<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
------------------------
K2 INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-2077125
(State of Incorporation) (I.R.S. Employer Identification No.)
4900 SOUTH EASTERN AVENUE 90040
LOS ANGELES, CALIFORNIA (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code (323) 724-2800
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
<S> <C>
Common Stock, par value $1 New York Stock Exchange
Pacific Exchange
Series A Preferred Stock Purchase Rights New York Stock Exchange
Pacific Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by an "X" whether the registrant 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 has been subject to such filing requirements for
the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock of the registrants held by
nonaffiliates was approximately $130,135,325 as of March 7, 2000.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of March 7, 2000.
Common Stock, par value $1 17,949,700 Shares
Documents Incorporated by Reference
Portions of the proxy statement for the Annual Meeting of Shareholders
to be held April 28, 2000 are incorporated by reference in Part III.
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<PAGE>
FORM 10-K ANNUAL REPORT
PART I
ITEM 1. BUSINESS:
GENERAL
K2 Inc. ("K2") is a premier, branded consumer products company with a
primary focus on sporting goods and other recreational products as well as
certain niche industrial products. K2 offers a diverse portfolio of products
used primarily in individual sports activities such as alpine skiing,
snowboarding, in-line skating, mountain and BMX biking, fishing and watersport
activities. K2's sporting goods include several name brand lines such as K2 and
OLIN alpine skis, K2, RIDE AND MORROW snowboards, boots and bindings, K2 in-line
skates, K2 bikes, SHAKESPEARE fishing rods and reels, STEARNS personal flotation
devices, rainwear and wet suits and K2 backpacks. K2's other recreational
products include HILTON corporate casual apparel, PLANET EARTH skateboards,
apparel and shoes. K2's industrial products consist primarily of SHAKESPEARE
monofilament line used in weed trimmers, in paper mills and as fishing line, and
SHAKESPEARE fiberglass and composite marine antennas, and composite utility and
decorative light poles. Founded in 1946, K2. has grown to over $600 million in
annual sales through a combination of internal growth and strategic
acquisitions. For segment and geographic information, see Note 13 to Notes to
Consolidated Financial Statements.
In recent years, K2 has aggressively expanded into several new sporting
goods markets in the United States, Europe and Japan, including in-line skates,
snowboards, footwear and fishing tackle kits and combos. Management believes
these newer products have benefited from the brand strength, reputation,
distribution, and the market share positions of other Company products, several
of which are now among the top brands in their respective markets. For example,
in the United States, K2 has the #2 market position in in-line skates and
snowboard products, and management believes that STEARNS has the #1 market
position in personal flotation devices and that Shakespeare's UGLY STIK is the
top selling line of moderately priced fishing rods.
During the third quarter of 1998, K2 adopted a plan to sell its Simplex
building products division ("Division"). As a result, K2 reclassified the
Division as a discontinued operation in 1998 and similarly reclassified prior
years' operations (see Note 3 to Notes to Consolidated Financial Statements for
further discussion). K2 is continuing to actively pursue its plan of disposal
and consequently the Division is shown in the accompanying consolidated
financial statements as a discontinued operation. The discussion which follows
focuses on the continuing operations of K2.
K2's common stock was first offered to the public in 1959 and is currently
traded on the New York and Pacific Stock Exchanges (symbol: KTO).
1
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SPORTING GOODS PRODUCTS
Net sales for sporting goods products were $474.3 million in 1999,
$404.9 million in 1998 and $410.8 million in 1997. The following table lists
K2's principal sporting good products and the brand names under which they are
sold.
<TABLE>
<CAPTION>
PRODUCT BRAND NAME
- -------------------------------------------- ----------
<S> <C>
Alpine skis K2, Olin
Snowboards and accessories K2, Ride, 5150, Liquid, Morrow
In-line skates K2
Fishing rods and reels Shakespeare, Ugly Stik, Pfleuger
Active water sports products Stearns
Mountain and BMX bikes K2, Noleen
Backpacks K2, Dana Design
</TABLE>
ALPINE SKIS. K2 sells its alpine skis under the names K2 and OLIN in the 3
major ski markets of the world--the United States, Europe and Japan. While
participation rates for alpine skiing have been relatively flat during the past
few years, K2 believes that industry retail sales have declined in the domestic
market during the same period. In particular, K2 believes that poor weather
conditions in certain markets, the high cost of skiing, the opportunity to
participate in alternative activities such as snowboarding, and the increased
use of rental or demo skis further contributed to a decline in retail sales. K2
skis have benefited from their popularity among retail purchasers, resulting
from their high-quality, innovative features, (such as its performance enhancing
skis in the form of "shaped" or "carving" skis and its use of piezoelectronics
technology), attractive graphics and creative marketing. K2 recently introduced
K2's new MOD ski technology which has been well received by dealers and
customers in its initial limited introduction.
K2 and OLIN skis have been manufactured by K2 in the United States and
Norway. During the fourth quarter, K2 announced a strategic initiative to
significantly reduce the cost of its skis by restructuring and downsizing the
United States manufacturing operation to take advantage of lower cost
manufacturing and sourcing opportunities internationally. As part of this
initiative, K2 will move approximately half of ski manufacturing to either
K2-run China facility or to third party sourcing operations worldwide. High-end
skis, mostly featuring K2's recently introduced MOD ski technology, will
continue to be manufactured in the United States. The skis are sold to specialty
retail shops and sporting goods chains in the U.S. by independent sales
representatives and in Europe and Japan through independent and Company-owned
distributors. K2 and OLIN alpine skis are marketed to skiers ranging from
beginners to top racers using youthful and often irreverent advertising. Within
each brand, K2 offers various styles of skis to meet the performance, usage and
terrain requirements of the consumer. From a pricing perspective, K2 positions
the brands in the mid-level and premium price points, reflecting the quality of
materials used in construction and the continual incorporation of technological
innovations. To assist in its marketing efforts, K2 sponsors amateur and
professional skiers including the well-known extreme skier, Glen Plake.
SNOWBOARDS. K2 sells snowboards, boots, bindings and apparel under the K2,
RIDE, MORROW, 5150 and LIQUID brands. K2 also sells strapless snowboard bindings
and compatible snowboard boots under the K2 CLICKER brand. Back country
accessories, including packs and high performance snowshoes integrating the
CLICKER bindings and backpacks for carrying snowboards and other gear when
hiking into the back country are being marketed under the K2 Brand. Snowboard
apparel has recently been introduced. The snowboard market, which is highly
fragmented, has been consolidating in favor of the larger, better established
brands. During 1999, K2 completed the acquisition of Morrow snowboards and of
Ride, Inc., two leaders in the snowboard market. K2 manufactures most of its own
snowboards. K2 believes that its manufacturing capability and ability to
innovate provide a competitive advantage. Like its alpine skis, K2 snowboards
are of high quality, have innovative features and attractive graphics and are
creatively marketed.
2
<PAGE>
K2's innovations in its snowboarding line include the CLICKER, an advanced
step-in binding system for snowboards jointly developed with Shimano Inc. and
sourced and licensed from them under a distribution agreement, the Electra, a
snowboard which utilizes piezoelectronics technology for electronic vibration
dampening, the Ride M2 construction featuring the edge contact system which
results in a better turning board, and the Fatbob board, an extra-wide
snowboard. The CLICKER was among the first commercially available step-in
binding systems for snowboards.
K2's snowboards are manufactured by K2 in the United States and China.
During the fourth quarter, K2 announced a restructuring of the snowboard
manufacturing operations designed to lower the cost structure, by relocating
low-end snowboards to K2's China production facility, and mid- and high-end
snowboards to K2's newly acquired Ride manufacturing plant in California. K2's
snowboard brands are sold to specialty retail shops and sporting goods chains in
the U.S. by independent sales representatives and in Europe and Japan through
independent and K2-owned distributors. Like K2 skis, K2, RIDE and MORROW
snowboards are marketed using youthful and irreverent advertising, and K2
sponsors professional and amateur snowboarders.
IN-LINE SKATES. K2 introduced its K2 soft boot in-line skates in 1994. The
in-line skate market in the U.S. grew dramatically as K2's sales of this product
went from $10 to $117 million in four years. The domestic market, however,
declined in 1999. Growth in the European market also slowed in 1999.
K2's in-line skates target the enthusiast and are priced at the mid to upper
end of the industry's price points. K2 skates are attractive and of high
quality, with innovative features such as a soft mesh and leather upper designed
for improved comfort, with a rigid plastic cuff for support. K2's skates
incorporate several innovations, including the soft boot with hinged support
cuffs either outside or inside the walls of the soft boot. The patented product
line is designed for performance as well as superior comfort and support. K2
also sells women's-specific skates and recently introduced adjustable-size,
softboot skates for children, and incorporated the softboot technology in a line
of ice skates.
K2 in-line skates are manufactured to company specifications and primarily
assembled by a vendor in Korea and China. They are sold to specialty retail
shops and sporting goods chains in the U.S. by independent sales representatives
and in Europe and Japan through independent and K2-owned distributors. During
1999, sales of in-line skates in Europe amounted to approximately 64% of total
in-line skate sales.
FISHING RODS AND REELS. K2 sells fishing rods, reels and fishing line in
most of the world. K2 believes that Shakespeare's UGLY STIK models have been the
best selling fishing rods in the U.S. over the past 20 years. The success of
these fishing rods has allowed K2 to establish a strong position with retailers
and mass merchandisers, thereby increasing sales of new rods, reels and kits and
combos and allowing K2 to introduce new products such as collapsible furniture,
to its distribution. SHAKESPEARE rods and reels are manufactured principally in
China, although blanks for the UGLY STIK fishing rod are made by K2 in the
United States. SHAKESPEARE products are sold directly by K2 and through
independent sales representatives to mass merchandisers (two of which in the
aggregate purchase more than one-third of K2's fishing rods and reels).
ACTIVE WATER SPORTS PRODUCTS. K2 sells STEARNS flotation vests, jackets and
suits ("personal flotation devices"), cold water immersion products, wet suits,
outdoor products, rainwear and inflatable and towable water products in the
United States and in certain foreign countries. In the United States, occupants
of boats are required by law either to wear or have available personal flotation
devices meeting Coast Guard standards. STEARNS personal flotation devices are
manufactured to such standards and are subject to rigorous testing for
certification by Underwriters Laboratories. Stearns manufactures most of its
personal flotation devices in the U.S. and sources its other products from Asia.
STEARNS products are sold principally through an in-house marketing staff and
independent sales representatives to mass merchandisers,
3
<PAGE>
specialty shops and chain stores and to the off-shore oil industry, commercial
fishermen and other commercial users through independent sales representatives.
MOUNTAIN AND BMX BIKES. K2 designs and distributes high quality
full-suspension mountain bikes, front suspension mountain bikes, comfort bikes,
and BMX Bikes and components under the K2 AND NOLEEN names in the United States
and internationally. Performance and comfort are provided by mountain bikes
which have shock absorbing elements for either front and rear wheels or front
wheels only, thereby improving climbing ability and decreasing rider fatigue and
off-road vibration. K2 entered the high-end, full-suspension mountain bike
business in 1993 through its acquisition of Girvin and in late 1998, introduced
several new products to reposition its product line at more popular price
points. In addition to its premium bike, K2's product line includes front
suspension or "hardtail" bikes, the K2 comfort series and K2 BMX bikes. The
comfort series line, is designed to appeal to a more mature recreational
audience and is equipped with dampening technology in the seat and handlebar
stem. K2's BMX line is supported by professional BMX riders, providing the
product with exposure on television and at other events.
The bikes are manufactured and assembled to K2's specifications by vendors
and are distributed through an in-house marketing staff and by independent sales
representatives to independent bicycle dealers in the U.S. and through
distributors internationally.
BACKPACKS. Dana Design, which was acquired by K2 in 1995, manufactures and
distributes high-end backpacks in the U.S. DANA DESIGN products are known for
their comfort, high quality and innovative features, such as custom fitting. The
line also includes a series of "activity specific" packs marketed by K2 ski,
bike and snowboard. DANA DESIGN and K2 backpacks are primarily manufactured to
K2's specifications by vendors internationally for sale by independent sales
representatives to specialty retailers in the United States.
OTHER RECREATIONAL PRODUCTS
Net sales for other recreational products were $41.0 million in 1999,
$43.7 million in 1998 and $34.2 million in 1997. The following table lists K2's
principal other recreational products and brand names under which they are sold.
<TABLE>
<CAPTION>
PRODUCT BRAND NAME
- -------------------------------------------- ------------------------------------
<S> <C>
Imprinted Corporate Casuals Hilton
Skateboard apparel Planet Earth
Snowboard apparel Planet Earth
Skateboard shoes Adio and Hawk
</TABLE>
CORPORATE CASUALS. K2 manufactures and distributes jackets, shirts, fleece
tops and other active wear under the HILTON and USA brand names. The products
are sold in the United States to advertising specialty customers, embroiderers
and screen printers who in turn sell imprinted items, including garments,
principally to corporate buyers. HILTON and USA apparel, which are both
manufactured by K2 in the United States and sourced from offshore vendors, are
sold through catalogs by a direct sales force and by independent sales
representatives.
SKATEBOARD AND SNOWBOARD APPAREL AND SKATEBOARD SHOES. Skateboard and
snowboard apparel and skateboard shoes are sold in the U.S., Europe and Japan.
These products are manufactured to K2's specifications by suppliers, primarily
located in Asia. The products are sold through company-owned and independent
distributors in Europe and Asia and to retailers in the domestic market by
independent sales representatives. K2's skateboard shoes are designed with
significant assistance from a group of well-known professional skateboarders.
With favorable demographic trends, skateboarding has been enjoying a significant
resurgence in popularity, principally among pre-teen and early teen boys.
Skateboard shoes, with retail prices between $65 and $85, are marketed under the
Adio brand name, and models are named
4
<PAGE>
after the specific skateboarder who aided in the design. K2 has recently
introduced the "Hawk" line of skateboard shoes. This brand of shoes has been
designed and introduced in cooperation with Tony Hawk, the best-known
professional skateboarder in the world.
INDUSTRIAL PRODUCTS
Net sales of industrial products were $119.8 million in 1999,
$125.9 million in 1998 and $114.0 million in 1997. The following table lists
K2's principal industrial products and the brand names under which they are
sold.
<TABLE>
<CAPTION>
PRODUCT BRAND NAME
- -------------------------------------------- ------------------------------------
<S> <C>
Monofilament Line Shakespeare
Composite Utility and Decorative Light Poles Shakespeare
Fiberglass Marine Radio Antennas Shakespeare
</TABLE>
MONOFILAMENT LINE. Nylon and polyester monofilament line is domestically
manufactured and sold by K2 in a variety of diameters, tensile strengths and
softness. Monofilament is used in various applications including the manufacture
of woven mats for use by paper producers in the United States, Europe and South
America and for use as line in weed trimmers in the United States and are sold
directly to paperweavers and distributors of cutting line and to others through
independent sales representatives. Monofilament sold in Europe for woven mats is
manufactured primarily in K2's U.K. facility. Shakespeare monofilament also
manufactures fishing line domestically, which is marketed by Shakespeare's
fishing tackle division to retailers and mass merchandisers through independent
sales representatives.
COMPOSITE UTILITY AND DECORATIVE LIGHT POLES. K2 produces and sells
directly composite utility and decorative light poles under the SHAKESPEARE name
in the United States, principally to public and private utilities and developers
for specialty and unique applications. K2 believes that a large majority of
major utility companies in the United States have approved the use of composites
for its light and utility poles.
MARINE RADIO ANTENNAS. K2 manufactures fiberglass radio antennas in the
United States for marine, citizen band and military application under the
SHAKESPEARE name. The products are sold primarily in the United States. K2 also
distributes marine radios and other marine electronics under the SHAKESPEARE
name which are manufactured in Asia to K2's specifications. The antennas, radios
and other marine electronics are sold by an in-house sales department and
independent sales representatives to specialty marine dealers.
COMPETITION
K2's competition varies among its business lines. The sporting goods markets
and recreational products markets are generally highly competitive, with
competition centering on product innovation, performance and styling, price,
marketing and delivery. Competition in these products (other than snowboards and
active wear) consists of a relatively small number of large producers, some of
whom have greater financial and other resources than K2. A relatively large
number of companies compete in snowboards and active wear. While K2 believes
that its well-recognized brand names, established distribution networks and
reputation for developing and introducing innovative products have been key
factors in the successful introduction of its sporting goods products, there are
no significant technological or capital barriers to entry into the markets for
many sporting goods and recreational products. These markets face competition
from other leisure activities, and sales of leisure products are affected by
changes in consumer tastes, which are difficult to predict.
K2 believes that its industrial products segment competes based on product
quality, service and delivery, however, K2's industrial products are, in most
instances, subject to price competition, ranging from moderate in marine
antennas and monofilament line to intense for commodity-type products.
5
<PAGE>
Composite utility and light poles compete with products made of other materials,
such as wood and aluminum. Certain industrial competitors have greater financial
and other resources than K2.
FOREIGN SOURCING AND RAW MATERIALS
K2 has not experienced any substantial difficulty in obtaining raw
materials, parts or finished goods inventory for its sporting goods and other
recreational products businesses. Certain components and finished products,
however, are manufactured or assembled abroad and therefore could be subject to
interruption as a result of local unrest, currency exchange fluctuations,
increased tariffs, trade difficulties and other factors. A growing portion of
K2's sporting goods products are manufactured in the People's Republic of China
which trades with the United States under Normal Trade Relations ("NTR") status.
This includes most of K2's fishing rods, including its UGLY STIK models, and
reels and its in-line skates and certain snowboards and skis. While K2 believes
that alternative sources for these products produced in China could be found,
maintaining its existing costs of such products will depend on China's
continuing to be treated under NTR tariff rates, which the United States from
time to time has threatened to rescind. Additionally, the gross margins on K2's
products manufactured or sourced in the U.S. or in Asia and distributed in
Europe will depend on the relative exchange rates between the U.S. dollar and
the Euro.
K2 has not experienced any substantial difficulty in obtaining raw materials
for its industrial products segment.
SEASONALITY AND CYCLICALITY; BACKLOG
Sales of K2's sporting goods are generally highly seasonal and in many
instances are dependent on weather conditions. K2's industrial products are
mildly seasonal. This seasonality causes K2's financial results to vary from
quarter to quarter, and K2's sales and earnings are usually weakest in the first
quarter. In addition, the nature of K2's ski, snowboard, bike and in-line skate
businesses requires that in anticipation of the selling season for these
products, it make relatively large investments in inventory. The selling season,
in the case of skis and snowboards runs from August through December, in the
case of bikes runs from October through April and in the case of in-line skates,
runs primarily from February through July. Relatively large investments in
receivables are consequently made during and shortly after such seasons. The
rapid delivery requirements of K2's customers for its sporting goods products
and other recreational products also result in investment in significant amounts
of inventory. K2 believes that another factor in its level of inventory
investment is the shift by certain of its sporting goods customers from
substantial purchases of pre-season inventories to deferral of deliveries until
the products' retail seasons and ordering based on rates of sale.
Sales of sporting goods and other recreational products depend to a large
extent on general economic conditions including the amount of discretionary
income available for leisure activities and consumer confidence. Sales of K2's
industrial products are dependent to varying degrees upon economic conditions in
the container and paper industries.
As a result of the nature of many of K2's businesses, backlog is generally
not significant, except for the in-line skate business. The backlog of in-line
skate sales as of February 28, 1999 and 1998 was approximately $44.2 million and
$36.7 million, respectively. The backlog may be subject to cancellation or other
adjustments and is not necessarily indicative of future sales.
CUSTOMERS
K2 believes that its customer relationships are excellent, and no one
customer of K2 accounted for ten percent or more of its consolidated annual net
sales or 5% of its operating income in 1999 or 1998.
6
<PAGE>
RESEARCH AND DEVELOPMENT
Consistent with K2's business strategy of continuing to develop innovative
brand name products and improving the quality, cost and delivery of products, K2
maintains decentralized research and development departments at several of its
manufacturing centers which are engaged in product development and the search
for new applications and manufacturing processes. Expenditures for research and
development activities totaled approximately $12.1 million in 1999,
$12.4 million in 1998 and $12.0 million in 1997 and were expensed as a part of
general and administrative expenses in the year incurred.
ENVIRONMENTAL FACTORS
K2 is one of several potentially responsible parties ("PRP") named in an
Environmental Protection Agency matter involving discharge of hazardous
materials at old waste sites in South Carolina and Michigan. Although
environmental laws technically impose joint and several liability upon each PRP
at each site, the extent of K2's required financial contribution to the cleanup
of these sites is expected to be limited based on the number and financial
strength of the other named PRPs and the volume and types of waste involved
which might be attributable to K2.
Environmental and related remediation costs are difficult to quantify for a
number of reasons including the number of parties involved, the difficulty in
determining the extent of the contamination, the length of time remediation may
require, the complexity of environmental regulation and the continuing
advancement of remediation technology. K2's environmental engineers, consultants
and legal counsel have developed estimates based upon cost analyses and other
available information for this particular site. K2 accrues for these costs when
it is probable that a liability has been incurred and the amount can be
reasonably estimated. At December 31, 1999 and 1998, K2 accrued approximately
$806,000 and $963,000, respectively, with no provision for expected insurance
recovery.
EMPLOYEES
K2 had approximately 3,000 and 2,700 employees at December 31, 1999 and
1998, respectively. The increase was generally due to acquisitions. K2 believes
that its relations with employees generally have been good.
PATENTS AND INTELLECTUAL PROPERTY RIGHTS
While product innovation is a highly important factor in K2's sporting goods
and other recreational products segments and many of K2's innovations have been
patented, K2 does not believe that the loss of any one patent would have a
material effect on it, however, the loss of the in-line skate patent could
result in increased competition and reduced sales and margins. Certain of its
brand names, such as K2, OLIN, RIDE, MORROW, SHAKESPEARE, UGLY STIK, PFLEUGER,
STEARNS, HILTON and DANA DESIGN are believed by K2 to be well-recognized by
consumers and therefore important in the sales of these products. Registered and
other trademarks and tradenames of Company products are italicized in this
Form 10-K.
7
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ITEM 2. PROPERTIES
The table below provides information with respect to the principal
production and distribution facilities utilized by K2 for continuing operations
as of December 31, 1999.
<TABLE>
<CAPTION>
OWNED FACILITIES LEASED FACILITIES
-------------------- --------------------
TYPE OF NO. OF SQUARE NO. OF SQUARE
LOCATION FACILITY LOCATIONS FOOTAGE LOCATIONS FOOTAGE
- -------- -------------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
SPORTING GOODS
Minnesota............................. Distribution
and production 2 302,000 3 106,000
South Carolina........................ Distribution
and production 1 100,000
Washington............................ Distribution
and production 1 160,000 2 170,000
California............................ Production and
warehouse 2 41,000
Nevada................................ Distribution
and production 1 21,000
Foreign............................... Distribution
and production 1 15,000 22 372,000
-- ------- -- -------
5 577,000 30 710,000
== ======= == =======
OTHER RECREATIONAL PRODUCTS
Alabama............................... Distribution
and production 2 160,000
California............................ Distribution 2 40,000
Illinois.............................. Distribution 1 85,000
-- ------- -- -------
2 160,000 3 125,000
== ======= == =======
INDUSTRIAL PRODUCTS
Florida............................... Production 1 15,000
South Carolina........................ Distribution
and production 2 515,000
Foreign............................... Distribution
and production 1 33,000
-- ------- -- -------
4 563,000 0 0
== ======= == =======
</TABLE>
The corporate headquarters of K2 is located in 11,000 square feet of leased
office space in Los Angeles, California. The terms of K2's leases range from one
to eight years, and many are renewable for additional periods. The termination
of any lease expiring 2000 would not have a material adverse effect on K2's
operations.
K2 believes that, in general, its plants and equipment are adequately
maintained, in good operating condition and are adequate for K2's present needs.
K2 regularly upgrades and modernizes its facilities and equipment and expands
its facilities to meet production and distribution requirements.
ITEM 3. LEGAL PROCEEDINGS
Certain of K2's products are used in relatively high risk recreational
settings and from time to time K2 is named as a defendant in lawsuits asserting
product liability claims relating to its sporting goods products. To date none
of these lawsuits has had a material effect on K2, and K2 does not believe that
any lawsuit now pending could reasonably be expected to have such an effect. K2
maintains product liability, general
8
<PAGE>
liability and excess liability insurance coverages. No assurances can be given
that such insurance will continue to be available at an acceptable cost to K2 or
that such coverage will be sufficient to cover one or more large claims, or that
the insurers will not successfully disclaim coverage as to a pending or future
claim.
K2 is one of several potentially responsible parties ("PRP") named in an
Environmental Protection Agency matter involving discharge of hazardous
materials at old waste sites in Michigan and South Carolina. Although
environmental laws technically impose joint and several liability upon each PRP
at each site, the extent of K2's required financial contribution to the cleanup
of these sites is expected to be limited based on the number and financial
strength of the other named PRPs and the volume and types of waste involved
which might be attributable to K2.
Environmental and related remediation costs are difficult to quantify for a
number of reasons including the number of parties involved, the difficulty in
determining the extent of the contamination, the length of time remediation may
require, the complexity of environmental regulation and the continuing
advancement of remediation technology. K2's environmental engineers, consultants
and legal counsel have developed estimates based upon cost analyses and other
available information for these particular sites. K2 accrues for these costs
when it is probable that a liability has been incurred and the amount can be
reasonably estimated. At December 31, 1999 and 1998, K2 accrued approximately
$806,000 and $930,000, respectively, with no provision for expected insurance
recovery
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF K2
<TABLE>
<CAPTION>
NAME POSITION AGE
- ---- -------- --------
<S> <C> <C>
Richard M. Rodstein President and Chief Executive Officer 45
Robert E. Doyle Senior Vice President; President of Simplex Products 53
John J. Rangel Senior Vice President--Finance 46
Tony H. Chow Vice President and Director of Taxes 52
David G. Cook Vice President; President of Stearns 62
Timothy C. Cronin Vice President; President of Hilton Corporate Casuals 49
David H. Herzberg Vice President; President of Shakespeare Monofilament 57
J. Wayne Merck Vice President; President of Shakespeare Composites and
Electronics 40
James A. Vandergrift Vice President 49
Susan E. McConnell Secretary 56
</TABLE>
Mr. Rodstein has been President of K2 since 1990 and Chief Executive Officer
since January 1, 1996.
Mr. Doyle has been a Senior Vice President of K2 and president of Simplex
Products for more than the past five years.
Mr. Rangel, a CPA, has been Senior Vice President-Finance of K2 for more
than the past five years.
Mr. Chow has been a Vice President of K2 for more than the past five years.
Mr. Cook has been a Vice President of K2 and president of Stearns for more
than the past five years.
Mr. Cronin has been a Vice President of K2 since January 1, 1996 and
president of Hilton Corporate Casuals since November 1996. Mr. Cronin was
Executive Vice President of Hilton Corporate Casuals from October 1992 to
October 1996.
Mr. Herzberg has been a Vice President of K2 and president of Shakespeare
Monofilament for more than the past five years.
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<PAGE>
Mr. Merck has been a Vice President of K2 since January 1, 1996 and
president of Shakespeare Composites & Electronics since June 1996. Mr. Merck was
president of K2's former Anthony Pools business from February 1994 to June 1996.
Mr. Vandergrift has been a Vice President of K2 since January 1, 1996 and
vice president of product development of K-2 Corporation for more than the past
five years.
Mrs. McConnell, a California attorney, has been Secretary of K2 for more
than the past five years.
Officers of K2 are elected for one year by the directors at their first
meeting after the annual meeting of shareholders and hold office until their
successors are elected and qualified.
10
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
PRINCIPAL MARKETS
K2's Common Stock is listed on the New York Stock Exchange and the Pacific
Stock Exchange under the symbol "KTO." At March 7, 2000 there were 1,847 holders
of record of Common Stock of K2.
COMMON STOCK PRICES AND DIVIDENDS
The following table sets forth, for the quarters indicated, the reported
high, low and closing sales prices of K2's Common Stock, as reported by the New
York Stock Exchange during K2's two most recent fiscal years, and the cash
dividends per share declared by K2 during those years:
<TABLE>
<CAPTION>
STOCK PRICES
--------------------------------------- CASH DIVIDENDS
HIGH LOW CLOSE PER SHARE
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
1999
Fourth................................................. 8 15/16 6 15/16 7 3/4 --
Third.................................................. 10 9/16 8 13/16 8 13/16 --
Second................................................. 11 5/8 7 7/8 8 15/16 --
First.................................................. 11 5/8 8 9/16 9 $.11
1998
Fourth................................................. 17 7/16 7 3/4 10 5/16 $.11
Third.................................................. 21 1/8 15 17 11/16 $.11
Second................................................. 23 5/8 16 11/16 17 5/8 $.11
First.................................................. 23 11/16 17 3/4 22 5/16 $.11
</TABLE>
DIVIDENDS
K2 paid a cash dividend on the Common Stock from 1978 through March 31,
1999. On May 6, 1999, the Board of Directors of K2 announced the discontinuance
of the cash dividend. K2 is subject to credit agreements which limit its ability
to pay cash dividends. As of December 31, 1999, $9.3 million of retained
earnings were free of such restrictions. See Note 6 of Notes to Consolidated
Financial Statements for further description of K2's credit facilities.
TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING AGENT FOR COMMON STOCK
Harris Trust Company of California
601 South Figueroa Street, Suite 4900
Los Angeles, California 90017
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31(A)
------------------------------------------------------------
1999 (B) 1998 (C) 1997 (D) 1996 1995
---------- ---------- ---------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE FIGURES AND PERCENTAGES)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................... $635,105 $574,510 $559,030 $513,170 $448,575
Cost of products sold (e)............... 462,033 418,950 391,860 360,029 321,053
-------- -------- -------- -------- --------
Gross profit............................ 173,072 155,560 167,170 153,141 127,522
Selling expenses........................ 95,774 87,389 79,832 67,324 54,538
General and administrative expenses
(e)................................... 40,341 39,030 38,303 38,490 34,758
Research and development expenses....... 12,113 12,391 11,979 9,317 6,437
-------- -------- -------- -------- --------
Operating income........................ 24,844 16,750 37,056 38,010 31,789
Interest expense........................ 12,741 12,163 10,560 9,294 9,916
Other income, net....................... (413) (236) (619) (1,476) (1,396)
-------- -------- -------- -------- --------
Income from continuing operations before
provision for income taxes............ 12,516 4,823 27,115 30,192 23,269
Provision for income taxes.............. 4,005 955 7,815 9,105 6,947
-------- -------- -------- -------- --------
Income from continuing operations....... 8,511 3,868 19,300 21,087 16,322
Discontinued operations, net of taxes
(f)................................... 1,332 975 2,600 4,130 (1,443)
-------- -------- -------- -------- --------
Net Income.............................. $ 9,843 $ 4,843 $ 21,900 $ 25,217 $ 14,879
======== ======== ======== ======== ========
Basic earnings per share:
Continuing operations................. $ 0.50 $ 0.23 $ 1.17 $ 1.27 $ 1.14
Discontinued operations............... 0.08 0.05 0.15 0.25 (0.10)
-------- -------- -------- -------- --------
Net income............................ $ 0.58 $ 0.29 $ 1.32 $ 1.52 $ 1.04
======== ======== ======== ======== ========
Diluted earnings per share:
Continuing operations................. $ 0.50 $ 0.23 $ 1.15 $ 1.26 $ 1.13
Discontinued operations............... 0.08 0.06 0.16 0.25 (0.10)
-------- -------- -------- -------- --------
Net income............................ $ 0.58 $ 0.29 $ 1.31 $ 1.51 $ 1.03
======== ======== ======== ======== ========
Dividends:
Cash--per share....................... $ 0.11 $ 0.44 $ 0.44 $ 0.44 $ 0.44
Basic shares............................ 16,880 16,554 16,541 16,574 14,367
Diluted shares.......................... 16,883 16,637 16,713 16,734 14,498
BALANCE SHEET DATA:
Total current assets.................... $345,809 $335,570 $305,048 $251,606 $278,793
Total assets............................ 487,878 452,995 419,413 357,006 374,373
Total current liabilities............... 158,623 127,138 115,227 63,425 110,483
Long-term debt.......................... 107,280 110,724 88,668 89,096 75,071
Shareholders' equity.................... 218,520 202,119 202,885 188,988 175,816
</TABLE>
- ------------------------
(a) Certain income statement and balance sheet accounts have been restated to
reflect the Simplex building products division as discontinued operations.
