Legal Requirements. The Seller has delivered to Buyer copies of all
such Tax Returns filed since April 20, 1992. All Tax Returns filed by the Seller
are true, correct and complete in all material respects as such and to the
extent that such Tax Returns may affect the transactions contemplated by this
Agreement. The Seller, Andersen or Ney has paid or will pay, or made provision
for the payment of, all Taxes that have or may have become due pursuant to those
Tax Returns or pursuant to any assessment received by the Seller, except such
Taxes, if any, as are listed in Part 3.12 of the Disclosure Schedule and are
being contested in good faith and as to which adequate reserves have been
provided in the Closing Financial Statements.
(b) Except as set forth in Part 3.12(b) of the Disclosure Schedule, there
are no outstanding liabilities for Taxes payable, collectible or remittable by
the Seller, whether assessed or not, which may result in a material Encumbrance
on or other claim against or seizure or sale of all or any part of the Assets or
would otherwise adversely affect the Business or would result in the Buyer
becoming liable or responsible therefor. There are no actions, suits,
proceedings, or, to the knowledge of the Seller, investigations or claims
pending or threatened against the Seller in respect of Taxes which may result in
a material Encumbrance on or other claim against or seizure or sale of any of
the Assets or liability or responsibility on the part of the Buyer for Taxes
payable, collectible or remittable by the Seller nor are any material matters
under discussion by Seller or its representatives with any governmental
authority relating to Taxes. The Seller, Andersen or Ney has withheld from all
remuneration (including taxable benefits) of employees of the Business all Taxes
and other deductions required to be withheld therefrom and has remitted the same
to the proper tax or other receiving authority within the time required under
applicable legislation.
3.13 NO MATERIAL ADVERSE CHANGE
Except as otherwise expressly permitted under this Agreement, since August
1, 1997 there has not been any Material Adverse Change in the Seller's Business,
operations, properties, prospects, assets, or condition of the Seller or the
Seller's Business, and no event has occurred or circumstance exists that may
result in such a Material Adverse Change in the Seller or the Seller's Business.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Part 3.14 of the Disclosure Schedule:
(i) The Seller is in compliance in all
material respects with each Legal Requirement that is
or was applicable to it or to the conduct or
operation of the Seller's Business or the ownership,
lease, or use of any of its Assets or any Facilities;
and
(ii) The Seller has not received any notice
or other communication (whether oral or written) from
any Governmental Body or any other Person and, to the
Seller's Knowledge, no event has occurred or
circumstance exists that (with or without notice or
lapse of time) (A) may constitute or result in a
violation by the Seller of, or a failure on the part
of the Seller to comply with, any Legal Requirement,
or (B) may give rise to any obligation on the part of
the Seller to undertake, or to bear all or any
portion of the cost of, any remedial action of any
nature with respect to any Legal Requirement.
(b) Part 3.14 of the Disclosure Schedule contains a complete and accurate
list of each material Governmental Authorization that is held by the Seller or
that otherwise relates to the Seller's Business. Each material Governmental
Authorization listed or required to be listed in Part 3.14 of the Disclosure
Schedule is valid and in full force and effect.
3.15 LEGAL PROCEEDINGS
(a) Except as set forth in Part 3.15 of the Disclosure Schedule, there is
no pending Proceeding:
(i) that has been commenced by or against
the Seller or that otherwise relates to or may affect
the Seller's Business or any Facilities, or
concerning any other property or person, who has been
affected by the Seller's Business; or
(ii) that challenges, or that may have the
effect of preventing, delaying, making illegal, or
otherwise interfering with, any of the transactions
contemplated hereby.
To the Seller's Knowledge, (1) no such Proceeding has been Threatened,
and (2) Seller has no reason to believe any such Proceeding will be
commenced based upon facts existing as of the Closing Date other than
as set forth in Part 3.15 of the Disclosure Schedule. The Seller has
delivered to Buyer copies of all pleadings, correspondence, and other
documents relating to each Proceeding listed in Part 3.15 of the
Disclosure Schedule. The Proceedings listed in Part 3.15 of the
Disclosure Schedule will not have a material adverse effect on the
Seller's Business, Assets, operations, condition, or prospects of the
Seller's Business.
(b) Except as set forth in Part 3.15 of the
Disclosure Schedule:
(i) The Seller is not subject to any Order that relates in any respect to
the Seller's Business, any of the Assets or any Facility; and
<PAGE>
(ii) To the Seller's Knowledge, no employee
or agent of Seller is subject to any Order that
prohibits such agent or employee from engaging in or
continuing any conduct, activity or practice relating
to the Seller's Business.
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Part 3.16 of the Disclosure Schedule or as otherwise
expressly permitted in this Agreement, since March 1, 1997, the Seller has
conducted the Seller's Business only in the Ordinary Course of Business and
there has not been any:
(a) change in the Seller's authorized or issued capital stock; grant of any
stock option or right to purchase shares of capital stock of the Seller;
issuance of any security convertible into such capital stock; grant of any
registration rights; purchase, redemption, retirement, or other acquisition by
the Seller of any shares of any such capital stock; or declaration or payment of
any dividend or other distribution or payment in respect of shares of capital
stock;
(b) amendment to the Organizational Documents of the Seller;
(c) except in the Ordinary Course of Business, payment or increase by the
Seller of any bonuses, salaries, or other compensation to any stockholder,
director, officer, or employee or entry into any employment, severance, or
similar contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of the
Seller;
(e) damage to or destruction or loss of any asset or property of the
Seller, whether or not covered by insurance, materially and adversely affecting
the properties, Assets, business, financial condition, or prospects of the
Seller (including, the loss or prospective loss of any material business
relationships);
(f) entry into, termination of, or receipt of notice of termination of (i)
any license, exclusive contract or arrangement, joint venture, credit, or
similar agreement, or (ii) any contract or transaction involving a total
remaining commitment by or to the Seller (determined on an individual basis) of
at least Ten Thousand and 00/100 Dollars ($10,000.00);
(g) other than in the Ordinary Course of Business, sale, lease, or other
disposition of any Asset or property of the Seller or mortgage, pledge, or
imposition of any lien or other encumbrance on any material Asset or property of
the Seller, including the sale, lease, or other disposition of any of the
Intellectual Property Assets;
<PAGE>
(h) cancellation or waiver of any claims or rights with a value (determined
individually) to the Seller in excess of Ten Thousand and 00/100 Dollars
($10,000.00);
(i) change in the accounting methods used by the Seller;
(j) capital expenditures or commitments for capital expenditures in excess
of Ten Thousand and 00/100 Dollars ($10,000.00) individually or Fifty Thousand
and 00/100 Dollars ($50,000.00) in the aggregate.
(k) loan to, guaranty of any indebtedness of or incurrence of any
indebtedness on behalf of any Person;
(l) failure to pay any creditor any amount owed to such creditor when due;
(m) sale of Inventory other than in the Ordinary Course of the Business
consistent with past practice;
(n) material changes in the customary methods of operations of the Seller,
including, without limitation, practices and policies relating to manufacturing,
purchasing, Inventories, marketing, selling and pricing;
(o) merger with, consolidation with or acquisition of any Person or
acquisition of a substantial portion of the assets or business of any Person or
any division or line of business thereof, or other acquisition of any material
assets other than in the ordinary course of business consistent with past
practice;
(p) agreement, arrangement or transaction with any of its directors,
officers, employees or shareholders (or with any relative, beneficiary, spouse
or Affiliate of such Person); or
(q) agreement, whether oral or written, by the Seller to do any of the
foregoing;
3.17 CONTRACTS; NO DEFAULTS
(a) Part 3.17(a) of the Disclosure Schedule contains a complete and
accurate list, of each of the Contracts of the Seller which has an amount
requiring payment (i) to the Seller, in the aggregate, or in any individual
payment, in excess of Ten Thousand and 00/100 Dollars ($10,000.00), (ii) by the
Seller in the aggregate, or in any individual payment in excess of Ten Thousand
and 00/100 Dollars ($10,000.00) and (iii) all open purchase orders of Seller
entered into on the form attached in Part 3.17(a) of the Disclosure Schedule
(collectively (i), (ii) and (iii) and the agreements set forth on Part 3.17(b)
of the Disclosure Schedule the "Assumed Contracts"). Seller has delivered or
made available to Buyer, or will deliver or make available to Buyer, true and
complete copies of all of the contracts referred to in 3.17(a) (i) and (ii)
hereof.
(b) Except as set forth in Part 3.17(b) of the Disclosure Schedule, the
Seller has no rights under, and has not or may not become subject to any
obligation or liability under, any other contract that relates in any respect to
Seller's Business or the Assets.
(c) Except as set forth in Part 3.17(c) of the Disclosure Schedule, each
Assumed Contract identified or required to be identified in Part 3.17(a) of the
Disclosure Schedule is in full force and effect and is valid and enforceable in
accordance with its terms.
(d) Except as set forth in Part 3.17(d) of the Disclosure Schedule:
(i) the Seller is in compliance in all
material respects with all applicable terms and
requirements of each of the Assumed Contracts;
(ii) to the Seller's Knowledge, each other
Person that has or had any obligation or liability
under any of the Assumed Contracts is in compliance
in all material respects with all applicable terms
and requirements of such Assumed Contract;
(iii) to the Seller's Knowledge, no event
has occurred and no circumstance exists that (with or
without notice or lapse of time) may contravene,
conflict with, or result in a material violation or
breach of, or give the Seller or other Person the
right to declare a default or exercise any remedy
under, or to accelerate the maturity or performance
of, or to cancel, terminate, or modify, any Assumed
Contract; and
(iv) the Seller has not given to or received
from any other Person, at any time since August 1,
1997, any notice or other communication (whether oral
or written) regarding any actual, alleged, possible,
or potential violation or breach of, or default
under, any Assumed Contract.
(e) Other than in the Ordinary Course of Business, there are no pending
renegotiations of, attempts to renegotiate, or outstanding rights to renegotiate
any material amounts paid or payable to the Seller under current or completed
contracts with any Person included in the Assumed Contracts and no such Person
has made an oral or written demand for such renegotiation.
3.18 INSURANCE
(a) The Seller has delivered or will deliver to Buyer on the Closing Date:
<PAGE>
(i) true and complete copies of all policies
of insurance to which the Seller is a party or under
which the Seller is or has been covered at any time
within the five (5) years preceding the date of this
Agreement;
(ii) true and complete copies of all pending
applications for policies of insurance; and
(iii) there are no claims or loss history
with respect to such policies for the five (5) years
preceding the date of this Agreement.
With respect to each current insurance policy: (A) the policy
is legal, valid, binding, enforceable, and in full force and effect; (B) neither
Seller nor any other party to the policy is in breach or default (including with
respect to the payment of premiums or the giving of notices), and no event has
occurred which, with notice or the lapse of time, would constitute such a breach
or default, or permit termination, modification or acceleration, under the
policy; and (C) no party to the policy has repudiated any provision thereof.
Seller has been covered during the past ten (10) years by insurance in scope and
amount customary and reasonable for the businesses in which it has engaged
during the aforementioned period. Part 3.18 of the Disclosure Schedule describes
any self-insurance arrangements affecting the Seller.
(b) Part 3.18(b) of the Disclosure Schedule describes:
(i) any self-insurance arrangement by or
affecting the Seller or the Seller's Business,
including any reserves established thereunder;
(ii) any contract or arrangement, other than
a policy of insurance, for the transfer or sharing of
any risk by the Seller's Business; and
(iii) all obligations of the Seller to third
parties with respect to insurance (including such
obligations under leases and service agreements) and
identifies the policy under which such coverage is
provided.
3.19 ENVIRONMENTAL MATTERS
Except as set forth in Part 3.19 of the Disclosure Schedule:
(a) The Seller is, and at all times has been, in compliance in all material
respects with all Environmental Laws and has no material liability thereunder.
The Seller has obtained all Environmental Permits and is and has been in
compliance with their requirements. Seller has not received any order, notice,
or other communication from (i) any Governmental Body or private citizen acting
in the public interest, or (ii) the current or prior owner or operator of any
Facilities, of any actual or potential violation, liability or failure by Seller
to comply with any Environmental Law, or of any actual or Threatened obligation
to undertake or bear the cost of any Environmental, Health, and Safety
Liabilities with respect to any of the Facilities or any other properties or
assets (whether real, personal, or mixed) in which the Seller has had an
interest, or with respect to any property or Facility at or to which Hazardous
Materials were generated, manufactured, disposed, stored, treated, transported,
recycled, refined, transferred, imported, or processed by or on behalf of the
Seller or any other Person for whose conduct it is or may be held responsible.
(b) There are no pending or, to the Seller's Knowledge, Threatened claims,
Encumbrances, or other restrictions of any nature, resulting from any
Environmental, Health, and Safety Liabilities or arising under or pursuant to
any Environmental Law, with respect to or affecting any of the Facilities or any
other properties and assets (whether real, personal, or mixed) in which the
Seller has or had an interest.
(c) Neither the Seller or, to the Seller's Knowledge, any other Person for
whose conduct it is or may be held responsible, has any Environmental, Health,
and Safety Liabilities with respect to the Facilities or, to the Seller's
Knowledge with respect to any other properties and assets (whether real,
personal, or mixed) in which the Seller (or any predecessor), has or had an
interest.
(d) To the Seller's Knowledge, there has been no Release or Threat of
Release, of any Hazardous Materials that would constitute a material violation
of or create any material liability under any Environmental Laws at or from the
Facilities or at any other locations where any Hazardous Materials were
generated, manufactured, disposed, stored, treated, transported, recycled,
refined, transferred, produced, imported, used, or processed from or by the
Facilities, or from or by any other properties and assets (whether real,
personal, or mixed) in which the Seller has or had an interest.
(e) Attached to the Disclosure Schedule in Part are true, complete and
accurate copies of all Environmental Permits, environmental reports, studies,
notices, disclosures and documentation pertaining to the Facilities, including,
without limitation any and all notices, reports or other documents submitted to
or received from any Governmental Body or any private citizen acting in the
public interest.
3.20 EMPLOYEES
(a) Part 3.20 of the Disclosure Schedule contains a complete and accurate
list of the following information for each employee of the Seller, including
each employee on leave of absence or layoff status: employee name; job title;
current compensation paid or payable and any change in compensation since
February 28, 1997; vacation accrued; and service credited for purposes of
vesting and eligibility to participate under the Seller's fringe benefit plans.
(b) To the Seller's Knowledge, except as set forth in Part 3.20 of the
Disclosure Schedule, no Seller employee is a party to, or is otherwise bound by,
any agreement or arrangement, including any confidentiality, noncompetition, or
proprietary rights agreement, between such employee and any other Person
("Proprietary Rights Agreement") that in any way adversely affects or will
affect (i) the performance of his duties as an employee in the Seller's
Business, or (ii) the ability of the Buyer to conduct the Seller's Business.
(c) Except as set forth in Part 3.20 of the Disclosure Schedule, all
officers, management, employees, technical employees and all other employees of
the Seller are under written obligation to the Seller to maintain in confidence
all confidential information acquired by them in the course of their employment
and to assign to the Seller all inventions made by them within the scope of
their employment during such employment and for a reasonable period thereafter.
3.21 LABOR RELATIONS; COMPLIANCE
Since February 28, 1997, the Seller has not been or is not a party to any
collective bargaining or other labor Contract. Since February 28, 1997, there
has not been, there is not presently pending or existing, and there is not to
the Seller's Knowledge, Threatened, (a) any strike, slowdown, picketing, work
stoppage, or employee grievance process, (b) any Proceeding against or affecting
the Seller's Business relating to the alleged violation of any Legal Requirement
pertaining to labor relations or employment matters, including any charge or
complaint filed by an employee or union with Governmental Body, organizational
activity, or other labor or employment dispute against or affecting the Seller
or its Business, or (c) any application for certification of a collective
bargaining agent. To the Seller's Knowledge, no event has occurred or
circumstance exists that could provide the basis for any work stoppage or other
labor dispute. There is no lockout of any employees by the Seller, and no such
action is contemplated by the Seller. To the Seller's Knowledge, the Seller has
complied in all material respects with all Legal Requirements relating to
employment, equal employment opportunity, nondiscrimination, immigration, wages,
hours, benefits, collective bargaining, the payment of social security and
similar taxes, occupational safety and health, and plant closing. The Seller is
not liable for the payment of any compensation, damages, taxes, fines,
penalties, or other amounts, however designated, for failure to comply with any
of the foregoing Legal Requirements.
3.22 INTELLECTUAL PROPERTY
(a) Intellectual Property Assets--For the purposes of this Agreement the
term "Intellectual Property Assets" includes:
(i) the name "Ney Ultrasonics" and all
fictional business names, trading names, registered
and unregistered trademarks, service marks, and
applications used in the Business and owned, used or
licensed by Ney or the Seller and listed on Part
3.22(c) (collectively, "Marks");
(ii) all copyrights in both published works
and unpublished works used in the Business and owned,
used or licensed by Ney or Seller and listed on Part
3.22(a) (collectively, "Copy rights");
<PAGE>
(iii) the computer software and all related
software code documentation, and commentaries, owned
or licensed by the Seller or Ney in the conduct of
the Business and listed at Part 3.22(c) of the
Disclosure Schedule (the "Software").
(b) Agreements -- Part 3.22(b) of the Disclosure Schedule contains a
complete and accurate list and summary description, including any royalties paid
or received by the Seller, of all Contracts relating to the Intellectual
Property Assets to which the Seller is a party or by which the Seller is bound,
except for any license implied by the sale of a product and perpetual, paid-up
licenses for commonly available software programs with a value of less than
$2,000 under which the Seller is the licensee. There are no outstanding and, to
the Seller's Knowledge, no Threatened disputes or disagreements with respect to
any such agreement.
(c) Trademarks.
(i) Part 3.22(c) of the Disclosure Schedule
contains a complete and accurate list and summary
description of all Marks.
(ii) Except as set forth on Part 3.22(c) of
the Disclosure Schedule, all Marks that have been
registered with the applicable Trademark Office are
currently in compliance with all formal legal
requirements (including the timely post-registration
filing of affidavits of use and incontestability and
renewal applications), are valid and enforceable, and
are not subject to any maintenance fees or taxes or
actions falling due within ninety (90) days after the
Closing Date.
(iii) Except as set forth on Part 3.22(c) of
the Disclosure Schedule, no Mark has been or is now
involved in any opposition, invalidation, or
cancellation and, to the Seller's Knowledge, no such
action is Threatened with the respect to any of the
Marks.
(iv) Except as set forth on Part 3.22(c) of
the Disclosure Schedule, to the Seller's Knowledge,
there is no potentially interfering trademark or
trademark application of any third party.
(d) Non-Infringement.
(i) Except as listed on Part 3.22(d) of the
Disclosure Schedule, no action is pending or, to the
Seller's Knowledge Threatened with respect to the
Seller's ownership of, or potential infringements of
or any other claims as to the Intellectual Property
Assets or current products of Seller. None of the
Intellectual Property Assets including, the current
products manufactured by the Seller infringe, violate
or constitute a misappropriation (or to Seller's
Knowledge in the past infringed, violated or
constituted a misappropriation) of any intellectual
property rights of any other person or entity.
Neither Seller, Ney or Andersen has received any
complaint, claim or notice alleging any such
infringement, violation or misappropriation, and to
the Seller's Knowledge, there is no threatened
complaint, claim or notice.
(ii) Seller has taken all reasonable
measures to protect the proprietary nature and value
of each of the Intellectual Property Assets. No other
person or entity has any rights to any of the
Intellectual Property Assets owned or used by Seller
and to the Seller's Knowledge, no other person or
entity is infringing, violating or misappropriating
any of the Intellectual Property Assets.
(e) Software.
(i) The Software of the Seller included in
the Intellectual Property Assets as defined above
performs materially in accordance with the
documentation and other written descriptions used in
connection with the Software and is free of material
defects in programming and operation, is in
machine-readable form, and contains all currently
available computer programs, materials, tapes,
know-how, object and source codes, other written
materials, know-how and processes related to the
Software. Seller has delivered to the Buyer complete
and correct copies of all user and technical
documentation currently available related to the
Software.
(f) Ownership of Intellectual Property Assets -- Except as contemplated by
the Technology Agreements, Seller owns and has the right to use and on the
Closing Date shall own and have the right to use and sell the products
incorporating all of the Intellectual Property Assets used in the operation of
the Seller's Business or necessary for the operation of the Seller's Business as
presently conducted.
3.23 EMPLOYEE BENEFIT MATTERS
(a) Part 3.23(a) of the Disclosure Schedule contains a list of each
employee pension benefit plan (within the meaning of section 3(2) of ERISA) to
which Seller contributes or is required to contribute on behalf of its
employees. Also attached to the Disclosure Schedule with respect to each of such
plans are the most recent summary plan descriptions.
With respect to each of the plans listed in the Disclosure Schedule:
(i) A determination letter has been received
to the effect that any such qualified plan is
qualified under Section 401 of the Code and the
trusts maintained pursuant thereto are exempt from
the Federal income taxation under Section 501 of the
Code.
<PAGE>
(ii) No reportable event, as such term is
defined in Section 4043(b) of ERISA, has occurred and
is continuing with respect to any of such plans which
are subject to Section 4043(b) of ERISA, other than
those which might arise as a result of the
transactions contemplated by this Agreement.
(iii) Neither Seller nor any ERISA Affiliate
has incurred any outstanding liability to the Pension
Benefit Guaranty Corporation (other than for the
payment of premiums) and will not incur any liability
to the Pension Benefit Guaranty Corporation as a
result of the transactions contemplated by this
Agreement which would have a Material Adverse Effect.
(iv) No "prohibited transaction" as such
term is defined in Section 4975 of the Code and
Section 406 of ERISA, has occurred with respect to
such plans which could subject Buyer to a tax or
penalty for such prohibited transactions imposed by
either Section 502 of ERISA or Section 4975 of the
Code.
(v) With respect to any plan that is subject
to Title IV of ERISA, no such plan has an accumulated
funding deficiency.
(vi) Neither Seller nor any ERISA Affiliate
has incurred any withdrawal liability with respect to
any multi-employer plan under Section 4201 of ERISA
nor has received any notification that any
multi-employer plan is in reorganization or has
terminated.
(vii) All employees of Seller who accept
employment by Buyer will, as of the Closing Date, be
fully vested in benefits accrued under any plan
qualified under Section 401 of the Code and
maintained by Seller or any ERISA Affiliate of
Seller.
(b) Seller shall comply with the health care continuation coverage
requirements of Section 162(k) and 4980B of the Code and Sections 601 through
608 of ERISA, for all Employees of Seller who have a qualifying event as a
result of this Agreement.
(c) Entry into this Agreement and performing the obligations hereunder will
not violate any law, regulation, or contract relating to any employee benefit
plan (within the meaning of Section 3(3) of ERISA) maintained by Seller or
subject or expose Buyer to any excise tax or recapture of investment tax credit.
Buyer will have no responsibility with respect to any employee benefit plan
(within the meaning of Section 3(3) of ERISA) maintained by Seller or any ERISA
Affiliate of the Seller.
<PAGE>
3.24 CUSTOMERS
Listed in Part 3.24 of the Disclosure Schedule are the names and addresses
of the customers (by revenue) of the Seller for each of the last three (3)
fiscal years and the eleven (11) months ended January 31, 1998, and the amount
for which each such customer was invoiced during each such period. Except as
disclosed in Part 3.24 of the Disclosure Schedule, the Seller has not received
any notice or has any Knowledge that any customer of the Seller, as listed in
Part 3.24 of the Disclosure Schedule, for the year ended February 28, 1997 or
the eleven (11) months ended January 31, 1998, has ceased, or will cease, to use
the products, equipment, goods or services of the Seller, or has substantially
reduced, or will substantially reduce, the use of such products, equipment,
goods or services at any time.
3.25 SUPPLIERS
Listed in Part 3.25 of the Disclosure Schedule are the names and addresses
of the suppliers of Seller for each of the last three (3) fiscal years and the
eleven (11) months ended Januaryy31, 1998 and the amount of raw materials,
suppliers, merchandise or other goods purchased by Seller. Except as disclosed
in Part 3.25 of the Disclosure Schedule, the Seller has not received any notice
and does not have any Knowledge that any significant supplier will not sell raw
materials, supplies, merchandise or other goods to the Seller at any time after
the Closing Date on terms and conditions substantially similar to those used in
its current sales to the Seller. Except as disclosed in Part 3.25 of the
Disclosure Schedule, each of the Seller's outstanding blanket orders for raw
materials, supplies, merchandise and other goods can be terminated at any time
by the Seller without incurring any penalty or payment.
3.26 DISCLOSURE
(a) No representation or warranty of the Seller in this Agreement and no
statement in the Disclosure Schedule omits to state a material fact required to
be made in such representation or warranty or in the Disclosure Schedule and
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) There is no fact known to the Seller that has specific application to
the Seller's Business (other than general economic or industry conditions) and
that could have a Material Adverse Effect on Seller or Seller's Business that
has not been set forth in this Agreement or the Disclosure Schedule.
3.27 TRANSACTIONS WITH AFFILIATES
Except as disclosed in Part 3.27 of the Disclosure Schedule, no
stockholder, director, officer or employee of Seller, or any member of his or
her immediate family or any other of its, his or her affiliates, owns or has any
ownership interest in any corporation or other entity, or any Related Person,
that is or was during the last three years a party to, or in any property which
is or was during the last three years the subject of, any material contract,
agreement or understanding, business arrangement or relationship with Seller.
<PAGE>
3.28 BROKERS OR FINDERS
The Seller and its agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized, validly existing, and in good
standing under Delaware law, with full corporate power and authority to conduct
its business as it is now being conducted and to own or use the properties and
assets that it purports to own or use except where its failure to qualify would
not have a Material Adverse Effect on Buyer. Buyer has delivered to the Seller
copies of its Organizational Documents, as currently in effect.
4.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms. Buyer has the
full corporate power and authority to execute and deliver this Agreement and the
other documents contemplated to be executed and delivered at the Closing by
Buyer and to perform its obligations under this Agreement and such other
documents.
(b) Except as set forth in Part 4.2 of the Disclosure Schedule, neither the
execution and delivery of this Agreement nor the consummation or performance of
any of the transactions contemplated hereby will give any Person the right to
prevent, delay, or otherwise interfere with any of the transactions contemplated
hereby pursuant to:
(i) any provision of Buyer's Organizational
Documents;
(ii) any resolution adopted by the board of
directors of the Buyer;
(iii) any Legal Requirement or Order to
which Buyer may be subject; or
(iv) any material contract to which Buyer is
a party or by which Buyer may be bound.
<PAGE>
Except as set forth in Part 4.2 of the Disclosure Schedule, Buyer is not and
will not be required to obtain any Consent from any Person in connection with
the execution and delivery of this Agreement or the consummation or performance
of any of the transactions contemplated hereby.
4.3 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against Buyer and
that challenges, or may have the effect of preventing, delaying, making illegal,
or otherwise interfering with, any of the transactions contemplated hereby. To
Buyer's Knowledge, no such Proceeding has been Threatened.
5. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Assets and to take the
other actions required to be taken by Buyer at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Buyer, in whole or in part):
5.1 ACCURACY OF REPRESENTATIONS
After giving effect to the matters set forth in the Disclosure Schedules,
all of the representations and warranties of the Seller and Andersen in this
Agreement (considered collectively), and each of these representations and
warranties (considered individually), must have been accurate in all material
respects (other than representations and warranties having materiality
qualifiers, which shall be accurate in all respects) as of the date of this
Agreement, and must be accurate in all material respects (other than
representations and warranties having materiality qualifiers, which shall be
accurate in all respects) as of the Closing Date as if made on the Closing Date,
after giving effect to any supplement to the Disclosure Schedules.
5.2 SELLER'S PERFORMANCE
(a) All of the covenants and obligations that the Seller is required to
perform or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been duly performed and complied with in
all material respects.
(b) Each document required to be delivered pursuant to Section 2.9 must
have been delivered.
5.3 CONSENTS
Except as set forth in Section 7.1(b), each of the Consents identified in
Part 3.2 of the Disclosure Schedule, must have been obtained and must be in full
force and effect.
<PAGE>
5.4 ADDITIONAL DOCUMENTS
Each of the following documents must have been
delivered to Buyer by the Seller:
(a) an opinion of Edwards & Angell, dated the Closing Date, in the form of
Exhibit 5.4(a);
(b) such other documents as Buyer may reasonably request for the purpose of
(i) enabling its counsel to provide the opinion referred to in Section 6.4(a),
(ii) evidencing the accuracy of any of the Seller's representations and
warranties, (iii)yevidencing the performance by the Seller of, or the compliance
by the Seller with, any covenant or obligation required to be performed or
complied with by the Seller, and (iv)yevidencing the satisfaction of any
condition referred to in this Section 5;
(c) a certified copy of the corporate proceedings required on the part of
Seller to authorize and carry out this Agreement and to convey, assign, transfer
and deliver the Assets to Buyer;
(d) within fifteen (15) days after Closing Date, unless otherwise provided,
an update of the following Disclosure Schedules with a true, correct and
complete list and amount, as of February 28, 1998:
(i) the Fixed Assets;
(ii) the Accounts Receivable, including an
Aging thereof;
(iii) the trade accounts payable assumed
under this Agreement;
(iv) the accrued expenses assumed under this
Agreement, upon delivery of Closing Financial
Statements;
(v) all unfilled customers orders; and
(vi) all shipments made during the period
from August 1, 1997 through February 28, 1998; the
nature of which information shall not be materially
different from the information supplied by Seller as
of the date hereof.
5.5 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against Buyer, or against any Person affiliated with Buyer, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the transactions contemplated hereby, or (b) that may
reasonably have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the transactions contemplated hereby.
5.6 NO CLAIM REGARDING ASSETS OR SALE PROCEEDS
There must not have been made or Threatened by any Person any claim
asserting that such Person (a) is the holder or the beneficial owner of, or has
the right to acquire or to obtain beneficial ownership of, the Assets, or (b) is
entitled to all or any portion of the Purchase Price payable for the Assets.
5.7 NO PROHIBITION
Neither the consummation nor the performance of any of the transactions
contemplated hereby will, directly or indirectly (with or without notice or
lapse of time), materially contravene, or conflict with, or result in a material
violation of, or cause Buyer or any Person affiliated with Buyer to suffer any
material adverse consequence under, (a) any applicable Legal Requirement or
Order, or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise proposed by or before any Governmental Body.