See Note 3 to Notes to Consolidated Financial Statements.
(b) Gross profit, operating income, income from continuing operations and net
income are $183,572, $35,344, $15,651, and $16,983, respectively, before
restructuring costs totaling $6,500 ($4,420 net of taxes) and downsizing
costs totaling $4,000 ($2,720 net of taxes). See Note 2 to Notes to
Consolidated Financial Statements.
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<PAGE>
(c) Gross profit, operating income, income from continuing operations and net
income are $166,060, $31,250, $13,293 and $14,268, respectively, before
charges totaling $14,500 ($9,425 net of taxes). See Note 2 to Notes to
Consolidated Financial Statements.
(d) Operating income, income from continuing operations and net income are
$39,456, $20,860 and $23,460, respectively, before restructuring costs of
$2,400 ($1,560 net of taxes). See Note 2 to Notes to Consolidated Financial
Statements.
(e) For 1999, cost of products sold includes a $10,500 charge recorded in the
fourth quarter. For 1998, cost of products sold includes a $10,500 charge
and general and administrative expenses includes a $4,000 charge recorded in
the third quarter of 1998. See Note 2 to Notes to Consolidated Financial
Statements.
(f) See Note 3 to Notes to Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
K2 Inc. is a leading designer, manufacturer and marketer of brand name
sporting goods which represent $474.3 million, or 74.7% of K2's 1999
consolidated net sales, and other recreational products, which represent
$41.0 million in 1999 sales. K2 is also a manufacturer and supplier of selected
industrial products, which had sales of $119.8 million in 1999.
On October 7, 1999 K2 completed the acquisition of Ride, Inc. ("Ride"), a
designer and manufacturer of snowboard equipment, apparel and accessories, in an
all-stock merger transaction valued at $12.3 million. The results of operations
of Ride have been included in the consolidated financial statements since the
date of acquisition.
During 1999, K2 announced a plan to reduce the cost structure of its ski and
snowboard operations by restructuring and downsizing its Seattle manufacturing
operation in favor of lower cost manufacturing and sourcing opportunities.
Consequently, K2 recorded charges to cost of products sold for restructuring
costs of $6.5 million, or $4.4 million and $.26 per diluted share after tax, and
downsizing costs of $4.0 million, or $2.7 million and $.16 per diluted share
after tax. These costs are associated with the downsizing of production and
reduction of personnel, as well as the write-off of related equipment and
inventory.
In 1998, K2 adopted a plan to dispose of its Simplex building products
division. This plan is consistent with K2's strategy to focus on its core
sporting goods and other recreational products businesses. As a result, K2
reclassified Simplex as a discontinued operation in 1998 and similarly
reclassified prior years' operations. K2 currently continues to pursue its plan
to dispose of Simplex and, accordingly, has reported the operation as
discontinued in the current year. The discussion which follows focuses on the
continuing operations of K2.
REVIEW OF OPERATIONS: COMPARISON OF 1999 TO 1998
Net sales from continuing operations increased to $635.1 million from
$574.5 million in the prior year. Income from continuing operations for 1999 was
$8.5 million, or $.50 per diluted share in 1999 as compared to $3.9 million, or
$.23 per diluted share, in the prior year. Net income improved to $9.8 million,
or $.58 per diluted share, from $4.8 million, or $.29 per diluted share, in the
prior year.
NET SALES. In the sporting goods segment, net sales increased 17.1% to
$474.3 million from $404.9 million in 1998. The increase was attributable to
strong demand during the year for most of the products in the segment. In-line
skates, snowboard products, fishing tackle and bikes all registered double-
digit growth. The increase in shipments of in-line skates reflected the strong
demand for K2's softboot skates, especially in the European market, and
worldwide growth of the children's softboot skate line. Improved snowboard
volume reflected the benefit of the Ride and Morrow acquisitions completed
during
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<PAGE>
the year and expansion of distribution into the Japanese market. Shakespeare
fishing tackle continued to show strength in sales led by the popular Ugly Stik
fishing rod series, packaged rods and reels and new product introductions. Bikes
benefited from its repositioned bike product line. Sales of Stearns products
increased due to new product introductions. Offsetting these increases was a
decline in ski shipments for the year reflecting the mild winter season in the
domestic market and K2's lower domestic market share.
In the other recreational products segment, net sales declined 6.2% to
$41.0 million from $43.7 million in the prior year. Sales of skateboard shoes
and apparel for the year increased substantially over the prior year, however,
declines in sales to the advertising specialty market more than offset K2's
strength in the skateboard business.
In the industrial products group, net sales declined 4.8%, to
$119.8 million from $125.9 million in 1998. The sales decline reflected reduced
demand for monofilament line used in the paper industry. Partially offsetting
this decline was improved sales of specialty resins and marine antennas.
GROSS PROFIT. Gross profit for the year increased to $173.1 million, or
27.3% of sales in 1999, from $155.6 million, or 27.1% of sales in 1998. For the
years ended 1999 and 1998, gross profit was net of a $10.5 million charge in
each period. In the fourth quarter of 1999, K2 announced a strategic initiative
to significantly reduce the cost structure of its ski and snowboard operations
by restructuring and downsizing the Seattle manufacturing operation to take
advantage of lower cost manufacturing and sourcing opportunities in Asia, Europe
and the United States. This resulted in a charge to cost of products sold for
restructuring costs of $6.5 million and related downsizing costs of
$4.0 million. In 1998, a charge was recorded to write-down the cost of high-end,
full suspension mountain bike and "aggressive" skate inventory resulting from
the sudden shift in market demand and subsequent repositioning of the bike
business into more popularly priced, front suspension mountain bikes, comfort
bikes and BMX bikes. Excluding the impact of the charge in both years, gross
profit as a percentage of sales was comparable at 28.9%
COSTS AND EXPENSES. Selling expenses increased 9.5% to $95.8 million, or
15.1% of net sales as compared with $87.4 million, or 15.2% of sales in 1998.
The increase was attributable to increased sales volume in the sporting goods
segment along with increased selling expenses related to recent acquisitions.
General and administrative expenses increased 3.4% to $40.3 million, or 6.4%
of net sales, compared with $39.0 million, or 6.8% of net sales in 1998. 1998
expense included a $4.0 million charge to write-down equipment and other items
no longer used to manufacture mountain bikes, and for the costs related to
repositioning the bike business. Excluding the impact of the 1998 charge,
expenses for 1999 increased due to the fourth quarter impact of the Ride
acquisition. Research and development expenses declined to $12.1 million from
$12.4 million in 1998.
OPERATING INCOME. Operating income from continuing operations improved to
$24.8 million, or 3.9% of net sales, from $16.8 million, or 2.9% of net sales,
in 1998. Excluding 1999 restructuring and downsizing costs totaling
$10.5 million and the 1998 charges of $14.5 million, operating income from
continuing operations for the years ended December 31, 1999 and 1998 was
$35.3 million, or 5.5% of sales, and $31.2 million, or 5.4% of sales,
respectively. The improvement is attributable to increased sales volume over the
prior year on comparable gross margins.
INTEREST EXPENSE. Interest expense increased largely due to higher average
borrowing balances, by $.6 million in 1999.
OTHER INCOME. Other income, which includes royalties, interest income and
other miscellaneous income, increased to $.4 million from $.2 million in 1998.
INCOME TAXES. The income tax rate for 1999 increased due to an increase in
domestic earnings as percentage of total earnings.
14
<PAGE>
SEGMENT INFORMATION. Total segment operating profit or loss (before
interest, corporate expenses and income taxes) improved to $30.6 million from
$22.6 million in 1998. In the sporting goods segment, operating profit increased
to $15.0 million from $5.3 million in 1998. Excluding the $10.5 million charge
for restructuring and downsizing costs in 1999 and the $14.5 million charge for
reserves in 1998, segment operating profit was $25.5 million compared with
$19.8 million in 1998. The improvement was attributable to the increases in
sales volume at comparable margins in most product lines over the prior year.
In the other recreational products segment, an operating loss of
$1.9 million was reported in 1999 as compared with an operating loss of
$1.1 million in 1998. The increase in the loss was attributable to the decline
in sales volume without a corresponding reduction in related expenses in the
advertising specialty market.
In the industrial products segment, operating profit declined to
$17.5 million from $18.4 million in 1998, but was comparable as a percentage of
net sales at 14.6%. The decline was due to reduced sales volume of monofilament
line used in the paper industry.
REVIEW OF OPERATIONS: COMPARISON OF 1998 TO 1997
Net sales from continuing operations increased to $574.5 million from
$559.0 million in the prior year. Income from continuing operations for 1998 was
$3.9 million, or $.23 per diluted share, as compared to $19.3 million, or $1.15
per diluted share in the prior year. Net income declined to $4.8 million, or
$.29 per diluted share, from $21.9 million, or $1.31 per diluted share in the
prior year.
NET SALES. In the sporting goods segment, net sales decreased 1.4% to
$404.9 million from $410.8 million in 1997. The decrease was primarily due to a
decline in ski and mountain bike sales. Unfavorable weather conditions in the
important fourth quarter combined with the impact of declining industry sales
worldwide resulted in lower shipments of K2 and Olin brand skis. Sales of the
bike business were down substantially due to a rapid shift in the marketplace
away from high-end, full suspension mountain bikes. Since K2 bikes were
positioned in the high-end niche, full-suspension mountain bike shipments
declined 47% for the year. More modest declines were incurred in sales of
outdoor products. K2 softboot in-line skate sales were comparable with the prior
year. A decline in sales of "aggressive" skates, due to an industry-wide
reduction in demand, was offset by the growth of K2 children's skates. Sales
increases were reported in K2 snowboard products, Shakespeare fishing tackle and
Stearns products. Although also feeling the effects of poor weather conditions
in late 1998, snowboard products benefited from strong demand for the Clicker
step-in binding, related boots and snowboards. Shipments of Shakespeare's Ugly
Stik fishing rods grew during the year in acceptance of several new models. New
kit and combo products and other new products also contributed to overall growth
in fishing tackle sales. New product introductions including inflatables, waders
and other products by Stearns also contributed to the increase in sales.
In the other recreational products segment, net sales grew 27.8% to
$43.7 million from $34.2 million in the prior year. Sales growth was driven
primarily by the acceptance of skateboard shoes, snowboard apparel and other
apparel sales of the Planet Earth group, and by the inclusion for the full year
of the base business, which was acquired in 1997.
In the industrial products group, net sales increased 10.4%, to
$125.9 million from $114.0 million in 1997. Improved sales were reported by the
Shakespeare Monofilament business due to new product introductions and increased
penetration of its cutting line business. Net sales in 1998 of fiberglass light
poles and marine and military antennas were comparable with the prior year.
GROSS PROFIT. Gross profit declined to $155.6 million, or 27.1% of sales in
1998, from $167.2 million, or 29.9% of sales in 1997. Gross profit in 1998 was
net of a $10.5 million charge (a discussion regarding an additional
$4.0 million which was charged against general and administrative expenses is
included below). Excluding the impact of the charge, gross profit as a
percentage of sales declined to 28.9%. The charge was recorded to write down the
cost of high-end, full suspension mountain bike and "aggressive" skate
15
<PAGE>
inventory made necessary by the sudden shift in market demand and subsequent
repositioning of the bike business into more popularly priced, front suspension
mountain bikes, comfort bikes and BMX bikes. The remaining reduction in the
gross profit percentage was due mainly to an unfavorable sales mix which
included a larger proportion of closeout bikes, skates and skis at reduced or no
margins.
COSTS AND EXPENSES. Selling expenses increased 9.5% to $87.4 million from
$79.8 million in 1997. The increase was largely volume-driven and related to
launches of new products, such as skateboard shoes and apparel, and the
continued support of K2's product lines in the marketplace.
General and administrative expenses increased 1.8% to $39.0 million from
$38.3 million in 1997, although as a percentage of sales they declined slightly
from the prior year. 1998 expense included a $4.0 million charge to write down
equipment and other items no longer used to manufacture mountain bikes referred
to above, and for the costs related to repositioning the bike business. 1997
expense included a $2.4 million restructuring charge to consolidate the mountain
bike and outdoor equipment operations. Research and development expense
increased to $12.4 million from $12.0 million in 1997.
OPERATING INCOME. Operating income from continuing operations declined to
$16.8 million, or 2.9% of net sales, from $37.1 million, or 6.6% of net sales,
in 1997. The percentage decrease is mainly due to the charge discussed above
which totaled $14.5 million, and due to an unfavorable mix of sales which
included a greater proportion of skis, "aggressive" skates and mountain bikes
sold at discounted prices. Excluding the charge, operating income was
$31.3 million, or 5.4% of net sales.
INTEREST EXPENSE. Interest expense increased by a net amount of
$1.6 million in 1998. Lower interest rates resulted in a decrease of $1.1million
while higher average borrowing balances resulted in an increase of
$2.7 million.
OTHER INCOME. Other income, which includes royalties, interest income and
other miscellaneous income, decreased to $.2 million from $.6 million in 1997.
INCOME TAXES. The income tax rate for 1998 declined due to a reduction of
the income tax valuation reserve, as a result of further utilization of prior
year foreign net losses utilized in the current period.
SEGMENT INFORMATION. Total segment operating profit or loss (before
interest, corporate expenses and income taxes) decreased to $22.6 million from
$44.5 million in 1997. In the sporting goods segment operating profit declined
to $5.3 million from $26.3 million in 1997. The decrease was due to a wider loss
in the full-suspension mountain bike business reflecting a decline in sales due
to a shift in the market and resulting sale of inventory at reduced prices,
resulting in a $14.5 million charge, and sales of other sporting goods products
at reduced margins (such as skis and in-line skates as described above).
In the other recreational products segment, an operating loss of
$1.1 million was reported in 1998 as compared with operating profit of
$.7 million in 1997. The current year loss was due to start-up costs of new
products for the emerging sports market, partially offset by improved operating
profits of the activewear group.
In the industrial products segment, operating profit increased
$18.4 million from $17.5 million in 1997. The improvement was attributable to
sales-related gains in the monofilament and specialty resins businesses.
LIQUIDITY AND SOURCES OF CAPITAL
K2's continuing operations provided $47.4 million of cash as contrasted with
$22.7 million of cash used in 1998. The $70.1 million year-to-year improvement
in cash, excluding the effects of acquisitions, is primarily attributable to the
reduction in inventories as compared with the prior year's increase, and an
increase in accounts payable as compared with the prior year's decrease. The
reduction in inventory levels, is attributable to a program initiated by all
segments to reduce inventory levels by working with the supply
16
<PAGE>
chain to reduce purchasing lead times and receiving product when needed. The
increase in accounts payable is attributable to more favorable payment terms
obtained from vendors throughout K2. Net cash used in investing activities from
continuing operations was $14.7 million, as compared to $16.5 million in 1998.
The improvement was attributable to a reduction in net capital expenditures in
the current year. No material commitments for capital expenditures existed at
year end.
Cash used in financing activities was $28.0 million as contrasted with cash
provided of $31.7 million in 1998. Cash provided in 1999 from operations was
used to pay down short and long-term debt and debt assumed from acquisitions,
resulting in a reduction of total debt of $10.4 million as compared to the prior
year.
K2's principal long-term borrowing facility is a $75 million Credit Line
("Credit Line") which becomes due on September 30, 2004. Additionally, K2 has a
$50 million accounts receivable purchase facility ("Purchase Facility"). At
December 31, 1999, $39.5 million was outstanding under the Credit Line and
$50.0 million of accounts receivable had been sold under the Purchase Facility.
Under the Credit Line and Purchase Facility, K2 is subject to an agreement
which, among other things, restricts amounts available for payment of cash
dividends and stock repurchases by K2. As of December 31, 1999, $9.3 million of
retained earnings were free of such restrictions. K2 also had $22.2 million of
8.39% unsecured senior notes due through 2004, payable in six equal principal
payments, and $50.0 million of 8.41% unsecured notes due through 2009, payable
in seven equal principal payments commencing in 2003. The notes are subject to
agreements which are generally less restrictive than the long-term borrowing
facilities. Additionally, at December 31, 1999, K2 had $84.6 million under
foreign and domestic short-term lines of credit with $56.8 million outstanding
and no borrowings available under K2's debt covenant restrictions. For further
information regarding K2's borrowings, see Note 6 to Notes to Consolidated
Financial Statements.
K2 anticipates its cash needs in 2000 will be provided from operations and
from borrowings, principally under its Credit Line and Purchase Facility and, to
a lesser extent, other existing credit lines.
ENVIRONMENTAL MATTERS
K2 is one of several named potentially responsible parties ("PRP") in an
Environmental Protection Agency matter involving discharge of hazardous
materials at old waste sites in South Carolina and Michigan. Although
environmental laws technically impose joint and several liability upon each PRP
at each site, the extent of K2's required financial contribution to the cleanup
of these sites is expected to be limited based on the number and financial
strength of the other named PRPs and the volume and types of waste involved
which might be attributable to K2.
Environmental and related remediation costs are difficult to quantify for a
number of reasons including the number of parties involved, the difficulty in
determining the extent of the contamination, the length of time remediation may
require, the complexity of environmental regulation and the continuing
advancement of remediation technology. K2's environmental engineers, consultants
and legal counsel have developed estimates based upon cost analyses and other
available information for this particular site. K2 accrues for these costs when
it is probable a liability has been incurred and the amount can be reasonably
estimated. At December 31, 1999 and 1998, K2 had recorded an estimated liability
of approximately $806,000 and $963,000, respectively, with no provision for
expected insurance recovery.
The ultimate outcome of this matter cannot be predicted with certainty,
however, and taking into consideration reserves provided, management does not
believe this matter will have a material adverse effect on K2's financial
statements.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which
17
<PAGE>
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires companies to recognize all derivatives on the
balance sheet at fair value. K2 will adopt SFAS No. 133 in 2000. The adoption of
the new standard is not expected to have a material effect on its results of
operations or financial position.
IMPACT OF INFLATION AND CHANGING PRICES
The inflation rate, as measured by the Consumer Price Index, has been
relatively low in the last few years, and therefore, pricing decisions by K2
have largely been influenced by competitive market conditions. Depreciation
expense is based on the historical cost to K2 of its fixed assets, and
therefore, is considerably less than it would be if it were based on current
replacement cost. While buildings, machinery and equipment acquired in prior
years will ultimately have to be replaced at significantly higher prices, it is
expected that this will be a gradual process over many years.
YEAR 2000 ISSUE
In prior years, K2 discussed the nature and progress of its plans to become
year 2000 ready. In late 1999, K2 completed its remediation and testing of
systems. As a result of those planning and implementation efforts, K2
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believes those systems
successfully responded to the Year 2000 date change. K2 is not aware of any
material problems resulting from Year 2000 issues, either with its products, its
internal systems, or the products and services of third parties. K2 incurred
approximately $1.1 ($.7 million expensed and $.4 million capitalized) million
during 1999 in connection with remediating its systems. K2 will continue to
monitor its mission critical computer applications and those of its suppliers
and vendors throughout the year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
This Annual Report on Form 10-K contains "forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which represent
K2's expectations or beliefs concerning future events, including, but not
limited to, the following: statements regarding market trends regarding softboot
in-line skates, bikes, skis and snowboards, inventory levels at retail, product
acceptance and demand, marketing efforts, growth efforts, cost reduction
efforts, margin enhancement efforts, product development efforts, success of new
product introductions, marketing positioning and overall market trends which
involve substantial risks and uncertainties.
Actual results could differ materially from those indicated in
forward-looking statements by reason of a number of factors, many of which are
outside of K2's control. Among such factors are the following:
- Developments in the economies of the United States, Europe and Asia. A
substantial portion of K2 sales are to customers in Europe and Asia, and a
significant portion of K2 products are manufactured in China. Adverse
economic changes in the United States or such foreign markets could result
in decreased sales and revenues, inflationary pressures on costs of
production, and/or increases in interest and other costs.
- CHANGES IN CURRENCY EXCHANGE RATES. Changes in the exchange rates between
the United States dollar and the currencies of Europe and Asia could make
K2 products less-competitive in foreign markets, and could reduce the
value of revenues represented by foreign currencies.
- UNEXPECTED DELAYS AND COSTS OF RESTRUCTURING. K2 has undertaken a
significant restructuring of its manufacturing operations for skis and
snowboards, including a shift in some manufacturing to
18
<PAGE>
China. Failure to complete the restructuring timely and efficiently could
eliminate anticipated cost savings, or even lead to increased costs of
production.
- UNFAVORABLE POLITICAL DEVELOPMENTS. K2's business is dependent on
international trade, both for sales of finished goods and low-cost
sourcing of products. Any political developments adversely affecting trade
with Europe or Asia, including China, could severely impact K2 results of
operations.
- COMPETITIVE DEVELOPMENTS AND INITIATIVES BY K2'S COMPETITORS. New product
introductions, financial incentives to retailers and other initiatives by
K2 competitors could weaken the market position of K2 products.
- RAPID CHANGES IN MARKETING STRATEGIES, PRODUCT DESIGN, STYLES AND TASTES.
Consumer demand for recreational products is strongly influenced by
matters of taste and style. Further, development of the internet is
leading to dramatic changes in product marketing and distribution. K2's
success is dependent, in significant part, on its ability to keep abreast
of, and lead, such changes.
- WEATHER. Sales of K2's recreational products are strongly influenced by
the weather. Poor snow conditions in the winter or summer conditions
unfavorable to water sports can adversely affect sales of important
K2 products.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
K2's earnings and cash flow are subject to fluctuations due to changes in
foreign currency exchange rates. K2 manages its exposures to changes in foreign
currency exchange rates on certain firm purchase commitments and anticipated,
but not yet committed purchases, by entering into foreign currency forward
contracts. K2's risk management objective is to reduce its exposure to the
effects of changes in exchange rates on the cost of products sold over quarterly
time horizons. Foreign currency exchange rate movements also affect K2's
competitive position, as exchange rate changes may affect business practices
and/or pricing strategies of non-U.S. based competitors and may affect the
profitability and pricing strategies of K2 as well. K2's foreign currency risk
policies entail entering into foreign currency derivative instruments only to
manage risk of currency fluctuations over a given period of time, not for
speculative investments.
Considering both the anticipated cash flows from firm purchase commitments
and anticipated purchases for the next quarter and the foreign currency
derivative instruments in place at year end, a hypothetical 10% weakening of the
U.S. dollar relative to all other currencies would not materially adversely
affect expected first quarter 2000 earnings or cash flows. This analysis is
dependent on actual purchases during the next quarter occurring within 90% of
budgeted forecasts. The effect of the hypothetical change in exchange rates
ignores the effect this movement may have on other variables including
competitive risk. If it were possible to quantify this competitive impact, the
results could well be different than the sensitivity effects shown above. In
addition, it is unlikely that all currencies would uniformly strengthen or
weaken relative to the U.S. dollar. In reality, some currencies may weaken while
others may strengthen.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
K2 INC.
STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C>
Net sales................................................... $635,105 $574,510 $559,030
Cost of products sold....................................... 462,033 418,950 391,860
-------- -------- --------
Gross profit.............................................. 173,072 155,560 167,170
Selling expenses............................................ 95,774 87,389 79,832
General and administrative expenses......................... 40,341 39,030 38,303
Research and development expenses........................... 12,113 12,391 11,979
-------- -------- --------
Operating income.......................................... 24,844 16,750 37,056
Interest expense............................................ 12,741 12,163 10,560
Other income, net........................................... (413) (236) (619)
-------- -------- --------
Income from continuing operations before provision for
income taxes............................................ 12,516 4,823 27,115
Provision for income taxes.................................. 4,005 955 7,815
-------- -------- --------
Income from continuing operations......................... 8,511 3,868 19,300
Discontinued operations, net of taxes....................... 1,332 975 2,600
-------- -------- --------
Net Income.................................................. $ 9,843 $ 4,843 $ 21,900
======== ======== ========
Basic earnings per share:
Continuing operations..................................... $ 0.50 $ 0.23 $ 1.17
Discontinued operations................................... 0.08 0.06 0.15
-------- -------- --------
Net income................................................ $ 0.58 $ 0.29 $ 1.32
======== ======== ========
Diluted earnings per share:
Continuing operations..................................... $ 0.50 $ 0.23 $ 1.15
Discontinued operations................................... 0.08 0.06 0.16
-------- -------- --------
Net income................................................ $ 0.58 $ 0.29 $ 1.31
======== ======== ========
Basic shares outstanding.................................... 16,880 16,554 16,541
Diluted shares outstanding.................................. 16,883 16,637 16,713
</TABLE>
See notes to consolidated financial statements
20
<PAGE>
K2 INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1999 1998
--------- ---------
(IN THOUSANDS, EXCEPT
NUMBER OF SHARES)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 9,421 $ 3,394
Accounts receivable, net.................................. 149,151 126,011
Inventories, net.......................................... 172,154 188,348
Deferred taxes and income taxes receivable................ 10,030 12,780
Prepaid expenses and other current assets................. 5,053 5,037
-------- --------
Total current assets.................................... 345,809 335,570
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements................................ 1,637 992
Buildings and leasehold improvements...................... 32,219 29,814
Machinery and equipment................................... 124,421 111,872
Construction in progress.................................. 4,176 8,393
-------- --------
162,453 151,071
Less allowance for depreciation and amortization.......... 89,858 84,480
-------- --------
72,595 66,591
OTHER ASSETS
Intangibles, principally goodwill, net.................... 38,928 19,564
Net assets of discontinued operations..................... 24,706 27,511
Other..................................................... 5,840 3,759
-------- --------
Total Assets............................................ $487,878 $452,995
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank loans................................................ $ 57,359 $ 64,350
Accounts payable.......................................... 44,231 20,807
Accrued payroll and related............................... 19,781 15,982
Other accruals............................................ 32,808 21,555
Current portion of long-term debt......................... 4,444 4,444
-------- --------
Total current liabilities............................... 158,623 127,138
Long-term Debt.............................................. 107,280 110,724
Deferred Taxes.............................................. 3,455 13,014
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred Stock, $1 par value, authorized
12,500,000 shares, none issued
Common Stock, $1 par value, authorized 40,000,000 shares,
issued shares--18,672,646 in 1999 and 17,190,652 in
1998.................................................... 18,673 17,191
Additional paid-in capital................................ 143,326 132,488
Retained earnings......................................... 75,248 67,227
Employee Stock Ownership Plan and stock option loans...... (1,975) (1,981)
Treasury shares at cost, 733,110 in 1999 and 623,759 in
1998.................................................... (8,992) (8,106)
Accumulated other comprehensive loss...................... (7,760) (4,700)
-------- --------
Total Shareholders' Equity.............................. 218,520 202,119
-------- --------
Total Liabilities and Shareholders' Equity.............. $487,878 $452,995
======== ========
</TABLE>
See notes to consolidated financial statements
21
<PAGE>
K2 INC.
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
---------------------------------------------------------------------------------------
EMPLOYEE STOCK ACCUMULATED
ADDITIONAL OWNERSHIP TREASURY OTHER
COMMON PAID-IN RETAINED PLAN AND STOCK SHARES, COMPREHENSIVE
STOCK CAPITAL EARNINGS OPTION LOANS AT COST LOSS TOTAL
-------- ---------- -------- -------------- -------- ------------- --------
(IN THOUSANDS EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1996............. $17,132 $131,627 $55,047 $(7,087) $(6,719) $(1,012) $188,988
Net income for the year
1997........................ 21,900 21,900
Translation adjustments....... (3,905) (3,905)
--------
Comprehensive income.......... 17,995
Exercise of stock options..... 28 459 487
Cash dividends, $.44 per
share....................... (7,279) (7,279)
Repurchase of shares and stock
option loan repayments...... 1,070 (1,387) (317)
Employee Stock Ownership Plan,
amortization, loan and
partial loan repayment...... 3,011 3,011
------- -------- ------- ------- ------- ------- --------
BALANCE AT
DECEMBER 31, 1997............. 17,160 132,086 69,668 (3,006) (8,106) (4,917) 202,885
Net income for the year
1998........................ 4,843 4,843
Translation adjustments....... 217 217
--------
Comprehensive income.......... 5,060
Exercise of stock options..... 31 402 433
Cash dividends, $.44 per
share....................... (7,284) (7,284)
Stock option loan(s).......... (96) (96)
Employee Stock Ownership Plan,
amortization, loan and
partial loan repayment...... 1,121 1,121
------- -------- ------- ------- ------- ------- --------
BALANCE AT
DECEMBER 31, 1998............. 17,191 132,488 67,227 (1,981) (8,106) (4,700) 202,119
Net income for the year
1999........................ 9,843 9,843
Translation adjustments....... (3,060) (3,060)
--------
Comprehensive income.......... 6,783
Issuance of shares from
acquisition of Ride, Inc.... 1,482 10,838 12,320
Repurchase of shares.......... (886) (886)
Cash dividends, $.11 per
share....................... (1,822) (1,822)
Stock option loan(s).......... (4) (4)
Employee Stock Ownership Plan,
amortization, loan and
partial loan repayment...... 10 10
------- -------- ------- ------- ------- ------- --------
BALANCE AT
DECEMBER 31, 1999............. $18,673 $143,326 $75,248 $(1,975) $(8,992) $(7,760) $218,520
======= ======== ======= ======= ======= ======= ========
</TABLE>
See notes to consolidated financial statements
22
<PAGE>
K2 INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1999 1998 1997
--------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations......................... $ 8,511 $ 3,868 $ 19,300
Gain on sale of investments............................... (3,500)
Adjustments to reconcile income from continuing operations
to net cash provided by (used in) operating activities:
Depreciation of property, plant and equipment........... 11,685 11,183 10,313
Amortization of intangibles............................. 2,041 1,556 1,261
Deferred taxes and income taxes receivable.............. (6,522) (4,515) (1,476)
Changes in operating assets and liabilities:
Accounts receivable................................... (10,653) (13,521) (27,638)
Inventories........................................... 25,830 (5,353) (31,813)
Prepaid expenses and other current assets............. 283 1,438 (1,139)
Accounts payable...................................... 14,389 (16,500) 4,325
Payrolls and other accruals........................... 1,867 (828) 4,733
--------- -------- --------
Net cash provided by (used in) continuing operations...... 47,431 (22,672) (25,634)
INVESTING ACTIVITIES
Property, plant and equipment expenditures................ (16,204) (17,257) (19,425)
Disposals of property, plant and equipment................ 4,013 1,527 298
Purchases of businesses, net of cash acquired............. (2,629) (834)
Proceeds on sale of investments........................... 9,908
Other items, net.......................................... 99 (729) (5,654)
--------- -------- --------
Net cash used in investing activities..................... (14,721) (16,459) (15,707)
FINANCING ACTIVITIES
Borrowings under long-term debt........................... 125,035 62,500 51,892
Payments of long-term debt................................ (128,479) (40,444) (52,755)
Net increase (decrease) in short-term bank loans.......... (22,749) 15,383 41,658
Net proceeds from accounts receivable facility............ 3,275
Exercise of stock options................................. 433 487
Dividends paid............................................ (1,822) (7,284) (7,279)
Net repayments by ESOP.................................... 1,107 3,000
--------- -------- --------
Net cash (used in) provided by financing activities....... (28,015) 31,695 40,278
--------- -------- --------
Net increase (decrease) in cash and cash equivalents from
continuing operations..................................... 4,695 (7,436) (1,063)
DISCONTINUED OPERATIONS
Income from discontinued operations....................... 1,332 975 2,600
Adjustments to reconcile income from discontinued
operations to net cash used in discontinued operations:
Depreciation and amortization........................... 2,939 2,844 2,652
Capital expenditures.................................... (2,565) (3,442) (4,303)
Other items, net........................................ (374) 4,747 (4,734)
--------- -------- --------
Cash provided by (used in) discontinued operations.......... 1,332 5,124 (3,785)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 6,027 (2,312) (4,848)
Cash and cash equivalents at beginning of year.............. 3,394 5,706 10,554
--------- -------- --------
Cash and cash equivalents at end of year.................... $ 9,421 $ 3,394 $ 5,706
========= ======== ========
</TABLE>
See notes to consolidated financial statements
23
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
K2 is a leading designer, manufacturer and marketer of brand name sporting
goods, which represent $474.3 million, or 74.7%, of K2's 1999 consolidated net
sales, and other recreational products, which represent $41.0 million in 1999
net sales. K2 is also a manufacturer and supplier of selected industrial
products, which had sales of $119.8 million in 1999.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of K2 and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
FISCAL PERIODS
K2 maintains its books using a 52/53 week year ending on the last Sunday of
December. For purposes of the consolidated financial statements, the year end is
stated as of December 31. The years ended December 31, 1999, 1998 and 1997
consisted of 52 weeks.