5.8 OTHER AGREEMENTS
(a) Seller shall have negotiated and delivered a New Lease acceptable to
Buyer with respect to the property located at 1280 Blue Hills Avenue,
Bloomfield, Connecticut 06002 (the "New Lease") that provides for the lease of
the premises to Buyer and the termination of the existing lease on or before the
Closing Date.
(b) Buyer shall have negotiated employment agreements with key employees of
the Seller which are set forth in Part 5.8(b) of the Disclosure Schedule.
6. CONDITIONS PRECEDENT TO THE SELLER'S OBLIGATION TO CLOSE
The Seller's obligation to sell the Assets and to take the other actions
required to be taken by the Seller at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by the Seller, in whole or in part):
6.1 ACCURACY OF REPRESENTATIONS
All of Buyer's representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must have been accurate in all material respects (other than
representations and warranties having materiality qualifiers, which shall be
accurate in all respects) as of the date of this Agreement and must be accurate
in all material respects (other than representations and warranties having
materiality qualifiers, which shall be accurate in all respects) as of the
Closing Date as if made on the Closing Date, after giving effect to any
supplement to the Disclosure Schedules.
<PAGE>
6.2 BUYER'S PERFORMANCE
(a) All of the covenants and obligations that Buyer is required to perform
or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been performed and complied with in all
material respects.
(b) Buyer must have delivered each of the documents required to be
delivered by Buyer pursuant to Section 2.9 and must have paid the Purchase
Price.
6.3 CONSENTS
Each of the Consents identified in Part 4.2 of the Disclosure Schedule must
have been obtained and must be in full force and effect.
6.4 ADDITIONAL DOCUMENTS
Buyer must have caused the following documents to be delivered to Seller:
(a) an opinion of Keating, Muething & Klekamp, dated the Closing Date, in
the form of Exhibit 6.4(a); and
(b) such other documents as the Seller may reasonably request for the
purpose of (i) enabling its counsel to provide the opinion referred to in
Section 5.4(a), (ii) evidencing the accuracy of any representation or warranty
of Buyer, (iii) evidencing the performance by Buyer of, or the compliance by
Buyer with, any covenant or obligation required to be performed or complied with
by Buyer, or (iv) evidencing the satisfaction of any condition referred to in
this Section 6.
6.5 NO INJUNCTION
There must not be in effect any Legal Requirement or any injunction or
other Order that (a) prohibits the sale of the Assets by the Seller to Buyer,
and (b) has been adopted or issued, or has otherwise become effective, since the
date of this Agreement.
<PAGE>
7 ADDITIONAL AGREEMENTS
7.1 PRE-CLOSING CONDITIONS
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing, except as otherwise indicated.
(a) Each of the Parties will use its reasonable best efforts to take all
action and to do all things necessary in order to consummate and make effective
the transactions contemplated by this Agreement.
(b) Seller will give any notices to third parties, and shall obtain any
third party consents that are required or that the Buyer may reasonably request
in connection with the matters referred to in this Agreement. Each of the
Parties will give any notices to, make any filings with, and use its best
efforts to obtain any authorizations, consents, and approvals of governments and
governmental agencies in connection with the matters referred to in this
Agreement and the Disclosure Schedules. If any such consents or approvals
relating to an Assumed Contract have not been obtained prior to the Closing Date
and the assignment of any such Assumed Contract would constitute a breach
thereof, then Seller shall hold such Assumed Contract and all benefits derived
therefrom (economic or otherwise) in trust for the Buyer. Seller shall continue
to use its best efforts to obtain any such consents or approvals relating to
Assumed Contracts after the Closing Date. Until such consent or approval has
been obtained, or if it cannot be obtained, Seller shall continue to maintain
the existence of such Assumed Contract, as agent and trustee for Buyer, at
Seller's expense (net of expenses Buyer would have incurred had the applicable
Assumed Contract been assigned or transferred), and for the benefit of Buyer.
(c) The Seller will not engage in any practice, take any action, or enter
into any transaction outside the Ordinary Course of Business.
(d) Except as set forth herein, the Seller will keep its business and
properties substantially intact, including its present operations, physical
facilities, working conditions, and relationships with lessors, licensors,
suppliers, customers and employees.
(e) The Seller will permit representatives of the Buyer to have full
access, at all reasonable times, and in a manner so as not to interfere with the
normal business operations of the Seller, to all premises, properties,
personnel, books, records (including Tax records or the relevant portions
thereof), contracts, and documents of or pertaining to the Seller.
(f) The Seller will give prompt written notice to the Buyer of any material
adverse development causing a breach of any of the representations and
warranties in Section 3 above. Each Party will give prompt written notice to the
others of any material adverse development causing a breach of any of its own
representations and warranties in this Agreement. No disclosures by any Party
pursuant to this Section 7.1(f), however, shall be deemed to amend or
supplement, the Disclosure Schedules or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(g) Prior to the Closing Date, Ney, Andersen and Seller will not (i)
solicit, initiate, or encourage the submission of any proposal or offer from any
Person relating to the acquisition of any capital stock or other voting
securities, or any substantial portion of the Assets, of the Seller (including
any acquisition structured as a merger, consolidation, or share exchange) or
(ii) participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek any of the
foregoing. The Seller will notify the Buyer immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
7.2 POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following the
Closing.
(a) In case at any time after the Closing any further action is necessary
to carry out the purposes of this Agreement, each of the Parties will take such
further action (including the execution and delivery of such further instruments
and documents) as any other Party may request, all at the sole cost and expense
of the requesting Party. The Seller acknowledges and agrees that from and after
the Closing, the Buyer will be entitled to copies of all documents, books,
records (including the relevant portions of Tax records), agreements, and
financial data of any sort relating to the Seller's Business.
(b) In the event and for so long as any Party actively is contesting or
defending against any action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand in connection with (i) any transaction contemplated
under this Agreement or (ii) any fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction or prior to the Closing Date involving the
Seller, each of the other Parties will cooperate with it and provide such
testimony and access to their books and records as shall be necessary in
connection with the contest or defense, all at the sole cost and expense of the
contesting or defending Party.
(c) Seller will not take any action that is designed or intended to have
the effect of discouraging any lessor, licensor, customer, supplier or other
business associate of the Seller from maintaining the same business
relationships with the Buyer after the Closing as it maintained with the Seller
prior to the Closing. The Seller will refer all customer inquiries relating to
the business of the Seller to the Buyer from and after the Closing.
(d) The Seller will treat and hold as such all of the Confidential
Information, refrain from using any of the Confidential Information, except in
connection with this Agreement, and deliver promptly to the Buyer or destroy, at
the request and option of the Buyer, all tangible embodiments (and all copies)
of the Confidential Information which are in its possession. In the event that
Seller is requested or required (by oral question or request for information or
documents in any legal proceeding, interrogatory, subpoena, civil investigative
demand, or similar process) to disclose any Confidential Information, that
Seller will notify the Buyer promptly of the request or requirement so that the
Buyer may seek an appropriate protective order or waive compliance with the
provisions of this Section 7.2(d). If, in the absence of a protective order or
the receipt of a waiver hereunder, the Seller is, on the advice of counsel,
compelled to disclose any Confidential Information to any tribunal or else stand
liable for contempt, that Seller may disclose the Confidential Information to
the tribunal; provided, however, that Seller shall use its order or other
assurance that confidential treatment will be accorded to such portion of the
Confidential Information required to be disclosed as the Buyer shall designate.
The foregoing provisions shall not apply to any Confidential Information which
is generally available to the public immediately prior to the time of
disclosure.
(e) With respect to the collection of the Accounts
Receivable:
(i) After the Closing Date, Buyer shall use
reasonable efforts to attempt to collect all of the
Accounts Receivable with reasonable diligence
consistent with Buyer's general business practice for
a period of ninety (90) days following the Closing
Date (the "Collection Period"), but shall not be
required to institute any legal proceedings or use a
collection agency to enforce the collection of any
such Accounts Receivable. Upon the expiration of the
Collection Period, Buyer shall furnish Seller with a
collection report setting forth the Accounts
Receivables which remain uncollected. Within ten (10)
days after receipt of such collection report, Seller
shall pay to Buyer an amount equal to the Gross
Accounts Receivable (as defined below) which have not
been collected. Upon receipt of such payment, Buyer
shall deliver to the Seller all right, title and
interest in and any tangible evidence of the
uncollected Accounts Receivable then in the
possession of Buyer and Seller shall be entitled to
use such customary and reasonable actions as it deems
necessary or desirable in order to collect such
unpaid accounts; provided that Seller shall consult
with Buyer prior to taking any collection action
which might reasonably be expected to jeopardize the
Buyer's relationship with such customer. For purposes
of this Section, Gross Accounts Receivable means, the
gross Accounts Receivable as of the Closing Date less
any reserve for Accounts Receivable shown on the
Closing Financial Statements.
(ii) The Seller will, if requested by Buyer,
cooperate with Buyer in collecting any Accounts
Receivable. The Buyer will, if requested by Seller,
cooperate with Seller in collecting any Accounts
Receivable.
(iii) The Seller hereby authorizes Buyer to
open any and all mail addressed to Seller if received
on or after the Closing Date and hereby grants to the
Buyer a power of attorney to endorse and cash any
checks or instruments made payable or endorsed to
Seller or its order and received by Buyer.
<PAGE>
(iv) The Seller agrees that it will forward
promptly to Buyer any monies, checks or instruments
received by Seller after the Closing Date with
respect to the Accounts Receivable.
(v) Any sums received by the Buyer in
respect of Accounts Receivable after payment for such
receivable by the Seller shall be promptly
transmitted by the Buyer to the Seller.
(f) Buyer shall operate the Business in the Ordinary Course of Business
consistent with Seller's past practices for the period from the date of this
Agreement until the Closing Date.
(g) Within thirty (30) days after the Closing Date, Seller shall remove all
containerized Hazardous Waste (as that term is defined by the Environmental
Laws) generated by Seller prior to the Closing Date.
(h) Within ten (10) days after the Closing Date, Seller and Buyer shall
execute any and all documents required to comply with the Connecticut Property
Transfer Law.
7.3 TAX MATTERS
The following provisions shall govern the allocation of responsibility as
between Buyer and Seller for certain tax matters following the Closing Date:
(a) Buyer and Seller shall cooperate fully, as and to the extent reasonably
requested by the other party, in connection with the filing of Tax Returns
pursuant to this Section and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and (upon the
other party's request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding and making
employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. The Seller
agrees (A) to retain all books and records with respect to Tax matters pertinent
to the Seller relating to any taxable period beginning before the Closing Date
until the expiration of the statute of limitations (and, to the extent notified
by Buyer, any extensions thereof) of the respective taxable periods, and to
abide by all record retention agreements entered into with any taxing authority,
and (B) to give the other party reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if the transferring,
destroying or discarding any such books and records and, if the other party so
requests, the Seller shall allow the other party to take possession of such
books and records.
(b) Buyer and Seller further agree, upon request, to use their best efforts
to obtain any certificate or other document from any governmental authority or
any other Person as may be necessary to mitigate, reduce or eliminate any Tax
that could be imposed (including, but not limited to, with respect to the
transactions contemplated hereby).
<PAGE>
(c) Buyer and Seller further agree, upon request, to provide the other
party with all information that either party may be required to report.
(d) All tax sharing agreements or similar agreements with respect to or
involving the Seller shall not be assumed by Buyer after the Closing Date, the
Buyer shall not be bound thereby or have any liability thereunder.
(e) All transfer, documentary, sales, use, stamp, registration and other
such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement shall be paid by Seller when due, and Seller
will, at their own expense, file all necessary Tax Returns and other
documentation with respect to all such transfer, documentary, sales, use, stamp,
registration and other Taxes and fees, and, if required by applicable law, Buyer
will, and will cause its affiliates to, join in the execution of any such Tax
Returns and other documentation.
7.4 SEVERANCE MATTERS
Seller shall pay all severance, termination and other payments (whether in
the form of cash or otherwise) pursuant to any written or oral agreements of
Seller or its Affiliates and expenses applicable to the employees of Seller,
including, but not limited to, any other compensation payable to employees of
Seller under applicable plant closing or similar laws with respect to employees
of Seller who are not offered employment by the Buyer.
7.5 NONCOMPETITION BY SELLER AND STOCKHOLDERS
(a) For a period of five years after the Closing (the "Restricted Period")
neither the Seller, Andersen, Ney or any Affiliate thereof shall engage,
directly or indirectly, in any business anywhere in the United States that
develops, designs, manufactures, sells or markets products or services of the
kind developed, designed, manufactured, sold and marketed by the Business or the
Seller as of the Closing Date or, without the prior written consent of the
Buyer, directly or indirectly, own an interest in, manage, operate, join,
control, lend money or render financial or other assistance to or participate in
or be connected with, as an officer, employee, partner, stockholder, consultant
or otherwise, any Person that competes with the Buyer, the Business or the
Seller in developing, designing, manufacturing, selling or marketing products or
services of the kind developed, designed, manufactured, sold or marketed by the
Business or the Seller as of the Closing; provided, however, that, for the
purposes of this section ownership of securities having no more than five
percent (5%) of the outstanding voting power of any competitor which are listed
on any national securities exchange or traded actively in the national
over-the-counter market shall not be deemed to be in violation of this section
so long as the Person owning such securities has no other connection or
relationship with such competitor.
(b) As a separate and independent covenant, the Seller agrees with the
Buyer that, for a period of five years following the Closing, neither the
Seller, Andersen, Ney or any Affiliate thereof shall, in any way, directly or
indirectly, for the purpose of conducting or engaging in any business that
develops, designs, manufactures, sells or markets products or services of the
kind developed, designed, manufactured, sold or marketed by the Business or the
Seller as of the Closing, call upon, solicit, advise or otherwise do, or attempt
to do, business with any customers of the Business or the Seller in order to
take away or interfere or attempt to interfere with any custom, trade, business
or patronage of the Business or the Seller, or interfere with or attempt to
interfere with any officers, employees, representatives or agents of the
Business or the Seller, or induce or attempt to induce any of them to leave the
employ of the Seller or violate the terms of their contracts, or any employment
arrangements, with the Company.
(c) The Restricted Period shall be extended by the length of any period
during which the Seller is in breach of the terms of this Section 7.5.
8. TERMINATION
8.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at
the Closing, be terminated:
(a) by either Buyer or the Seller if a material Breach of any provision of
this Agreement has been committed by the other party and such Breach has not
been waived or cured within 10 days after notice of such breach;
(b) (i) by Buyer if any of the conditions in Section 5 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before the Closing Date; or (ii) by the Seller, if any of the conditions in
Section has not been satisfied as of the Closing Date or if satisfaction of such
a condition is or becomes impossible (other than through the failure of the
Seller to comply with its obligations under this Agreement) and Seller has not
waived such condition on or before the Closing Date;
(c) by mutual consent of Buyer and the Seller; or
(d) by either Buyer or the Seller if the Closing has not occurred (other
than through the failure of any party seeking to terminate this Agreement to
comply fully with its obligations under this Agreement) on or before March 4,
1998 or such later date as the parties may agree upon.
8.2 EFFECT OF TERMINATION
Each party's right of termination under Section 8.1 is in addition to any
other rights it may have under this Agreement or otherwise, and the exercise of
a right of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 8.1, all further obligations of the parties under
this Agreement will terminate, except that the obligations in Section 10.1 will
survive; provided, however, that if this Agreement is terminated by a party
because of the Breach of the Agreement by the other party or because one or more
of the conditions to the terminating party's obligations under this Agreement is
not satisfied as a result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's right to pursue all
legal remedies will survive such termination unimpaired.
9. INDEMNIFICATION; REMEDIES
9.1 SURVIVAL
All representations, warranties, covenants, and obligations in this
Agreement, the Disclosure Schedule, the supplements to the Disclosure Schedule,
the certificate delivered pursuant to Section 2.9(a)(iv) and Section 2.9(b)(ii)
and any other certificate or document delivered pursuant to this Agreement will
survive the Closing. However, the written waiver of any condition based on the
accuracy of any representation or warranty in this Agreement, or on the
performance of or compliance with any covenant or obligation in this Agreement,
will eliminate the right to indemnification, payment of Damages, or other remedy
based on such representations, warranties, covenants and obligations.
9.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY
THE SELLER AND ANDERSEN
The Seller and Andersen, jointly and severally, hereby indemnify and hold
harmless Buyer and its Representatives, stockholders, controlling persons, and
affiliates (collectively, the "Indemnified Persons") for, and will pay to the
Indemnified Persons the amount of, any loss, liability, claim, damage (including
incidental and consequential damages), expense (including costs of investigation
and defense and reasonable attorneys' fees) or diminution of value, whether or
not involving a third-party claim (collectively, "Damages"), arising, directly
or indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by the Seller or
Andersen in this Agreement or any other certificate or document delivered by the
Seller or Andersen pursuant to this Agreement;
(b) any Breach of any representation or warranty made by the Seller or
Andersen in this Agreement as if such representation or warranty were made on
and as of the Closing Date;
(c) any Breach by the Seller or Andersen of any covenant or obligation in
this Agreement;
(d) any product shipped or manufactured by, or any services provided by,
the Seller on or prior to the Closing Date, including, without limitation, any
damages arising out of allegations of personal injury or property suffered by
any third party, or activities or omissions of the Seller that occurred on or
prior to the Closing Date;
<PAGE>
(e) any claim by any Person for brokerage or finder's fees or commissions
or similar payments based upon any agreement or understanding alleged to have
been made by any such Person with the Seller (or any Person acting on their
behalf) in connection with any of the transactions contemplated hereby;
(f) any Environmental, Health and Safety Liabilities that relate to the
business or operation of the Seller, the Assets or the Facilities on or prior to
the Closing Date, whether or not the facts underlying such Environmental, Health
and Safety Liabilities are disclosed in the Disclosure Schedule, known or
unknown to the Seller; or
(g) any Tax liabilities or obligations of the Seller.
9.3 TIME LIMITATIONS
If the Closing occurs, the Seller and Andersen will have no liability (for
indemnification or otherwise) with respect to any representation or warranty, or
covenant or obligation to be performed and complied with prior to the Closing
Date, other than those in Sections 2.3(b), 3.6 (title only), 3.10, 3.12, 3.15
and 3.19, unless on or before the second anniversary of the Closing Date, Buyer
notifies the Seller and Andersen of a claim specifying the factual basis of that
claim in reasonable detail to the extent then known by Buyer, a claim with
respect to Section 3.6 (title only), 3.12 or 3.15, or a claim for
indemnification or reimbursement not based upon any representation or warranty
or any covenant or obligation to be performed and complied with prior to the
Closing Date, may be made at any time within the applicable statute of
limitations; a claim with respect to Section 3.19, which must be made within the
seventh anniversary date from the Closing Date; a claim with respect to Section
3.10 which must be made within ninety (90) days from the Closing Date; and a
claim with respect to Section 2.3(b) which must be made within the time period
provided by Seller's warranty with respect to such product.
9.4 LIMITATIONS ON AMOUNT -- SELLER
The Seller and Andersen will have no liability (for indemnification or
otherwise) with respect to the matters described in Section 9.2 until the total
of all Damages actually paid or incurred by Buyer with respect to such matters
(excluding, however, any individual matter in the amount of Five Hundred and
00/100 Dollars ($500.00) or less) exceeds Twenty Thousand and 00/100 Dollars
($20,000.00) and then for the full amount of such Damages (excluding, however,
any individual matter in the amount of Five Hundred and 00/100 Dollars ($500.00)
or less). However, this Section 9.4 will not apply to any intentional Breach by
the Seller or Andersen of any covenant or obligation, and the Seller and
Andersen will be liable for all Damages with respect to such Breaches in an
amount not to exceed the Purchase Price, as adjusted, plus the total of all
payments made under the Technology Assignment Agreement as of the date the claim
is asserted nor shall this section apply to claims by Buyer with respect to
Sections 2.3(b), 3.6 (title only), 3.9, 3.10, 3.12, 3.15 and 3.19 of this
Agreement for which Seller and Andersen shall be liable for the full amount of
such Damages.
<PAGE>
9.5 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) Promptly after receipt by the Indemnified Persons under Section 9.2 of
notice of the commencement of any Proceeding against it, such Indemnified
Persons will, if a claim is to be made against an indemnifying party under such
Section, give notice to the indemnifying party of the commencement of such
claim, but the failure to notify the indemnifying party will not relieve the
indemnifying party of any liability that it may have to any Indemnified Persons,
except to the extent that the indemnifying party demonstrates that the defense
of such action is prejudiced by the indemnifying party's failure to give such
notice.
(b) If any Proceeding referred to in Section 9.5(a) is brought against the
Indemnified Persons and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will, unless the claim
involves Taxes, be entitled to participate in such Proceeding and, to the extent
that it wishes (unless (i) the indemnifying party is also a party to such
Proceeding and the Indemnified Persons determine in good faith that joint
representation would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the Indemnified Party of its financial capacity
to defend such Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with counsel satisfactory
to the indemnified Persons and, after notice from the indemnifying party to the
Indemnified Persons of its election to assume the defense of such Proceeding,
the indemnifying party will not, as long as it diligently conducts such defense,
be liable to the Indemnified Persons under this Section 9.5 for any fees of
other counsel or any other expenses with respect to the defense of such
Proceeding, in each case subsequently incurred by the Indemnified Persons in
connection with the defense of such Proceeding, other than reasonable costs of
investigation. If the indemnifying party assumes the defense of a Proceeding,
(i) it will be conclusively established for purposes of this Agreement that the
claims made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be effected
by the indemnifying party without the Indemnified Persons' consent unless (A)
there is no finding or admission of any violation of Legal Requirements or any
violation of the rights of any Person and no effect on any other claims that may
be made against the Indemnified Persons, and (B) the sole relief provided is
monetary damages that are paid in full by the indemnifying party; and (iii) the
Indemnified Persons will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If notice is given to an
indemnifying party of the commencement of any Proceeding and the indemnifying
party does not, within ten (10) days after the Indemnified Persons' notice is
given, give notice to the indemnified party of its election to assume the
defense of such Proceeding, the indemnifying party will be bound by any
determination made in such Proceeding or any compromise or settlement effected
by the Indemnified Persons.
(c) Notwithstanding the foregoing, if an Indemnified Person determines in
good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its Affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
Indemnified Persons may, by notice to the indemnifying party, assume the
exclusive right to defend, compromise, or settle such Proceeding, but the
indemnifying party will not be bound by any determination of a Proceeding so
defended or any compromise or settlement effected without its consent (which may
not be unreasonably withheld).
9.6 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
A claim for indemnification for any matter not involving a third-party
claim may be asserted by notice to the Seller and Andersen from whom
indemnification is sought.
9.7 EXCLUSIVE REMEDIES
Nothing in this Section 9.7 is intended to restrict any remedies which may
be available to Buyer with respect to any breach of or other default under any
separate agreement executed in connection with any matter described in this
Agreement, including (without limitation) breaches of or defaults under the
Technology Assignment Agreement.
9.8 RIGHT TO SET OFF; EFFECT OF INDEMNIFICATION PAYMENT
In the event that amounts are owed for indemnification pursuant to Section
9 of this Agreement by the Seller and Andersen and such amounts remain unpaid at
the date upon which the Buyer must pay consideration to the Seller pursuant to
the Technology Assignment Agreement, the Buyer may set off such amounts against
the payments owed to the Seller at such date.
10. GENERAL PROVISIONS
10.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each party to
this Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the transactions
contemplated hereby, including all fees and expenses of agents, representatives,
counsel and accountants. In the event of termination of this Agreement, the
obligation of each party to pay its own expenses will be subject to any rights
of such party arising from a breach of this Agreement by another party.
10.2 PUBLIC ANNOUNCEMENTS
Any public announcement or similar publicity with respect to this Agreement
or the transactions contemplated hereby will be issued at such time as required
by applicable law and as agreed upon by the parties hereto. The Seller and Buyer
will consult with each other in good faith concerning the means by which the
Seller's employees, customers, and suppliers and others having dealings with the
Seller's Business will be informed of the transactions contemplated hereby, and
Buyer and the Seller will have the right to be present for any such
communication.
<PAGE>
10.3 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), or (c) when received by the addressee,
if sent by a nationally recognized overnight delivery service, in each case to
the appropriate addresses and telecopier numbers set forth below (or to such
other addresses and telecopier numbers as a party may designate by notice to the
other parties):
The Seller: Ney Ultrasonics Inc.
1280 Blue Hills Avenue
Bloomfield, Connecticut 06002
Attention: Mr. Francis E. Baker
Facsimile No.: 860/242-8388
with a copy to: Bernard F. Travers III, Esq.
Andersen Group, Inc.
1280 Blue Hills Avenue
Bloomfield, Connecticut 06002
Facsimile No.: 860/242-8388
with a copy to: Edwards & Angell
101 Federal Street
Boston, Massachusetts 02110-1800
Attention: Robert W. Curry, Esq.
Facsimile No.: 617/439-4170
Buyer: CAE U.S. Inc.
4933 Provident Drive
Cincinnati, Ohio 45246
Attention: John J. Hartig, Vice President
Facsimile No.: 513/870-1778
with a copy to: CAE Blackstone
9 North Main Street
Jamestown, New York 14702
Attention: Geoff Bond
Facsimile No.: 716/665-2480
with a copy to: Keating, Muething & Klekamp, P.L.L.
1800 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
Attention: James M. Jansing, Esq.
Facsimile No.: 513/579-6956
10.4 FURTHER ASSURANCES; RECORDS RETENTION
The parties agree: (a) to furnish upon request to each other such further
information; (b) to execute and deliver to each other such other documents; and
(c) to do such other acts and things, all as the other party or parties may
reasonably request for the purpose of carrying out the intent of this Agreement
and the documents referred to in this Agreement. Buyer shall retain all files,
books and other records relating to the operation of the Seller's Business after
the Closing in a manner that is consistent with Buyer's general records
retention policy (under which Buyer currently retains most records for seven (7)
years) and shall, after the Closing, give the Seller and its respective
representative(s) access thereto during regular business hours on reasonable
prior notice.
10.5 WAIVER
Except as otherwise provided in Section 9.2, the rights and remedies of the
parties to this Agreement are cumulative and not alternative. Neither the
failure nor any delay by any party in exercising any right, power or privilege
under this Agreement or the documents referred to in this Agreement will operate
as a waiver of such right, power or privilege, and no single or partial exercise
of any such right, power, or privilege will preclude any other or further
exercise of such right, power, or privilege or the exercise of any other right,
power, or privilege. To the maximum extent permitted by applicable law, (a) no
claim or right arising out of this Agreement or the documents referred to in
this Agreement can be discharged by one party, in whole or in part, by a waiver
or renunciation of the claim or right unless in writing signed by the other
party; (b) no waiver that may be given by a party will be applicable except in
the specific instance for which it is given; and (c) no notice to or demand on
one party will be deemed to be a waiver of any obligation of such party or of
the right of the party giving such notice or demand to take further action
without notice or demand as provided in this Agreement or the documents referred
to in this Agreement.
10.6 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements, arrangements or
understandings between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may not be amended except by a
written agreement executed by all the parties hereto.
10.7 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Neither Buyer nor the Seller may assign any of its rights under this
Agreement without the prior consent of the other parties, which will not be
unreasonably withheld, except that Buyer may assign any of its rights under this
Agreement to any Subsidiary of Buyer. Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the parties. Nothing
expressed or referred to in this Agreement will be construed to give any Person
other than the parties to this Agreement any legal or equitable right, remedy or
claim under or with respect to this Agreement or any provision of this
Agreement. This Agreement and all of its provisions and conditions are for the
sole and exclusive benefit of the parties to this Agreement and their successors
and assigns.
10.8 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
10.9 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
10.10 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
10.11 GOVERNING LAW
This Agreement will be governed by and construed under the laws of
Connecticut without regard to conflicts of laws principles.
10.12 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement.
[The Remainder of this Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
BUYER:
CAE U.S. INC.
By: /s/ Paul G. Renaud
-------------------
Title: Vice President-Finance and Secretary
SELLER:
NEY ULTRASONICS INC.
By: /s/ Bernard F. Travers, III
---------------------------
Title: Assistant Secretary
ANDERSEN:
ANDERSEN GROUP, INC.
By: /s/ Francis E. Baker
---------------------
Title: Secretary
Solely for purposes for Section of the Agreement.
NEY:
THE J. M. NEY COMPANY
By: /s/ Andrew M. O'Shea
---------------------
Title: Chief Financial Officer
<PAGE>
GLOSSARY
"Accounts Receivable" -- as defined in Section 2.1(a).
"Affiliate" -- with respect to any specified Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person.
"Affiliated Group" -- means an affiliated group as defined in Section 1504 of
the Code (or any analogous combined, consolidated or unitary group defined under
state, local or foreign income Tax law) of which the Seller is or has been a
member.
"Agreement" -- as defined in the first paragraph of this Agreement.
"Assets" -- as defined in Section 2.1 hereof.
"Assumed Contracts" -- as defined in Section 3.17(a).
"Assumed Liabilities" -- as defined in Section 2.2(a).
"Auditors" -- as defined in Section 2.11(a).
"August 1, 1997 Balance Sheet" -- means the balance sheet dated August 1, 1997
delivered by Seller to Buyer which reflects the financial condition of Seller at
July 31, 1997.
"Breach" -- a "Breach" of a representation, warranty, covenant, obligation or
other provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been: (a) any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation or other provision; or (b) any
claim (by any Person) or other occurrence or circumstance that is or was
inconsistent with such representation, warranty, covenant, obligation, or other
provision, and the term "Breach" means any such inaccuracy, breach, failure,
claim, occurrence, or circumstance.
"Business" -- as defined in the Recitals.
"Buyer" -- as defined in the first paragraph of this Agreement.
"Capital Employed" -- assets less current liabilities as reflected on the
Balance Sheet of Seller at February 28, 1998 determined in accordance with
Generally Accepted Accounting Principles consistently applied as presented on
the August 1, 1997 Balance Sheet.
"Closing" -- as defined in Section 2.7.
"Closing Date" -- the date and time as of which the Closing actually takes
place.
"Closing Financial Statements" -- the Balance Sheet and statement of Net Assets
of the Seller as of February 28, 1998 and the Operating Income Statement of the
Seller for the fiscal year ending February 28, 1998.
"Code" -- the Internal Revenue Code of 1986, as amended from time to time.
"Consent" -- any approval, consent, ratification, waiver or other authorization
(including any Governmental Authorization).
"Contracts" -- all contracts, commitments or other arrangements to which the
Seller is a party and related to the Seller's Business.
"Copyrights" -- as defined in Section 3.22(a)(ii).