REVENUE RECOGNITION
K2 recognizes revenue from product sales upon shipment to its customers.
USE OF ESTIMATES
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles ("GAAP") requires management to make estimates
and assumptions affecting the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual amounts could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
The functional currency for most foreign operations is the local currency.
The financial statements of foreign subsidiaries have been translated into
United States dollars. Asset and liability accounts have been translated using
the exchange rate in effect at the balance sheet date. Revenue and expense
accounts have been translated using the average exchange rate for the year. The
gains and losses associated with the translation of the financial statements
resulting from the changes in exchange rates from year to year have been
reported in the other comprehensive income or loss account in shareholders'
equity. Transaction gains or losses, other than intercompany debt deemed to be
of a long-term nature, are included in net income in the period in which they
occur.
CASH EQUIVALENTS
Short-term investments (including any debt securities) that are part of K2's
cash management portfolio are classified as cash equivalents and are carried at
amortized cost. These investments are highly liquid, are of limited credit risk
and have original maturities of three months or less when purchased. The
carrying amount of cash equivalents approximates market.
24
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTS RECEIVABLE AND ALLOWANCES
Accounts receivable are the result of K2's worldwide sales activities.
Although K2's credit risk is spread across a large number of customers within a
wide geographic area, periodic concentrations within a specific industry occur
due to the seasonality of its businesses. At December 31, 1999 and 1998, K2's
receivables from sporting goods retailers who sell skis, skates, snowboards and
bikes amounted to 71% and 66%, respectively of total receivables. K2 generally
does not require collateral and performs periodic credit evaluations to manage
its credit risk. Accounts receivable are net of allowances for doubtful accounts
of $6,572,000 and $5,798,000 at December 31, 1999 and 1998, respectively.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined on
the LIFO method with respect to approximately 14% and 23% of total inventories
at December 31, 1999 and 1998, respectively. Cost was determined on the FIFO
method for all other inventories.
LONG-LIVED ASSETS
Long-lived assets, include, among others, goodwill, intangible assets, and
property, plant and equipment and are reviewed periodically to determine if the
carrying values are not impaired. K2 considers the future undiscounted cash
flows of the acquired companies in assessing the recoverability of these assets.
If indicators of impairment are present, or if long-lived assets are expected to
be disposed of, impairment losses are recorded. Any impairment is charged to
expense in the period in which the impairment is incurred.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is provided
on the straight-line method based upon the estimated useful lives of the assets.
In the fourth quarter of 1999, K2 wrote down certain equipment in connection
with the restructuring of its ski and snowboard operations no longer in use. In
the third quarter of 1998, K2 wrote down certain equipment related to its bike
product line no longer in use.
INTANGIBLES
Goodwill arising from acquisitions is amortized on a straight-line basis
over a period ranging from 15 to 40 years. Other intangibles are amortized on a
straight-line basis over 3 to 15 years. Accumulated amortization of intangibles
as of December 31, 1999 and 1998, amounted to $8,867,000 and $7,259,000,
respectively.
STOCK-BASED COMPENSATION AND OTHER EQUITY INSTRUMENTS
K2 and its subsidiaries account for employee and directors' stock option
grants using the intrinsic method. Generally, the exercise price of K2's
employee stock options equals or exceeds the market price of the underlying
stock on the date of grant and no compensation expense is recognized. If the
option price is less than the fair value, K2 records compensation expense over
the vesting period of the option. Options
25
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
granted to non-employees are accounted for using the fair value method. K2
disclosed the pro forma effects of using the fair value method for all option
plans in the accompanying financial statements.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs for the years
ended December 31, 1999, 1998 and 1997 amounted to $23,680,000, $21,903,000 and
$20,548,000, respectively.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
OTHER INCOME
Other income includes interest income, royalties and other miscellaneous
income
INCOME TAXES
Income taxes are recorded using the liability method.
EARNINGS PER SHARE
Basic earnings per share ("EPS") are determined by dividing net income by
the weighted average number of shares outstanding during the period. Diluted EPS
reflects the potential dilutive effects of stock options, using the treasury
stock method. The dilutive effects of stock options included in the dilutive EPS
calculation at December 31, 1999, 1998 and 1997 were 3,000, 83,000 and 171,000,
respectively. During 1999, 1998 and 1997, the computation of diluted EPS did not
include the options to purchase 1,064,000, 542,000 and 4,500 shares of common
stock, respectively, because their inclusion would have been antidilutive.
NEWLY ISSUED ACCOUNTING STANDARDS
Effective in 2001 accounting for gains or losses resulting from changes in
the value of derivatives would be changed depending on the use of the derivative
and whether they qualify for hedge accounting. The adoption of this new
requirement is not expected to have a material impact on the financial position
or results of operations of K2.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
NOTE 2--CHARGES AGAINST EARNINGS
In the fourth quarter of 1999, a pre-tax charge of $10.5 million was charged
to cost of products sold to cover restructuring costs of $6.5 million and
downsizing costs of $4.0 million. K2's strategic initiative was adopted in 1999
to reduce the cost structure of its ski and snowboard operations by taking
advantage of lower cost manufacturing and sourcing opportunities. In accordance
with the initiative, K2's Seattle manufacturing facility has been downsized and
approximately half of its ski and all of its snowboard
26
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 2--CHARGES AGAINST EARNINGS (CONTINUED)
manufacturing have been moved to either K2's China or California production
facilities or to third party sourcing operations worldwide. The restructuring
charge reflects expenses associated with the write-off of related equipment and
inventory, the reduction of approximately 200 production personnel and the
utilization of approximately 200 temporary workers. The downsizing costs were
incurred in 1999 as a result of reducing the size of the Seattle manufacturing
facility. Approximately $5.3 million of the total amount is cash related.
The following table summarizes the activity in 1999:
<TABLE>
<CAPTION>
SEVERANCE
EQUIPMENT INVENTORY AND RELATED SUBTOTAL DOWNSIZING TOTAL
--------- --------- ----------- -------- ---------- --------
(THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1999 Charges......................... $3,355 $2,229 $923 $6,507 $3,993 $10,500
UTILIZED:
Cash............................... 500 130 630 3,852 4,482
Non-cash........................... 3,355 1,132 4,487 141 4,628
------ ------ ---- ------ ------ -------
3,355 1,632 130 5,117 3,993 9,110
Balance December 31, 1999............ $ -- $ 597 $793 $1,390 $ -- $ 1,390
====== ====== ==== ====== ====== =======
</TABLE>
In the third quarter of 1998, a pre-tax charge of $14.5 million was included
in earnings from continuing operations. Of this amount, $10.5 million was
charged to cost of products sold to write down certain categories of bike and
skate inventories as a result of a sudden change in the market demand for those
products. The balance of the charge was recorded in general and administrative
expenses for costs associated with the change in the bike business and
implementing planned cost reduction programs at the winter sports operations.
The charges primarily related to non-cash items. At December 31, 1999, in
addition to the reserves in the table above, approximately $13.5 million of the
1998 charges had been utilized with approximately $2.1 million of reserves
remaining primarily against inventory and accounts receivable. These reserves
are expected to be utilized in the year 2000, with no significant cash outflow,
as the related inventory is disposed of and the accounts receivable balances are
written off. In 1997, a pre-tax restructuring charge of $2.4 million was
recorded in connection with the announcement of K2's plan to consolidate its
mountain bike and outdoor equipment operations into its existing facility on
Vashon Island, Washington, and to move its production of outdoor products to
outside sources. The restructuring was completed during 1998.
NOTE 3--DISCONTINUED OPERATIONS
On September 10, 1998, K2 adopted a plan to dispose of its Simplex building
products division as part of K2's strategic focus on the core sporting goods and
other recreational businesses. Accordingly, Simplex is shown in the accompanying
consolidated financial statements as a discontinued operation.
Income from discontinued operations are net of taxes of $718,000, $525,000
and $1,400,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. Net assets of discontinued operations were segregated in the
accompanying consolidated balance sheets and consisted primarily of accounts
receivable, inventories and fixed assets, offset by accounts payable, accrued
payroll and related items and other accruals. Net sales of $72,985,000,
$86,616,000 and $87,903,000 for the years ended December 31, 1999,
27
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 3--DISCONTINUED OPERATIONS (CONTINUED)
1998 and 1997, respectively, were excluded from consolidated net sales in the
accompanying consolidated statements of income.
NOTE 4--ACQUISITIONS
On October 7, 1999 K2 completed the acquisition of Ride, Inc. ("Ride"), a
designer and manufacturer of snowboard equipment, apparel and accessories, in an
all-stock merger transaction. Under the terms of the merger, each share of Ride
common and preferred stock was converted into 1/10 share of common stock of K2.
Based on the number of preferred and common shares outstanding of Ride as of the
acquisition date, approximately 1,482,000 shares of K2's common stock were
issued to the Ride shareholders and the purchase price was valued at
$12.3 million. This transaction was accounted for using the purchase method of
accounting; accordingly, the purchased assets and liabilities have been recorded
at their estimated fair values at the date of the acquisition. The preliminary
purchase price allocation resulted in an excess of cost over net assets acquired
of approximately $15.3 million, to be amortized on a straight-line basis over
20 years. The results of operations of Ride have been included in the
consolidated financial statements since the date of acquisition.
The following summarized unaudited pro forma results of operations of K2
assume the acquisition of Ride had occurred as of the beginning of the
respective periods. This pro forma information does not purport to be indicative
of what would have occurred had the acquisition been made as of those dates, or
of results which may occur in the future:
PRO FORMA INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
1999 1998
---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net sales............................................ $653,582 $616,288
Loss from continuing operations...................... (11,440) (5,008)
Loss per common share................................ (.63) (.28)
</TABLE>
On March 26, 1999, K2 acquired certain assets relating to the Morrow
snowboard business, including the Morrow trademark, from Morrow
Snowboards, Inc. The net cash purchase price was approximately $3.0 million. The
purchase price allocation resulted in an excess of cost over net assets acquired
of approximately $1.7 million, to be amortized on a straight-line basis over
15 years. The results of operations related to the acquisition have been
included in the consolidated financial statements since the date of acquisition.
The acquisition did not have a material pro forma impact on operations.
On August 19, 1998, K2 purchased the remaining 65% of shares of K2 Japan
Corporation not previously owned by K2. K2 Japan Corporation is a distributor of
K2 branded products located in Japan. The transaction was accounted for using
the purchase method of accounting and the results of operations from this
business have been included in the consolidated statements of income from the
date of acquisition. The purchase price of the acquisition was not material. The
fair value of the liabilities of K2
28
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 4--ACQUISITIONS (CONTINUED)
Japan Corporation at the acquisition date approximated the fair value of the
assets acquired including $2.7 million of goodwill to be amortized over
25 years.
NOTE 5--INVENTORIES
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(THOUSANDS)
<S> <C> <C>
Finished goods.......................................... $129,429 $146,233
Work in process......................................... 10,573 8,078
Raw materials........................................... 34,228 37,911
-------- --------
Total at lower of FIFO cost or market (approximates
current cost)....................................... 174,230 192,222
Less LIFO valuation reserve............................. 2,076 3,874
-------- --------
$172,154 $188,348
======== ========
</TABLE>
NOTE 6--BORROWINGS AND OTHER FINANCIAL INSTRUMENTS
At December 31, 1999, K2 had $84.6 million under foreign and domestic
short-term lines of credit with $56.8 million outstanding and no borrowings
available under K2's debt covenant restrictions. The foreign subsidiaries' lines
of credit generally have no termination date but are reviewed annually for
renewal and are denominated in the subsidiaries' local currencies. At
December 31, 1999, interest rates on short-term lines of credit ranged from 2.1%
to 11.2%. The weighted average interest rates on short-term lines of credit as
of December 31, 1999 and 1998 were 6.5% and 4.4%, respectively.
29
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 6--BORROWINGS AND OTHER FINANCIAL INSTRUMENTS (CONTINUED)
The principal components of long-term debt at December 31 were:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(THOUSANDS)
<S> <C> <C>
Notes payable due in seven equal annual principal
installments through 2009 with annual interest payable
at 8.41%.............................................. $ 50,000
Notes payable due in six equal annual principal
installments through 2004 with semi-annual interest
payable at 8.39%...................................... 22,224 $ 26,668
$75 million five-year unsecured bank revolving credit
line due September 30, 2004, interest payments due at
LIBOR plus 1.00% to 2.00% and a commitment fee of
0.225% to 0.50% on the unused portion of the line
through September 30, 2004............................ 39,500
$100 million bank revolving credit line replaced by the
$75 million credit line described above............... 88,500
-------- --------
111,724 115,168
Less-amounts due within one year........................ 4,444 4,444
-------- --------
$107,280 $110,724
======== ========
</TABLE>
The principal amount of long-term debt maturing in each of the five years
following 1999 is:
<TABLE>
<CAPTION>
(THOUSANDS)
<S> <C>
2000........................................................ $ 4,444
2001........................................................ 4,444
2002........................................................ 4,444
2003........................................................ 11,587
2004........................................................ 51,091
Thereafter.................................................. 35,714
--------
$111,724
========
</TABLE>
Interest paid on short- and long-term debt for the years ended December 31,
1999, 1998 and 1997 was $12.7 million, $12.2 million and $10.6 million,
respectively.
Under an accounts receivable arrangement, K2 can sell with limited recourse,
undivided participation interests in designated pools of accounts receivable for
a period of up to five years, in an amount not to exceed $50 million. Under this
arrangement, $50 million of accounts receivables as of December 31, 1999 and
1998, were sold.
The $75 million credit line and the accounts receivable arrangement, among
other things, restrict amounts available for payment of cash dividends and stock
repurchases by K2. As of December 31, 1999, $9.3 million of retained earnings
were free of such restrictions. The interest rate on the $75 million credit line
at December 31, 1999 was 8.5%.
K2 had $21.0 million of letters of credit outstanding as of December 31,
1999.
30
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 6--BORROWINGS AND OTHER FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts for the short-term lines of credit and the long-term
bank revolving credit line approximate their fair value since floating interest
rates are charged, which approximate market rates. The fair value of the
$50.0 million 8.41% notes payable, based on quoted market price, is
$46.6 million as compared to a carrying amount of $50.0 million. The fair value
of the $22.2 million 8.39% notes payable, based on quoted market price, is
$21.0 million as compared to a carrying amount of $22.2 million.
K2, including its foreign subsidiaries, enters forward exchange contracts to
hedge certain firm and anticipated sales and purchase commitments which are
denominated in U.S. or foreign currencies. The purpose of the foreign currency
hedging activities is to reduce K2's risk of fluctuating exchange rates. At
December 31, 1999, K2 had foreign exchange contracts with maturities of within
one year to exchange various foreign currencies to dollars in the aggregate
amount of $33.6 million, and with a fair market value of approximately
$33.2 million based on current market rates. The fair value of these contracts,
represented a net unrealized gain of approximately $438,000 as of December 31,
1999 and will be recognized in earnings when the underlying transaction occurs.
Counterparties on foreign exchange contracts expose K2 to credit losses in the
event of non-performance, but K2 does not anticipate non-performance.
NOTE 7--INCOME TAXES
Pretax income from continuing operations for the years ended December 31 was
taxed under the following jurisdictions:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Domestic......................................... $ 6,365 $(2,543) $22,003
Foreign.......................................... 6,151 7,366 5,112
------- ------- -------
$12,516 $ 4,823 $27,115
======= ======= =======
</TABLE>
Components of the income tax provision applicable to continuing operations
for the three years ended December 31 are:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED
-------- -------- -------- -------- -------- --------
(THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Federal.................. $ 9,147 $(7,317) $1,525 $(2,825) $8,140 $(1,695)
State.................... 705 (25) 575 70 60 470
Foreign.................. 2,050 (555) 2,115 (505) 405 435
------- ------- ------ ------- ------ -------
$11,902 $(7,897) $4,215 $(3,260) $8,605 $ (790)
======= ======= ====== ======= ====== =======
</TABLE>
31
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 7--INCOME TAXES (CONTINUED)
The principal elements accounting for the difference between the statutory
federal income tax rate and the effective tax rate for the three years ended
December 31 are:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(PERCENT)
<S> <C> <C> <C>
Statutory federal income tax rate...................... 35.0 35.0 35.0
State income tax effect, net of federal benefit........ 3.5 8.7 1.3
Valuation allowance and foreign earnings............... (5.5) (20.5) (6.1)
Other.................................................. (1.0) (3.4) (1.4)
----- ----- -----
32.0 19.8 28.8
===== ===== =====
</TABLE>
No provision for United States income taxes has been made on undistributed
earnings of foreign subsidiaries, since these earnings are considered to be
permanently reinvested. At December 31, 1999, foreign subsidiaries had unused
operating loss carryforwards of approximately $6.1 million of which
approximately $260,000 expires in 2001 and the remainder carries forward
indefinitely. Since the use of these operating loss carryforwards is limited to
future taxable earnings of the related foreign subsidiaries, a valuation
allowance has been recognized to offset the deferred tax assets arising from
such carryforwards. The valuation allowance, which is included in the tax effect
of foreign earnings above, was reduced by $0.3 million in 1999 and $1.6 million
in 1998, due to the utilization of the related operating loss carryforwards, and
increased in 1997 by a net $4.1 million due to a previously unusable foreign
loss carryforward which became usable.
At the acquisition date, Ride had federal net operating loss carryovers. The
ability of K2 to utilize these losses to reduce future tax due is very limited.
For financial reporting purposes, the realization of these carryovers, if any,
will reduce goodwill recorded on the acquisition of Ride.
32
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 7--INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities are comprised of the following at
December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization of property, plant and
equipment............................................... $ 5,618 $ 5,078
Trademark amortization.................................... 390 364
Other..................................................... 1,758 7,572
------- -------
Deferred tax liabilities................................ 7,766 13,014
Deferred tax assets:
Insurance accruals........................................ 2,044 1,426
Tax effect of foreign loss carryforwards.................. 3,063 2,999
Tax effect of domestic loss carryforwards................. 3,000 0
Bad debt reserve.......................................... 1,167 1,207
Inventory reserve......................................... 1,106 2,038
Other..................................................... 11,112 8,109
------- -------
21,492 15,779
Valuation allowance....................................... 6,063 2,999
------- -------
Current deferred tax assets............................. 15,429 12,780
------- -------
Deferred tax (assets) liabilites, net..................... $(7,663) $ 234
======= =======
</TABLE>
Income taxes paid, net of refunds, in the years ended December 31, 1999,
1998 and 1997 were $9.0 million, $5.3 million and $10.9 million, respectively.
NOTE 8--COMMITMENTS AND CONTINGENCIES
Future minimum payments under noncancelable operating leases as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
(THOUSANDS)
<S> <C>
2000........................................................ $ 5,166
2001........................................................ 4,239
2002........................................................ 2,271
2003........................................................ 1,532
2004........................................................ 787
Thereafter.................................................. 211
-------
$14,206
=======
</TABLE>
Leases are primarily for rentals of facilities, and about two-thirds of
these contain rights to extend the terms from one to ten years.
33
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 8--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Net rental expense, including those rents payable under noncancelable leases
and month-to-month tenancies, amounted to $4,797,000, $4,417,000 and $3,684,000
for the years ended December 31, 1999, 1998 and 1997, respectively.
K2 has not experienced any substantial difficulty in obtaining raw
materials, parts or finished goods inventory for its sporting goods and other
recreational products businesses. Certain components and finished products,
however, are manufactured or assembled abroad and therefore could be subject to
interruption as a result of local unrest, currency exchange fluctuations,
increased tariffs, trade difficulties and other factors. Major portions of K2's
in-line skates are manufactured by a single supplier. K2 believes alternate
sources for these products could be found.
K2 is subject to various legal actions and proceedings in the normal course
of business. While the ultimate outcome of these matters cannot be predicted
with certainty, management does not believe these matters will have a material
adverse effect on K2's financial statements.
K2 is one of several named potentially responsible parties ("PRP") in an
Environmental Protection Agency matter involving discharge of hazardous
materials at old waste sites in South Carolina and Michigan. Although
environmental laws technically impose joint and several liability upon each PRP
at each site, the extent of K2's required financial contribution to the cleanup
of these sites is expected to be limited based upon the number and financial
strength of the other named PRPs and the volume and types of waste involved
which might be attributable to K2.
Environmental and related remediation costs are difficult to quantify for a
number of reasons including the number of parties involved, the difficulty in
determining the extent of the contamination, the length of time remediation may
require, the complexity of environmental regulation and the continuing
advancement of remediation technology. K2's environmental engineers, consultants
and legal counsel has developed estimates based upon cost analyses and other
available information for this particular site. K2 accrues for these costs when
it is probable a liability has been incurred and the amount can be reasonably
estimated. At December 31, 1999 and 1998, K2 had recorded an estimated liability
of approximately $806,000 and $963,000, respectively, with no provision for
expected insurance recovery.
The ultimate outcome of these matters cannot be predicted with certainty,
however, management does not believe these matters will have a material adverse
effect on K2's financial statements.
NOTE 9--PENSION PLANS AND OTHER BENEFIT PLANS
K2 sponsors several trusteed noncontributory defined benefit pension plans
covering most of its employees. Benefits are generally based on years of service
and the employee's highest compensation for five consecutive years during the
years of credited service. Contributions are intended to provide for benefits
attributable to service to date and service expected to be provided in the
future. K2 funds these plans in accordance with the Employee Retirement Income
Security Act of 1974.
K2 also sponsors defined contribution pension plans covering most of its
domestic employees. Contributions by K2 for the defined contribution plans are
determined as a percent of the amounts contributed by the respective employees.
During 1999, 1998 and 1997, K2 expensed contributions of $940,000, $928,000 and
$753,000, respectively, related to these plans.
34
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 9--PENSION PLANS AND OTHER BENEFIT PLANS (CONTINUED)
The following table sets forth the defined benefit plans' funded status and
amounts recognized in K2's consolidated balance sheets at December 31:
<TABLE>
<CAPTION>
PENSION PLAN
-------------------
1999 1998
-------- --------
(THOUSANDS)
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year.................. $ 58,411 $51,896
Service cost............................................. 2,089 1,749
Interest cost............................................ 4,041 3,796
Actuarial (gain) loss.................................... (8,294) 3,994
Benefits paid............................................ (3,085) (3,024)
-------- -------
Benefit obligation at end of year........................ $ 53,162 $58,411
======== =======
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year........... $ 50,611 $48,432
Actual return on fair value of plan assets............... 9,531 4,884
Employer contributions................................... 319 319
Benefits paid............................................ (3,085) (3,024)
-------- -------
Fair value of plan assets at end of year................. 57,376 50,611
-------- -------
Funded status of the plan................................ 4,214 (7,800)
Unrecognized prior service cost.......................... 1,146 1,283
Unrecognized net transition asset........................ (65) (275)
Unrecognized actuarial (gain) loss....................... (10,705) 2,666
-------- -------
Accrued benefit cost..................................... $ (5,410) $(4,126)
======== =======
WEIGHTED AVERAGE ASSUMPTIONS
Discount rate............................................ 7.75% 6.75%
Expected return on plan assets........................... 9.00% 9.00%
Rate of compensation increase............................ 5.00% 5.00%
</TABLE>
The actuarial gains included in the benefit obligation for 1999 are the
result of the increase in the discount rate assumption made for the year as well
as a change in demographic data. The actuarial losses included in the benefit
obligation for 1998 are primarily the result of a decrease in the discount rate
assumption made for the year.
35
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 9--PENSION PLANS AND OTHER BENEFIT PLANS (CONTINUED)
Net pension cost consisted of the following for the year ended December 31:
<TABLE>
<CAPTION>
PENSION PLAN
------------------------------
1999 1998 1997
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
NET PERIODIC COST
Service cost...................................... $ 2,089 $ 1,749 $ 1,707
Interest cost..................................... 4,041 3,796 3,698
Expected return on plan assets.................... (4,474) (4,280) (3,857)
Amortization of prior service cost................ 137 139 110
Amortization of transition asset.................. (210) (210) (210)
Amortization of loss.............................. 20 13 24
------- ------- -------
Net periodic cost................................. $ 1,603 $ 1,207 $ 1,472
======= ======= =======
</TABLE>
36
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 10--QUARTERLY OPERATING DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
--------------------------------------------
FIRST SECOND THIRD FOURTH (A) YEAR (B)
-------- -------- -------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C>
1999
Net sales from continuing operations.............. $163.0 $158.3 $139.9 $173.9 $635.1
Gross profit...................................... 44.3 48.2 43.7 36.9 173.1
Income (loss) from continuing operations.......... 3.1 7.1 3.3 (5.0) 8.5
Discontinued operations, net of taxes............. 0.1 0.9 0.0 0.3 1.3
------ ------ ------ ------ ------
Net income (loss)................................. $ 3.2 $ 8.0 $ 3.3 $ (4.7) $ 9.8
====== ====== ====== ====== ======
Basic earnings (loss) per share
Continuing operations........................... $ 0.19 $ 0.43 $ 0.20 $(0.29) $ 0.50
Discontinued operations......................... 0.01 0.05 0.00 0.02 0.08
------ ------ ------ ------ ------
Net income (loss)............................... $ 0.20 $ 0.48 $ 0.20 $(0.27) $ 0.58
====== ====== ====== ====== ======
Diluted earnings (loss) per share
Continuing operations........................... $ 0.19 $ 0.43 $ 0.20 $(0.29) $ 0.50
Discontinued operations......................... 0.01 0.05 0.00 0.02 0.08
------ ------ ------ ------ ------
Net income (loss)............................... $ 0.20 $ 0.48 $ 0.20 $(0.27) $ 0.58
====== ====== ====== ====== ======
Cash dividend per share........................... $ 0.11 $ -- $ -- $ -- $ 0.11
Stock prices:
High............................................ $11.63 $11.63 $10.56 $ 8.94 $11.63
Low............................................. $ 8.56 $ 7.88 $ 8.81 $ 6.94 $ 6.94
</TABLE>
- ------------------------
(a) Gross profit, income from continuing operations and net income are $47.4,
$2.1and $2.4, respectively, before restructuring costs totaling $6.5 ($4.4
net of taxes) and downsizing costs totaling $4.0 ($2.7 net of taxes). See
Note 2 to Notes to Consolidated Financial Statements.
(b) Gross profit, income from continuing operations and net income are $183.6,
$15.7 and $17.0, respectively, before restructuring costs totaling $6.5
($4.4 net of taxes) and downsizing costs totaling $4.0 ($2.7 net of taxes).
See Note 2 to Notes to Consolidated Financial Statements.
37
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 10--QUARTERLY OPERATING DATA (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
QUARTER
-------------------------------------------
FIRST SECOND THIRD (A) FOURTH YEAR (B)
-------- -------- ---------- -------- ---------
(IN MILLIONS, EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C>
1998
Net sales from continuing operations............... $151.0 $156.8 $133.9 $132.8 $574.5
Gross profit....................................... 41.5 47.7 29.4 37.0 155.6
Income (loss) from continuing operations........... 2.7 7.4 (7.9) 1.6 3.8
Discontinued operations, net of taxes.............. 0.4 0.7 (0.4) 0.3 1.0
------ ------ ------ ------ ------
Net income (loss).................................. $ 3.1 $ 8.1 $ (8.3) $ 1.9 $ 4.8
====== ====== ====== ====== ======
Basic earnings (loss) per share
Continuing operations............................ $ 0.16 $ 0.45 $(0.48) $ 0.10 $ 0.23
Discontinued operations.......................... 0.03 0.04 (0.03) 0.02 0.06
------ ------ ------ ------ ------
Net income (loss)................................ $ 0.19 $ 0.49 $(0.51) $ 0.12 $ 0.29
====== ====== ====== ====== ======
Diluted earnings (loss) per share
Continuing operations............................ $ 0.16 $ 0.45 $(0.48) $ 0.10 $ 0.23
Discontinued operations.......................... 0.03 0.04 (0.03) 0.02 0.06
------ ------ ------ ------ ------
Net income (loss)................................ $ 0.19 $ 0.49 $(0.51) $ 0.12 $ 0.29
====== ====== ====== ====== ======
Cash dividend per share............................ $ 0.11 $ 0.11 $ 0.11 $ 0.11 $ 0.44
Stock prices:
High............................................. $23.69 $23.63 $21.13 $17.44 $23.69
Low.............................................. $17.75 $16.69 $15.00 $ 7.75 $ 7.75
</TABLE>
- ------------------------
(a) Gross profit, income from continuing operations and net income are $39.9,
$1.5 and $1.1, respectively, before charges totaling $14.5 ($9.4 net of
taxes). See Note 2 to Notes to Consolidated Financial Statements.
(b) Gross profit, income from continuing operations and net income are $166.1,
$13.3 and $14.3, respectively, before charges totaling $14.5 ($9.4 net of
taxes). See Note 2 to Notes to Consolidated Financial Statements.
NOTE 11--STOCK OPTIONS
Under K2's 1999 and 1994 Incentive Stock Option Plans ("1999 Plan" and "1994
Plan", respectively), options may be granted to eligible directors and key
employees of K2 and its subsidiaries at not less than 100% of the market value
of the shares on the dates of grant. No further options may be granted under the
1994 Plan.
The 1999 Plan permits the granting of options for terms not to exceed ten
years from date of grant. The options are exercisable on such terms as may be
established at the dates of grant.