"Damages" -- as defined in Section 9.2.
"Disclosure Schedule" -- the disclosure schedule delivered by the Seller to
Buyer concurrently with the execution and delivery of this Agreement.
"Encumbrance" -- any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income or exercise of any other attribute of ownership.
"Environment" -- soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins and
wetlands), ground waters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental, Health, and Safety Liabilities" -- any cost, damages, expense,
liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or
conditions (including on-site or off-site
contamination, occupational safety and health, toxic
exposure, and regulation of chemical substances or
products);
(b) fines, penalties, judgments, awards, settlements,
legal or administrative proceedings, damages, losses,
claims, demands and response, investigative,
oversight, remedial or inspection costs and expenses
arising under Environmental Law or Occupational
Safety and Health Law;
(c) financial responsibility under Environmental Law or
Occupational Safety and Health Law for cleanup costs
or corrective action, including any investigation,
cleanup, removal, containment, or other remediation
or response actions ("Cleanup") required by
applicable Environmental Law or Occupational Safety
and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any
other Person) and for any natural resource damages;
or
(d) any other compliance, corrective, investigative or
remedial measures required under Environmental Law or
Occupational Safety and Health Law.
"Environmental Laws" -- any Legal Requirement, now in effect, and any
judicial or administrative interpretation thereof, including any judicial,
administrative order, consent decree or judgment, relating to the environment,
health, safety or Hazardous Materials, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act, 4288
U.S.C. 9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C.
ss.ss.6901 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C.
ss.ss.6901 et seq.; the Clean Water Act, 33 U.S.C. ss.ss.1251 et seq.; the Toxic
Substances Control Act, 15 U.S.C. ss.ss.2601 et seq.; the Clean Air Act, 42
U.S.C. ss.ss.7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. ss.ss. 300f et
seq.; the Atomic Energy Act, 42 U.S.C. ss.ss.2011 et seq.; the Federal
Insecticide, Fungicide and Rodenticide Act 7 U.S.C. ss.ss.136 et seq.; and the
Federal Food, Drug and Cosmetic Act, 21 U.S.C. ss.ss.301 et seq.
"Environmental Permits" -- all permits, approvals, identification numbers,
licenses and other authorizations required under any applicable Environmental
Law.
"ERISA" -- the Employee Retirement Income Security Act of 1974, as amended from
time to time.
"ERISA Affiliates" -- in relation to any Person, any trade or business (whether
or not incorporated) which is a member of a group of which that Person is a
member and which is under common control within the meaning of Section 414 of
the Code.
"Excluded Assets" -- as defined in Section 2.1(b).
"Excluded Liabilities" -- as defined in Section 2.2(d).
"Facilities" -- any real property, leaseholds, or other interests currently
owned or operated by Seller in the conduct of the Seller's Business and any
buildings, plants, structures, or equipment (including motor vehicles) currently
owned or operated by Seller in the conduct of the Seller's Business.
"Financial Statements" -- as defined in Section 3.4.
"Governmental Authorization" -- any approval, consent, license, permit, waiver,
or other authorization issued, granted, given or otherwise made available by or
under the authority of any Governmental Body or pursuant to any Legal
Requirement, other than Environmental Permits.
"Governmental Body" -- any:
(a) nation, state, county, city, town, village, district or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other government;
(c) governmental or quasi-governmental authority of any nature (including
any governmental agency, branch, department, official or entity and any court or
other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory or taxing authority or
power of any nature.
"Hazardous Materials" -- (a) petroleum or petroleum products, radioactive
materials, asbestos in any form that is or could become friable, urea
formaldehyde foam insulation, transformers or other equipment that contain
polychlorinated biphenyls, and radon gas, (b) any other chemicals, materials or
substances defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous wastes",
"restricted hazardous wastes", "toxic substances", "toxic pollutants",
"contaminants" or "pollutants", or words of similar import, under any applicable
Environmental Law, and (c) any other chemical, material or substance exposure to
which is regulated by any Governmental Authority.
"Indemnified Persons" -- as defined in Section 9.2.
"Intellectual Property Assets" -- as defined in Section 3.22.
"Knowledge" or "Seller's Knowledge" -- Seller will be deemed to have "Knowledge"
of a particular fact or other matter if an individual set forth on Schedule I
attached hereto, which lists certain employees of Seller, Ney and Andersen, is
actually aware of such fact or other matter or would reasonably be expected to
discover or otherwise become aware of such fact or other matter in the ordinary
course of conducting his or her duties in the absence of gross negligence.
"Leases" -- as defined in Section 3.7(b)(i).
"Legal Requirement" -- any federal, state, local, municipal, foreign,
international, multinational or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Liability" -- any and all debts, liabilities and obligations, whether accrued
or fixed, absolute or contingent, matured or unmatured or determined or
determinable, including, without limitation, those arising under any Legal
Requirement (including, without limitation, any Environmental Laws) Governmental
Body and those arising under any contract, agreement, arrangement, commitment or
undertaking.
"Loaded Labor Cost" -- means Buyer's direct labor cost, plus 35% of such direct
labor cost to cover all benefit costs with respect to the employees of Buyer.
"March 1997 Forecast" -- means the financial forecast dated March 1997 delivered
by Seller to Buyer.
"Marks" -- as defined in Section 3.22(a)(i).
"Material Adverse Change" or "Material Adverse Effect" -- means any event or
change which either individually or in combination with other events or changes
had or is likely to have a material adverse effect on the assets, business,
prospects, financial condition, or results of operations of the Person.
"Net Assets" -- assets less current liabilities of Seller as reflected on the
Seller's Balance Sheets determined in accordance with Generally Accepted
Accounting Principles consistently applied.
"New Lease" -- as defined in Section 5.8(a).
"Ney" -- means The J.M. Ney Company, a Delaware corporation.
"Occupational Safety and Health Law" -- any Legal Requirement designed to
provide safe and healthful working conditions and to reduce occupational safety
and health hazards and any program, whether governmental or private (including
those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"Operating Income" -- revenue less the cost of goods sold and related operating
expenses incurred in the ordinary course of business and before income tax
deductions determined in accordance with Generally Accepted Accounting
Principles consistently applied and consistent with the Operating Income
Statements of Seller as of July 31, 1997 dated Augusty1, 1997.
"Order" -- any award, decision, injunction, judgment, order, ruling, subpoena,
or verdict entered, issued, made or rendered by any court, administrative
agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" -- an action taken by a Person will be deemed to
have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal
day-to-day operations of such Person;
(b) such action is not required to be specifically authorized by
the board of directors of such Person (or by any Person or
group of Persons exercising similar authority); and
(c) such action is similar in nature and magnitude to actions
customarily taken, without any specific authorization by the
board of directors (or by any Person or group of Persons
exercising similar authority), in the ordinary course of the
normal day-to-day operations of other Persons that are in the
same line of business as such Person.
"Organizational Documents" -- (a) the Certificate of Incorporation and By-laws
of a corporation; and (b) any amendment to any of the foregoing.
"Percentage-of-Completion Method of Accounting" -- the method of accounting
relating to percentage of completion determined in accordance with Generally
Accepted Accounting Principles.
"Permitted Encumbrances" -- means liens for Taxes not yet due and payable.
"Person" -- any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or other entity or
Governmental Body.
"Proceeding" -- any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Purchase Price" -- as defined in Section 2.5.
"Real Property" -- as defined in Section 3.7(a).
"Related Person" -- with respect to a particular individual:
(a) each other member of such individual's family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's family;
(c) any Person in which such individual or members of such
individual's family hold (individually or in the aggregate) a
material interest; and
(d) any Person with respect to which such individual or one or
more members of such individual's family serves as a director,
officer, partner, executor or trustee (or in a similar
capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly
or indirectly controlled by, or is directly or indirectly
under common control with such specified Person;
(b) any Person that holds a material interest in such specified
Person;
(c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar
capacity);
(d) any Person in which such specified Person holds a material
interest;
(e) any Person with respect to which such specified Person serves
as a general partner or a trustee (or in a similar capacity);
and
(f) any Related Person of any individual described in clause (b)
or (c).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse, (iii) any other
natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "material interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of voting securities or other voting interests representing at least ten percent
(10%) of the outstanding voting power of a Person or equity securities or other
equity interests representing at least ten percent (10%) of the outstanding
equity securities or equity interests in a Person.
"Release" -- any disposal, abandonment, spilling, leaking, emitting,
discharging, depositing, escaping, leaching, dumping, or other releasing into
the Environment, whether intentional or unintentional.
"Representative" -- with respect to a particular Person, any director, officer,
employee, agent, consultant, advisor, or other representative of such Person,
including legal counsel, accountants, and financial advisors.
"Seller" -- as defined in the first paragraph of this Agreement.
"Software" -- as defined in Section 3.22(a)(iii).
"Subsidiary" -- with respect to any Person (the "Owner"), any corporation or
other Person of which securities or other interests having the power to elect a
majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of the Seller.
"Tax Returns" -- any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax. "Taxes" --means
any (A) federal, state, local or foreign income, gross receipts, franchise,
estimated, alternative minimum, add-on minimum, sales, use, transfer,
registration, value added, excise, natural resources, severance, stamp,
occupation, premium, windfall profit, environmental, customs, duties, real
property, capital stock, social security, unemployment, disability, payroll,
license, employee or other withholding, or other tax, of any kind whatsoever,
whether disputed or not, including any interest, penalties or additions to tax
or additional amounts in respect of the foregoing; (B) liability of Seller or
Ney for the payment of any amounts of the type described in clause (A) arising
as a result of being (or ceasing to be) a member of any Affiliated Group (or
being included (or required to be included) in any Tax Return relating thereto
or as a party to any Tax allocation or Tax sharing agreement or any other
contractual obligation to indemnify any other person with respect to Taxes); and
(C) liability of Seller or Ney for the payment of any amounts of the type
described in clause (A) as a transferee or successor, by contract (including as
result of any express or implied obligation to indemnify or otherwise assume or
succeed to the liability of any other person), or otherwise.
"Technology Agreements" -- means the (i) Microsonic License Agreement dated
September 1, 1996 between Electronic Power Components, Inc., William L. Puskas
and The J.M. Ney Company, (ii) Ultrasonic License Agreement dated March 1, 1993,
as amended, between Electronic Power Components, Inc., William L. Puskas and The
J.M. Ney Company, and (iii) the Commercial Ultrasonic Cleaners Agreement dated
June 1, 1996.
"Threat of Release" -- a substantial likelihood of a Release that may require
action in order to prevent or mitigate damage to the Environment that may result
from such Release.
"Threatened" -- a claim, Proceeding, dispute, action, or other matter will be
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken or otherwise
pursued in the future.
"Warranty Provision" -- as defined in Section 2.3.
E-6
Exhibit 10.12
AMENDMENT AGREEMENT
AMENDMENT AGREEMENT (this "Agreement") dated as of December 29, 1997 by
and among The J.M. Ney Company (the "Borrower"), BankBoston, N.A. (successor by
merger to Bank of Boston Connecticut) ("BankBoston") and Rhode Island Hospital
Trust National Bank ("RIHT" and, collectively with BankBoston, the "Banks"),
with respect to a certain Revolving Credit and Deferred Payment Sales Agreement
dated as of October 8, 1996 by and among the Borrower and the Banks (the "Credit
Agreement").
W I T N E S S E T H:
WHEREAS, pursuant to the terms of the Credit Agreement, the Banks provided
certain financing to the Borrower; and
WHEREAS, the Borrower has requested that the Banks amend certain provisions
of the Credit Agreement; and
WHEREAS, the Banks are willing to amend certain terms and conditions of the
Credit Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ss.1. Definitions. Capitalized terms used herein without definition
that are defined in the Credit Agreement shall have the same meanings herein as
therein.
ss.2. Ratification of Existing Agreements. All of the Borrower's
obligations and liabilities to the Banks as evidenced by or otherwise arising
under the Credit Agreement, the Note, the Letters of Credit and the other Loan
Documents, are, by the Borrower's execution of this Amendment, ratified and
confirmed in all respects. In addition, by the Borrower's execution of this
Amendment, the Borrower represents and warrants that no counterclaim, right of
set-off or defense of any kind exists or is outstanding with respect to such
obligations and liabilities.
ss.3. Representations and Warranties. All of the representations and
warranties made by the Borrower in the Credit Agreement, the Note, the Letters
of Credit and the other Loan Documents are true and correct on the date hereof
as if made on and as of the date hereof, except to the extent of changes
permitted by the Credit Agreement, the Note, the Letters of Credit, the other
Loan Documents or this Agreement or specifically consented to in writing by the
Banks, and except to the extent that any of such representations and warranties
relate by their terms to a prior date.
ss.4. Amendment to the Credit Agreement.
4.1. Amendment to ss.1.1. Section 1.1 of the Credit Agreement is hereby
amended as follows: (i) the definition of "Availability Amount" is hereby
amended in its entirety to read as follows:
"Availability Amount. The lesser of (a) the amount by which
the Commitment exceeds the sum of (i) the aggregate outstanding balance
of all Revolving Loans, plus (ii) the Deferred Payment Sale Amount,
plus (iii) the Fair Market Value of Consigned Precious Metal plus (iv)
the Maximum Drawing Amount, plus (v) the aggregate amount of all Unpaid
Reimbursement Obligations plus (vi) the Fair Market Value of all
Segregated Precious Metal and (b) after giving effect to any proposed
Deferred Payment Sale with respect to any type of Precious Metal, 90%
of the aggregate number of ounces of such type of Precious Metal that
are (i) owned by the Borrower and (ii) not subject to any liens other
than liens in favor of the Banks (e.g. if the Borrower owns 1000 ounces
of silver Precious Metal (exclusive of Segregated Precious Metals and
Consigned Precious Metals) prior to a Deferred Payment Sale of silver,
the Borrower will be limited to a Deferred Payment Sale of 9000 ounces
of silver under this clause (b))."
(ii) the definition of "Borrowing Base" is hereby amended and restated
in its entirety to read as follows:
"Borrowing Base. The sum of (a) 85% of Eligible Receivables in
respect of account debtors located within the United States, plus (b)
70% of the Eligible Receivables in respect of account debtors located
outside of the United States, plus (c) the Applicable Percentage of
each type of Eligible Precious Metal Inventory after subtracting from
the number of ounces of each type of Precious Metals owned by the
Borrower to be included in Eligible Precious Metal Inventory hereunder
(1) the Fair Market Value of 110% of the number of ounces of that type
of Precious Metal that is the subject of a Deferred Payment Sale, (2)
the Fair Market Value of 110% of the number of ounces of that type of
Consigned Precious Metals and (3) the Fair Market Value of 110% of the
number of ounces of that type of Segregated Precious Metals."
(iii) the definition of "Consolidated Financial Obligations" is hereby
amended and restated in its entirety to read as follows:
"Consolidated Financial Obligations. With respect to any
period, an amount equal to the sum of all payments on Indebtedness that
become due and payable or that are to become due and payable during
such period pursuant to any agreement or instrument to which the
Borrower or any of its Subsidiaries is a party relating to the
borrowing of money or the obtaining of credit or in respect of
Capitalized Leases (including, without limitation, Deferred Payment
Sale Interest). Demand obligations shall be deemed to be due and
payable during any fiscal year during which such obligations are
outstanding."