38
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 11--STOCK OPTIONS (CONTINUED)
K2 is authorized, at the discretion of the Compensation Committee, to
provide loans to key employees in connection with the exercise of stock options
under the 1999 and 1994 Plans. At December 31, 1999 and 1998, there was a total
of $215,000 and $230,000, respectively, of loans to key employees made to enable
the exercise of stock options, and accrued interest outstanding. The loans are
due on various dates through June 2003. The amounts of these loans are shown as
a reduction of shareholders' equity. The loans are collateralized by the
underlying shares of stock issued and bear interest at the applicable rates
published by the IRS.
Options granted, exercised and forfeited for the 1999 Plan and 1994 Plan
were as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE
------------------------------
WEIGHTED
SHARES LOW HIGH AVERAGE
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Options outstanding at December 31, 1996................. 689,059 $11.11 $26.50 $20.56
Granted................................................ 234,000 23.50 29.88 23.68
Exercised.............................................. (28,418) 11.11 23.00 17.13
Forfeited.............................................. (16,850) 16.38 29.88 24.33
---------
Options outstanding at December 31, 1997................. 877,791 11.11 29.88 21.43
Granted................................................ 359,500 11.25 21.50 11.38
Exercised.............................................. (30,572) 11.11 22.88 14.15
Forfeited.............................................. (84,058) 11.11 29.88 22.41
---------
Options outstanding at December 31, 1998................. 1,122,661 11.11 29.88 18.33
Granted................................................ 229,500 7.50 10.63 7.55
Forfeited.............................................. (63,050) 10.63 29.88 18.42
---------
Options outstanding at December 31, 1999................. 1,289,111 7.50 29.88 16.40
=========
</TABLE>
At December 31, 1999, 1998 and 1997, stock options to purchase 695,761,
500,711 and 667,332, shares were exercisable at weighted average prices of
$20.21, $20.02 and $21.19, respectively. At December 31, 1999, 2,534,536 shares
of common stock were reserved for issuance under the Plans.
K2 uses the intrinsic-value method of accounting for stock-based awards
granted to employees. Accordingly, K2 has not recognized compensation expense
for its stock-based awards to employees. Had K2 elected to adopt the fair value
approach, net income and basic and diluted earnings per share would have been
$8,525,000, $.51 and $.50, respectively, for the year ended December 31, 1999,
$3,950,000, $.24
39
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 11--STOCK OPTIONS (CONTINUED)
and $.24, respectively, for the year ended December 31, 1998 and $21,157,000,
$1.28 and $1.27, respectively, for the year ended December 31, 1997. The pro
forma effect was calculated using Black-Scholes option valuation model, and the
following assumptions were utilized.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Risk free interest rate......................... 5.5% 5.0% 5.0%
Expected life................................... 5 years 5 years 5 years
Expected volatility............................. .388 .326 .225
Expected dividend yield......................... -- 3.9% 2.2%
</TABLE>
The pro forma amounts may not be representative of future disclosures since
the estimated fair value of stock options is amortized to expense over the
vesting period and additional options may be granted in future years. Since
changes in the subjective assumptions used in the Black-Scholes model can
materially affect the fair value estimate, management believes the model does
not provide a reliable measure of the fair value of its options.
Options are granted at an exercise price equal to the fair market value at
the date of grant. Information regarding stock options outstanding as of
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------- OPTIONS EXERCISABLE
WEIGHTED -------------------
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
EXERCISE CONTRACTUAL EXERCISE
PRICE RANGE SHARES PRICE LIFE SHARES PRICE
- ----------- -------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
$7.50 to $11.11.............................. 286,331 $ 8.27 8.58 years 57,331 $11.11
$11.250 to $17.25............................ 494,680 12.89 7.50 years 232,280 14.74
$21.50 to $29.88............................. 508,100 24.41 7.13 years 406,150 24.63
</TABLE>
NOTE 12--SHAREHOLDERS' EQUITY
PREFERRED STOCK
Shares are issuable in one or more series, and the Board of Directors has
authority to fix the terms and conditions of each series. No shares were issued
or outstanding during 1999 and 1998.
EMPLOYEE STOCK OWNERSHIP PLAN
K2 has an Employee Stock Ownership Plan ("ESOP") which covers substantially
all of its domestic non-union employees with at least one year of service. As of
December 31, 1999, the trust was indebted to K2 in the aggregate amount of
$565,000 in connection with stock purchases made from 1982 through 1984 of which
131,836 shares with an aggregate market value of $1,005,000 as of December 31,
1999 remained unallocated to participants. These loans are repayable over the
next three to five years with interest at prime plus 1/2%, not to exceed 18%,
and the unallocated shares will be released to participants proportionately as
these loans are repaid. Of the total dividends received by the ESOP on its
investment in K2's Common Stock, dividends on allocated and unallocated shares
in the amount of $29,000 and $167,000 in
40
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 12--SHAREHOLDERS' EQUITY (CONTINUED)
1999 and 1998, respectively, were used to service these loans. Allocated shares
as of December 31, 1999 totaled 1,584,816.
Additionally, the trust was indebted to K2 in the amount of $1,100,000 at
December 31, 1999 and 1998, in connection with distributions made to terminees.
Shareholders' equity has been reduced by the amounts of the loans and any
payments made by K2 on behalf of the trust. The payments, made by K2 on behalf
of the trust, which at December 31, 1999 totaled $89,000, are being amortized to
expense over the lives of the loans.
The amount of K2's annual contribution to the ESOP is at the discretion of
K2's Board of Directors. For the two years 1999 and 1998, contributions were
limited to amounts in excess of annual dividends, net of debt service, of the
ESOP necessary to fund obligations arising in each of those years to retired and
terminated employees. These amounts were $200,000 and $100,000, respectively.
ESOP expense, including amortization of the foregoing payments, was $638,000 and
$156,000 in 1999 and 1998, respectively. No expense was recorded and no
contributions were made in 1997.
PREFERRED STOCK RIGHTS
Rights are outstanding which entitle the holder of each share of Common
Stock of K2 to buy one one-hundredth of a share of Series A Junior Participating
Cumulative Preferred Stock at an exercise price of $60.00 per one one-hundredth
of a share, subject to adjustment. The rights are not separately tradable or
exercisable until a party either acquires, or makes a tender offer resulting in
ownership of, at least 15% of K2's common shares. If a person becomes the owner
of at least 15% of K2's outstanding common shares (an "Acquiring Person"), each
holder of a right other than such Acquiring Person and its affiliates is
entitled, upon payment of the then-current exercise price per right (the
"Exercise Price"), to receive shares of Common Stock (or Common Stock
equivalents) having a market value of twice the Exercise Price. If K2
subsequently engages in a merger, a business combination or an asset sale with
the Acquiring Person, each holder of a right other than the Acquiring Person and
its affiliates is thereafter entitled, upon payment of the Exercise Price, to
receive stock of the Acquiring Person having a market value of twice the
Exercise Price. At any time after any party becomes an Acquiring Person, the
Board of Directors may exchange the rights (except those held by the Acquiring
Person) at an exchange ratio of one common share per right. Prior to a person
becoming an Acquiring Person, the rights may be redeemed at a redemption price
of one cent per right, subject to adjustment. The rights are subject to
amendment by the Board.
NOTE 13--SEGMENT DATA
K2 classifies its business into three segments based on similar product
types consisting of sporting goods products, other recreational products and
selected industrial products. The sporting goods segment consists primarily of
sports equipment used to participate in individual sports activities sold
primarily through sporting goods specialty dealers, regional and national
sporting goods chains and the sporting goods department of mass merchants. The
equipment includes in-line skates, skis, snowboards, bikes, fishing tackle and
flotation vests. The other recreational products segment are primarily active
leisure apparel sold principally into the advertising specialty market through
distributors, and leisure footwear and other apparel sold through specialty
sporting goods dealers. The industrial products segment includes monofilament
line sold to the paper industry, string trimmer line sold to a variety of
distributors, retailers
41
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 13--SEGMENT DATA (CONTINUED)
and equipment manufacturers, fiberglass light poles sold to contractors, utility
companies and municipalities and marine and CB radio antennas sold to marine
dealers.
K2 evaluates performance based on operating profit or loss (before interest,
corporate expenses and income taxes). The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies in Note 1 of Notes to Consolidated Financial Statements.
Intercompany profit or loss is eliminated where applicable.
The information presented below is as of or for the year ended December 31.
<TABLE>
<CAPTION>
NET SALES TO
UNAFFILIATED CUSTOMERS INTERSEGMENT SALES OPERATING PROFIT (LOSS)
------------------------------ ------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- -------- -------- -------- --------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sporting goods................. $474.3 $404.9 $410.8 $30.4 $18.6 $21.2 $15.0* $ 5.3* $26.3*
Other recreational............. 41.0 43.7 34.2 0.2 0.3 -- (1.9) (1.1) 0.7
Industrial..................... 119.8 125.9 114.0 1.1 1.4 0.9 17.5 18.4 17.5
------ ------ ------ ----- ----- ----- ----- ----- -----
Total segment data........... $635.1 $574.5 $559.0 $31.7 $20.3 $22.1 30.6 22.6 44.5
====== ====== ====== ===== ===== ===== ----- ----- -----
Corporate expenses, net........ (5.4) (5.6) (6.8)
Interest expense............... 12.7 12.2 10.6
----- ----- -----
Income from continuing
operations before provision
for income taxes............. $12.5 $ 4.8 $27.1
===== ===== =====
</TABLE>
- ------------------------
* 1999, 1998 and 1997 include charges of $10.5 million, $14.5 million and
$2.4 million, respectively.
<TABLE>
<CAPTION>
DEPRECIATION AND
IDENTIFIABLE ASSETS AMORTIZATION CAPITAL EXPENDITURES
------------------------------ ------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- -------- -------- -------- --------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sporting goods................. $346.9 $301.3 $283.6 $ 9.9 $ 9.3 $ 8.1 $13.0 $ 6.9 $14.5
Other recreational............. 32.4 40.4 33.9 0.8 0.8 0.6 0.5 0.6 0.4
Industrial..................... 63.3 66.8 55.7 2.8 2.5 2.8 2.7 9.8 4.5
------ ------ ------ ----- ----- ----- ----- ----- -----
Total segment data........... 442.6 408.5 373.2 13.5 12.6 11.5 16.2 17.3 19.4
Corporate...................... 20.6 17.0 14.3 0.2 0.1 0.1
------ ------ ------ ----- ----- -----
Total continuing
operations................. 463.2 425.5 387.5 13.7 12.7 11.6 16.2 17.3 19.4
------ ------ ------ ----- ----- ----- ----- ----- -----
Discontinued operations........ 24.7 27.5 31.9 2.9 2.8 2.7 2.6 3.4 4.3
------ ------ ------ ----- ----- ----- ----- ----- -----
Total........................ $487.9 $453.0 $419.4 $16.6 $15.5 $14.3 $18.8 $20.7 $23.7
====== ====== ====== ===== ===== ===== ===== ===== =====
</TABLE>
42
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 13--SEGMENT DATA (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(MILLIONS)
<S> <C> <C> <C>
NET SALES BY LOCATION
United States..................................... $408.1 $381.4 $406.7
Europe............................................ 170.1 153.0 125.0
Asia.............................................. 56.9 40.1 27.3
------ ------ ------
Total net sales................................. $635.1 $574.5 $559.0
====== ====== ======
ASSETS
United States..................................... $348.0 $320.9 $315.0
Europe............................................ 94.8 97.3 91.1
Asia.............................................. 45.1 34.8 13.3
------ ------ ------
Total assets.................................... $487.9 $453.0 $419.4
====== ====== ======
LONG-LIVED ASSETS
United States..................................... $ 99.2 $ 75.4 $ 69.3
Europe............................................ 8.3 8.3 7.4
Asia.............................................. 4.0 2.5 2.6
------ ------ ------
Total long-lived assets......................... $111.5 $ 86.2 $ 79.3
====== ====== ======
</TABLE>
43
<PAGE>
K2 INC.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders:
K2 Inc.
We have audited the accompanying consolidated balance sheets of K2 Inc. and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of K2 Inc. and
subsidiaries at December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with accounting principles generally
accepted in the United States.
Los Angeles, California
February 21, 2000
44
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as noted in the following paragraph the information called for by
Items 10, 11, 12 and 13 have been omitted because on or before April 29, 2000,
Registrant will file with the Commission pursuant to Regulation 14A a definitive
proxy statement. The information called for by these items set forth in that
proxy statement is incorporated herein by reference.
The information called for by Item 10 with respect to executive officers of
the Registrant appears following Item 4 under Part I of the Report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this report.
(a-1) Financial Statements (for the three years ended December 31, 1999 unless
otherwise stated):
<TABLE>
<CAPTION>
PAGE REFERENCE
FORM 10-K
--------------
<S> <C> <C>
Statements of consolidated income........................... 20
Consolidated balance sheets at December 31, 1999 and 1998... 21
Statements of consolidated shareholders' equity............. 22
Statements of consolidated cash flows....................... 23
Notes to consolidated financial statements.................. 24-43
Report of Ernst & Young LLP, Independent Auditors........... 44
(a-2) Consolidated financial statement schedule:
II--Valuation and qualifying accounts....................... F-1
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes.
(a-3) Exhibits
(3)(a)(i) Restated Certificate of Incorporation dated May 4, 1989, filed as
Exhibit (3)(a) to Form 10-K for the year ended December 31, 1989
and incorporated herein by reference.
(a)(ii) Certificate of Amendment of Restated Certificate of Incorporation
dated May 31, 1995, filed as Exhibit 3(a)(ii) to Form 10-K for the
year ended December 31, 1995 and incorporated herein by reference.
45
<PAGE>
(a)(iii) Certificate of Amendment of Restated Certificate of
Incorporation, filed as Exhibit (3)(i) to Form 10-Q for the
quarter ended June 30, 1996 and incorporated herein by reference.
(b)(i) By-Laws of K2 Inc., as amended and restated, filed as Exhibit 3 to
Form 10-Q for the quarter ended March 31, 1997 and incorporated
herein by reference.
(b)(ii) By-Laws of K2 Inc., as amended, filed as Exhibit 3 to Form 10-Q
for the quarter ended June 30, 1999 and incorporated herein by
reference.
(4)(a) Rights Agreement dated as of July 1, 1999 between K2 Inc. and Harris
Trust Company of California, as Rights Agent, which includes thereto
the Form of Rights Certificate to be distributed to holders of Rights
after the Distribution, filed as Item 2, Exhibit 1 to Form 8-A filed
August 9, 1999 and incorporated herein by reference.
(10) Material contracts
(a) Note Agreement Re: $40,000,000 8.39% Senior Notes due November 20,
2004 dated as of October 15, 1992, filed as Exhibit (10)(b) to
Form 10-K for the year ended December 31, 1992 and incorporated
herein by reference.
(1) First Amendment to the Note Agreements, dated May 1, 1996, and
filed as Exhibit 10.04 to Form 10-Q for the quarter ended
June 30, 1996 and incorporated herein by reference.
(2) Second Amendment to the Note Agreements, dated December 1, 1999.
Guaranty Agreement Re: $40,000,000 8.39% Senior Notes due
November 30, 2004 of K2 Inc. dated as of December 1, 1999.
(3) Guaranty Agreement Re: $40,000,000 8.39% Senior Notes due
November 30, 2004 of K2 Inc. dated as of December 1, 1999.
(b) Transfer and Administration Agreement among Enterprise Funding Corp.
as the Company, K2 Inc. (formerly Anthony Industries, Inc.) as the
Transferor and Master Servicer, and NationsBank, N.A. as the
Administrative Agent and the Collateral Agent effective May 21, 1996,
filed as Exhibit 10.03 to Form 10-Q for the quarter ended June 30,
1996 and incorporated herein by reference.
(1) First Amendment to Receivables Purchase Agreements and Transfer
and Administration Agreement dated as of March 15, 1997, filed as
Exhibit 10.01 to Form 10-Q for the quarter ended March 31, 1997
and incorporated herein by reference.
(2) Second Amendment to Transfer and Administration Agreement dated
as of May 20, 1998 filed as Exhibit (10)(c)(2) to Form 10-K for
the year ended December 31, 1998 and incorporated herein by
reference.
(3) Seventh Amendment to Transfer and Administration Agreement dated
as of February 18, 2000.
(c) Note Agreement Re: $50,000,000 8.41% Series 1999-A Senior Notes due
December 1, 2009, dated as of December 1, 1999.
(d) Credit Agreement dated as of December 21, 1999 among K2 Inc., Bank of
America, N.A., as Administrative Agent, Swing Line Lender and Letter
of Credit Issuing Lender and the Other Financial Institutions Party
Hereto.
46
<PAGE>
(e) Executive compensation plans and arrangements:
(1)(i) Retirement agreement dated November 20, 1995 between K2 Inc.
and B.I. Forester, filed as Exhibit (10)(d)(1)(i) to
Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference.
(ii) Trust for Anthony Industries, Inc. Supplemental Employee
Retirement Plan for the Benefit of B.I. Forester between
K2 Inc. and Wells Fargo Bank N.A., as Trustee, dated
November 20, 1995, filed as Exhibit (10)(d)(1)(ii) to
Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference.
(2)(i) Special Supplemental Benefit Agreement between K2 Inc. and
Bernard I. Forester dated December 9, 1986, filed as
Exhibit (10)(g) to Form 10-K for the year ended December 31,
1986 and incorporated herein by reference.
(3) 1988 Incentive Stock Option Plan filed as Exhibit A to the Proxy
Statement for the Annual Meeting of Shareholders held on May 5,
1988 and incorporated herein by reference.
(4) Anthony Industries, Inc. Non-Employee Directors' Benefit Plan
effective May 1, 1992, filed as Item 6, Exhibit (a)(28) of
Form 10-Q for the quarter ended March 31, 1992 and incorporated
herein by reference.
(5) Anthony Industries, Inc. Corporate Officers' Medical Expense
Reimbursement Plan, as amended through October 22, 1993,
effective August 15, 1974, filed as Exhibit (10)(c)(5) to
Form 10-K for the year ended December 31, 1993 and incorporated
herein by reference.
(6) Anthony Industries, Inc. Directors' Medical Expense Reimbursement
Plan, as amended through October 22, 1993, effective January 1,
1993, filed as Exhibit (10)(c)(6) to Form 10-K for the year ended
December 31, 1993 and incorporated herein by reference.
(7) K2 Inc. Executive Officers' Incentive Compensation Plan adopted
August 5, 1993 as amended December 17, 1996, filed as
Exhibit 10(d)(7) to Form 10-K for the year ended December 31,
1996 and incorporated herein by reference.
(8) 1994 Incentive Stock Option Plan, filed as Exhibit A to the Proxy
Statement for the Annual Meeting of Shareholders held on May 5,
1994 and incorporated herein by reference.
(9) Employment agreement dated May 8, 1998 between K2 Inc. and
Richard M. Rodstein, filed as Item 6, Exhibit 10.01 of Form 10-Q
for the quarter ended March 31, 1998 and incorporated herein by
reference.
(10) Employment agreement dated May 8, 1998 between K2 Inc. and
John J. Rangel, filed as Item 6, Exhibit 10.02 of Form 10-Q for
the quarter ended March 31, 1998 and incorporated herein by
reference.
(11) 1999 Incentive Stock Option Plan, filed as Exhibit A to the
Proxy Statement for the Annual Meeting of Shareholders held on
May 6, 1999 and incorporated herein by reference.
(f) (1) Asset Purchase Agreement dated February 16, 1996 among General
Aquatics, Inc., KDI Sylvan Pools, Inc. as Buyer, and Anthony
Industries, Inc., as Seller, filed as Item 7, Exhibit 99(A) to
Form 8-K filed March 21, 1996 and incorporated herein by
reference.
47
<PAGE>
(2) Amended and Restated Agreement and Plan of Merger dated as of
July 22, 1999 among K2 Inc., Ride, Inc. and KT Acquisition, Inc.
included as Appendix A to Form S-4 Registration No. 333-84791,
filed August 9, 1999 and incorporated herein by reference.
(3) Asset Purchase Agreement dated August 4, 1999 by and between
Simplex Products Inc., as Buyer, and K2 Inc., as Seller, filed as
Item 6, Exhibit 10 of Form 10-Q for the quarter ended June 30,
1999 and incorporated herein by reference.
(21) Subsidiaries
(23) Consent of Independent Auditors
(27) Financial Data Schedule
(b) Reports on Form 8-K:
Report on Form 8-K dated December 23, 1999, amending the Report of Form 8-K
dated October 22, 1999, to include the filing of financial statements and
pro forma financial information relative to the completion of K2 Inc.'s
acquisition of the issued and outstanding shares of common stock of
Ride, Inc. on October 7, 1999.
(c) Refer to (a-3) above.
(d) Refer to (a-2) above.
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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.
<TABLE>
<S> <C> <C>
K2 INC.
By: /s/ RICHARD M. RODSTEIN
-----------------------------------------
Richard M. Rodstein
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: March 24, 2000
--------------------------------------------
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RICHARD M. RODSTEIN Director, President and Chief
------------------------------------------- Executive Officer (Principal March 24, 2000
Richard M. Rodstein Executive Officer)
/s/ JOHN J. RANGEL Senior Vice President--Finance
------------------------------------------- (Principal Financial and March 24, 2000
John J. Rangel Accounting Officer)
/s/ B.I. FORESTER
------------------------------------------- Director, Chairman of the March 24, 2000
B.I. Forester Board
/s/ SUSAN E. ENGEL
------------------------------------------- Director March 24, 2000
Susan E. Engel
/s/ JERRY E. GOLDRESS
------------------------------------------- Director March 24, 2000
Jerry E. Goldress
/s/ WILFORD D. GODBOLD, JR.
------------------------------------------- Director March 24, 2000
Wilford D. Godbold, Jr.
/s/ RICHARD J. HECKMANN
------------------------------------------- Director March 24, 2000
Richard J. Heckmann
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STEWART M. KASEN
------------------------------------------- Director March 24, 2000
Stewart M. Kasen
/s/ JOHN H. OFFERMANS
------------------------------------------- Director March 24, 2000
John H. Offermans
/s/ ALFRED E. OSBORNE, JR.
------------------------------------------- Director March 24, 2000
Alfred E. Osborne, Jr.
</TABLE>
II-2
<PAGE>
K2 INC
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------------------- DEDUCTIONS
CHARGED --------------
CHARGED ACQUISITIONS TO OTHER AMOUNTS
BALANCE AT TO COSTS ACCOUNTED ACCOUNTS CHARGED TO BALANCE
BEGINNING AND FOR AS A (PRIMARILY RESERVE NET OF AT END
DESCRIPTION OF YEAR EXPENSES PURCHASE GROSS SALES) REINSTATEMENTS OF YEAR
- ----------- ---------- -------- ------------ ------------ -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1999
Allowance for doubtful items...... $5,798 $2,594 $1,687 $-- $3,507 $6,572
------ ------ ------ ---- ------ ------
$5,798 $2,594 $1,687 $-- $3,507 $6,572
====== ====== ====== ==== ====== ======
Year ended December 31, 1998
Allowance for doubtful items...... $6,590 $2,061 $ -- $-- $2,853 $5,798
------ ------ ------ ---- ------ ------
$6,590 $2,061 $ -- $-- $2,853 $5,798
====== ====== ====== ==== ====== ======
Year ended December 31, 1997
Allowance for doubtful items...... $5,351 $2,289 $ -- $-- $1,050 $6,590
Other (primarily sales
discounts)...................... 1,062 331 1,393
------ ------ ------ ---- ------ ------
$6,413 $2,289 $ -- $331 $2,443 $6,590
====== ====== ====== ==== ====== ======
</TABLE>
F-1
<PAGE>
EXHIBIT (10)(A)(2)
===============================================================================
K2, INC.
Second Amendment to Note Agreements
Dated as of December 1, 1999
Re: Note Agreements dated as of October 15, 1992
and
$40,000,000 8.39% Senior Notes
due November 30, 2004
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C> <C>
SECTION 1. AMENDMENTS .........................................................1
Section 1.1. Amendment of Section 5.9 ...........................................1
Section 1.2. Amendment of Section 5.11(d) .......................................2
Section 1.3. Amendment of Section 5.12 ..........................................2
Section 1.4. Amendment of Section 8.1 ...........................................3
SECTION 2. REPRESENTATIONS AND WARRANTIES .....................................5
SECTION 3. CONDITIONS PRECEDENT ...............................................5
Section 3.1. Payment of Special Counsel Fees ....................................5
Section 3.2. Consent of Requisite Holders .......................................5
Section 3.3. Intercreditor Agreement ............................................5
Section 3.4. Guaranty Agreement .................................................5
Section 3.5. Opinion of Counsel .................................................5
SECTION 4. MISCELLANEOUS ......................................................5
Section 4.1. Effective Date .....................................................5
Section 4.2. Counterparts .......................................................5
Section 4.3. Headings ...........................................................6
Section 4.4. Governing Law ......................................................6
Section 4.5. References to Note Agreements ......................................6
Section 4.6. Ratification .......................................................6
Section 4.7. Fees and Expenses ..................................................6
Signatures................................................................................7
EXHIBIT A -- Form of Representations and Warranties
EXHIBIT B -- Form of Intercreditor Agreement
EXHIBIT C -- Form of Guaranty Agreement
EXHIBIT D -- Form of Opinion of Company Counsel
</TABLE>
-i-
<PAGE>
K2, INC.
SECOND AMENDMENT TO NOTE AGREEMENTS
Dated as of
December 1, 1999
Re: Note Agreements dated as of October 15, 1992
and
$40,000,000 8.39% Senior Notes
Due November 30, 2004
To the Holders Named in Schedule I
Ladies and Gentlemen:
Reference is made to those separate Note Agreements, each dated as
of October 15, 1992, as amended by that certain First Amendment dated as of
May 1, 1996 (collectively referred to herein as the "NOTE AGREEMENTS"),
pursuant to which K2, Inc. (formerly known as Anthony Industries, Inc.), a
Delaware corporation (the "COMPANY"), issued $40,000,000 aggregate principal
amount of its 8.39% Senior Notes due November 30, 2004. You and the other
Institutional Holders named in Schedule I are hereinafter sometimes referred
to as the "HOLDERS". Capitalized terms used herein and not otherwise defined
shall have the meanings given thereto in the Note Agreements.
The Company requests the amendment of certain provisions of the Note
Agreements to read as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, the Company agrees with you as follows:
SECTION 1. AMENDMENTS.
SECTION 1.1. AMENDMENT OF SECTION 5.9. Section 5.9 of each of
the Note Agreements is hereby amended as follows:
(a) Clause (h) of Section 5.9 is hereby amended by
deleting "and" where it appears at the end of said clause (h).
(b) Clause (i) of Section 5.9 is hereby amended by
inserting ";and" at the end of said clause (i).
(c) Clause (j) is hereby added to Section 5.9 as follows:
<PAGE>
K2, Inc. Second Amendment to Note Agreements
"(j) Liens arising out of an Accounts Receivable
Financing Facility."
SECTION 1.2. AMENDMENT OF SECTION 5.11(d). Section 5.11(d) of
each of the Note Agreements is hereby amended as follows:
"(d) Neither the Company nor any Restricted
Subsidiary will sell, transfer or otherwise dispose of any
receivables other than any sale, lease or other disposition
of receivables pursuant to the Accounts Receivable
Financing Facility, PROVIDED that at all times the Accounts
Receivable Financing Facility has a Deemed Principal Amount
not exceeding (i) $75,000,000 for such Accounts Receivable
Financing Facility originating within the United States or
(ii) $20,000,000 for such Accounts Receivable Financing
Facility originating outside of the United States; PROVIDED
FURTHER that the net proceeds from any such Accounts
Receivable Financing Facility shall be applied to the
prepayment of Funded Debt of the Company or any Restricted
Subsidiary which for purposed of this Section 5.11(d) and
Section 5.11(e), shall include a temporary reduction in
Indebtedness outstanding under the Bank Credit Facility."
SECTION 1.3. AMENDMENT OF SECTION 5.12. Section 5.12 of each
of the Note Agreements is hereby amended as follows:
"SECTION 5.12. GUARANTIES. (a) The Company will
not, and will not permit any Restricted Subsidiary to,
become or be liable in respect of any Guaranty except (i)
Guaranties by the Company which are limited in amount to a
stated maximum dollar exposure or which constitute
Guaranties of obligations incurred by any Restricted
Subsidiary in compliance with the provisions of this
Agreement and (ii) Guaranties which constitute Excluded
Subsidiary Obligations.
(b) The Company will cause any Person which
becomes a Subsidiary after December 1, 1999 and which is
required by the terms of the Bank Credit Agreement to
become a party to, or otherwise Guaranty, Indebtedness
outstanding under the Bank Credit Agreement to enter into
the Guaranty Agreement, and deliver within three Business
Days thereafter to each of the holders of the Notes the
following items:
(i) a joinder agreement in respect of
the Guaranty Agreement;
-2-
<PAGE>
K2, Inc. Second Amendment to Note Agreements
(ii) a certificate signed by the President, a Vice
President or another authorized Responsible Officer of the
Company making representations and warranties to the effect
of those contained in Exhibit A to the Second Amendment,
with respect to such Subsidiary and the Guaranty Agreement,
as applicable;
(iii) such documents and evidence with respect to
such Subsidiary as any holder of the Notes may reasonably
request in order to establish the existence and good
standing of such Subsidiary;
(iv) an opinion of counsel addressed to each of
the holders of the Notes satisfactory to the holders of 66
2/3% in aggregate principal amount of the Notes, to the
effect that the Guaranty Agreement has been duly
authorized, executed and delivered and constitutes the
legal, valid and binding contract and agreement of such
Subsidiary enforceable in accordance with its terms, except
as an enforcement of such terms may be limited by
bankruptcy, insolvency, fraudulent conveyance and similar
laws affecting the enforcement of creditors' rights
generally and by general equitable principles; and
(v) If at any time one or more Subsidiaries which
shall have guaranteed the Indebtedness outstanding under
the Bank Credit Agreement shall have been released from its
obligations under such Guaranty, then upon delivery to the
holders of the Notes of evidence of such release (which
evidence shall be reasonably satisfactory to holders of 66
2/3% aggregate principal amount of the Notes), such
Subsidiary shall be released from its obligations under the
Guaranty Agreement."
SECTION 1.4. AMENDMENT OF SECTION 8.1. Section 8.1 of each of
the Note Agreements is hereby amended as follows:
(a) The definitions of "Accounts Receivable Financing
Facility" and "Priority Debt" are hereby deleted in their entirety and
the following inserted in lieu thereof:
"ACCOUNTS RECEIVABLE FINANCING FACILITY" shall
mean the facility or facilities as amended, extended or
renewed from time to time, providing for the sale,
encumbrance or other disposition to a Person or Persons
other than the Company or a Restricted Subsidiary, at any
time or from time to time, of all or a portion of the
accounts receivable of the Company or its Restricted
Subsidiaries, whether now existing or hereafter created;
but only so
-3-
<PAGE>
K2, Inc. Second Amendment to Note Agreements
long as the obligations of the Company and its
Restricted Subsidiaries thereunder shall not be deemed to
be liabilities on the balance sheet of the Company or any
Restricted Subsidiary prepared in accordance with GAAP.
"'PRIORITY DEBT' shall mean shall mean (x) any
Funded Debt of the Company secured by Liens permitted by
paragraphs (f), (g), (h) and (i) of Section 5.9 and (y)
any Funded Debt of a Restricted Subsidiary; PROVIDED,
however that Funded Debt in respect of Excluded Subsidiary
Obligations shall not be considered Priority Debt."
(b) The following definitions are hereby incorporated into
Section 8.1 in their correct alphabetical order:
"'BANK CREDIT AGREEMENT' shall mean the credit
agreement between the Company and its bank lenders dated as
of December __, 1999, as amended, restated, refinanced,
replaced, increased or reduced from time to time and any
successor bank credit agreement."
"'EXCLUDED SUBSIDIARY OBLIGATIONS' shall mean (a)
the Guaranty Agreement and any other Guaranty of Debt of
the Company by a Subsidiary Guarantor which shall be a
party to the Guaranty Agreement and (b) obligations of
Subsidiary Guarantors as Co-obligors with the Company on
Debt; PROVIDED that each creditor which is a beneficiary of
an Excluded Subsidiary Obligation shall have become a party
to the Intercreditor Agreement."
"'GUARANTY AGREEMENT' that certain Guaranty
Agreement dated as of December 1, 1999 from certain
Subsidiaries of the Company."
"'INTERCREDITOR AGREEMENT' shall mean that certain
Intercreditor Agreement dated as of December 17, 1999 among
the Purchasers and the banks which are parties to the Bank
Credit Agreement and certain other creditors which are
beneficiaries of Excluded Subsidiary Obligations."
"'SECOND AMENDMENT' shall mean that certain Second
Amendment dated as of December 1, 1999 among the Company
and the Purchasers named therein."
-4-
<PAGE>
K2, Inc. Second Amendment to Note Agreements
"SUBSIDIARY GUARANTOR' shall mean each Subsidiary of
the Company which shall be a party to the Guaranty Agreement.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants that all representations and
warranties set forth in Exhibit A hereto are true and correct as of the
Effective Date.
SECTION 3. CONDITIONS PRECEDENT.
The Effective Date for this Second Amendment shall be subject to the
fulfillment by the Company of the following conditions precedent:
SECTION 3.1. PAYMENT OF SPECIAL COUNSEL FEES. The Company shall
have paid the reasonable fees and disbursements of your special counsel for
which the Company shall have received an invoice at least one business day
prior to the Closing Date.
SECTION 3.2. CONSENT OF REQUISITE HOLDERS. The Company shall have
obtained the written consent of the Holders at least 66-2/3% in aggregate
principal amount of the Notes, as evidenced by their signatures at the foot
of this Second Amendment.
SECTION 3.3. INTERCREDITOR AGREEMENT. The Intercreditor
Agreement, substantially in the form of Exhibit B hereto, shall have been
executed and delivered by the parties thereto.
SECTION 3.4. GUARANTY AGREEMENT. The Guaranty Agreement shall
have been duly authorized, executed and delivered by each of Subsidiary,
shall constitute the legal, valid and binding contract and agreement of each
such Subsidiary and shall be enforceable against each such Subsidiary in
accordance with its terms and shall be substantially in the form of Exhibit C
hereto.
SECTION 3.5. OPINION OF COUNSEL. The Holders shall have received
from Gibson, Dunn & Crutcher LLP, counsel for the Company, their opinion
dated the Closing Date, in form and substance satisfactory to the Holders,
and covering the matters set forth in Exhibit D hereto.
SECTION 4. MISCELLANEOUS.
SECTION 4.1. EFFECTIVE DATE. This Second Amendment shall become
effective on December 17, 1999 (the "EFFECTIVE DATE").
SECTION 4.2. COUNTERPARTS. This Second Amendment may be executed
in any number of counterparts, each executed counterpart constituting an
original, but all together only one Second Amendment.
-5-
<PAGE>
K2, Inc. Second Amendment to Note Agreements
SECTION 4.3. HEADINGS. The headings of the sections of this
Second Amendment are for purposes of convenience only and shall not be
construed to affect the meaning or construction of any of the provisions
hereof.
SECTION 4.4. GOVERNING LAW. This Second Amendment shall be
governed by and construed in accordance with the laws of the State of New
York.
SECTION 4.5. REFERENCES TO NOTE AGREEMENTS. Any and all notices,
requests, certificates and other instruments executed and delivered
concurrently with or after the execution of the Second Amendment may refer to
the Note Agreements without making specific reference to this Second
Amendment, but nevertheless all such references shall be deemed to include
this Second Amendment unless the context shall otherwise require.
SECTION 4.6. RATIFICATION. Except to the extent hereby modified
or amended, the Note Agreements are in all respects hereby ratified,
confirmed and approved by the parties hereto.
SECTION 4.7. FEES AND EXPENSES. All fees and expenses relating
to the subject matter of this Second Amendment, including, without
limitation, all fees and expenses of special counsel to the Holders, shall be
paid by the Company.
-6-
<PAGE>
K2, Inc. Second Amendment to Note Agreements
Please signify your consent to the amendment of the Note Agreements
between you and the Company by signing and returning this Second Amendment.
K2, INC.
By
Name:
------------------------------
Title:
------------------------------
Accepted as of the date first above written.
PRINCIPAL LIFE INSURANCE COMPANY
By: Principal Capital
Management, LLC, a Delaware
limited liability company,
its authorized signatory
By
------------------------------
Name:
Title:
By
------------------------------
Name:
Title:
Holder of $20,000,000 in
aggregate original principal
amount of the Notes
Accepted as of the date first above written.
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By
-------------------------------------
Name:
-------------------------------
Title:
-------------------------------
Holder of $10,000,000 in
aggregate original principal
amount of the Notes
-7-
<PAGE>
K2, Inc. Second Amendment to Note Agreements
Accepted as of the date first above written.
LIFE INVESTORS INSURANCE
COMPANY OF AMERICA
By
-------------------------------------
Name:
-------------------------------
Title:
-------------------------------
Holder of $3,000,000 in
aggregate original
principal amount of the
Notes
Accepted as of the date first above written.
MONUMENTAL LIFE INSURANCE COMPANY
By
-------------------------------------
Name:
-------------------------------
Title:
-------------------------------
Holder of $7,000,000 in
aggregate original principal
amount of the Notes
-8-
<PAGE>
SCHEDULE I
Principal Life Insurance Company
c/o Principal Capital Management, LLC
801 Grand Avenue
Des Moines, Iowa 50392-0800
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Life Investors Insurance Company of America
c/o AEGON USA Investment Management, Inc.
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499
Monumental Life Insurance Company
c/o AEGON USA Investment Management, Inc.
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499
<PAGE>
REPRESENTATIONS AND WARRANTIES
The Company hereby represent and warrants to you as follows:
1. ORGANIZATION; POWER AND AUTHORITY. The Company and each
Restricted Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation, and is
duly qualified as a foreign corporation and is in good standing in each
jurisdiction in which such qualification is required by law, other than those
jurisdictions as to which the failure to be so qualified or in good standing
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. The Company and each Restricted Subsidiary has the
corporate power and authority to own or hold under lease the properties it
purports to own or hold under lease, to transact the business it transacts
and proposes to transact, to execute and deliver the Second Amendment or the
Guaranty Agreement, as the case may be, and to perform the provisions thereof.
2. AUTHORIZATION, ETC. The Second Amendment has been duly
authorized by all necessary corporate action on the part of the Company, and
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
The Guaranty Agreement has been duly authorized by all
necessary corporate action on the part of each Subsidiary, and constitutes a
legal, valid and binding obligation of the such Subsidiary enforceable
against such Subsidiary in accordance with its terms, except as such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
3. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. Neither the
execution, delivery and performance by the Company of the Second Amendment
nor the execution, delivery and performance by the Subsidiaries of the
Guaranty Agreement will (a) contravene, result in any breach of, or
constitute a default under, or result in the creation of any Lien in respect
of any property of the Company or any Restricted Subsidiary under, any
indenture, mortgage, deed of trust, loan, purchase or credit agreement,
lease, corporate charter or by-laws, or any other agreement or instrument to
which the Company or any Restricted Subsidiary is bound or by which the
Company or any Restricted Subsidiary or any of their respective properties
may be bound or affected, (b) conflict with or result in a breach of any of
the terms, conditions or provisions of any order, judgment, decree, or ruling
of any court, arbitrator or governmental authority or agency, Federal, State
or local, applicable to the Company or any Restricted Subsidiary or (c)
violate any provision of any statute or other rule or regulation of any
EXHIBIT A
(to Second Amendment)
<PAGE>
K2, Inc. Second Amendment to Note Agreements
governmental authority or agency, Federal, State or local, applicable to the
Company or any Restricted Subsidiary.
4. GOVERNMENTAL AUTHORIZATIONS, ETC.. No consent, approval or
authorization of, or registration, filing or declaration with, any
governmental authority or agency, Federal, State or local is required in
connection with the execution, delivery or performance by the Company of this
Agreement or the Notes or by the Subsidiaries of the Guaranty Agreement.
5. GOVERNMENTAL CONSENT. No consent, approval or authorization
of, or registration, filing or declaration with, any governmental authority
or agency, Federal, State or local, is required in connection with the
execution, delivery or performance by the Subsidiaries of the Guaranty
Agreement.
6. NO DEFAULTS. No Default or Event of Default has occurred and
is continuing.
-2-
<PAGE>
FORM OF INTERCREDITOR AGREEMENT
EXHIBIT B
(to Second Amendment)
<PAGE>
FORM OF GUARANTY AGREEMENT
EXHIBIT C
(to Second Amendment)
<PAGE>
FORM OF OPINION OF COMPANY COUNSEL
The closing opinion of Gibson, Dunn & Crutcher LLP, counsel
for the Company, which is called for by Section 3.5 of the Second Amendment,
shall be dated the Closing Date and addressed to the Holders, shall be
satisfactory in scope and form to the Holders and shall be to the effect that:
1. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware, has the corporate power and authority and is duly
authorized to enter into the Second Amendment and perform the Note
Agreements, as amended by the Second Amendment, and has full
corporate power and authority to conduct the activities in which, to
such counsel's knowledge, it is now engaged.
2. The Second Amendment has been duly authorized,
executed and delivered by the Company and the Note Agreements, as
amended by the Second Amendment, constitute the legal, valid and
binding agreement of the Company enforceable against the Company in
accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance or similar laws affecting creditors' rights
generally, and general principles of equity (regardless of whether
the application of such principles is considered in a proceeding in
equity or law).
3. No approval, consent, filing, registration or
qualification with any governmental authority or agency, Federal,
State or local, is necessary on the part of the Company in
connection with the execution and delivery of the Second Amendment.
4. The execution, delivery and performance by the Company
of the Second Amendment will not conflict with or result in any
breach of any of the provisions of or constitute a default under or
result in the creation or imposition of any Lien upon any property
of the Company pursuant to the provisions of the Articles of
Incorporation or By-laws of the Company or any agreement or other
instrument for borrowed money known to such counsel to which the
Company is a party or by which the Company may be bound.
The opinion of Gibson, Dunn & Crutcher LLP shall cover such other
matters relating to the sale of the Notes as the Holders may reasonably
request. With respect to matters of fact on which such opinion is based, such
counsel shall be entitled to rely on appropriate certificates of public
officials and officers of the Company. The opinion of Gibson, Dunn & Crutcher
LLP may be relied upon by the Holders and its assignees and transferees.
EXHIBIT D
(to Second Amendment)
<PAGE>
EXHIBIT 10 (A)(3)
================================================================================
GUARANTY AGREEMENT
Dated as of December 1, 1999
Re: $40,000,000 8.39% Senior Notes
due November 30, 2004
of
K2 Inc.
================================================================================
<PAGE>
TABLE OF CONTENTS
(Not a part of the Agreement)
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C> <C>
Parties...........................................................................................................1
Recitals..........................................................................................................1
SECTION 1. DEFINITIONS......................................................................................2
SECTION 2. GUARANTY OF NOTES AND NOTE PURCHASE AGREEMENTS...................................................2
SECTION 3. GUARANTY OF PAYMENT AND PERFORMANCE..............................................................2
SECTION 4. GENERAL PROVISIONS RELATING TO THE GUARANTY......................................................3
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS.................................................8
SECTION 6. AMENDMENTS, WAIVERS AND CONSENTS.................................................................9
SECTION 7. SUBMISSION TO JURISDICTION......................................................................10
SECTION 8. NOTICES.........................................................................................10
SECTION 9. MISCELLANEOUS...................................................................................10
Signature........................................................................................................12
</TABLE>
ATTACHMENTS TO GUARANTY AGREEMENT:
EXHIBIT A -- Guaranty Supplement
<PAGE>
GUARANTY AGREEMENT
Re: Senior Notes of K2 Inc.
--------------------------------------
This GUARANTY AGREEMENT dated as of December 1, 1999 (the or this
"GUARANTY") is entered into on a joint and several basis by each of the
undersigned (which parties are hereinafter referred to individually as a
"GUARANTOR" and collectively as the "GUARANTORS").
R E C I T A L S
A. Each Guarantor, is presently a Subsidiary of K2 Inc., a Delaware
corporation (the "COMPANY").
B. The Company entered into separate Note Purchase Agreements dated as
of October 15, 1992 (collectively, the "NOTE PURCHASE AGREEMENTS") between the
Company and each of the Purchasers named on Schedule I attached to said Note
Purchase Agreements (the "NOTE PURCHASERS") providing for, among other things,
the issue and sale by the Company to the Note Purchasers of the Company's 8.39%
Senior Notes, due November 30, 2004 in the aggregate principal amount of
$40,000,000 (the "NOTES"). The Note Purchasers together with their successors
and assigns, are hereinafter collectively referred to as the "HOLDERS".
C. The Company desires to amend the Note Purchase Agreements to
provide more flexibility for its Accounts Receivable Financing Facility and to
that end desires that the Note Purchasers consent to that certain Second
Amendment to Note Agreements dated as of December 1, 1999 (the "SECOND
AMENDMENT").
D. The Note Purchasers have required as a condition of their consent
to the Second Amendment that the Company cause each of the undersigned to enter
into this Guaranty and to cause each Person which hereafter at any time becomes
a Subsidiary and also becomes a party to the Bank Credit Agreement or otherwise
becomes guarantor of the Debt outstanding under the Bank Credit Agreement to
enter into a Guaranty Supplement in substantially the form set forth as Exhibit
A hereto (a "GUARANTY SUPPLEMENT"), in each case as security for the Notes, and
the Company has agreed to cause each of the undersigned to execute this Guaranty
and to cause each such Subsidiary to execute a Guaranty Supplement, in each case
in order to induce the Note Purchasers to consent to the Second Amendment and
thereby benefit the Company and its Subsidiaries.
NOW, THEREFORE, as required by the Note Purchase Agreements and in
consideration of the premises and other good and valuable consideration, the
receipt and sufficiency whereof are hereby acknowledged, each Guarantor does
hereby covenant and agree, jointly and severally, as follows:
<PAGE>
SECTION 1. DEFINITIONS.
Capitalized terms used herein shall have the meanings set forth in the
Note Purchase Agreements unless herein defined or the context shall otherwise
require.
SECTION 2. GUARANTY OF NOTES AND NOTE PURCHASE AGREEMENTS.
(a) Each Guarantor jointly and severally does hereby irrevocably,
absolutely and unconditionally guarantee unto the Holders: (1) the full and
prompt payment of the principal of, premium, if any, and interest on the Notes
from time to time outstanding, as and when such payments shall become due and
payable, whether by lapse of time, upon redemption or prepayment, by extension
or by acceleration or declaration or otherwise (including (to the extent legally
enforceable) interest due on overdue payments of principal, premium, if any, or
interest at the rate set forth in the Notes and interest accruing at the then
applicable rate provided in the Notes after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the Company, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) in Federal or other
immediately available funds of the United States of America which at the time of
payment or demand therefor shall be legal tender for the payment of public and
private debts, (2) the full and prompt performance and observance by the Company
of each and all of the obligations, covenants and agreements required to be
performed or owed by the Company under the terms of the Notes and the Note
Purchase Agreements and (3) the full and prompt payment, upon demand by any
Holder, of all costs and expenses, legal or otherwise (including reasonable
attorneys' fees), if any, as shall have been expended or incurred in the
protection or enforcement of any rights, privileges or liabilities in favor of
the Holders under or in respect of the Notes, the Note Purchase Agreements or
under this Guaranty or in any action in connection therewith or herewith and in
each and every case irrespective of the validity, regularity, or enforcement of
any of the Notes or Note Purchase Agreements or any of the terms thereof or any
other like circumstance or circumstances.
(b) The liability of each Guarantor under this Guaranty shall not
exceed an amount equal to a maximum amount as will, after giving effect to such
maximum amount and all other liabilities of such Guarantor, contingent or
otherwise, result in the obligations of such Guarantor hereunder not
constituting a fraudulent transfer, obligation or conveyance.
SECTION 3. GUARANTY OF PAYMENT AND PERFORMANCE.
This is a guarantee of payment and performance and each Guarantor
hereby waives, to the fullest extent permitted by law, any right to require that
any action on or in respect of any Note or the Note Purchase Agreements be
brought against the Company or any other Person or that resort be had to any
direct or indirect security for the Notes or for this Guaranty or any other
remedy. Any Holder may, at its option, proceed hereunder against any Guarantor
in the first instance to collect monies when due, the payment of which is
guaranteed hereby, without first proceeding against the Company or any other
Person and without first resorting to any direct or indirect security for the
Notes or for this Guaranty or any other remedy. The liability of each Guarantor
hereunder shall in no way be affected or impaired by any acceptance by any
Holder
-2-
<PAGE>
of any direct or indirect security for, or other guaranties of, any Debt,
liability or obligation of the Company or any other Person to any Holder or by
any failure, delay, neglect or omission by any Holder to realize upon or protect
any such guarantees, Debt, liability or obligation or any notes or other
instruments evidencing the same or any direct or indirect security therefor or
by any approval, consent, waiver, or other action taken, or omitted to be taken
by any such Holder.
The covenants and agreements on the part of the Guarantors herein
contained shall be joint and several covenants and agreements, and references to
the Guarantors shall be deemed references to each of them and none of them shall
be released from liability hereunder by reason of the guarantee ceasing to be
binding as a continuing security on any other of them.
SECTION 4. GENERAL PROVISIONS RELATING TO THE GUARANTY.
(a) Each Guarantor hereby consents and agrees that any Holder or
Holders from time to time, with or without any further notice to or assent from
any other Guarantor may, without in any manner affecting the liability of any
Guarantor under this Guaranty, and upon such terms and conditions as any such
Holder or Holders may deem advisable:
(1) extend in whole or in part (by renewal or otherwise),
modify, change, compromise, release or extend the duration of the time
for the performance or payment of any Debt, liability or obligation of
the Company or of any other Person secondarily or otherwise liable for
any Debt, liability or obligations of the Company on the Notes, or
waive any Default with respect thereto, or waive, modify, amend or
change any provision of any other agreement or this Guaranty; or
(2) sell, release, surrender, modify, impair, exchange or
substitute any and all property, of any nature and from whomsoever
received, held by, or for the benefit of, any such Holder as direct or
indirect security for the payment or performance of any Debt, liability
or obligation of the Company or of any other Person secondarily or
otherwise liable for any Debt, liability or obligation of the Company
on the Notes; or
(3) settle, adjust or compromise any claim of the Company
against any other Person secondarily or otherwise liable for any Debt,
liability or obligation of the Company on the Notes.
Each Guarantor hereby ratifies and confirms any such extension,
renewal, change, sale, release, waiver, surrender, exchange, modification,
amendment, impairment, substitution, settlement, adjustment or compromise and
that the same shall be binding upon it, and hereby waives, to the fullest extent
permitted by law, any and all defenses, counterclaims or offsets which it might
or could have by reason thereof, it being understood that such Guarantor shall
at all times be bound by this Guaranty and remain liable hereunder.
(b) Each Guarantor hereby waives, to the fullest extent permitted by
law:
(1) notice of acceptance of this Guaranty by the Holders or
of the creation, renewal or accrual of any liability of the Company,
present or future, or of the reliance of
-3-
<PAGE>
such Holders upon this Guaranty (it being understood that every
Debt, liability and obligation described in Section 2 hereof shall
conclusively be presumed to have been created, contracted or
incurred in reliance upon the execution of this Guaranty);
(2) demand of payment by any Holder from the Company or any
other Person indebted in any manner on or for any of the Debt,
liabilities or obligations hereby guaranteed; and
(3) presentment for the payment by any Holder or any other
Person of the Notes or any other instrument, protest thereof and notice
of its dishonor to any party thereto and to such Guarantor.
The obligations of each Guarantor under this Guaranty and the rights of
any Holder to enforce such obligations by any proceedings, whether by action at
law, suit in equity or otherwise, shall not be subject to any reduction,
limitation, impairment or termination, whether by reason of any claim of any
character whatsoever or otherwise and shall not be subject to any defense,
set-off, counterclaim (other than any compulsory counterclaim), recoupment or
termination whatsoever.
(c) The obligations of each Guarantor hereunder shall be binding upon
such Guarantor and its successors and assigns, and shall remain in full force
and effect irrespective of:
(1) the genuineness, validity, regularity or enforceability
of the Notes, the Note Purchase Agreements or any other agreement or
any of the terms of any thereof, the continuance of any obligation on
the part of the Company, any other Guarantor or any other Person on or
in respect of the Notes or under the Note Purchase Agreements or any
other agreement or the power or authority or the lack of power or
authority of the Company to issue the Notes or the Company to execute
and deliver the Note Purchase Agreements or any other agreement or of
any other Guarantor to execute and deliver this Guaranty or to perform
any of its obligations hereunder or the existence or continuance of the
Company, any other Guarantor or any other Person as a legal entity; or
(2) any default, failure or delay, willful or otherwise, in
the performance by the Company, any other Guarantor or any other Person
of any obligations of any kind or character whatsoever under the Notes,
the Note Purchase Agreements, this Guaranty or any other agreement; or
(3) any creditors' rights, bankruptcy, receivership or other
insolvency proceeding of the Company, any other Guarantor or any other
Person or in respect of the property of the Company, any other
Guarantor or any other Person or any merger, consolidation,
reorganization, dissolution, liquidation, the sale of all or
substantially all of the assets of or winding up of the Company, any
other Guarantor or any other Person; or
(4) impossibility or illegality of performance on the part of
the Company, any other Guarantor or any other Person of its obligations
under the Notes, the Note Purchase Agreements, this Guaranty or any
other agreements; or
-4-
<PAGE>
(5) in respect of the Company, any other Guarantor or any
other Person, any change of circumstances, whether or not foreseen or
foreseeable, whether or not imputable to the Company, any other
Guarantor or any other Person, or other impossibility of performance
through fire, explosion, accident, labor disturbance, floods, droughts,
embargoes, wars (whether or not declared), civil commotion, acts of God
or the public enemy, delays or failure of suppliers or carriers,
inability to obtain materials, action of any federal or state
regulatory body or agency, change of law or any other causes affecting
performance, or any other FORCE MAJEURE, whether or not beyond the
control of the Company, any other Guarantor or any other Person and
whether or not of the kind hereinbefore specified; or
(6) any attachment, claim, demand, charge, Lien, order,
process, encumbrance or any other happening or event or reason, similar
or dissimilar to the foregoing, or any withholding or diminution at the
source, by reason of any taxes, assessments, expenses, Debt,
obligations or liabilities of any character, foreseen or unforeseen,
and whether or not valid, incurred by or against the Company, any
Guarantor or any other Person or any claims, demands, charges or Liens
of any nature, foreseen or unforeseen, incurred by any Person, or
against any sums payable in respect of the Notes or under the Note
Purchase Agreements or this Guaranty, so that such sums would be
rendered inadequate or would be unavailable to make the payments herein
provided; or
(7) any order, judgment, decree, ruling or regulation
(whether or not valid) of any court of any nation or of any political
subdivision thereof or any body, agency, department, official or
administrative or regulatory agency of any thereof or any other action,
happening, event or reason whatsoever which shall delay, interfere
with, hinder or prevent, or in any way adversely affect, the
performance by the Company, any Guarantor or any other Person of its
respective obligations under or in respect of the Notes, the Note
Purchase Agreements, this Guaranty or any other agreement; or
(8) the failure of any Guarantor to receive any benefit from
or as a result of its execution, delivery and performance of this
Guaranty; or
(9) any failure or lack of diligence in collection or
protection, failure in presentment or demand for payment, protest,
notice of protest, notice of default and of nonpayment, any failure to
give notice to any Guarantor of failure of the Company, any other
Guarantor or any other Person to keep and perform any obligation,
covenant or agreement under the terms of the Notes, the Note Purchase
Agreements, this Guaranty or any other agreement or failure to resort
for payment to the Company, any other Guarantor or to any other Person
or to any other guaranty or to any property, security, Liens or other
rights or remedies; or
(10) the acceptance of any additional security or other
guaranty, the advance of additional money to the Company (including the
issuance of Additional Notes in accordance with the terms of the Note
Purchase Agreements) or any other Person, the renewal or extension of
the Notes or amendments, modifications, consents or waivers
-5-
<PAGE>
with respect to the Notes, the Note Purchase Agreements or any other
agreement, or the sale, release, substitution or exchange of any
security for the Notes; or
(11) any change in the ownership of any shares of the Company,
any Guarantor or any other Person; or
(12) any defense whatsoever that: (i) the Company or any other
Person might have to the payment of the Notes (principal, premium, if
any, or interest), other than payment thereof in Federal or other
immediately available funds, or (ii) the Company or any other Person
might have to the performance or observance of any of the provisions of
the Notes, the Note Purchase Agreements or any other agreement, whether
through the satisfaction or purported satisfaction by the Company, any
other Guarantor or any other Person of its debts due to any cause such
as bankruptcy, insolvency, receivership, merger, consolidation,
reorganization, dissolution, liquidation, winding-up or otherwise; or
(13) any act or failure to act with regard to the Notes, the
Note Purchase Agreements, this Guaranty or any other agreement or
anything which might vary the risk of any Guarantor or any other
Person; or
(14) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, any Guarantor or any other
Person in respect of the obligations of any Guarantor or other Person
under this Guaranty or any other agreement;
PROVIDED that the specific enumeration of the above-mentioned acts, failures or
omissions shall not be deemed to exclude any other acts, failures or omissions,
though not specifically mentioned above, it being the purpose and intent of this
Guaranty that the obligations of each Guarantor shall be absolute and
unconditional and shall not be discharged, impaired or varied except by the
payment of the principal of, premium, if any, and interest on the Notes in
accordance with their respective terms whenever the same shall become due and
payable as in the Notes provided and all other sums due and payable under the
Note Purchase Agreements at the place specified in and all in the manner and
with the effect provided in the Notes and the Note Purchase Agreements, as each
may be amended or modified from time to time. Without limiting the foregoing, it
is understood that repeated and successive demands may be made and recoveries
may be had hereunder as and when, from time to time, the Company shall default
under or in respect of the terms of the Notes or the Note Purchase Agreements
and that notwithstanding recovery hereunder for or in respect of any given
default or defaults by the Company under the Notes or the Note Purchase
Agreements, this Guaranty shall remain in full force and effect and shall apply
to each and every subsequent default.
(d) All rights of any Holder hereunder may be transferred or assigned
at any time and shall be considered to be transferred or assigned at any time or
from time to time upon the transfer of any Note whether with or without the
consent of or notice to the Guarantors under this Guaranty or to the Company.
(e) To the extent of any payments made under this Guaranty, each
Guarantor shall be subrogated to the rights of the Holder upon whose Notes such
payment was made, but such
-6-
<PAGE>
Guarantor covenants and agrees that such right of subrogation shall be
subordinate in right of payment to the prior indefeasible final payment in
cash in full of all amounts due and owing by the Company with respect to the
Notes and the Note Purchase Agreements and by the Guarantors under this
Guaranty, and the Guarantors shall not take any action to enforce such right
of subrogation, and the Guarantors shall not accept any payment in respect of
such right of subrogation, until all amounts due and owing by the Company
under or in respect of the Notes and the Note Purchase Agreements and all
amounts due and owing by the Guarantors hereunder have indefeasibly been
finally paid in cash in full. If any amount shall be paid to any Guarantor in
violation of the preceding sentence at any time prior to the later of the
indefeasible payment in cash in full of the Notes and all other amounts
payable under the Notes, the Note Purchase Agreements and this Guaranty, such
amount shall be held in trust for the benefit of the Holders and shall
forthwith be paid to the Holders to be credited and applied to the amounts
due or to become due with respect to the Notes and all other amounts payable
under the Note Purchase Agreements and this Guaranty, whether matured or
unmatured. Each Guarantor acknowledges that it has received direct and
indirect benefits from the financing arrangements contemplated by the Note
Purchase Agreements and that the waiver set forth in this paragraph (e) is
knowingly made as a result of the receipt of such benefits.
(f) Each Guarantor agrees that to the extent the Company, any other
Guarantor or any other Person makes any payment on any Note, which payment or
any part thereof is subsequently invalidated, voided, declared to be fraudulent
or preferential, set aside, recovered, rescinded or is required to be retained
by or repaid to a trustee, receiver, or any other Person under any bankruptcy
code, common law, or equitable cause, then and to the extent of such payment,
the obligation or the part thereof intended to be satisfied shall be revived and
continued in full force and effect with respect to the Guarantors' obligations
hereunder, as if said payment had not been made. The liability of the Guarantors
hereunder shall not be reduced or discharged, in whole or in part, by any
payment to any Holder from any source that is thereafter paid, returned or
refunded in whole or in part by reason of the assertion of a claim of any kind
relating thereto, including, but not limited to, any claim for breach of
contract, breach of warranty, preference, illegality, invalidity, or fraud
asserted by any account debtor or by any other Person.
(g) No Holder shall be under any obligation: (1) to marshall any assets
in favor of the Guarantors or in payment of any or all of the liabilities of the
Company under or in respect of the Notes or the obligations of the Guarantors
hereunder or (2) to pursue any other remedy that the Guarantors may or may not
be able to pursue themselves and that may lighten the Guarantors' burden, any
right to which each Guarantor hereby expressly waives.
(h) The obligations of each Guarantor under this Guaranty rank PARI
PASSU in right of payment with all other Debt of such Guarantor which is not
secured or which is not expressly subordinated in right of payment to any other
Debt of such Guarantor.
-7-
<PAGE>
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS.
Each Guarantor represents and warrants to each Holder that:
(a) Such Guarantor is a corporation or other legal entity duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and is duly qualified as a foreign corporation or
other legal entity and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to which the
failure to be so qualified or in good standing could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on (1) the
ability of such Guarantor to perform its obligations under this Guaranty, or (2)
the validity or enforceability of this Guaranty (herein in this Section 5, a
"MATERIAL ADVERSE EFFECT"). Such Guarantor has the power and authority to own or
hold under lease the properties it purports to own or hold under lease, to
transact the business it transacts and proposes to transact, to execute and
deliver this Guaranty and to perform the provisions hereof.