(iv) the definition of "Deferred Payment Sale Interest" is hereby
amended and restated in its entirety to read as follows:
"Deferred Payment Sale Interest. Interest on the principal balance of
Deferred Payment Sale Amount calculated in accordance with the method
and/or amount set forth on the Confirmation Order for the applicable
sale (which will be the Consignment Rate plus the Applicable Margin)."
(v) the definition of "Eligible Receivables" is hereby amended by
deleting the phrase "(iv) as to which the account debtor is located outside the
United States (except as otherwise agreed in writing in its discretion by BKB
with respect to specific foreign account debtors)" and inserting the phrase
"(iv) as to which the account debtor is located outside the United States
(except (x) if such account debtor is located within any other country which is
a member of the Organization for Economic Cooperation and Development and has
been an account debtor of the Borrower in good standing for at least six
consecutive months and (y) as otherwise agreed in writing in its discretion by
BKB with respect to specific foreign account debtors)" in its place.
(vi) the definition of "EBITDA" is hereby amended and restated in
its entirety to read as follows:
"EBITDA. The sum of (a) Consolidated Net Income (or Net Loss)
for any period, plus (b) any income taxes (as calculated in accordance
with the Tax Sharing Agreement) and interest expense of the Borrower
and its Subsidiaries for such period, plus (c) depreciation and
amortization of the Borrower and its Subsidiaries for such period, all
as determined in conformity with generally accepted accounting
principles."
(vii) the definition of "Generally Accepted Accounting Principles or
generally accepted accounting principles" is hereby amended by adding the
following sentence at the end thereof: "Notwithstanding anything to the contrary
in the foregoing, the Borrower shall base its accounting and financial
calculations (including without limitation those pursuant to ss.9) on the
"first-in, first-out" or "FIFO" method. Financial statements may be prepared
using the "last-in first-out" or "LIFO" method, but shall for purposes of the
Banks be adjusted to the "first-in first-out" or "FIFO" method."
(viii) the definition of "Obligations" is hereby amended by adding the
phrase ", Purchase and Consignment" immediately after the word "Loans" appearing
in the eighth line thereof.
(ix) the definition of "Revolving Loan Maturity Date" is hereby amended
and restated in its entirety to read as follows:
"Revolving Loan Maturity Date. December 29, 2002."
(x) the following new definitions are hereby inserted into Section 1.1
in their appropriate alphabetical order:
"Applicable Margin. With respect to any LIBOR Rate Loan,
Purchase and Consignment or Deferred Payment Sale, at any time, the
Applicable Margin shall be the interest rate margin determined by BKB
(in the case of LIBOR Rate Loans) or RIHT (in the case of a Purchase
and Consignment or Deferred Payment Sale) based upon the OCF/TDS Ratio
for the immediately preceding fiscal quarter end, effective as of the
fifth Business Day after the financial statements referred to in ss.7.4
hereof have been received or, if earlier, are required to be furnished
by the Borrower to the Banks for such fiscal quarter, expressed as a
per annum rate of interest as follows:
<TABLE>
<CAPTION>
---------------------------------- ---------------------- -------------------- ------------------
OCF/TDS Ratio Deferred Payment Consigned Rate LIBOR Rate
Sale Applicable Applicable Margin Applicable Margin
Margin
---------------------------------- ---------------------- -------------------- ------------------
-------------------- ------------- ---------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Greater Than But Less
Or Equal To Than
-------------------- ------------- ---------------------- ------------------- -------------------
-------------------- ------------- ---------------------- ------------------- -------------------
-------------------- ------------- ---------------------- ------------------- -------------------
-------------------- ------------- ---------------------- ------------------- -------------------
1.50:1 - 1.75% 1.75% 1.75%
-------------------- ------------- ---------------------- ------------------- -------------------
-------------------- ------------- ---------------------- ------------------- -------------------
1.25:1 1.50:1 2.00% 2.00% 2.00%
-------------------- ------------- ---------------------- ------------------- -------------------
</TABLE>
provided, however, that, in the event that the Borrower fails to timely
provide the financial statements referred to above in accordance with
the terms hereof, and without prejudice to any additional rights
under Section 12 hereof, no downward adjustment of the Applicable
Margin shall occur until the second Business Day afte the actual
delivery of such statements."
"Consigned Precious Metal. Precious Metal (a) located at Permitted
Inventory Locations, (b) subject to a Purchase and Consignment and consigned by
RIHT to the Borrower pursuant to the terms of this Credit Agreement and (c) for
which RIHT has not received payment or which has not been Redelivered to RIHT."
"Consigned Precious Metal Report. A Consigned Precious Metal Report
signed by the principal financial or accounting officer of the Borrower and in
substantially the form of Exhibit C hereto."
"Consignment Advance Rate Percentage. Ninety percent (90%)."
"Consignment Commitment. With respect to RIHT, RIHT's commitment to make
Purchases and Consignments of Precious Metal in an aggregate amount up to the
Consignment Limit, as the same may be reduced from time to time; or, if such
commitment is terminated pursuant to the provisions hereof, zero."
"Consignment Drawdown Date. The date on which any Purchase and Consignment
is made or is to be made."
"Consignment Fees. Consignment fees on Consigned Precious Metal at the
rates set forth in ss.4A.2."
"Consignment Limit. The amount by which the Commitment exceeds the sum
of (i) the aggregate outstanding balance of all Revolving Loans, plus (ii) the
Deferred Payment Sale Amount, plus (iii) the Fair Market Value of Segregated
Precious Metals plus (iv) the Maximum Drawing Amount, plus (v) the aggregate
amount of all Unpaid Reimbursement Obligations."
"Consignment Purchase Price. See ss.4A.1."
"Consignment Rate. A rate determined by RIHT in its discretion by
reference to its cost of leasing metals."
"Management Agreement. That certain Financial, Investment Banking and
Professional Services Agreement dated as of December 1, 1997 between the
Borrower and Andersen Group, Inc."
"OCF/TDS Ratio. See ss.9.1."
"Permitted Indebtedness. Indebtedness permitted pursuant to ss.8.1."
"Purchases and Consignments. Purchases and consignments of the Borrower's
Precious Metal made or to be made by RIHT pursuant to ss.4A.1(a)."
"Purchase and Consignment Request. See ss.4A.3."
"Redeliver(ed) or Redelivery. The delivery by the Borrower to RIHT's
Head Office, at the Borrower's sole risk and expense, of Precious Metal in
bullion form of a type and quality which is acceptable to RIHT."
"Segregated Precious Metal. See ss.4B.1."
"Segregated Storage Limit. The amount by which the Commitment exceeds
the sum of (i) the aggregate outstanding balance of all Revolving Loans, plus
(ii) the Deferred Payment Sale Amount, plus (iii) the Fair Market Value of
Consigned Precious Metal plus (iv) the Maximum Drawing Amount, plus (v) the
aggregate amount of all Unpaid Reimbursement Obligations."
"Segregated Storage. The storage of RIHT's Precious Metal in a vault
located at Borrower's principal office, such Precious Metal located therein to
be in the form as originally delivered by RIHT to customer and to be physically
segregated from the Borrower's other Precious Metal in such vault, if any, by
means of a physical barrier acceptable to RIHT."
"Spot Value. At any time, with respect to the calculation of the Dollar
value of Precious Metal, (a) in all cases in which the Borrower is purchasing
Precious Metal or in which the value of Consigned Precious Metal or Segregated
Precious Metal is being calculated (for purposes of determining the Consignment
Limit or Segregated Storage Limit, as the case may be), RIHT's "ask" spot
quotation for Precious Metal at such times times the number of ounces of such
Precious Metal and (b) in all cases in which RIHT is purchasing Precious Metal,
RIHT's "bid" spot quotation for Precious Metal at such time times the number of
ounces of such Precious Metal."
"Subordinate Indebtedness. The Indebtedness of the Borrower to the
Subordinate Lender pursuant to the Subordinate Loan Documents."
"Subordinate Lender. BankBoston, N.A., as lender pursuant to the
Subordinate Loan Documents, but excluding BankBoston, N.A.'s successors and
assigns thereunder."
"Subordinate Loan Documents. That certain Securities Purchase Agreement
dated as of December 29, 1997 between the Borrower and the Subordinate Lender,
and all other documents and agreements entered into and/or delivered in
connection therewith."
"Warrant. Those certain warrants each dated as of December 29, 1997 between
the Borrower and Subordinate Lender, in respect of the purchase of up to an
aggregate of 40,000 shares of the common stock of the Borrower, as amended and
in effect from time to time, together with any replacement warrants."
4.2. Amendment to ss.2.1. Section 2.1 of the Credit Agreement
is hereby amended by adding the phrase ", the Fair Market Value of Consigned
Precious Metals, the Fair Market Value of Segregated Precious Metals"
immediately after the word "Obligations" appearing in the eighth line thereof.
4.3. Amendment to ss.2.2. Section 2.2 of the Credit Agreement
is hereby amended by adding the phrase ", the Fair Market Value of Consigned
Precious Metals, the Fair Market Value of Segregated Precious Metals"
immediately after the word "Obligations" appearing in the sixth line thereof.
4.4. Amendment to ss.2.5(b). Section 2.5(b) of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:
"(b) Each LIBOR Rate Loan shall bear interest for the period
commencing with the Drawdown Date thereof and ending on the last day of
each Interest Period with respect thereto at the LIBOR Rate determined
for such Interest Period plus the Applicable Margin from time to time
in effect."
4.5. Amendment to Credit Agreement by Addition of New Sections
4A and 4B. The Credit Agreement is hereby amended by adding the new Sections 4A
and 4B thereto that are set forth on Exhibit A attached hereto.
4.6. Amendment to ss.5.1(a). The last sentence of Section
5.1(a) of the Credit Agreement is hereby amended in its entirety to read as
follows:
"The Deferred Payment Sale Amount and all amounts due
and payable in connection with Consigned Precious Metals and
Segregated Precious Metals that are owed to RIHT, including,
without limitation, all Deferred Payment Sale Interest, all
Consignment Fees, all Purchase Prices, Precious Metals Fees
and Brokerage Fees, shall be repaid by the Borrower to RIHT in
the applicable Precious Metal or in immediately available
Dollars and in accordance with the terms hereof or the
requirements of the applicable Confirmation Order."
4.7. Amendment to ss.5.2. Section 5.2 of the Credit Agreement
is hereby amended by (a) adding the phrase ", Consignment Fees" immediately
after the word "Loans" appearing in the second line thereof and (b) adding the
phrase "and the aggregate amount of Consigned Precious Metals and Segregated
Precious Metals" immediately after the word "Amount" appearing in the tenth line
thereof.
4.8. Amendment toss.5.5. Section 5.5 of the Credit Agreement
is hereby amended in its entirety to read as follows:
"ss.5.5. Additional Costs, Etc. If any present or
future applicable law, which expression, as used herein,
includes statutes, rules and regulations thereunder and
interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with
the administration or the interpretation thereof and requests,
directives, instructions and notices at any time or from time
to time hereafter made upon or otherwise issued to any Bank by
any central bank or other fiscal, monetary or other
governmental authority (whether or not having the force of
law), shall:
(a) subject any Bank to any tax, levy, impost, duty
charge, fee, deduction or withholding of any nature with
respect to this Agreement, the other Loan Documents, the
Commitment or the Consignment Commitment or the Revolving
Loans, Letters of Credit, Consigned Precious Metals,
Segregated Precious Metals or Deferred Payment Sales (other
than taxes based upon or measured by the income or profits of
such Bank), or
(b) materially change the basis of taxation (except
for change in taxes on income or profits) of payments to any
Bank of the principal of or the interest on any Revolving
Loan, Letters of Credit, the aggregate amount of Consignment
Precious Metals or Segregated Precious Metals, Deferred
Payment Sale Amount, or any other amounts payable to any Bank
under this Agreement or any of the other Loan Documents, or
(c) impose or increase or render applicable (other
than to the extent specifically provided for elsewhere in this
Agreement) any special deposit, reserve, assessment,
liquidity, capital adequacy or other similar requirements
(whether or not having the force of law) against assets held
by, or deposits in or for the account of, or loans by, or
letters of credit issued by, or commitments of an office of
any Bank, or
(d) impose on any Bank any other conditions or
requirements with respect to this Agreement, the other Loan
Documents, the Commitment, the Consignment Commitment, the
Revolving Loans, the Letters of Credit, Consigned Precious
Metals, Segregated Precious Metals the Deferred Payment Sales,
or any class of loans or commitments of which any of the
Revolving Loans, the Letters of Credit, Consigned Precious
Metals, Segregated Precious Metals or Deferred Payment Sales
forms a part, and the result of any of the foregoing is:
(i) to increase the cost to any Bank of
making, funding, issuing, renewing, extending or
maintaining any of the Revolving Loans, Letters of
Credit, Consigned Precious Metals, Segregated
Precious Metals, Deferred Payment Sales, the
Consignment Commitment or the Commitment, or
(ii) to reduce the amount of principal,
interest or other amount payable to such Bank
hereunder on account of the Commitment or the
Consignment Commitment or any of the Revolving Loans,
Letters of Credit, the Consigned Precious Metals,
Segregated Precious Metals or Deferred Payment Sales,
or
(iii) to require such Bank to make any
payment or to forego any interest or other sum
payable hereunder the amount of which payment or
foregone interest or other sum is calculated by
reference to the gross amount of any sum receivable
or deemed received by such Bank from the Borrower
hereunder,
then, and in each such case, the Borrower will, upon demand made by such Bank at
any time and from time to time and as often as the occasion therefor may arise,
pay to such Bank such additional amounts as will be sufficient to compensate
such Bank for such additional cost, reduction, payment or foregone interest or
other sum."
4.9. Amendment to ss.5.6. Section 5.6 of the Credit Agreement
is amended by (a) adding the phrase "or the Consignment Commitment immediately
after the word "Commitment" appearing in the seventh line thereof, (b) adding
the phrase ", the Consigned Precious Metals, the Segregated Precious Metals"
immediately after the word "Credit" appearing in the eighth line thereof and (c)
adding the phrase ",Consignment Rate" immediately after the word "Rate"
appearing in the tenth line thereof.
4.10. Amendment to ss.5.9. Section 5.9(a) of the Credit
Agreement is hereby amended by adding the phrase ", the aggregate amount of any
Consigned Precious Metals or Segregated Precious Metals" immediately after the
word "Loan" appearing in the second line thereof. Section 5.9(b) of the Credit
Agreement is hereby amended by adding the phrase " the Fair Market Value of
Consigned Precious Metals, the Fair Market Value of Segregated Precious Metals"
immediately after the word "Obligations," appearing in the third line thereof.
4.11. Amendment to ss.5.10. Section 5.10 of the Credit
Agreement is hereby amended by adding the phrase "all amounts due and payable in
connection with Consigned Precious Metals and Segregated Precious Metals"
immediately after the word "Obligations" appearing in the fourth line thereof.
4.12. Amendment to ss.6.4. Section 6.4 of the Credit Agreement
is hereby amended by deleting the phrase "ending February 29, 1996" appearing
therein and inserting the phrase "ended February 28, 1997, and the quarterly
financial statements for the fiscal quarter ending August 31, 1997" in its
place.
4.13. Amendment toss.7. The preamble to Section 7 of the
Credit Agreement is hereby amended in its entirety to read as follows:
"ss.7. Affirmative Covenants of the Borrowers. The Borrower
covenants and agrees that, so long as any Revolving Loan or Letter of
Credit, the Deferred Payment Sale Amount, any amount of Consigned
Precious Metals or Segregated Precious Metals or other Obligation is
outstanding hereunder or under any Loan Document or any Bank has any
obligation to make an Revolving Loan, Deferred Payment Sale or Purchase
and Consignment or issue any Letter of Credit."