(b) This Guaranty has been duly authorized by all necessary action on
the part of such Guarantor, and this Guaranty constitutes a legal, valid and
binding obligation of such Guarantor enforceable against such Guarantor in
accordance with its terms, except as such enforceability may be limited by (1)
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer, obligation or conveyance or other similar laws affecting the
enforcement of creditors' rights generally and (2) general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
(c) The execution, delivery and performance by such Guarantor of this
Guaranty will not (1) contravene, result in any breach of, or constitute a
default under, or result in the creation of any Lien in respect of any property
of such Guarantor or any of its subsidiaries under its corporate charter or
by-laws, or except for contraventions, breaches or defaults which could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect, under any indenture, mortgage, deed of trust, loan, purchase or
credit agreement, lease, or any other agreement or instrument to which such
Guarantor or any of its subsidiaries is bound or by which such Guarantor or any
of its subsidiaries or any of their respective properties may be bound or
affected, (2) conflict with or result in a breach of any of the terms,
conditions or provisions of any order, judgment, decree, or ruling of any court,
arbitrator or Governmental Authority applicable to such Guarantor or any of its
subsidiaries or (3) violate any provision of any statute or other rule or
regulation of any Governmental Authority applicable to the such Guarantor or any
of its subsidiaries.
(d) No consent, approval or authorization of, or registration, filing
or declaration with, any Governmental Authority is required in connection with
the execution, delivery or performance by such Guarantor of this Guaranty.
(e) Such Guarantor is solvent, has capital not unreasonably small in
relation to its business or any contemplated or undertaken transaction and has
assets having a value both at fair valuation and at present fair salable value
greater than the amount required to pay its debts as they become due and greater
than the amount that will be required to pay its probable liability on
-8-
<PAGE>
its existing debts as they become absolute and matured. Such Guarantor does
not intend to incur, or believe that it will incur, debts beyond its ability
to pay such debts as they become due. Such Guarantor will not be rendered
insolvent by the execution and delivery of, and performance of its
obligations under, this Guaranty. Such Guarantor does not intend to hinder,
delay or defraud its creditors by or through the execution and delivery of,
or performance of its obligations under, this Guaranty.
SECTION 6. AMENDMENTS, WAIVERS AND CONSENTS.
(a) This Guaranty may be amended, and the observance of any term hereof
may be waived (either retroactively or prospectively), with (and only with) the
written consent of each Guarantor and the Required Holders, except that (1) no
amendment or waiver of any of the provisions of Sections 2, 3 or 4, or any
defined term (as it is used therein), will be effective as to any Holder unless
consented to by such Holder in writing, (2) no such amendment or waiver may,
without the written consent of each Holder, (i) change the percentage of the
principal amount of the Notes the Holders of which are required to consent to
any such amendment or waiver, or (ii) amend this Section 6, and (3) this
Guaranty may be amended by the addition of additional Guarantors pursuant to a
Guaranty Supplement.
(b) The Guarantors will provide each Holder (irrespective of the amount
of Notes then owned by it) with sufficient information, and shall be afforded
the opportunity of considering the same for a period of not less than 30 days
and shall be supplied by such Guarantors with a brief statement regarding the
reasons for any such proposed waiver or amendment, a copy of the proposed waiver
or amendment and such other information regarding such amendment as any Holder
shall reasonably request to enable it to make an informed decision with respect
thereto. The Guarantors will deliver executed or true and correct copies of each
amendment, waiver or consent effected pursuant to the provisions of this Section
6 to each Holder promptly following the date on which it is executed and
delivered by, or receives the consent or approval of, the requisite Holders.
(c) Each Guarantor agrees it will not directly or indirectly pay or
cause to be paid any remuneration, whether by way of fee or otherwise, or grant
any security, to any Holder as consideration for or as an inducement to the
entering into by any Holder of any waiver or amendment of any of the terms and
provisions hereof unless such remuneration is concurrently paid, or security is
concurrently granted, on the same terms, ratably to each Holder even if such
Holder did not consent to such waiver or amendment.
(d) Any amendment or waiver consented to as provided in this Section 6
applies equally to all Holders and is binding upon them and upon each future
holder and upon the Guarantors. No such amendment or waiver will extend to or
affect any obligation, covenant or agreement not expressly amended or waived or
impair any right consequent thereon. No course of dealing between the Guarantors
and any Holder nor any delay in exercising any rights hereunder shall operate as
a waiver of any rights of any Holder. As used herein, the term "this Guaranty"
and references thereto shall mean this Guaranty as it may from time to time be
amended or supplemented.
-9-
<PAGE>
SECTION 7. SUBMISSION TO JURISDICTION.
Any legal action or proceeding with respect to this Guaranty or any
document relating thereto shall be brought in the courts of the State of New
York or of the United States of America for the Southern District of New York
and in no other courts, and, by execution and delivery of this Guaranty, each
Guarantor hereby accepts for itself and in respect of its property generally and
unconditionally, the jurisdiction of the aforesaid courts. Each Guarantor hereby
irrevocably and unconditionally waives any objection, including, without
limitation, any objection to the laying of venue or based on the grounds of
FORUM NON CONVENIENS which it may now or hereafter have to the bringing of any
action or proceeding in such respective jurisdiction and waives personal service
of any and all process upon it, and consents that all such service of process be
made by delivery to it at the address set forth in Section 8 and that service so
made shall be deemed to be completed upon actual receipt.
SECTION 8. NOTICES.
All notices and communications provided for hereunder shall be in
writing and sent (a) by telefacsimile if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
(1) if to Note Purchasers, to such Note Purchasers at the
address specified for such communications on Schedule A to the Note
Purchase Agreements, thereto, as the case may be, or at such other
address as such Note Purchasers shall have specified to any Guarantor
or the Company in writing,
(2) if to any other Holder, to such Holder at such address as
such Holder shall have specified to any Guarantor or the Company in
writing, or
(3) if to any Guarantor, to such Guarantor c/o the Company at
4900 South Eastern Avenue, Los Angeles, California 90040, or at such
other address as such Guarantor shall have specified to the Holders in
writing.
Notices under this Section 8 will be deemed given only when actually received.
SECTION 9. MISCELLANEOUS.
(a) No remedy herein conferred upon or reserved to any Holder is
intended to be exclusive of any other available remedy or remedies, but each and
every such remedy shall be cumulative and shall be in addition to every other
remedy given under this Guaranty now or hereafter existing at law or in equity.
No delay or omission to exercise any right or power accruing upon any default,
omission or failure of performance hereunder shall impair any such right or
power or shall be construed to be a waiver thereof but any such right or power
may be exercised from time to time and as often as may be deemed expedient. In
order to entitle any
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<PAGE>
Holder to exercise any remedy reserved to it under the Guaranty, it shall not
be necessary for such Holder to physically produce its Note in any
proceedings instituted by it or to give any notice, other than such notice as
may be herein expressly required.
(b) The Guarantors will pay all sums becoming due under this Guaranty
by the method and at the address specified for such purpose in the Note Purchase
Agreements, or by such other reasonable method or at such other address as any
Holder shall have from time to time specified to the Guarantors in writing for
such purpose, without the presentation or surrender of this Guaranty or any
Note.
(c) Any provision of this Guaranty that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
(d) If the whole or any part of this Guaranty shall be now or hereafter
become unenforceable against any one or more of the Guarantors for any reason
whatsoever or if it is not executed by any one or more of the Guarantors, this
Guaranty shall nevertheless be and remain fully binding upon and enforceable
against each other Guarantor as if it had been made and delivered only by such
other Guarantors.
(e) This Guaranty shall be binding upon each Guarantor and its
successors and assigns and shall inure to the benefit of each Holder and its
successors and assigns (including, without limitation, any subsequent holder of
a Note) whether so expressed or not, so long as its Notes remain outstanding and
unpaid.
(f) This Guaranty may be executed in any number of counterparts, each
of which shall be an original but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
(g) This Guaranty shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by the law of the State of New
York.
-11-
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be duly
executed by an authorized representative as of this ______ day of December,
1999.
[VARIATION]
By
Name:
------------------------------
Title:
------------------------------
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<PAGE>
GUARANTY SUPPLEMENT
Re: Senior Notes of K2 Inc.
----------------------------
This GUARANTY SUPPLEMENT dated as of _________, _____ (the or this
"GUARANTY SUPPLEMENT") is entered into [on a joint and several basis] by [each
of] the undersigned __________, a ____________ corporation [and ____________, a
___________ corporation] ([which parties are hereinafter referred to
individually as] an "ADDITIONAL GUARANTOR" [and collectively as the "ADDITIONAL
GUARANTORS"]).
R E C I T A L S
A. [Each] Guarantor, is presently a Subsidiary of K2 Inc., a Delaware
corporation (the "COMPANY").
B. The Company entered into separate Note Purchase Agreements dated as
of October 15, 1992 (collectively, the "NOTE PURCHASE AGREEMENTS") between the
Company and each of the Purchasers named on Schedule I attached to said Note
Purchase Agreements (the "NOTE PURCHASERS") providing for, among other things,
the issue and sale by the Company to the Note Purchasers of the Company's 8.39%
Senior Notes, due November 30, 2004 in the aggregate principal amount of
$40,000,000 (the "NOTES"). The Note Purchasers together with their successors
and assigns, are hereinafter collectively referred to as the "HOLDERS".
C. The Company desires to amend the Note Purchase Agreements to provide
more flexibility for its Accounts Receivable Financing Facility and to that end
desires that the Note Purchasers consent to that certain Second Amendment to
Note Agreements dated as of December 1, 1999 (the "SECOND AMENDMENT").
D. As a condition precedent to their consent to the Second Amendment,
the Note Purchasers required that certain Subsidiaries of the Company enter into
the Guaranty Agreement dated as of December 1, 1999 (the "GUARANTY") as security
for the Notes.
NOW, THEREFORE, as required by the Note Purchase Agreements and in
consideration of the premises and other good and valuable consideration, the
receipt and sufficiency whereof are hereby acknowledged, [each/the] Guarantor
does hereby covenant and agree, [jointly and severally,] as follows:
In accordance with the requirements of the Guaranty, the Additional
Guarantor[s] desire to amend the definition of Guarantor (as the same may have
been heretofore amended) set forth in the Guaranty attached hereto so that at
all times from and after the date hereof, the Additional Guarantor[s] shall be
[jointly and severally] liable as set forth in the Guaranty for the obligations
EXHIBIT A
(to Guaranty Agreement)
<PAGE>
of the Company under the Note Purchase Agreements and Notes to the extent and in
the manner set forth in the Guaranty.
The undersigned is the duly elected ____________ of the Additional
Guarantor[s] and is duly authorized to execute and deliver this Guaranty
Supplement for the benefit of all Holders of the Notes. The execution by the
undersigned of this Guaranty Supplement shall evidence its consent to and
acknowledgment and approval of the terms set forth herein and in the Guaranty by
such execution the Additional Guarantor[s] shall be deemed to have made the
representations and warranties set forth in Section 5 of the Guaranty in favor
of the Holders as of the date of this Guaranty Supplement].
Upon execution of this Guaranty Supplement, the Guaranty shall be
deemed to be amended as set forth above. Except as amended herein, the terms and
provisions of the Guaranty are hereby ratified, confirmed and approved in all
respects.
A-2
<PAGE>
Any and all notices, requests, certificates and other instruments
(including the Notes) may refer to the Guaranty without making specific
reference to this Guaranty Supplement, but nevertheless all such references
shall be deemed to include this Guaranty Supplement unless the context shall
otherwise require.
[NAME OF ADDITIONAL GUARANTOR]
By
Its
----------------------------------
A-3
<PAGE>
February 18, 2000
EXHIBIT (10)(b)(3)
Enterprise Funding Corporation
c/o Global Securitization Services, LLC
114 West 47th Street, Suite 1715
New York, NY 10036
Attention: Kevin P. Burns
Bank of America, N.A
Bank of America Corporate Center - 10th Floor
Charlotte, NC 28255
Attention: Michelle M. Heath
Dear Mr. Burns and Ms. Heath:
We refer to the Transfer and Administration Agreement, dated as of January 24,
1996 among Enterprise Funding Corporation, K2 Funding, Inc., as Transferor, K2
Inc., as Master Servicer and Bank of America, N.A., as successor by merger to
NationsBank, N.A., as amended (the "Agreement").
The undersigned hereby desire to amend the Agreement to extend the date referred
to in clause (v) of the definition of "Termination Date" in the Agreement to
March 31, 2000, subject to the execution of the Amended and Restated Fee Letter
dated February 18, 2000.
Each of the undersigned hereby represents and warrants to you that its
representations and warranties set forth in the Agreement are true and correct
as of the date hereof (except those representations and warranties set forth
therein which specifically relate to an earlier date) and that no Termination
Event exists on and as of the date hereof.
All other terms and conditions of the Agreement not amended by this letter
agreement shall remain unchanged and in full force and effect.
This letter agreement may be executed in counterparts, all of which taken
together shall constitute one and the same agreement.
This letter agreement contains the final and complete integration of all prior
expressions by the parties hereto with respect to the subject matter hereof and
shall constitute the entire agreement among the parties hereto with respect to
the subject matter hereof superseding all prior oral or written understandings.
Any provisions of this letter agreement may be amended if, but only if, such
amendment is in writing and is signed by each of the parties hereto.
This letter agreement shall be governed by and construed in accordance with, the
internal laws (as opposed to conflicts of law provisions) of the State of New
York.
If you are in agreement with the above, kindly sign below and return a copy of
this letter to the undersigned.
<PAGE>
K2 INC.
as Master Servicer
By:
-------------------------------
Name:
Title:
K2 FUNDING, INC.
as Transferor
By:
-------------------------------
Name:
Title:
Accepted as of the date first above written:
ENTERPRISE FUNDING CORPORATION,
as the Company
By:
---------------------------------
Name:
Title:
BANK OF AMERICA, N.A.,
as Administrative Agent
By:
---------------------------------
Name:
Title:
<PAGE>
EXHIBIT (10)(c)
================================================================================
K2 INC.
$50,000,000
8.41% Series 1999-A Senior Notes due December 1, 2009
----------------
NOTE PURCHASE AGREEMENT
----------------
DATED AS OF DECEMBER 1, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C> <C>
SECTION 1 AUTHORIZATION OF NOTES; INTEREST RATE ADJUSTMENT................................... 1
SECTION 2 SALE AND PURCHASE OF NOTES......................................................... 2
Section 2.1. Series 1999-A Notes................................................................ 2
Section 2.2. Additional Series of Notes......................................................... 2
SECTION 3 CLOSING............................................................................ 3
SECTION 4 CONDITIONS TO CLOSING.............................................................. 3
Section 4.1. Representations and Warranties..................................................... 4
Section 4.2. Performance; No Default............................................................ 4
Section 4.3. Compliance Certificates............................................................ 4
Section 4.4. Opinions of Counsel................................................................ 4
Section 4.5. Purchase Permitted by Applicable Law, Etc.......................................... 4
Section 4.6. Related Transactions............................................................... 5
Section 4.7. Payment of Special Counsel Fees.................................................... 5
Section 4.8. Private Placement Number........................................................... 5
Section 4.9. Changes in Corporate Structure..................................................... 5
Section 4.10. Guaranty Agreement................................................................. 5
Section 4.11. Intercreditor Agreement............................................................ 5
Section 4.12. Proceedings and Documents.......................................................... 5
Section 4.13. Conditions to Issuance of Additional Notes......................................... 6
SECTION 5 REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................... 6
Section 5.1. Organization; Power and Authority.................................................. 6
Section 5.2. Authorization, Etc................................................................. 6
Section 5.3. Disclosure......................................................................... 7
Section 5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates................... 7
Section 5.5. Financial Statements............................................................... 8
Section 5.6. Compliance with Laws, Other Instruments, Etc....................................... 8
Section 5.7. Governmental Authorizations, Etc................................................... 8
Section 5.8. Litigation; Observance of Statutes and Orders...................................... 9
Section 5.9. Taxes.............................................................................. 9
Section 5.10. Title to Property; Leases.......................................................... 9
Section 5.11. Licenses, Permits, Etc............................................................. 10
Section 5.12. Compliance with ERISA.............................................................. 10
Section 5.13. Private Offering by the Company.................................................... 11
Section 5.14. Use of Proceeds; Margin Regulations................................................ 11
Section 5.15. Existing Debt; Future Liens........................................................ 11
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 5.16. Foreign Assets Control Regulations, Etc............................................ 12
Section 5.17. Status under Certain Statutes...................................................... 12
Section 5.18. Environmental Matters.............................................................. 12
Section 5.19. Computer 2000 Compliant............................................................ 13
SECTION 6 REPRESENTATIONS OF THE PURCHASER................................................... 13
Section 6.1. Purchase for Investment............................................................ 12
Section 6.2. Source of Funds.................................................................... 12
SECTION 7 INFORMATION AS TO COMPANY.......................................................... 15
Section 7.1. Financial and Business Information................................................. 15
Section 7.2. Officer's Certificate.............................................................. 18
Section 7.3. Inspection......................................................................... 18
SECTION 8 PREPAYMENT OF THE NOTES............................................................ 19
Section 8.1. Required Prepayments............................................................... 19
Section 8.2. Optional Prepayments with Make-Whole Amount........................................ 20
Section 8.3. Allocation of Partial Prepayments.................................................. 20
Section 8.4. Maturity; Surrender, Etc........................................................... 20
Section 8.5. Purchase of Notes.................................................................. 20
Section 8.6. Make-Whole Amount for Series 1999-A Note........................................... 20
Section 8.7. Change in Control.................................................................. 22
SECTION 9 AFFIRMATIVE COVENANTS.............................................................. 24
Section 9.1. Compliance with Law................................................................ 24
Section 9.2. Insurance.......................................................................... 24
Section 9.3. Maintenance of Properties.......................................................... 24
Section 9.4. Payment of Taxes................................................................... 24
Section 9.5. Corporate Existence, Etc........................................................... 25
Section 9.6. Guaranty by Subsidiaries........................................................... 25
Section 9.7. Rating for the Notes............................................................... 25
SECTION 10 NEGATIVE COVENANTS................................................................. 26
Section 10.1. Consolidated Net Worth............................................................. 26
Section 10.2. Limitations on Funded Debt......................................................... 26
Section 10.3. Limitation on Priority Debt........................................................ 26
Section 10.4. Limitation on Current Debt......................................................... 26
Section 10.5. Fixed Charges Coverage Ratio....................................................... 27
Section 10.6. Limitation on Liens................................................................ 27
Section 10.7. Sales of Assets.................................................................... 29
Section 10.8. Merger, Consolidation and Sale of Stock............................................ 30
Section 10.9. Designation of Restricted and Unrestricted Subsidiaries............................ 30
Section 10.10. Nature of Business................................................................. 31
Section 10.11. Transactions with Affiliates....................................................... 31
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
SECTION 11 EVENTS OF DEFAULT.................................................................. 31
SECTION 12 REMEDIES ON DEFAULT, ETC........................................................... 34
Section 12.1. Acceleration....................................................................... 34
Section 12.2. Other Remedies..................................................................... 35
Section 12.3. Rescission......................................................................... 35
Section 12.4. No Waivers or Election of Remedies, Expenses, Etc.................................. 35
SECTION 13 REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES...................................... 35
Section 13.1. Registration of Notes.............................................................. 35
Section 13.2. Transfer and Exchange of Notes..................................................... 36
Section 13.3. Replacement of Notes............................................................... 36
SECTION 14 PAYMENTS ON NOTES.................................................................. 37
Section 14.1. Place of Payment................................................................... 37
Section 14.2. Home Office Payment................................................................ 37
SECTION 15 EXPENSES, ETC...................................................................... 37
Section 15.1. Transaction Expenses............................................................... 37
Section 15.2. Survival........................................................................... 38
SECTION 16 SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
ENTIRE AGREEMENT................................................................... 38
SECTION 17 AMENDMENT AND WAIVER............................................................... 38
Section 17.1. Requirements....................................................................... 38
Section 17.2. Solicitation of Holders of Notes................................................... 39
Section 17.3. Binding Effect, Etc................................................................ 39
Section 17.4. Notes Held by Company, Etc......................................................... 39
SECTION 18 NOTICES............................................................................ 40
SECTION 19 REPRODUCTION OF DOCUMENTS.......................................................... 40
SECTION 20 CONFIDENTIAL INFORMATION........................................................... 40
SECTION 21 SUBSTITUTION OF PURCHASER.......................................................... 41
SECTION 22 MISCELLANEOUS...................................................................... 42
Section 22.1. Successors and Assigns............................................................. 42
Section 22.2. Payments Due on Non-Business Days.................................................. 42
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Section 22.3. Severability....................................................................... 42
Section 22.4. Construction....................................................................... 42
Section 22.5. Counterparts....................................................................... 42
Section 22.6. Submission to Jurisdiction......................................................... 42
Section 22.7. Governing Law...................................................................... 42
Signature............................................................................................ 44
</TABLE>
-iv-
<PAGE>
SCHEDULE A -- INFORMATION RELATING TO PURCHASERS
SCHEDULE B -- DEFINED TERMS
SCHEDULE 4.9 -- Changes in Corporate Structure
SCHEDULE 5.3 -- Disclosure Materials
SCHEDULE 5.4 -- Subsidiaries of the Company and Ownership of Subsidiary Stock
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.8 -- Certain Litigation
SCHEDULE 5.11 -- Patents, etc.
SCHEDULE 5.14 -- Use of Proceeds
SCHEDULE 5.15 -- Existing Debt, Future Liens
SCHEDULE 5.18 -- Environmental Liabilities
SCHEDULE 10.6 -- Liens Existing as of the Date of Closing
EXHIBIT 1 -- Form of 8.41% Series 1999-A Senior Note due December 1, 2009
EXHIBIT 2 -- Form of Guaranty Agreement
EXHIBIT 3 -- Form of Intercreditor Agreement
EXHIBIT 4.4(a) -- Form of Opinion of Special Counsel for the Company
EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel for the Purchasers
EXHIBIT S -- Form of Supplement
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<PAGE>
K2 INC.
4900 SOUTH EASTERN AVENUE
LOS ANGELES, CALIFORNIA 90040
8.41% Series 1999-A Senior Notes due December 1, 2009
Dated as of
December 1, 1999
TO THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
K2 Inc., a Delaware corporation (the "COMPANY"), agrees with the
Purchasers listed in the attached Schedule A to this Note Purchase Agreement
(this "AGREEMENT") as follows:
SECTION 1. AUTHORIZATION OF NOTES; INTEREST RATE ADJUSTMENT.
The Company will authorize the issue and sale of $50,000,000 aggregate
principal amount of its 8.41% Series 1999-A Senior Notes due December 1, 2009
(the "SERIES 1999-A NOTES"). The Series 1999-A Notes together with each series
of Additional Notes which may from time to time be issued pursuant to the
provisions of Section 2.2 are collectively referred to as the "NOTES" (such term
shall also include any such notes issued in substitution therefor pursuant to
Section 13 of this Agreement). The Series 1999-A Notes shall be substantially in
the form set out in Exhibit 1, with such changes therefrom, if any, as may be
approved by the Purchasers and the Company. Certain capitalized terms used in
this Agreement are defined in Schedule B; references to a "Schedule" or an
"Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached
to this Agreement.
If the Company shall not have consummated the Simplex Products
Disposition on or prior to March 31, 2000, the interest rate on the Series
1999-A Notes shall be increased by 20 basis points to 8.61% per annum effective
April 1, 2000. If the Company shall not have consummated the Simplex Products
Disposition on or prior to March 31, 2000 but shall have consummated the Simplex
Products Disposition on or prior to June 30, 2000, the interest rate on the
Series 1999-A Notes shall be decreased by 10 basis points to 8.51% per annum
effective as of the date of consummation of the Simplex Products Disposition. If
the Company shall consummate the Simplex Products Disposition at any time after
June 30, 2000, there shall be no adjustment to the interest rate on the Series
1999-A Notes and the Series 1999-A Notes shall continue to bear interest at the
rate of 8.61% per annum. Upon the request of any holder of the Series 1999-A
Notes the Company will issue new Series 1999-A Notes which have been modified to
reflect the change in the interest rate for the Series 1999-A Notes required by
this paragraph.
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Subject to the terms and conditions set forth in Section 9.6, the
payment by the Company of all amounts due with respect to the Notes and the
performance by the Company of its obligations under this Agreement described in
Section 2 below will be unconditionally guaranteed by certain Subsidiaries of
the Company under a Guaranty Agreement dated as of December 1, 1999 (the
"GUARANTY AGREEMENT") from said Subsidiaries, which Guaranty Agreement shall be
in substantially the form attached hereto as Exhibit 2.
Pursuant to the Intercreditor Agreement dated as of December 17, 1999
(the "INTERCREDITOR AGREEMENT") among the Purchasers, the banks which are
parties to the Bank Credit Agreement and certain other creditors of the Company
which are beneficiaries of Subsidiary Guaranty Agreements, recoveries in respect
of Excluded Subsidiary Obligations shall be shared among such creditors in
accordance with the terms of the Intercreditor Agreement which shall be in
substantially the form attached hereto as Exhibit 3.
SECTION 2. SALE AND PURCHASE OF NOTES.
SECTION 2.1. SERIES 1999-A NOTES. Subject to the terms and conditions
of this Agreement, the Company will issue and sell to each Purchaser and each
Purchaser will purchase from the Company, at the Closing provided for in Section
3, Series 1999-A Notes in the principal amount specified opposite such
Purchaser's name in Schedule A at the purchase price of 100% of the principal
amount thereof. The obligations of each Purchaser hereunder are several and not
joint obligations and each Purchaser shall have no obligation and no liability
to any Person for the performance or nonperformance by any other Purchaser
hereunder.
SECTION 2.2. ADDITIONAL SERIES OF NOTES. The Company may, from time to
time, in its sole discretion but subject to the terms hereof, issue and sell one
or more additional series of its unsecured promissory notes under the provisions
of this Agreement pursuant to a supplement (a "SUPPLEMENT") substantially in the
form of Exhibit S. Each additional series of Notes (the "ADDITIONAL NOTES")
issued pursuant to a Supplement shall be subject to the following terms and
conditions:
(i) each series of Additional Notes, when so issued, shall be
differentiated from all previous series by sequential alphabetical
designation inscribed thereon;
(ii) Additional Notes of the same series may consist of more
than one different and separate tranches and may differ with respect to
outstanding principal amounts, maturity dates, interest rates and
premiums, if any, and price and terms of redemption or payment prior to
maturity, but all such different and separate tranches of the same
series shall vote as a single class and constitute one series;
(iii) each series of Additional Notes shall be dated the date
of issue, bear interest at such rate or rates, mature on such date or
dates, be subject to such mandatory and optional prepayment on the
dates and at the premiums, if any, have such additional or different
conditions precedent to closing, such representations and warranties
and such additional covenants as shall be specified in the Supplement
under which such Additional
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Notes are issued and upon execution of any such Supplement, this
Agreement shall be amended to reflect such additional covenants without
further action on the part of the holders of the Notes outstanding
under this Agreement, PROVIDED, that any such additional covenants
shall inure to the benefit of all holders of Notes so long as any
Additional Notes issued pursuant to such Supplement remain outstanding;
(iv) each series of Additional Notes issued under this
Agreement shall be in substantially the form of Exhibit 1 to Exhibit S
hereto with such variations, omissions and insertions as are necessary
or permitted hereunder;
(v) the minimum principal amount of any Note issued under a
Supplement shall be $100,000, except as may be necessary to evidence
the outstanding amount of any Note originally issued in a denomination
of $100,000 or more;
(vi) all Additional Notes shall constitute Senior Debt of the
Company and shall rank PARI PASSU with all other outstanding Notes; and
(vii) no Additional Notes shall be issued hereunder if at the
time of issuance thereof and after giving effect to the application of
the proceeds thereof, any Default or Event of Default shall have
occurred and be continuing.
SECTION 3. CLOSING.
The sale and purchase of the Series 1999-A Notes to be purchased by
each Purchaser shall occur at the offices of Chapman and Cutler, 111 West Monroe
Street, Chicago, Illinois 60603 at 10:00 A.M. Chicago time, at a closing (the
"CLOSING") on December 17, 1999 or on such other Business Day thereafter on or
prior to December 31, 1999 as may be agreed upon by the Company and the
Purchasers. At the Closing the Company will deliver to each Purchaser the Series
1999-A Notes to be purchased by such Purchaser in the form of a single Series
1999-A Note (or such greater number of Series 1999-A Notes in denominations of
at least $100,000 as such Purchaser may request) dated the date of the Closing
and registered in such Purchaser's name (or in the name of such Purchaser's
nominee), against delivery by such Purchaser to the Company or its order of
immediately available funds in the amount of the purchase price therefor by wire
transfer of immediately available funds for the account of the Company to
account number 12338-53579 at Bank of America 1850 Gateway Blvd., Concord,
California 94520, ABA #121000358. If at the Closing the Company shall fail to
tender such Notes to any Purchaser as provided above in this Section 3, or any
of the conditions specified in Section 4 shall not have been fulfilled to any
Purchaser's satisfaction, such Purchaser shall, at such Purchaser's election, be
relieved of all further obligations under this Agreement, without thereby
waiving any rights such Purchaser may have by reason of such failure or such
nonfulfillment.
SECTION 4. CONDITIONS TO CLOSING.
The obligation of the Company to sell the Series 1999-A Notes to be
sold to each Purchaser at the Closing is subject to the consummation of the sale
of the entire aggregate
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principal amount of the Series 1999-A Notes scheduled to be sold on the date
of Closing pursuant to this Agreement.
The obligation of each Purchaser to purchase and pay for the Notes to
be sold to such Purchaser at the Closing is subject to the fulfillment to such
Purchaser's satisfaction, prior to or at the Closing, of the following
conditions:
SECTION 4.1. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company in this Agreement shall be correct when made and at
the time of the Closing.
SECTION 4.2. PERFORMANCE; NO DEFAULT. (a) The Company shall have
performed and complied with all agreements and conditions contained in this
Agreement required to be performed or complied with by it prior to or at the
Closing, and after giving effect to the issue and sale of the Series 1999-A
Notes (and the application of the proceeds thereof as contemplated by Section
5.14), no Default or Event of Default shall have occurred and be continuing.
(b) The Subsidiaries shall have performed all of their obligations
under the Guaranty Agreement which are to be performed prior to the Closing.
SECTION 4.3. COMPLIANCE CERTIFICATES.
(a) OFFICER'S CERTIFICATE. The Company shall have delivered
to such Purchaser an Officer's Certificate, dated the date of the
Closing, certifying that the conditions specified in Sections 4.1, 4.2
and 4.9 have been fulfilled.
(b) SECRETARY'S CERTIFICATE. The Company shall have delivered
to such Purchaser a certificate certifying as to the resolutions
attached thereto and other corporate proceedings relating to the
authorization, execution and delivery of (i) the Series 1999-A Notes
and this Agreement by the Company and (ii) the Guaranty Agreement by
the Subsidiaries.
SECTION 4.4. OPINIONS OF COUNSEL. Such Purchaser shall have received
opinions in form and substance satisfactory to such Purchaser, dated the date
of the Closing (a) from Gibson, Dunn & Crutcher LLP counsel for the Company,
covering the matters set forth in Exhibit 4.4(a) and covering such other
matters incident to the transactions contemplated hereby as such Purchaser or
such Purchaser's counsel may reasonably request (and the Company hereby
instructs its counsel to deliver such opinion to such Purchaser) and (b) from
Chapman and Cutler, the Purchasers' special counsel in connection with such
transactions, substantially in the form set forth in Exhibit 4.4(b) and
covering such other matters incident to such transactions as such Purchaser
may reasonably request.
SECTION 4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC. On the date
of the Closing each purchase of Series 1999-A Notes shall (a) be permitted by
the laws and regulations of each jurisdiction to which each
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Purchaser is subject, without recourse to provisions (such as Section
1405(a)(8) of the New York Insurance Law) permitting limited investments by
insurance companies without restriction as to the character of the particular
investment, (b) not violate any applicable law or regulation (including,
without limitation, Regulation T, U or X of the Board of Governors of the
Federal Reserve System) and (c) not subject any Purchaser to any tax, penalty
or liability under or pursuant to any applicable law or regulation, which law
or regulation was not in effect on the date hereof. If requested by any
Purchaser, such Purchaser shall have received an Officer's Certificate
certifying as to such matters of fact as such Purchaser may reasonably
specify to enable such Purchaser to determine whether such purchase is so
permitted.
SECTION 4.6. RELATED TRANSACTIONS. The Company shall have
consummated the sale of the entire principal amount of the Series 1999-A
Notes scheduled to be sold on the date of Closing pursuant to this Agreement.
SECTION 4.7. PAYMENT OF SPECIAL COUNSEL FEES. Without limiting the
provisions of Section 15.1, the Company shall have paid on or before the
Closing, the fees, charges and disbursements of the Purchasers' special
counsel referred to in Section 4.4 to the extent reflected in a statement of
such counsel rendered to the Company at least one Business Day prior to the
Closing.
SECTION 4.8. PRIVATE PLACEMENT NUMBER. A Private Placement Number
issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the
Securities Valuation Office of the National Association of Insurance
Commissioners) shall have been obtained for the Notes.
SECTION 4.9. CHANGES IN CORPORATE STRUCTURE. Except as specified in
Schedule 4.9, the Company shall not have changed its jurisdiction of
incorporation or been a party to any merger or consolidation and shall not
have succeeded to all or any substantial part of the liabilities of any other
entity, at any time following the date of the most recent financial
statements referred to in Schedule 5.5.
SECTION 4.10. GUARANTY AGREEMENT. The Guaranty Agreement shall have
been duly authorized, executed and delivered by each of the Subsidiary
Guarantors, shall constitute the legal, valid and binding contract and
agreement of each such Subsidiary Guarantor and shall be enforceable against
each such Subsidiary Guarantor in accordance with its terms.
SECTION 4.11. INTERCREDITOR AGREEMENT. The Intercreditor Agreement
shall be duly authorized, executed and delivered by each of the Purchasers
and the banks which are parties to the Bank Credit Agreement and any other
creditor which shall have the benefit of the Subsidiary Guaranty Agreements.
SECTION 4.12. PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated by this
Agreement and all documents and instruments incident to such transactions
shall be satisfactory to such Purchaser and such Purchaser's special counsel,
and such Purchaser and such Purchaser's
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special counsel shall have received all such counterpart originals or
certified or other copies of such documents as such Purchaser or such
Purchaser's special counsel may reasonably request.
SECTION 4.13. CONDITIONS TO ISSUANCE OF ADDITIONAL NOTES. The
obligations of the Additional Purchasers to purchase any Additional Notes shall
be subject to the following conditions precedent, in addition to the conditions
specified in the Supplement pursuant to which such Additional Notes may be
issued:
(a) COMPLIANCE CERTIFICATE. A duly authorized Senior
Financial Officer shall execute and deliver to each Additional
Purchaser and each holder of Notes an Officer's Certificate dated the
date of issue of such series of Additional Notes stating that such
officer has reviewed the provisions of this Agreement (including any
Supplements hereto) and setting forth the information and computations
(in sufficient detail) required in order to establish whether the
Company is in compliance with the requirements of Section 10.2 on such
date.
(b) EXECUTION AND DELIVERY OF SUPPLEMENT. The Company and
each such Additional Purchaser shall execute and deliver a Supplement
substantially in the form of Exhibit S hereto.
(c) REPRESENTATIONS OF ADDITIONAL PURCHASERS. Each Additional
Purchaser shall have confirmed in the Supplement that the
representations set forth in Section 6 are true with respect to such
Additional Purchaser on and as of the date of issue of the Additional
Notes.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser that:
SECTION 5.1. ORGANIZATION; POWER AND AUTHORITY. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, and is duly qualified as a foreign
corporation and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to which
the failure to be so qualified or in good standing could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
The Company has the corporate power and authority to own or hold under lease
the properties it purports to own or hold under lease, to transact the
business it transacts and proposes to transact, to execute and deliver this
Agreement and the Notes and to perform the provisions hereof and thereof.
SECTION 5.2. AUTHORIZATION, ETC. This Agreement and the Notes have
been duly authorized by all necessary corporate action on the part of the
Company, and this Agreement constitutes, and upon execution and delivery
thereof each Note will constitute, a legal, valid and binding obligation of
the Company enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by
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(i) applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and
(ii) general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
SECTION 5.3. DISCLOSURE. The Company, through its agent, Bank of
America Securities, LLC, has delivered to each Purchaser a copy of a private
placement memorandum, dated September, 1999 (the "MEMORANDUM"), relating to
the transactions contemplated hereby. The Memorandum fairly describes, in all
material respects, the general nature of the business and principal
properties of the Company and its Subsidiaries. Except as disclosed in
Schedule 5.3, this Agreement, the Guaranty Agreement, the Memorandum, the
documents, certificates or other writings delivered to the Purchasers by or
on behalf of the Company in connection with the transactions contemplated
hereby and the financial statements listed in Schedule 5.5, taken as a whole,
do not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading in
light of the circumstances under which they were made. Except as disclosed in
the Memorandum or as expressly described in Schedule 5.3, or in one of the
documents, certificates or other writings identified therein, or in the
financial statements listed in Schedule 5.5, since December 31, 1998, there
has been no change in the financial condition, operations, business,
properties or prospects of the Company or any of its Subsidiaries except
changes that individually or in the aggregate could not reasonably be
expected to have a Material Adverse Effect. There is no fact known to the
Company that could reasonably be expected to have a Material Adverse Effect
that has not been set forth herein or in the Memorandum or in the other
documents, certificates and other writings delivered to each Purchaser by or
on behalf of the Company specifically for use in connection with the
transactions contemplated hereby.
SECTION 5.4. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES;
AFFILIATES. (a) Schedule 5.4 contains (except as noted therein) complete and
correct lists (i) of the Company's Restricted and Unrestricted Subsidiaries,
showing, as to each Subsidiary, the correct name thereof, the jurisdiction of
its organization, and the percentage of shares of each class of its capital
stock or similar equity interests outstanding owned by the Company and each
other Subsidiary, and all other Investments of the Company and its Restricted
Subsidiaries (ii) of the Company's Affiliates known to the Company, other
than Subsidiaries, and (iii) of the Company's directors and senior officers.
(b) All of the outstanding shares of capital stock or similar equity
interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company
and its Subsidiaries have been validly issued, are fully paid and nonassessable
and are owned by the Company or another Subsidiary free and clear of any Lien
(except as otherwise disclosed in Schedule 5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a corporation or
other legal entity duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, and is duly qualified as a foreign
corporation or other legal entity and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Each such Subsidiary has
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the corporate or other power and authority to own or hold under lease the
properties it purports to own or hold under lease and to transact the
business it transacts and proposes to transact and to execute and deliver the
Guaranty Agreement and perform its obligations under the Guaranty Agreement.
(d) The Guaranty Agreement has been duly authorized by all necessary
action on the part of each Subsidiary and the Guaranty Agreement constitutes a
legal, valid and binding obligation of each such Subsidiary enforceable against
such Subsidiary in accordance with its terms, except as such enforceability may
be limited by (a) applicable bankruptcy, insolvency, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally and
(b) general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(e) No Subsidiary is a party to, or otherwise subject to, any legal
restriction or any agreement (other than this Agreement, the agreements listed
on Schedule 5.4 and customary limitations imposed by corporate law statutes)
restricting the ability of such Subsidiary to pay dividends out of profits or
make any other similar distributions of profits to the Company or any of its
Subsidiaries that owns outstanding shares of capital stock or similar equity
interests of such Subsidiary.
SECTION 5.5. FINANCIAL STATEMENTS. The Company has delivered to each
Purchaser copies of the financial statements of the Company and its
Subsidiaries listed on Schedule 5.5. All of said financial statements
(including in each case the related schedules and notes) fairly present in
all material respects the consolidated financial position of the Company and
its Subsidiaries as of the respective dates specified in such financial
statements and the consolidated results of their operations and cash flows
for the respective periods so specified and have been prepared in accordance
with GAAP consistently applied throughout the periods involved except as set
forth in the notes thereto (subject, in the case of any interim financial
statements, to normal year-end adjustments).
SECTION 5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. Neither
the execution, delivery and performance by the Company of this Agreement and
the Notes nor the execution, delivery and performance by the Subsidiaries of
the Guaranty Agreement will (a) contravene, result in any breach of, or
constitute a default under, or result in the creation of any Lien in respect
of any property of the Company or any Restricted Subsidiary under, any
indenture, mortgage, deed of trust, loan, purchase or credit agreement,
lease, corporate charter or by-laws, or any other agreement or instrument to
which the Company or any Restricted Subsidiary is bound or by which the
Company or any Restricted Subsidiary or any of their respective properties
may be bound or affected, (b) conflict with or result in a breach of any of
the terms, conditions or provisions of any order, judgment, decree, or ruling
of any court, arbitrator or Governmental Authority applicable to the Company
or any Restricted Subsidiary or (c) violate any provision of any statute or
other rule or regulation of any Governmental Authority applicable to the
Company or any Restricted Subsidiary.
SECTION 5.7. GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval
or authorization of, or registration, filing or
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declaration with, any Governmental Authority is required in connection with
the execution, delivery or performance by the Company of this Agreement or
the Notes or by the Subsidiaries of the Guaranty Agreement.
SECTION 5.8. LITIGATION; OBSERVANCE OF STATUTES AND ORDERS. (a) Except
as disclosed in Schedule 5.8, there are no actions, suits or proceedings pending
or, to the knowledge of the Company, threatened against or affecting the Company
or any Subsidiary or any property of the Company or any Subsidiary in any court
or before any arbitrator of any kind or before or by any Governmental Authority
that, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
(b) Neither the Company nor any Subsidiary is in default under any term
of any agreement or instrument to which it is a party or by which it is bound,
or any order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority or is in violation of any applicable law, ordinance, rule
or regulation (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
SECTION 5.9. TAXES. The Company and its Subsidiaries have filed all
tax returns that are required to have been filed in any jurisdiction, and
have paid all taxes shown to be due and payable on such returns and all other
taxes and assessments levied upon them or their properties, assets, income or
franchises, to the extent such taxes and assessments have become due and
payable and before they have become delinquent, except for any taxes and
assessments (a) the amount of which is not individually or in the aggregate
Material or (b) the amount, applicability or validity of which is currently
being contested in good faith by appropriate proceedings and with respect to
which the Company or a Subsidiary, as the case may be, has established
adequate reserves in accordance with GAAP. The Company knows of no basis for
any other tax or assessment that could reasonably be expected to have a
Material Adverse Effect. The charges, accruals and reserves on the books of
the Company and its Subsidiaries in respect of Federal, state or other taxes
for all fiscal periods are adequate in accordance with GAAP. The Federal
income tax liabilities of the Company and its Subsidiaries have been
determined by the Internal Revenue Service and paid for all fiscal years up
to and including the calendar year ended December 31, 1994.
SECTION 5.10. TITLE TO PROPERTY LEASES. The Company and its
Subsidiaries have good and sufficient title to their respective properties
that individually or in the aggregate are Material, including all such
properties reflected as owned by the Company and its Subsidiaries in the most
recent audited balance sheet referred to in Section 5.5 or purported to have
been acquired by the Company or any Subsidiary after said date (except as
sold or otherwise disposed of in the ordinary course of business and
properties disposed of in connection with the Simplex Products Disposition),
in each case free and clear of Liens prohibited by this Agreement. All leases
that individually or in the aggregate are Material are valid and subsisting
and are in full force and effect in all material respects.
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SECTION 5.11. LICENSES, PERMITS, ETC. Except as disclosed in
Schedule 5.11,
(a) the Company and its Restricted Subsidiaries own or
possess all licenses, permits, franchises, authorizations, patents,
copyrights, service marks, trademarks and trade names, or rights
thereto, that individually or in the aggregate are Material, without
known conflict with the rights of others except for those conflicts,
that, individually or in the aggregate, would not have a Material
Adverse Effect;
(b) to the best knowledge of the Company, no product of the
Company or any of its Subsidiaries infringes in any material respect
any license, permit, franchise, authorization, patent, copyright,
service mark, trademark, trade name or other right owned by any other
Person; and
(c) to the best knowledge of the Company, there is no
Material violation by any Person of any right of the Company or any of
its Subsidiaries with respect to any patent, copyright, service mark,
trademark, trade name or other right owned or used by the Company or
any of its Subsidiaries.
SECTION 5.12. COMPLIANCE WITH ERISA. (a) The Company and each ERISA
Affiliate have operated and administered each Plan in compliance with all
applicable laws except for such instances of noncompliance as have not
resulted in and could not reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any
liability pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to Aemployee benefit plans" (as defined in
Section 3(3) of ERISA), and no event, transaction or condition has occurred
or exists that could reasonably be expected to result in the incurrence of
any such liability by the Company or any ERISA Affiliate, or in the
imposition of any Lien on any of the rights, properties or assets of the
Company or any ERISA Affiliate, in either case pursuant to Title I or IV of
ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or
412 of the Code, other than such liabilities or Liens as would not be
individually or in the aggregate Material.
(b) The present value of the aggregate benefit liabilities under each
of the Plans (other than Multiemployer Plans), determined as of the end of such
Plan's most recently ended plan year on the basis of the actuarial assumptions
specified for funding purposes in such Plan's most recent actuarial valuation
report, did not exceed the aggregate current value of the assets of such Plan
allocable to such benefit liabilities by more than $5,000,000 in the case of any
single Plan and by more than $10,000,000 in the aggregate for all Plans. The
term "BENEFIT LIABILITIES" has the meaning specified in Section 4001 of ERISA
and the terms "CURRENT VALUE" and "PRESENT VALUE" have the meanings specified in
Section 3 of ERISA.
(c) The Company and its ERISA Affiliates have not incurred withdrawal
liabilities (and are not subject to contingent withdrawal liabilities) under
Section 4201 or 4204 of ERISA in respect of Multiemployer Plans that
individually or in the aggregate are Material.
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(d) The expected post-retirement benefit obligation (determined as
of the last day of the Company=s most recently ended fiscal year in
accordance with Financial Accounting Standards Board Statement No. 106,
without regard to liabilities attributable to continuation coverage mandated
by Section 4980B of the Code) of the Company and its Subsidiaries is not
Material.
(e) The execution and delivery of this Agreement and the issuance
and sale of the Notes hereunder will not involve any transaction that is
subject to the prohibitions of Section 406 of ERISA or in connection with
which a tax could be imposed pursuant to Section 4975(c)(1)(A)-(D) of the
Code. The representation by the Company in the first sentence of this Section
5.12(e) is made in reliance upon and subject to the accuracy of each
Purchaser=s representation in Section 6.2 as to the sources of the funds to
be used to pay the purchase price of the Notes to be purchased by such
Purchaser.
SECTION 5.13. PRIVATE OFFERING BY THE COMPANY. Neither the Company
nor anyone acting on its behalf has offered the Series 1999-A Notes or any
similar securities for sale to, or solicited any offer to buy any of the same
from, or otherwise approached or negotiated in respect thereof with, any
Person other than the Purchasers and not more than 60 other Institutional
Investors, each of which has been offered the Series 1999-A Notes at a
private sale for investment. Neither the Company nor anyone acting on its
behalf has taken, or will take, any action that would subject the issuance or
sale of the Notes to the registration requirements of Section 5 of the
Securities Act.
SECTION 5.14. USE OF PROCEEDS; MARGIN REGULATIONS. The Company will
apply the proceeds of the sale of the Notes as set forth in Schedule 5.14. No
part of the proceeds from the sale of the Notes hereunder will be used,
directly or indirectly, for the purpose of buying or carrying any margin
stock within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying
or trading in any securities under such circumstances as to involve the
Company in a violation of Regulation X of said Board (12 CFR 224) or to
involve any broker or dealer in a violation of Regulation T of said Board (12
CFR 220). Margin stock does not constitute more than 1% of the value of the
consolidated assets of the Company and its Subsidiaries and the Company does
not have any present intention that margin stock will constitute more than 1%
of the value of such assets. As used in this Section, the terms "MARGIN
STOCK" and "PURPOSE OF BUYING OR CARRYING" shall have the meanings assigned
to them in said Regulation U.
SECTION 5.15. EXISTING DEBT; FUTURE LIENS. (a) Except as described
therein, Schedule 5.15 sets forth a complete and correct list of all
outstanding Debt of the Company and its Restricted Subsidiaries as of
September 30, 1999, since which date there has been no Material change in the
amounts, interest rates, sinking funds, installment payments or maturities of
the Debt of the Company or its Restricted Subsidiaries. Neither the Company
nor any Restricted Subsidiary is in default and no waiver of default is
currently in effect, in the payment of any principal or interest on any Debt
of the Company or such Restricted Subsidiary exceeding $5,000,000 and no
event or condition exists with respect to any Debt of the Company or any
Restricted Subsidiary exceeding $5,000,000 that would permit (or that with
notice or the lapse of time, or both, would permit) one or more Persons to
cause
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such Debt to become due and payable before its stated maturity or before its
regularly scheduled dates of payment.
(b) Except as disclosed in Schedule 5.15, neither the Company nor
any Subsidiary has agreed or consented to cause or permit in the future (upon
the happening of a contingency or otherwise) any of its property, whether now
owned or hereafter acquired, to be subject to a Lien not permitted by Section
10.6.
SECTION 5.16. FOREIGN ASSETS CONTROL REGULATIONS, ETC. Neither the
sale of the Notes by the Company hereunder nor its use of the proceeds
thereof will violate the Trading with the Enemy Act, as amended, or any of
the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
SECTION 5.17. STATUS UNDER CERTAIN STATUTES. Neither the Company nor
any Subsidiary is an "investment company" registered or required to be
registered under the Investment Company Act of 1940, as amended, or is
subject to regulation under the Public Utility Holding Company Act of 1935,
as amended, the ICC Termination Act of 1995, as amended, or the Federal Power
Act, as amended.
SECTION 5.18. ENVIRONMENTAL MATTERS. Neither the Company nor any
Subsidiary has knowledge of any claim or has received any notice of any
claim, and no proceeding has been instituted raising any claim against the
Company or any of its Subsidiaries or any of their respective real properties
now or formerly owned, leased or operated by any of them or other assets,
alleging any damage to the environment or violation of any Environmental
Laws, except, in each case, such as could not reasonably be expected to
result in a Material Adverse Effect. Except as otherwise disclosed to each
Purchaser in writing:
(a) neither the Company nor any Subsidiary has knowledge of
any facts which would give rise to any claim, public or private, of
violation of Environmental Laws or damage to the environment emanating
from, occurring on or in any way related to real properties now or
formerly owned, leased or operated by any of them or to other assets or
their use, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect;
(b) neither the Company nor any of its Subsidiaries has
stored any Hazardous Materials on real properties now or formerly
owned, leased or operated by any of them or has disposed of any
Hazardous Materials in a manner contrary to any Environmental Laws in
each case in any manner that could reasonably be expected to result in
a Material Adverse Effect; and
(c) all buildings on all real properties now owned, leased or
operated by the Company or any of its Subsidiaries are in compliance
with applicable Environmental Laws, except where failure to comply
could not reasonably be expected to result in a Material Adverse
Effect.
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SECTION 5.19. COMPUTER 2000 COMPLIANT. The Company and its
Restricted Subsidiaries internal business and computer systems will be year
2000 compliant in a timely manner and the advent of the year 2000 and its
impact on said internal business and computer systems are not expected to
have a Material Adverse Effect.
SECTION 6. REPRESENTATIONS OF THE PURCHASER.
SECTION 6.1. PURCHASE FOR INVESTMENT. Each Purchaser represents that
it is an "accredited investor" as defined in Regulation D under the
Securities Act and is purchasing the Series 1999-A Notes for its own account
or for one or more separate accounts maintained by it or for the account of
one or more pension or trust funds and not with a view to the distribution
thereof, PROVIDED that the disposition of such Purchaser's or such pension or
trust funds' property shall at all times be within such Purchaser's or such
pension or trust funds' control. Each Purchaser understands that the Series
1999-A Notes have not been registered under the Securities Act and may be
resold only if registered pursuant to the provisions of the Securities Act or
if an exemption from registration is available, except under circumstances
where neither such registration nor such an exemption is required by law, and
that the Company is not required to register the Series 1999-A Notes.
SECTION 6.2. SOURCE OF FUNDS. Each Purchaser represents that at
least one of the following statements is an accurate representation as to
each source of funds (a "SOURCE") to be used by it to pay the purchase price
of the Series 1999-A Notes to be purchased by it hereunder:
(a) the Source is an "insurance company general account"
within the meaning of Department of Labor Prohibited Transaction
Exemption ("PTE") 95-60 (issued July 12, 1995) and there is no employee
benefit plan, treating as a single plan, all plans maintained by the
same employer or employee organization, with respect to which the
amount of the general account reserves and liabilities for all
contracts held by or on behalf of such plan, exceeds ten percent (10%)
of the total reserves and liabilities of such general account
(exclusive of separate account liabilities) plus surplus, as set forth
in the NAIC Annual Statement for such Purchaser most recently filed
with such Purchaser's state of domicile; or
(b) the Source is either (i) an insurance company pooled
separate account, within the meaning of PTE 90-1 (issued January 29,
1990), or (ii) a bank collective investment fund, within the meaning of
the PTE 91-38 (issued July 12, 1991) and, except as such Purchaser has
disclosed to the Company in writing pursuant to this paragraph (b), no
employee benefit plan or group of plans maintained by the same employer
or employee organization beneficially owns more than 10% of all assets
allocated to such pooled separate account or collective investment
fund; or
(c) the Source constitutes assets of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning of
Part V of the QPAM Exemption), no employee
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benefit plan's assets that are included in such investment fund,
when combined with the assets of all other employee benefit plans
established or maintained by the same employer or by an affiliate
(within the meaning of Section V(c)(1) of the QPAM Exemption) of
such employer or by the same employee organization and managed by
such QPAM, exceed 20% of the total client assets managed by such
QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are
satisfied, neither the QPAM nor a person controlling or controlled
by the QPAM (applying the definition of "control" in Section V(e) of
the QPAM Exemption) owns a 5% or more interest in the Company and
(i) the identity of such QPAM and (ii) the names of all employee
benefit plans whose assets are included in such investment fund have
been disclosed to the Company in writing pursuant to this paragraph
(c); or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which has been identified to the Company in
writing pursuant to this paragraph (e); or
(f) the Source does not include assets of any employee
benefit plan, other than a plan exempt from the coverage of ERISA; or
(g) the Source is an insurance company separate account
maintained solely in connection with the fixed contractual obligations
of the insurance company under which the amounts payable, or credited,
to any employee benefit plan (or its related trust) and to any
participant or beneficiary of such plan (including any annuitant) are
not affected in any manner by the investment performance of the
separate account.
If any Purchaser or any Additional Purchaser or any subsequent transferee of
the Notes indicates that such Purchaser or any Additional Purchaser or such
transferee is relying on any representation contained in paragraph (b), (c)
or (e) above, the Company shall deliver on the date of issuance of such Notes
and on the date of any applicable transfer a certificate, which shall either
state that (i) it is neither a party in interest nor a "disqualified person"
(as defined in Section 4975(e)(2) of the Code), with respect to any plan
identified pursuant to paragraphs (b) or (e) above, or (ii) with respect to
any plan, identified pursuant to paragraph (c) above, neither it nor any
"affiliate" (as defined in Section V(c) of the QPAM Exemption) has at such
time, and during the immediately preceding one year, exercised the authority
to appoint or terminate said QPAM as manager of any plan identified in
writing pursuant to paragraph (c) above or to negotiate the terms of said
QPAM's management agreement on behalf of any such identified plan. As used in
this Section 6.2, the terms "EMPLOYEE BENEFIT PLAN", "GOVERNMENTAL PLAN",
"PARTY IN INTEREST" and "SEPARATE ACCOUNT" shall have the respective meanings
assigned to such terms in Section 3 of ERISA.
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SECTION 7. INFORMATION AS TO COMPANY.
SECTION 7.1. FINANCIAL AND BUSINESS INFORMATION. The Company shall
deliver to each holder of Notes that is an Institutional Investor:
(a) QUARTERLY STATEMENTS - within 60 days after the end of
each quarterly fiscal period in each fiscal year of the Company (other
than the last quarterly fiscal period of each such fiscal year),
duplicate copies of,
(i) a consolidated balance sheet of the Company and
its Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries, for such quarter and (in the case of the second
and third quarters) for the portion of the fiscal year ending
with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified by a Senior Financial
Officer as fairly presenting, in all material respects, the financial
position of the companies being reported on and their results of
operations and cash flows, subject to changes resulting from normal,
recurring year-end adjustments, PROVIDED that delivery within the time
period specified above of copies of the Company's Quarterly Report on
Form 10-Q prepared in compliance with the requirements therefor and
filed with the Securities and Exchange Commission shall be deemed to
satisfy the requirements of this Section 7.1(a);
(b) ANNUAL STATEMENTS - within 105 days after the end of each
fiscal year of the Company, duplicate copies of,
(i) a consolidated balance sheet of the Company and
its Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in accordance
with GAAP, and accompanied by
(A) an opinion thereon of independent
certified public accountants of recognized national
standing, which opinion shall state that such
financial statements present fairly, in all material
respects, the financial position of the companies
being reported upon and their results
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of operations and cash flows and have been
prepared in conformity with GAAP, and that the
examination of such accountants in connection with
such financial statements has been made in
accordance with generally accepted auditing
standards, and that such audit provides a
reasonable basis for such opinion in the
circumstances, and
(B) a certificate of such accountants
stating that they have reviewed Sections 10.1, 10.2,
10.3, 10.4, 10.5 and 10.7 (with respect to
calculations of the book value of asset dispositions,
the Net Proceeds received from such dispositions and
the book value of Consolidated Total Assets) of this
Agreement and stating further whether, in making
their audit, they have become aware of any condition
or event under such Sections that then constitutes a
Default or an Event of Default, and, if they are
aware that any such condition or event then exists,
specifying the nature and period of the existence
thereof (it being understood that such accountants
shall not be liable, directly or indirectly, for any
failure to obtain knowledge of any Default or Event
of Default unless such accountants should have
obtained knowledge thereof in making an audit in
accordance with generally accepted auditing standards
or did not make such an audit),
PROVIDED that the delivery within the time period specified above of
the Company's Annual Report on Form 10-K for such fiscal year (together
with the Company's annual report to shareholders, if any, prepared
pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance
with the requirements therefor and filed with the Securities and
Exchange Commission, together with the accountant's certificate
described in clause (B) above, shall be deemed to satisfy the
requirements of this Section 7.1(b);
(c) SEC AND OTHER REPORTS - promptly upon their becoming
available, one copy of (i) each financial statement, report, notice or
proxy statement sent by the Company or any Subsidiary to public
securities holders generally, and (ii) each regular or periodic report,
each registration statement (without exhibits except as expressly
requested by such holder), and each prospectus and all amendments
thereto filed by the Company or any Subsidiary with the Securities and
Exchange Commission and of all press releases and other statements made
available generally by the Company or any Subsidiary to the public
concerning developments that are Material;
(d) NOTICE OF DEFAULT OR EVENT OF DEFAULT - promptly, and in
any event within five days after a Responsible Officer becoming aware
of the existence of any Default or Event of Default or that any Person
has given any notice or taken any action with respect to a claimed
default hereunder or that any Person has given any notice or taken any
action with respect to a claimed default of the type referred to in
Section 11(f), a written notice specifying the nature and period of
existence thereof and what action the Company is taking or proposes to
take with respect thereto;
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(e) ERISA MATTERS - promptly, and in any event within five
days after a Responsible Officer becoming aware of any of the
following, a written notice setting forth the nature thereof and the
action, if any, that the Company or an ERISA Affiliate proposes to take
with respect thereto:
(i) with respect to any Plan, any reportable event,
as defined in section 4043(b) of ERISA and the regulations
thereunder, for which notice thereof has not been waived
pursuant to such regulations as in effect on the date hereof;
or
(ii) the taking by the PBGC of steps to institute, or
the threatening by the PBGC of the institution of, proceedings
under section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by the Company or any ERISA Affiliate of a notice from
a Multiemployer Plan that such action has been taken by the
PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could
result in the incurrence of any liability by the Company or
any ERISA Affiliate pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to
employee benefit plans, or in the imposition of any Lien on
any of the rights, properties or assets of the Company or any
ERISA Affiliate pursuant to Title I or IV of ERISA or such
penalty or excise tax provisions, if such liability or Lien,
taken together with any other such liabilities or Liens then
existing, could reasonably be expected to have a Material
Adverse Effect;
(f) NOTICES FROM GOVERNMENTAL AUTHORITY - promptly, and in
any event within 30 days of receipt thereof, copies of any notice to
the Company or any Subsidiary from any Federal or state Governmental
Authority relating to any order, ruling, statute or other law or
regulation that could reasonably be expected to have a Material Adverse
Effect;
(g) SUPPLEMENTS - promptly and in any event within 10
Business Days after the execution and delivery of any Supplement, a
copy thereof;
(h) SIMPLEX PRODUCTS DISPOSITION - promptly and in any event
within 10 Business Days following the Simplex Products Disposition
written notice of such disposition which shall include the date of such
disposition and a brief description of the consideration received in
connection with such disposition; and
(i) REQUESTED INFORMATION - with reasonable promptness, such
other data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Company or
any of its Subsidiaries or relating to the ability of the Company to
perform its obligations hereunder and under the Notes as from time to
time may be reasonably requested by any such holder of Notes.
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Notwithstanding the foregoing, in the event that one or more
Unrestricted Subsidiaries shall either (i) own more than 10% of the total
consolidated assets of the Company and its Subsidiaries, or (ii) account for
more than 10% of the consolidated gross revenues of the Company and its
Subsidiaries, determined in each case in accordance with GAAP, then, within the
respective periods provided in Sections 7.1(a) and (b), above, the Company shall
deliver to each holder of Notes that is an Institutional Investor, financial
statements of the character and for the dates and periods as in said Sections
7.1(a) and (b) covering the group of Unrestricted Subsidiaries (on a
consolidated basis), together with a consolidating statement reflecting
eliminations or adjustments required to reconcile the financial statements of
such group of Unrestricted Subsidiaries to the financial statements delivered
pursuant to Sections 7.1(a) and (b).
SECTION 7.2. OFFICER'S CERTIFICATE. Each set of financial statements
delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b)
hereof shall be accompanied by a certificate of a Senior Financial Officer
setting forth:
(a) COVENANT COMPLIANCE - the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Section 10.1 through Section 10.5
hereof, inclusive, and Sections 10.7 and 10.8 during the quarterly or
annual period covered by the statements then being furnished (including
with respect to each such Section, where applicable, the calculations
of the maximum or minimum amount, ratio or percentage, as the case may
be, permissible under the terms of such Sections, and the calculation
of the amount, ratio or percentage then in existence); and
(b) EVENT OF DEFAULT - a statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made,
under his or her supervision, a review of the transactions and
conditions of the Company and its Subsidiaries from the beginning of
the quarterly or annual period covered by the statements then being
furnished to the date of the certificate and that such review shall not
have disclosed the existence during such period of any condition or
event that constitutes a Default or an Event of Default or, if any such
condition or event existed or exists (including, without limitation,
any such event or condition resulting from the failure of the Company
or any Subsidiary to comply with any Environmental Law), specifying the
nature and period of existence thereof and what action the Company
shall have taken or proposes to take with respect thereto.