4.14. Amendment to ss.7.3. Section 7.3 of the Credit Agreement
is hereby amended by inserting the following sentence at the end thereof: "The
Borrower shall base its accounting and financial calculations (including without
limitation those pursuant to ss.9) on the "first-in, first-out" or "FIFO"
method."
4.15. Amendment to ss.7.4(e). Section 7.4(e) of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:
"(e) on (i) the fourth day of each calendar week, a Borrowing
Base report in respect of Eligible Precious Metal Inventory, and (ii)
the fourth day of each calendar month, a Borrowing Base report in
respect of Eligible Receivables, in each case certified by the chief
financial officer, controller or president of the Borrower, and in form
reasonably acceptable to BKB;"
4.16. Amendment to ss.7.4(g). Section 7.4(g) of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:
"(g) (i) until the effectiveness of an IPO, promptly upon the
mailing or filing thereof, copies of all financial statements, reports
and proxy statements mailed to the public shareholders of Andersen
Group, Inc. or any controlling stockholder of the Borrower, and copies
of all registration statements and Forms 10-K, 10-Q and 8-K filed with
the Securities and Exchange Commission (or any successor thereto) or
any national securities exchange by Andersen Group, Inc. or any
controlling stockholder of Andersen Group, Inc.; and (ii) after the
effectiveness of an initial public offering of the stock of the
Borrower, promptly upon the mailing or filing thereof, copies of all
financial statements, reports and proxy statements mailed to the public
shareholders of the Borrower, and copies of all registration statements
and Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange
Commission (or any successor thereto) or any national securities
exchange by the Borrower or any controlling stockholder of the
Borrower."
4.17. Amendment toss. 7.4(h). Section 7.4(h) of the Credit
Agreement is amended in its entirety to read as follows:
"(h) as soon as available and in any event not later than 6:00
p.m. on the fourth Business Day of each calendar week, (i) a summary
(certified by the chief financial officer, controller or president of
the Borrower and substantially in form reasonably acceptable to BKB) of
the long and short positions of the Borrower (including, without
limitation, their respective open, forward, and options and future
contracts) for Precious Metal and the Precious Metal Inventory of the
Borrower as at the close of business on the previous Friday (or if such
Friday was not a Business Day, then as at the close of business on the
next prior Business Day), and promptly thereafter, a written advice
with respect to the foregoing, together with such reasonable detail as
to permit the Banks to ascertain the basis of such calculations and
summaries, (ii) a schedule (certified by the chief financial officer,
controller or president of the Borrower) setting forth the calculations
necessary to show the Borrower's compliance with the terms of Section
8.10 hereof; and (iii) a Consigned Precious Metal Report setting forth
(A) the aggregate amount of Consigned Precious Metals, Segregated
Precious Metals and the Borrower's other Precious Metal as of the end
of such date, and (B) a calculation of the Consignment Advance Rate
Percentage multiplied by the Fair Market Value of the sum of (1)
Borrower's Precious Metal (exclusive of Segregated Precious Metal and
Precious Metal that is the subject of a Deferred Payment Sale) plus (2)
Consigned Precious Metal as of such date."
4.18. Amendment toss.8. The preamble to Section 8 of the
Credit Agreement is hereby amended in its entirety to read as follows:
"ss.8. Certain Negative Covenants of the Borrower. The
Borrower covenants and agrees that, so long as any Revolving Loan,
Letter of Credit, any amount of Consigned Precious Metals or Segregated
Precious Metals, the Deferred Payment Sale Amount or other amount due
and payable under any of the Loan Documents is outstanding or any Bank
has any obligation to make any Revolving Loan or Deferred Payment Sale
or Purchase and Consignment or issue any Letter of Credit:"
4.19. Amendment to ss.8.1. Section 8.1 of the Credit Agreement
is hereby amended by (i) deleting the reference to "$800,000" appearing in
clause (j) thereof and inserting a reference to "$1,000,000" in its place, and
(ii) adding the following new clauses (k), (l) and (m) at the end of Section
8.1:
(k) Subordinate Indebtedness to the Subordinate Lender
underwritten by Equitable Securities Corp.;
(l) Subordinate Indebtedness to Andersen Group, Inc. that
satisfies each of the following conditions: (a) the obligation to repay
such Indebtedness is evidenced by a written agreement between the
Borrower (or its Subsidiary, as applicable) and Andersen Group, Inc.,
and (b) the Borrower (or its Subsidiary, as applicable) and Andersen
Group, Inc. shall have entered into a Subordination Agreement in form
and substance satisfactory to the Banks in respect of such
Indebtedness; and
(m) Indebtedness in an aggregate amount not to exceed
$3,000,000 that: (i) is incurred or assumed solely in connection with
an acquisition permitted pursuant to ss.8.4(a)(iv), and (ii) consists
of either (x) the Borrower's obligation to pay to the seller of the
assets or stock so acquired all or a portion of the purchase price for
the assets or stock so acquired, or (y) the Borrower's assumption of
indebtedness that (1) existed prior to such acquisition (and was not
created in contemplation of such acquisition) in connection with the
assets or stock so acquired, and (2) is payable to a third party
lender."
4.20. Amendment to ss.8.2. Section 8.2 of the Credit Agreement
is hereby amended by (i) deleting the word "and" at the end of clause (vii)
thereof, (ii) deleting the punctuation "." at the end of clause (viii) thereof
and inserting the phrase "; and" in its place, and (iii) adding the following
new clauses (ix) and (x) immediately following clause (viii) thereof:
"(ix) second priority liens created by the Subordinate
Loan Documents to secure the Subordinate Indebtedness; and
(x) liens which (a) secure Indebtedness permitted pursuant to
ss.8.1(m) and (b) encumber the assets and/or stock acquired by the
Borrower pursuant to the provisions of ss.8.4(a)(iv)."
4.21. Amendment to ss.8.3. Section 8.3 of the Credit Agreement
is hereby amended by (i) deleting the words "of United States banks having total
assets in excess of $1,000,000,000" appearing in clause (b) thereof and
inserting the words "(x) of United States banks having total assets in excess of
$1,000,000,000 or (y) which deposits, certificates and acceptances are fully
insured by the Federal Deposit Insurance Corporation" in their place, and (ii)
deleting the reference to "$1,000,000,000" appearing in clause (h) thereof and
inserting a reference to "$250,000,000" in its place.
4.22. Amendment to ss.8.4(a). Section 8.4(a) of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:
"(a) The Borrower will not, and will not permit any
of its Subsidiaries to, become a party to any merger or consolidation,
or agree to or effect any asset acquisition or stock acquisition other
than (i) the sale of inventory and leasing of equipment in the ordinary
course of business; (ii) the merger or consolidation of one or more of
the Subsidiaries of the Borrower with and into the Borrower, (iii) the
merger or consolidation of two or more Subsidiaries of the Borrower,
provided, that, if a merger or consolidation occurs between a
Subsidiary which is partially owned by the Borrower and a Subsidiary
which is wholly owned by the Borrower, the wholly owned subsidiary
shall be the surviving entity, and (iv) so long as no Default or Event
of Default shall have occurred, the acquisition by the Borrower of the
assets or stock of another Person, provided that such acquisition meets
each of the following criteria: (v) the aggregate purchase price to be
paid by the Borrower in respect of such acquisition (when aggregated
with the aggregate purchase price paid by the Borrower in respect of
all other acquisitions effected pursuant to this Section 8.4(a)(iv))
does not exceed $5,000,000, (w) the assets acquired (or, in the case of
a stock acquisition, the assets and business of the Person acquired)
are of a type, quality and character consistent with the Borrower's
existing business plan and strategy, and do not cause a material change
in the nature of the business in which the Borrower is engaged, all as
determined by BKB, (x) as of the date of such acquisition, the Borrower
shall have granted to the Banks a first priority perfected lien on and
security interest in (except for Permitted Liens) all of the assets and
stock acquired by the Borrower and all of the assets and stock directly
or indirectly held by any Person acquired by the Borrower, (y) all
corporate, partnership, governmental and other proceedings and
approvals in connection with such acquisition, and all transaction
documents incidental to such acquisition, shall be in form and
substance reasonably satisfactory to the Banks, and (z) the Borrower
shall have provided the Banks with evidence that, after giving effect
to the proposed acquisition, the Borrower shall continue to satisfy the
financial covenants set forth in ss.9 on a pro forma basis."
<PAGE>
4.23. Amendment to ss.8.4(b). Section 8.4(b) of the Credit
Agreement is hereby amended by adding the following new sentence at the end
thereof:
"Notwithstanding the foregoing, and subject to the following
proviso, the Borrower may dividend and transfer to Andersen Group, Inc.
(or, in the case of the assets described in the following clause (y),
transfer to Ney Ultrasonics Inc.) each of the following: (x) the stock
of Ney Ultrasonics Inc. and (y) after delivery to the Banks of a pro
forma asset statement approved by the Banks, the personal property used
primarily by Ney Ultrasonics Inc. in its Ultrasonics business with an
aggregate value not to exceed the value shown on such asset statement
and approved by the Banks; provided, that (i) the aggregate unpaid
principal and interest in respect of all loans made by the Borrower to
Ney Ultrasonics Inc. does not exceed $750,000 as of the applicable date
of such dividend, (ii) after giving effect to such dividend, the
Borrower shall retain all rights to repayment of such loans theretofore
made by the Borrower to Ney Ultrasonics Inc., and (iii) Andersen Group,
Inc. shall agree in writing that the net proceeds of the sale of Ney
Ultrasonics Inc. shall be applied first to pay off such loans made by
the Borrower to Ney Ultrasonics Inc. prior to any other application of
such net sale proceeds."
4.24. Amendment to ss.8.8. Section 8.8 of the Credit Agreement
is hereby amended by adding the following new sentence at the end thereof:
"Notwithstanding anything to the contrary in this ss.8.8, the
Borrower may (i) make payments to Andersen Group, Inc. pursuant to the
Tax Sharing Agreement, as provided in ss.8.9, (ii) enter into the
Management Agreement with Andersen Group, Inc. as provided in
ss.ss.8.1(l) and 8.14, and (iii) issue a note in an aggregate principal
amount of up to $4,000,000 to Andersen Group, Inc. as provided in
ss.ss.8.1(l) and 8.14, provided that the Borrower shall in no event
fail to comply with ss.ss.8.1(l), 8.9 and 8.14."
4.25. Amendment toss.8.9. Section 8.9 of the Credit Agreement
is hereby amended and restated in its entirety to read as follows:
"ss.8.9 Dividends and Distributions. Except for (i) accrued
and unpaid dividends in the amount of $1,413,163 declared as of
December 1, 1997 and (ii) any additional distributions as may be
declared based on the Borrower's net income through November 30, 1997
in accordance with ss.8.9 of this Agreement as in effect prior the
effectiveness of the Amendment Agreement dated as of December 29, 1997
among the Banks and the Borrower, the Borrower shall not make any
dividend or distribution to or for the benefit of its shareholders;
provided, that as long as (a) no Default or Event of Default has
occurred, and (b) after giving
<PAGE>
effect to such dividend or distribution, the Borrower will be
in compliance with all of its covenants in ss.9 herein, the Borrower
may make payments to Andersen Group, Inc. in any fiscal year of the
Borrower ending on or after February 28, 1997 in an aggregate amount
equal to required payments under the Tax Sharing Agreement; and
provided further that (i) the Borrower may repurchase its securities in
accordance with the Subordinate Loan Documents, (ii) the Borrower may
pay dividends to the holders of its common stock pro rata solely in
shares of common stock, and (iii) the Borrower may dividend the stock
and assets of Ney Ultrasonics Inc. to Andersen Group, Inc. in
accordance with ss.8.4(b)."
4.26. Addition of ss.8.13. The following new Section 8.13 is
hereby inserted in the Credit Agreement immediately following Section 8.12:
"ss.8.13 Amendments to Subordinate Indebtedness. The Borrower
will not amend, modify or waive in any material respect any term or condition of
any Subordinate Loan Document without the prior written consent of the Banks."
4.27. Addition of ss.8.14. The following new Section 8.14 is
hereby inserted in the Credit Agreement immediately following Section 8.13:
"ss.8.14. Payments to Andersen Group. The Borrower will not
(and will not permit any of its Subsidiaries to) repay any Indebtedness
held by, pay any management fees due to, or make any other payments
(other than distributions permitted hereunder) (the "Subordinated
Payments") to Andersen Group, Inc.; provided, that the Borrower may
(and shall) make Subordinated Payments in respect of such subordinated
management fees and interest accrued on such subordinated Indebtedness
as earned or accrued quarterly in arrears so long as: (a) the
obligation to pay such Subordinated Payments shall be evidenced by a
written agreement between the Borrower (or such Subsidiary, as
applicable) and Andersen Group, Inc., (b) the Borrower or such
Subsidiary and Andersen Group, Inc. shall have entered into a
Subordination Agreement in form and substance satisfactory to the Banks
with respect to the payment of any Subordinated Payments (a
"Subordination Agreement"), (c) both before and after giving effect to
such payment, no Default or Event of Default shall have occurred and be
continuing under the Loan Documents, (d) both before and after giving
effect to such payment, the Borrower's Consolidated Net Income for the
fiscal quarter ending immediately preceding such date of payment is not
less than $1.00 (as evidenced by a certificate delivered by the
Borrower to the Banks prior to making such payment), (e) both before
and after giving effect to such payment, the difference between (x) the
Borrower's Consolidated Net Income for the fiscal quarter ending
immediately preceding such date of payment minus (y) the amount of such
payment, is not less than $1.00 (as evidenced by a certificate
delivered by the Borrower to the Banks prior to making such payment),
and (f) the aggregate amount of all Subordinated Payments made to
Andersen Group, Inc. during any fiscal year of the Borrower does not
exceed the sum of (x) required payments under the Tax Sharing Agreement
for such fiscal year plus (y) fifty percent (50%) of the Borrower's net
income for the immediately preceding fiscal year of the Borrower."
4.28. Amendment toss.9. The preamble to Section 9 of the
Credit Agreement is hereby amended in its entirety to read as follows:
"ss.9. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. The
Borrower covenants and agrees that, so long as any Revolving Loan or
Letter of Credit, or the Deferred Payment Sale Amount, any amount of
Consigned Precious Metals or Segregated Precious Metals or other amount
due and payable under any of the Loan Documents, is outstanding or any
Bank has any obligation to make any Revolving Loan, Purchase and
Consignment or Deferred Payment Sale or issue any Letter of Credit."
4.29. Amendment toss.9.1. Section 9.1 of the Credit Agreement
is hereby amended and restated in its entirety to read as follows:
"ss.9.1 Ratio of EBITDA to Debt Payments. As of the last day
of the four fiscal quarters of the Borrower most recently ended, the
Borrower shall not permit the ratio (the "OCF/TDS Ratio") of (a) EBITDA
of the Borrower for such period of four fiscal quarters plus, to the
extent deducted in determining EBITDA, any accrued Subordinated
Payments payable by the Borrower to Andersen Group, Inc. for such
period and which are permitted pursuant to ss.ss.8.1(l) and 8.14, less
(i) Capital Expenditures (other than Capital Expenditures of the
Borrower during the fiscal year ending February 28, 1999 in an
aggregate amount of up to $1,000,000) that were not financed for their
express purpose by BKB and (ii) taxes paid by the Borrower for such
period of four fiscal quarters, to (b) Consolidated Financial
Obligations (excluding the amounts of any accrued Subordinated Payments
payable by the Borrower to Andersen Group, Inc. for such period and
which are permitted pursuant to ss.ss.8.1(l) and 8.14) during the such
period of four fiscal quarters, to be less than 1.25 to 1."
4.30. Amendment toss.9.2. Section 9.2 of the Credit Agreement
is hereby amended and restated in its entirety to read as follows:
"ss.9.2 Ratio of Liabilities to Tangible Net Worth. At all
times set forth in the chart below, the Borrower shall not permit the
ratio of (a) Consolidated Total Liabilities of the Borrower (excluding
accrued subordinated Permitted Indebtedness payable by the Borrower to
Andersen Group, Inc. which is permitted pursuant to ss.ss.8.1(l) and
8.14), to (b) the sum of the Borrower's Consolidated Tangible Net Worth
plus accrued subordinated Permitted Indebtedness payable by the
Borrower to Andersen Group, Inc. which is permitted pursuant to
ss.ss.8.1(l) and 8.14, to exceed the applicable ratio set forth in the
table below:
- --------------------------------------------------------- ----------------------
Period Ratio
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
December 29, 1997 2.50 to 1
through November 30, 1998
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
December 1, 1998 through 2.25 to 1
November 30, 1999
- --------------------------------------------------------- ----------------------
- --------------------------------------------------------- ----------------------
December 1, 1999 through 2.00 to 1
maturity
- --------------------------------------------------------- ----------------------
4.31. Amendment toss.9.3. Section 9.3 of the Credit Agreement
is hereby amended and restated in its entirety to read as follows:
"ss.9.3 Minimum Net Worth. The Borrower shall not at any time
permit (a) the sum of (i) the Borrower's Consolidated Tangible Net
Worth plus (ii) subordinated Permitted Indebtedness due and owing to
Andersen Group, Inc., to be less than (b) the sum (x) of $9,500,000
plus (y) 50% of the Borrower's positive Consolidated Net Income for
each fiscal year ending on or after February 28, 1998."
4.32. Amendment toss.9.5. Section 9.5 of the Credit Agreement
is hereby amended and restated in its entirety to read as follows:
"ss.9.5 Consecutive Net Losses. The Borrower shall not permit
Consolidated Net Income plus, to the extent deducted in determining
Consolidated Net Income, any accrued Subordinated Payments payable by
the Borrower to Andersen Group, Inc. for such period and which are
permitted pursuant to ss.ss.8.1(l) and 8.14, to be less than $0.00 in
any two consecutive fiscal quarters of the Borrower."
4.33. Amendment toss.9.6. Section 9.6 of the Credit Agreement
is hereby amended and restated in its entirety to read as follows:
"ss.9.6 Capital Expenditures. The Borrower shall not make or
commit to Capital Expenditures in excess of $2,750,000 during any
fiscal year of the Borrower ending on or after February 28, 1997,
unless the Banks agree in writing to finance Capital Expenditures in
excess of $2,750,000 during the applicable fiscal year on terms
acceptable to the Banks and the Borrower."
4.34. Amendment toss.11. The preamble to Section 11 of the
Credit Agreement s hereby amended in its entirety to read as follows:
"ss.11. Conditions to All Borrowings. The obligations of the
Banks to make any Revolving Loan, Purchases and Consignments or
Deferred Payment Sales or issue any Letter of Credit, whether on or
after the Closing Date, shall also be subject to the satisfaction of
the following conditions precedent:
4.35. Amendments to ss.12.1(a), (k) and (n).
(i) Sections 12.1(a), (k) and (o) of the Credit Agreement are hereby
amended in their entirety to read as follows:
"(a) the Borrower shall fail to pay when due any principal of
any Revolving Loan, any Reimbursement Obligation or any Deferred
Payment Sale Amount or pay for or Redeliver Consigned Precious Metal or
Segregated Precious Metal when the same shall become due and payable;"
"(k) any uninsured loss, theft or destruction of or damage to
any Consigned Precious Metal or Segregated Precious Metal or any
Precious Metal that is the subject of a Deferred Payment Sale or to any
products or property which includes Precious Metal that is Consigned
Precious Metal or Segregated Precious Metal or the subject of a
Deferred Payment Sale or to any other Collateral;"
"(o) Andersen Group, Inc., shall, at any time prior to an IPO
of the Borrower, legally or beneficially own less than a majority of
the issued and outstanding voting stock of the Borrower (other than
pursuant to Subordinate Lender's exercise of the Warrant); or"
(ii) Section 12.1 of the Credit Agreement is hereby amended by adding
the following new clause (p) immediately following clause (o) thereof:
"(p) the Borrower or any of its Subsidiaries shall fail to pay
or perform when due, or within any applicable period of grace, any
payment or other obligation under any of the Subordinate Loan
Documents."
(iii) The last paragraph of Section 12.1 of the Credit Agreement
is amended in its entirety to read as follows:
"then, and in any such event, (1) the Borrower shall purchase
all Consigned Precious Metal and Segregated Precious Metal in
accordance with the provisions of ss.4A.4 and ss.4B hereof (as
applicable) and (2) the Banks may, by notice in writing to the Borrower
declare all amounts owing with respect to this Credit Agreement, the
Notes and the other Loan Documents to be, and they shall thereupon
forthwith become, immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby
expressly waived by the Borrower; provided that in the event of any
Event of Default specified in ss.ss.12.1(g) or 12.1(h), all such
amounts shall become immediately due and payable automatically and
without any requirement of notice from any Bank. For the purposes of
this ss.12, RIHT shall have the right in its discretion to calculate
the Deferred Payment Sale Amounts and the applicable repurchase price
for all Consigned Precious Metals and Segregated Precious Metals based
upon RIHT's spot prices for the applicable Precious Metals as of the
date that the Event of Default is declared to have occurred or as of
such date that RIHT determines to be appropriate under the
circumstances."
4.36. Amendment to ss.12.2. Section 12.2 of the Credit
Agreement is hereby amended by adding the phrase ", Purchases and Consignments,
the outstanding amount of Segregated Precious Metals" immediately after the word
"Loans" appearing in the fourth and tenth lines thereof.
4.37. Amendment to ss.12.3. Section 12.3 of the Credit
Agreement is hereby amended by adding the phrase ", Purchases and Consignments"
immediately after the word (a) "Credit" appearing in the third line thereof and
(b) "Loans" appearing in the fifth line thereof.
4.38. Amendment to ss.15. Section 15 of the Credit Agreement
is hereby amended by adding the phrase ", Purchases and Consignments, Segregated
Precious Metals" immediately after the word "Loans" appearing in the eighth line
thereof.
4.39. Amendment to ss.16. Section 16 of the Credit Agreement
is hereby amended by adding the phrase ", Purchases and Consignments, Segregated
Precious Metal delivery" immediately after the word "Loans" appearing in the
seventh and eleventh lines thereof.
4.40. Amendment to ss.17.1. Section 17.1 of the Credit
Agreement is hereby amended by adding the phrase "Consignment Commitment or"
immediately after the word "of" appearing on the fourth line thereof.
4.41. Amendment to Schedule 6.7. Schedule 6.7 to the Credit
Agreement is hereby amended and restated in its entirety to read as set forth on
Schedule 6.7 annexed hereto.
ss.5. Conditions Precedent. The effectiveness of the amendments
contemplated herein shall be subject to the satisfaction of each of the
following conditions precedent:
5.1. All of the representations and warranties made by
Borrower and the Guarantor herein, whether directly or incorporated by
reference, shall be true and correct on the date hereof, except as provided in
ss.3 hereof;
5.2. Agent shall have received evidence satisfactory to Agent
that no Default or Event of Default shall have occurred and be continuing; and
5.3. Borrower shall have paid all fees, expenses and other
costs incurred by Agent and the Banks in connection with this Amendment
(including, without limitation, all attorney's and other professionals' fees and
expenses).
ss.6. Miscellaneous Provisions.
6.1. Except as otherwise expressly provided by this Agreement,
all of the respective terms, conditions and provisions of the Credit
Agreement, the Note and the other Loan Documents shall remain the same.
It is declared and agreed by each of the parties hereto that the Credit
Agreement, the Note and the other Loan Documents, each as amended
hereby, shall continue in full force and effect, and that this
Agreement and the Credit Agreement, the Note and the other Loan
Documents, as applicable, shall be read and construed as one
instrument.
6.2. This Agreement is intended to take effect under, and
shall be construed according to and governed by, the laws of the State
of Connecticut.
6.3. This Agreement may be executed in any number of
counterparts, but all such counterparts shall together constitute but
one instrument. In making proof of this Agreement it shall not be
necessary to produce or account for more than one counterpart signed by
each party hereto by and against which enforcement hereof is sought.
6.4. After the sale or other distribution of the Borrower's
Ultrasonics business (including any dividend of all the shares of Ney
Ultrasonics Inc. to Andersen Group, Inc.), the Banks shall, promptly
after the Borrower's request and at the Borrower's expense, release the
Guaranty and the liens in favor of the Banks on the assets of Ney
Ultrasonics Inc.
[THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY]
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be executed in its name and behalf by its duly authorized officer
as of the date first written above.
THE J.M. NEY COMPANY
By: /s/ Andrew M. O'Shea
------------------------
Its Chief Financial Officer
BANKBOSTON, N.A.
By:/s/ Kevin Flaherty
---------------------
Its Sr. Vice President
RHODE ISLAND HOSPITAL TRUST NATIONAL BANK
By:/s/ Jay Zi
-------------
Its Sr. Vice President
E-7
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
State or
Country of
Name or Organization Incorporation
-------------------- -------------
AG Investors, Inc. Florida
AGI Technology, Inc. Connecticut
Andersen Realty, Inc. Delaware
Ney International, Inc. U.S. Virgin Islands
Ney Technology, Inc.
(f/k/a Ney Ultrasonics Inc.) Delaware
The J.M. Ney Company Delaware
New Jersey Precious Metals, Inc. Delaware
Garden State Refining, Inc. Delaware
E-8
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post Effective Amendment
No. 1 to Registration Statement No. 333-17659 of Andersen Group, Inc. and
subsidiaries on Form S-8 of our reports dated April 16, 1998, relating to the
consolidated financial statement and financial statement schedules appearing in
this Annual Report on Form 10-K of Andersen Group, Inc. and subsidiaries for the
year ended February 28, 1998.
/s/Deloitte & Touche LLP
Hartford, Connecticut
May 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
E-9
Exhibit 27.1
Andersen Group, Inc.
Financial Data Schedule
Commercial and Industrial Companies
Article 5 of Regulation S-X
This schedule contains summary financial information extracted from the
Consolidated Financial Statements of Andersen Group, Inc. for the fiscal year
ended February 28, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Feb-28-1998
<PERIOD-START> Mar-01-1997
<PERIOD-END> Feb-28-1998
<EXCHANGE-RATE> 1,000
<CASH> 2,516
<SECURITIES> 9,001
<RECEIVABLES> 7,521
<ALLOWANCES> 130
<INVENTORY> 8,076
<CURRENT-ASSETS> 27,126
<PP&E> 21,854
<DEPRECIATION> 12,411
<TOTAL-ASSETS> 44,771
<CURRENT-LIABILITIES> 8,367
<BONDS> 11,759
0
4,769
<COMMON> 2,103
<OTHER-SE> 13,324
<TOTAL-LIABILITY-AND-EQUITY> 44,771
<SALES> 25,397
<TOTAL-REVENUES> 28,868
<CGS> 17,040
<TOTAL-COSTS> 25,907
<OTHER-EXPENSES> 7,704
<LOSS-PROVISION> 17
<INTEREST-EXPENSE> 1,233
<INCOME-PRETAX> 2,961
<INCOME-TAX> 1,191
<INCOME-CONTINUING> 1,770
<DISCONTINUED> 442
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,772
<EPS-PRIMARY> .92
<EPS-DILUTED> .91
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
E-10
Exhibit 27.2
Andersen Group, Inc.
Restated Financial Data Schedule
Commercial and Industrial Companies
Article 5 of Regulation S-X
This schedule contains summary financial information extracted from the
Consolidated Financial Statements of Andersen Group, Inc. for the fiscal year
ended February 28, 1997 and is qualified in its entirety by reference to such
financial statements.
RESTATED
</LEGEND>
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Feb-28-1997
<PERIOD-START> Mar-01-1996
<PERIOD-END> Feb-28-1997
<EXCHANGE-RATE> 1,000
<CASH> 3,219
<SECURITIES> 5,345
<RECEIVABLES> 2,963
<ALLOWANCES> 190
<INVENTORY> 9,040
<CURRENT-ASSETS> 20,893
<PP&E> 20,946
<DEPRECIATION> 11,610
<TOTAL-ASSETS> 37,677
<CURRENT-LIABILITIES> 8,710
<BONDS> 7,041
4,891
0
<COMMON> 2,103
<OTHER-SE> 11,544
<TOTAL-LIABILITY-AND-EQUITY> 37,677
<SALES> 20,643
<TOTAL-REVENUES> 20,501
<CGS> 13,259
<TOTAL-COSTS> 21,049
<OTHER-EXPENSES> 7,000
<LOSS-PROVISION> 76
<INTEREST-EXPENSE> 811
<INCOME-PRETAX> (548)
<INCOME-TAX> (882)<F1>
<INCOME-CONTINUING> 334
<DISCONTINUED> (35)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22
<EPS-PRIMARY> .01
<EPS-DILUTED> .01<F2>
<FN>
<F1> Represents income tax benefit
<F2> Antidilutive
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
E-11
Exhibit 27.3
Andersen Group, Inc.
Restated Financial Data Schedule
Commercial and Industrial Companies
Article 5 of Regulation S-X
This schedule contains summary financial information extracted from the
Consolidated Financial Statements of Andersen Group, Inc. for the fiscal year
ended February 29, 1996 and is qualified in its entirety by reference to such
financial statements.
RESTATED
</LEGEND>
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Feb-29-1996
<PERIOD-START> Mar-01-1995
<PERIOD-END> Feb-29-1996
<EXCHANGE-RATE> 1,000
<CASH> 4,116
<SECURITIES> 3,809
<RECEIVABLES> 4,461
<ALLOWANCES> 124
<INVENTORY> 8,612
<CURRENT-ASSETS> 20,966
<PP&E> 19,858
<DEPRECIATION> 10,742
<TOTAL-ASSETS> 38,798
<CURRENT-LIABILITIES> 9,204
<BONDS> 7,349
5,280
0
<COMMON> 2,103
<OTHER-SE> 11,522
<TOTAL-LIABILITY-AND-EQUITY> 38,798
<SALES> 18,624
<TOTAL-REVENUES> 19,437
<CGS> 12,016
<TOTAL-COSTS> 22,310
<OTHER-EXPENSES> 9,057
<LOSS-PROVISION> 97
<INTEREST-EXPENSE> 1,259
<INCOME-PRETAX> (2,873)
<INCOME-TAX> (952)<F1>
<INCOME-CONTINUING> (1,921)
<DISCONTINUED> 3,854
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,933)
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.23<F2>
<FN>
<F1> Represents income tax benefit
<F2> Antidilutive
</FN>
</TABLE>