SECTION 7.3. INSPECTION. The Company shall permit the
representatives of each holder of Notes that is an Institutional Investor:
(a) NO DEFAULT - if no Default or Event of Default then
exists, at the expense of such holder and upon reasonable prior notice
to the Company, to visit the principal executive office of the Company,
to discuss the affairs, finances and accounts of the Company and its
Subsidiaries with the Company's officers, and (with the consent of the
Company, which consent will not be
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unreasonably withheld) its independent public accountants, and (with
the consent of the Company, which consent will not be unreasonably
withheld) to visit the other offices and properties of the Company
and each Subsidiary, all at such reasonable times and as often as
may be reasonably requested in writing; and
(b) DEFAULT - if a Default or Event of Default then exists,
at the expense of the Company, to visit and inspect any of the offices
or properties of the Company or any Subsidiary, to examine all their
respective books of account, records, reports and other papers, to make
copies and extracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective officers and independent
public accountants (and by this provision the Company authorizes said
accountants to discuss the affairs, finances and accounts of the
Company and its Subsidiaries), all at such times and as often as may be
requested.
SECTION 8. PREPAYMENT OF THE NOTES.
SECTION 8.1. REQUIRED PREPAYMENTS. On December 1, 2003 and on each
December 1 thereafter to and including December 1, 2008, the Company will prepay
$7,142,857 principal amount (or such lesser principal amount as shall then be
outstanding) of the Series A Notes at par and without payment of the Make-Whole
Amount or any premium. The entire unpaid principal amount of the Series A Notes
shall become due and payable on December 1, 2009.
Upon any partial prepayment of the Series A Notes pursuant to Section
8.2 or Section 8.7 or any purchase of less than all of the Series A Notes
permitted by Section 8.5, the principal amount of each required prepayment of
the Series A Notes becoming due under this Section 8.1 on and after the date of
such prepayment or purchase shall be reduced in the same proportion as the
aggregate unpaid principal amount of the Series A Notes is reduced as a result
of such prepayment or purchase.
SECTION 8.2. OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT. The
Company may, at its option, upon notice as provided below, prepay at any time
all, or from time to time any part of, the Notes of any series, in an amount
not less than 10% of the aggregate principal amount of the Notes of such
series then outstanding in the case of a partial prepayment, at 100% of the
principal amount so prepaid, together with interest accrued thereon to the
date of such prepayment, plus the Make-Whole Amount determined for the
prepayment date with respect to such principal amount of each Note of the
applicable series then outstanding. The Company will give each holder of
Notes of the series to be prepaid written notice of each optional prepayment
under this Section 8.2 not less than 30 days and not more than 60 days prior
to the date fixed for such prepayment. Each such notice shall specify such
date, the aggregate principal amount of the Notes and each series of Notes to
be prepaid on such date, the principal amount of each Note held by such
holder to be prepaid (determined in accordance with Section 8.3), and the
interest to be paid on the prepayment date with respect to such principal
amount being prepaid, and shall be accompanied by a certificate of a Senior
Financial Officer as to the estimated Make-Whole Amount due in connection
with such prepayment (calculated as if the date of such notice were the date
of the prepayment), setting forth the details of such computation. Two
Business Days prior to such prepayment, the Company shall deliver to each
holder of Notes of the Series to be prepaid a
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certificate of a Senior Financial Officer specifying the calculation of such
Make-Whole Amount as of the specified prepayment date.
SECTION 8.3. ALLOCATION OF PARTIAL PREPAYMENTS. In the case of each
partial prepayment of the Notes pursuant to the provisions of Section 8.2,
the principal amount of the Notes of the Series to be prepaid shall be
allocated among all of the Notes of such Series at the time outstanding in
proportion, as nearly as practicable, to the respective unpaid principal
amounts thereof. All regularly scheduled partial prepayments made with
respect to any Additional Series of Notes pursuant to any Supplement shall be
allocated as provided therein.
SECTION 8.4. MATURITY; SURRENDER, ETC. In the case of each
prepayment of Notes pursuant to this Section 8, the principal amount of each
Note to be prepaid shall mature and become due and payable on the date fixed
for such prepayment, together with interest on such principal amount accrued
to such date and the applicable Make-Whole Amount, if any. From and after
such date, unless the Company shall fail to pay such principal amount when so
due and payable, together with the interest and Make-Whole Amount, if any, as
aforesaid, interest on such principal amount shall cease to accrue. Any Note
paid or prepaid in full shall be surrendered to the Company and cancelled and
shall not be reissued, and no Note shall be issued in lieu of any prepaid
principal amount of any Note.
SECTION 8.5. PURCHASE OF NOTES. The Company will not and will not
permit any Affiliate that is subject to the control of the Company to
purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of
the outstanding Notes except upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement (including any Supplement hereto)
and the Notes. The Company will promptly cancel all Notes acquired by it or
any Affiliate pursuant to any payment, prepayment or purchase of Notes
pursuant to any provision of this Agreement and no Notes may be issued in
substitution or exchange for any such Notes.
SECTION 8.6. MAKE-WHOLE AMOUNT FOR SERIES 1999-A NOTE. The term
"MAKE-WHOLE AMOUNT" means, with respect to any Series 1999-A Note, an amount
equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of such Note over the
amount of such Called Principal, PROVIDED that the Make-Whole Amount may in
no event be less than zero. For the purposes of determining the Make-Whole
Amount, the following terms have the following meanings:
"CALLED PRINCIPAL" means, with respect to any Series 1999-A
Note, the principal of such Note that is to be prepaid pursuant to
Section 8.2 or has become or is declared to be immediately due and
payable pursuant to Section 12.1, as the context requires.
"DISCOUNTED VALUE" means, with respect to the Called Principal
of any Series 1999-A Note, the amount obtained by discounting all
Remaining Scheduled Payments with respect to such Called Principal from
their respective scheduled due dates to the Settlement Date with
respect to such Called Principal, in accordance with accepted
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financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on the Series 1999-A Notes
is payable) equal to the Reinvestment Yield with respect to such
Called Principal.
"REINVESTMENT YIELD" means, with respect to the Called
Principal of any Note, 0.50% plus the yield to maturity implied by (i)
the yields reported, as of 10:00 A.M. (New York City time) on the
second Business Day preceding the Settlement Date with respect to such
Called Principal, on the display designated as "PX-1" on the Bloomberg
Financial Market Screen (or such other display as may replace "PX-1" on
the Bloomberg Financial Market Screen) for actively traded U.S.
Treasury securities having a maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date, or (ii) if
such yields are not reported as of such time or the yields reported as
of such time are not ascertainable, the Treasury Constant Maturity
Series Yields reported, for the latest day for which such yields have
been so reported as of the second Business Day preceding the Settlement
Date with respect to such Called Principal, in Federal Reserve
Statistical Release H.15 (519) (or any comparable successor
publication) for actively traded U.S. Treasury securities having a
constant maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date. Such implied yield will be
determined, if necessary, by (a) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted
financial practice and (b) interpolating linearly between (1) the
actively traded U.S. Treasury security with the maturity closest to and
greater than the Remaining Average Life and (2) the actively traded
U.S. Treasury security with the maturity closest to and less than the
Remaining Average Life.
"REMAINING AVERAGE LIFE" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (i) such Called Principal into (ii) the sum
of the products obtained by multiplying (a) the principal component of
each Remaining Scheduled Payment with respect to such Called Principal
by (b) the number of years (calculated to the nearest one-twelfth year)
that will elapse between the Settlement Date with respect to such
Called Principal and the scheduled due date of such Remaining Scheduled
Payment.
"REMAINING SCHEDULED PAYMENTS" means, with respect to the
Called Principal of any Series 1999-A Note, all payments of such Called
Principal and interest thereon that would be due after the Settlement
Date with respect to such Called Principal if no payment of such Called
Principal were made prior to its scheduled due date, PROVIDED that if
such Settlement Date is not a date on which interest payments are due
to be made under the terms of the Series 1999-A Notes, then the amount
of the next succeeding scheduled interest payment will be reduced by
the amount of interest accrued to such Settlement Date and required to
be paid on such Settlement Date pursuant to Section 8.2 or 12.1.
"SETTLEMENT DATE" means, with respect to the Called Principal
of any Series 1999-A Note, the date on which such Called Principal is
to be prepaid pursuant to Section 8.2 or has become or is declared to
be immediately due and payable pursuant to Section 12.1, as the context
requires.
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SECTION 8.7. CHANGE IN CONTROL.
(a) NOTICE OF CHANGE IN CONTROL OR CONTROL EVENT. The Company will,
within fifteen Business Days after any Responsible Officer has knowledge of the
occurrence of any Change in Control or Control Event, give written notice of
such Change in Control or Control Event to each holder of Notes UNLESS notice in
respect of such Change in Control (or the Change in Control contemplated by such
Control Event) shall have been given pursuant to subparagraph (b) of this
Section 8.7. If a Change in Control has occurred, such notice shall contain and
constitute an offer to prepay Notes as described in subparagraph (c) of this
Section 8.7 and shall be accompanied by the certificate described in
subparagraph (g) of this Section 8.7.
(b) CONDITION TO COMPANY ACTION. The Company will not take any action
that consummates or finalizes a Change in Control unless (i) at least 30 days
prior to such action it shall have given to each holder of Notes written notice
containing and constituting an offer to prepay Notes as described in
subparagraph (c) of this Section 8.7, accompanied by the certificate described
in subparagraph (g) of this Section 8.7, and (ii) contemporaneously with such
action, it prepays all Notes required to be prepaid in accordance with this
Section 8.7.
(c) OFFER TO PREPAY NOTES. The offer to prepay Notes contemplated by
subparagraphs (a) and (b) of this Section 8.7 shall be an offer to prepay, in
accordance with and subject to this Section 8.7, all, but not less than all,
the Notes held by each holder (in this case only, "holder" in respect of any
Note registered in the name of a nominee for a disclosed beneficial owner
shall mean such beneficial owner) on a date specified in such offer (the
"PROPOSED PREPAYMENT DATE"). If such Proposed Prepayment Date is in
connection with an offer contemplated by subparagraph (a) of this Section
8.7, such date shall be not less than 30 days and not more than 60 days after
the date of such offer (if the Proposed Prepayment Date shall not be
specified in such offer, the Proposed Prepayment Date shall be the 30th day
after the date of such offer).
(d) ACCEPTANCE. A holder of Notes may accept the offer to prepay
made pursuant to this Section 8.7 by causing a notice of such acceptance to
be delivered to the Company at least 15 days prior to the Proposed Prepayment
Date. A failure by a holder of Notes to respond to an offer to prepay made
pursuant to this Section 8.7 shall be deemed to constitute a rejection of
such offer by such holder.
(e) PREPAYMENT. Prepayment of the Notes to be prepaid pursuant to
this Section 8.7 shall be at 100% of the principal amount of such Notes,
together with interest on such Notes accrued to the date of prepayment. The
prepayment shall be made on the Proposed Prepayment Date except as provided
in subparagraph (f) of this Section 8.7.
(f) DEFERRAL PENDING CHANGE IN CONTROL. The obligation of the
Company to prepay Notes pursuant to the offers required by subparagraph (b)
and accepted in accordance with subparagraph (d) of this Section 8.7 is
subject to the occurrence of the Change in Control in respect of which such
offers and acceptances shall have been made. In the event that such Change in
Control does not occur on the Proposed Prepayment Date in respect thereof,
the prepayment shall be deferred until, and shall be made on the date on
which, such Change in Control occurs. The Company shall keep each holder of
Notes reasonably and timely informed
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of (i) any such deferral of the date of prepayment, (ii) the date on which
such Change in Control and the prepayment are expected to occur, and (iii)
any determination by the Company that efforts to effect such Change in
Control have ceased or been abandoned (in which case the offers and
acceptances made pursuant to this Section 8.7 in respect of such Change in
Control shall be deemed rescinded); PROVIDED that in the event more than six
months shall have elapsed since the initial notice of Change in Control or
Control Event, the Company shall renew the offer to prepay the Notes in
accordance with subparagraph (c) of this Section 8.7.
(g) OFFICER'S CERTIFICATE. Each offer to prepay the Notes pursuant
to this Section 8.7 shall be accompanied by a certificate, executed by a
Senior Financial Officer of the Company and dated the date of such offer,
specifying: (i) the Proposed Prepayment Date; (ii) that such offer is made
pursuant to this Section 8.7; (iii) the principal amount of each Note offered
to be prepaid; (iv) the interest that would be due on each Note offered to be
prepaid, accrued to the Proposed Prepayment Date; (v) that the conditions of
this Section 8.7 have been fulfilled; and (vi) in reasonable detail, the
nature and date or proposed date of the Change in Control.
(h) "CHANGE IN CONTROL" DEFINED. "CHANGE IN CONTROL" means each and
every issue, sale or other disposition of shares of stock of the Company which
results in any person (as such term is used in section 13(d) and section
14(d)(2) of the Exchange Act) or related persons constituting a group (as such
term is used in Rule 13d-5 under the Exchange Act) (herein, an "ACQUIRING
PERSON") becoming the "beneficial owners" (as such term is used in Rule 13d-3
under the Exchange Act as in effect on the date of the Closing), directly or
indirectly, of more than 50% of the total voting power of all classes then
outstanding of the Company's voting stock.
(i) "CONTROL EVENT" DEFINED. "CONTROL EVENT" means:
(i) the execution by the Company or any of its Subsidiaries
or Affiliates of any agreement or letter of intent with respect to any
proposed transaction or event or series of transactions or events
which, individually or in the aggregate, may reasonably be expected to
result in a Change in Control,
(ii) the execution of any written agreement which, when fully
performed by the parties thereto, would result in a Change in Control,
(iii) at any time prior to a public offering of equity
securities of the Company, the making of any written offer by any
Acquiring Person to the holders of the common stock of the Company,
which offer may reasonably be expected to result in a Change in
Control, or
(iv) at any time after a public offering of equity securities
of the Company, the making of any written offer by any Acquiring Person
to the holders of the common stock of the Company, which offer, if
accepted by the requisite number of holders, would result in a Change
in Control.
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SECTION 9. AFFIRMATIVE COVENANTS
The Company covenants that so long as any of the Notes are outstanding:
SECTION 9.1. COMPLIANCE WITH LAW. The Company will, and will cause
each of its Subsidiaries to, comply with all laws, ordinances or governmental
rules or regulations to which each of them is subject, including, without
limitation, Environmental Laws, and will obtain and maintain in effect all
licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of their respective properties or
to the conduct of their respective businesses, in each case to the extent
necessary to ensure that non-compliance with such laws, ordinances or
governmental rules or regulations or failures to obtain or maintain in effect
such licenses, certificates, permits, franchises and other governmental
authorizations could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
SECTION 9.2. INSURANCE. The Company will, and will cause each of its
Restricted Subsidiaries to, maintain, with financially sound and reputable
insurers, insurance with respect to their respective properties and
businesses against such casualties and contingencies, of such types, on such
terms and in such amounts (including deductibles, co-insurance and
self-insurance, if adequate reserves are maintained with respect thereto) as
is customary in the case of entities of established reputations engaged in
the same or a similar business and similarly situated.
SECTION 9.3. MAINTENANCE OF PROPERTIES. The Company will, and will
cause each of its Restricted Subsidiaries to, maintain and keep, or cause to
be maintained and kept, their respective properties in good repair, working
order and condition (other than ordinary wear and tear), so that the business
carried on in connection therewith may be properly conducted at all times,
PROVIDED that this Section shall not prevent the Company or any Restricted
Subsidiary from discontinuing the operation and the maintenance of any of its
properties if such discontinuance is desirable in the conduct of its business
and the Company has concluded that such discontinuance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
SECTION 9.4. PAYMENT OF TAXES. The Company will, and will cause each
of its Subsidiaries to, file all tax returns required to be filed in any
jurisdiction and to pay and discharge all taxes shown to be due and payable
on such returns and all other taxes, assessments, governmental charges, or
levies imposed on them or any of their properties, assets, income or
franchises, to the extent such taxes and assessments have become due and
payable and before they have become delinquent and all claims for which sums
have become due and payable that have or might become a Lien on properties or
assets of the Company or any Subsidiary, PROVIDED that neither the Company
nor any Subsidiary need pay any such tax or assessment or claims if (i) the
amount, applicability or validity thereof is contested by the Company or such
Subsidiary on a timely basis in good faith and in appropriate proceedings,
and the Company or a Subsidiary has established adequate reserves therefor in
accordance with GAAP on the books of the Company or such Subsidiary or (ii)
the nonpayment of all such taxes
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and assessments in the aggregate could not reasonably be expected to have a
Material Adverse Effect.
SECTION 9.5. CORPORATE EXISTENCE, ETC. Subject to Sections 10.6 and
10.7 and as permitted by such Sections, the Company will at all times
preserve and keep in full force and effect its corporate existence, and will
at all times preserve and keep in full force and effect the corporate
existence of each of its Restricted Subsidiaries (unless merged into the
Company or a Wholly-Owned Restricted Subsidiary) and all rights and
franchises of the Company and its Restricted Subsidiaries unless, in the good
faith judgment of the Company, the termination of or failure to preserve and
keep in full force and effect such corporate existence, right or franchise
could not, individually or in the aggregate, have a Material Adverse Effect.
SECTION 9.6. GUARANTY BY SUBSIDIARIES. The Company will cause any Person
which becomes a Subsidiary after the Closing and which is required by the terms
of the Bank Credit Agreement to become a party to, or otherwise Guaranty, Debt
outstanding under the Bank Credit Agreement to enter into the Guaranty
Agreement, and deliver within three Business Days thereafter to each of the
holders of the Notes the following items:
(a) a joinder agreement in respect of the Guaranty Agreement;
(b) a certificate signed by the President, a Vice President or
another authorized Responsible Officer of the Company making
representations and warranties to the effect of those contained in
Sections 5.4, 5.6 and 5.7, with respect to such Subsidiary and the
Guaranty Agreement, as applicable;
(c) such documents and evidence with respect to such
Subsidiary as any holder of the Notes may reasonably request in order
to establish the existence and good standing of such Subsidiary;
(d) an opinion of counsel addressed to each of the holders of
the Notes satisfactory to the Required Holders, to the effect that the
Guaranty Agreement has been duly authorized, executed and delivered and
constitutes the legal, valid and binding contract and agreement of such
Subsidiary enforceable in accordance with its terms, except as an
enforcement of such terms may be limited by bankruptcy, insolvency,
fraudulent conveyance and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles; and
(e) If at any time one or more Subsidiaries which shall have
guaranteed the Debt outstanding under the Bank Credit Agreement shall
have been released from its obligations under such Guaranty, then upon
delivery to the holders of the Notes of evidence of such release (which
evidence shall be reasonably satisfactory to the Required Holders),
such Subsidiary shall be released from its obligations under the
Guaranty Agreement.
SECTION 9.7. RATING FOR THE NOTES. Promptly following a request by the
holders of a majority in aggregate principal amount of the Series 1999-A Notes,
the Company will obtain a
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rating for the Notes from a Nationally Recognized Rating Agency; PROVIDED
that the Company shall not have to obtain a rating pursuant to any such
request on more than 2 occasions prior to the maturity of the Series 1999-A
Notes.
SECTION 10. NEGATIVE COVENANTS
The Company covenants that so long as any of the Notes are outstanding:
SECTION 10.1. CONSOLIDATED NET WORTH. The Company will not at any time
permit Consolidated Net Worth to be less than the sum of (a) $150,000,000, plus
(b) an aggregate amount equal to 40% of its Consolidated Net Income (but, in
each case, only if a positive number) for each fiscal quarter beginning with the
fiscal quarter ended September 30, 1999.
SECTION 10.2. LIMITATIONS ON FUNDED DEBT. The Company will not and will
not permit any Restricted Subsidiary to, create, assume or incur or in any
manner be or become liable in respect of any Funded Debt, except:
(a) Funded Debt evidenced by the Series 1999-A Notes;
(b) Funded Debt of the Company and its Restricted
Subsidiaries outstanding on the date of Closing and reflected on
Schedule 5.15 hereto;
(c) additional Funded Debt of the Company and its Restricted
Subsidiaries, PROVIDED that at the time of issuance thereof and after
giving effect thereto and to the application of the proceeds thereof:
(i) no Default or Event of Default exists;
(ii) the aggregate amount of Consolidated Funded Debt
does not exceed 55% of Total Capitalization; and
(iii) in the case any such Funded Debt is Priority
Debt, such Funded Debt is permitted by Section 10.3; and
(d) Funded Debt of a Restricted Subsidiary owed to the
Company or a Wholly-owned Restricted Subsidiary.
SECTION 10.3. LIMITATION ON PRIORITY DEBT. The Company will not at any
time permit Priority Debt to exceed 20% of Consolidated Net Worth (determined as
of the then most recently ended fiscal quarter of the Company).
SECTION 10.4. LIMITATION ON CURRENT DEBT. The Company will not, and will
not permit any Restricted Subsidiary to, incur any Consolidated Current Debt
UNLESS there shall have been during the immediately preceding twelve months a
period of at least 28 consecutive days on each of which the sum of (a) all
outstanding Consolidated Current Debt, and (b) all outstanding Consolidated
Funded Debt shall not have exceeded 55% of Total Capitalization.
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SECTION 10.5. FIXED CHARGES COVERAGE RATIO. The Company will not permit
the ratio of Consolidated Net Income Available for Fixed Charges to Fixed
Charges for the period consisting of the four immediately preceding fiscal
quarters ending on the last day of each fiscal quarter to be less than (i) 1.5
to 1.0 on or prior to December 31, 2000, and (ii) to be less than 1.75 to 1 for
any such period thereafter.
SECTION 10.6. LIMITATION ON LIENS. The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly create,
incur, assume or permit to exist (upon the happening of a contingency or
otherwise) any Lien on or with respect to any property or asset (including,
without limitation, any document or instrument in respect of goods or accounts
receivable) of the Company or any such Restricted Subsidiary, whether now owned
or held or hereafter acquired, or any income or profits therefrom, or assign or
otherwise convey any right to receive income or profits (unless it makes, or
causes to be made, effective provision whereby the Notes will be equally and
ratably secured with any and all other obligations thereby secured so long as
such other Debt shall be so secured, such security to be pursuant to an
agreement satisfactory to the holders of more than 50% in aggregate principal
amount of the Notes of each series then outstanding and, in any such case, the
Notes shall have the benefit, to the fullest extent that, and with such priority
as, the holders of the Notes may be entitled under applicable law, of an
equitable Lien on such property), except:
(a) Liens for taxes, assessments or other governmental
charges which are not yet due and payable or the payment of which is
not at the time required by Section 9.4;
(b) any attachment or judgment Lien, unless the judgment it
secures shall not, within 60 days after the entry thereof, have been
discharged or execution thereof stayed pending appeal, or shall not
have been discharged within 60 days after the expiration of any such
stay;
(c) Liens incidental to the conduct of business or the
ownership of properties and assets (including landlords', carriers',
warehousemen's, mechanics', materialmen's and other similar Liens) and
Liens to secure the performance of bids, tenders, leases, or trade
contracts, or to secure statutory obligations (including obligations
under workers compensation, unemployment insurance and other social
security legislation), surety or appeal bonds or other Liens incurred
in the ordinary course of business and not in connection with the
borrowing of money;
(d) leases or subleases granted to others, easements,
rights-of-way, restrictions and other similar charges or encumbrances,
in each case incidental to the ownership of property or assets or the
ordinary conduct of the business of the Company or any of its
Restricted Subsidiaries, PROVIDED that such Liens do not, in the
aggregate, materially detract from the value of such property;
(e) Liens incidental to minor survey exceptions and similar
Liens, PROVIDED that such Liens do not, in the aggregate, materially
detract from the value of such Property;
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(f) Liens securing Debt of a Restricted Subsidiary to the
Company or to another Wholly-Owned Restricted Subsidiary;
(g) Liens existing as of the date of Closing and reflected
in Schedule 10.6;
(h) Liens incurred after the date of Closing given to secure
the payment of the purchase price incurred in connection with the
acquisition or construction of property (other than accounts receivable
or inventory) useful and intended to be used in carrying on the
business of the Company or a Restricted Subsidiary, including Liens
existing on such property at the time of acquisition or construction
thereof, or Liens incurred within 365 days of such acquisition or the
completion of such construction, PROVIDED that (i) the Lien shall
attach solely to the property acquired, purchased or constructed, (ii)
at the time of acquisition or construction of such property, the
aggregate amount remaining unpaid on all Debt secured by Liens on such
property, whether or not assumed by the Company or a Restricted
Subsidiary, shall not exceed an amount equal to the lesser of the total
purchase price (or cost of construction) or Fair Market Value at the
time of acquisition or construction of such property (as determined in
good faith by one or more officers to whom authority to enter into the
transaction has been delegated by the Board of Directors of the
Company), and (iii) the aggregate principal amount of all Debt secured
by such Liens shall be permitted by the limitations set forth in
Sections 10.2(c);
(i) any Lien existing on property of a Person immediately
prior to its being consolidated with or merged into the Company or a
Restricted Subsidiary or its becoming a Restricted Subsidiary
(excluding Liens on Properties of an Unrestricted Subsidiary which was
formerly a Restricted Subsidiary and which is being redesignated as a
Restricted Subsidiary pursuant to Section 10.9), or any Lien existing
on any property acquired by the Company or any Restricted Subsidiary at
the time such property is so acquired (whether or not the Debt secured
thereby shall have been assumed), PROVIDED that (i) no such Lien shall
have been created or assumed in contemplation of such consolidation or
merger or such Person's becoming a Restricted Subsidiary or such
acquisition of property, (ii) each such Lien shall extend solely to the
item or items of property so acquired and, if required by the terms of
the instrument originally creating such Lien, other property which is
an improvement to or is acquired for specific use in connection with
such acquired property, (iii) at the time such Person is consolidated
with or merged into the Company or a Restricted Subsidiary or such
property is acquired, the aggregate amount remaining unpaid on all Debt
secured by Liens on such property, whether or not assumed by the
Company or a Restricted Subsidiary, shall not exceed an amount equal to
the lesser of the total purchase price (or cost of construction) or
Fair Market Value at the time of acquisition or construction of such
property (as determined in good faith by one or more officers to whom
authority to enter into the transaction has been delegated by the Board
of Directors of the Company), and (iv) the aggregate principal amount
of all Debt secured by such Liens shall be permitted by the limitations
set forth in Section 10.2(c);
(j) any extensions, renewals or replacements of any Lien
permitted by the preceding subparagraphs (f), (g), (h) or (i) of this
Section 10.6, PROVIDED that (i) no
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additional property shall be encumbered by such Liens, (ii) the unpaid
principal amount of the Debt secured thereby shall not be increased on
or after the date of any extension, renewal or replacement, (iii) the
weighted average life to maturity of the Debt secured by such Liens
shall not be reduced, and (iv) at such time and immediately after
giving effect thereto, no Default or Event of Default shall have
occurred and be continuing;
(k) Liens created in connection with Receivables
Securitizations; and
(l) in addition to the Liens permitted by the preceding
subparagraphs (a) through (k), inclusive, of this Section 10.6, Liens
securing Priority Debt of the Company or any Restricted Subsidiary,
PROVIDED that such Priority Debt shall be permitted by the limitations
set forth in Section 10.3.
SECTION 10.7. SALES OF ASSETS. The Company will not, and will not permit
any Restricted Subsidiary to, sell, lease or otherwise dispose of any
substantial part (as defined below) of the assets of the Company and its
Restricted Subsidiaries; PROVIDED, HOWEVER, that the Company or any Restricted
Subsidiary may sell, lease or otherwise dispose of assets constituting a
substantial part of the assets of the Company and its Restricted Subsidiaries if
such assets are sold for Fair Market Value and, at such time and after giving
effect thereto, no Default or Event of Default shall have occurred and be
continuing and an amount equal to the Net Proceeds received from such sale,
lease or other disposition shall be used within one year of such sale, lease or
disposition:
(1) to acquire property (including Investments in capital
stock of any entity which becomes a Restricted Subsidiary and/or a
purchase of assets of another business, individually or substantially
as an entity and in the same line of business as the Company), plant
and equipment used or useful in carrying on the business of the Company
and its Restricted Subsidiaries and having a Fair Market Value at least
equal to the Fair Market Value of such assets sold, leased or otherwise
disposed of; or
(2) to prepay or retire Senior Debt (including temporary
reductions of revolving credit facilities) of the Company and/or its
Restricted Subsidiaries. Any amount prepaid on the Notes pursuant to
this Section 10.6 will be prepaid, in compliance with Section 8.2.
As used in this Section 10.7, a sale, lease or other disposition of
assets shall be deemed to be a "SUBSTANTIAL PART" of the assets of the
Company and its Restricted Subsidiaries if the book value of such assets,
when added to the book value of all other assets sold, leased or otherwise
disposed of by the Company and its Restricted Subsidiaries (other than in
transactions (i) in the ordinary course of business, (ii) in which the
purchaser is the Company or a Restricted Subsidiary, (iii) which are Excluded
Sale and Leaseback Transactions, or (iv) which constitute the Simplex Asset
Disposition) (i) during the immediately preceding 12-month period, exceeds
15% of the book value of Consolidated Total Assets, determined as of the end
of the fiscal year
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immediately preceding such sale, lease or other disposition, or (ii) during
the period beginning on the date of Closing and ending on the date of such
sale, lease or other disposition, exceeds 30% of the book value of
Consolidated Total Assets, determined as of the fiscal year immediately
preceding such sale lease or other disposition. For purposes of determining
whether assets sold by the Company and its Restricted Subsidiaries during any
period constitute a "substantial part" of the assets of the Company, to the
extent that the Net Proceeds from the disposition of such assets shall be
applied in accordance with the terms of the preceding paragraph, the book
value of such assets shall be excluded from the calculation of a "substantial
part" of the assets of the Company. In addition, if the disposition of any
assets (after giving effect to the disposition of all other assets previously
disposed of during the applicable period and the application of the Net
Proceeds from such disposition in accordance with the previous sentence)
would cause the Company to exceed the limitation on the sale of assets set
forth herein, only the Net Proceeds from the most recent asset disposition or
dispositions which would cause such limitation to be exceeded shall be
required to be applied in accordance with the preceding paragraph.
SECTION 10.8. MERGER, CONSOLIDATION AND SALE OF STOCK. (a) The Company
will not, and will not permit any Restricted Subsidiary to, consolidate with or
be a party to a merger with any other corporation; PROVIDED, HOWEVER, that:
(1) any Restricted Subsidiary may merge or consolidate with
or into the Company or any other Person, so long as in any merger or
consolidation involving the Company, the Company shall be the surviving
or continuing corporation and in any merger involving a Restricted
Subsidiary, such Restricted Subsidiary or another Restricted Subsidiary
is the surviving or continuing entity; and
(2) the Company may consolidate or merge with any other
Person if (i) either (x) the Company shall be the surviving or
continuing corporation, or (y) if the surviving or continuing entity is
other than the Company, (A) such entity is organized under the laws of
the United States or any jurisdiction thereof, (B) such entity
expressly assumes, by written agreement satisfactory in scope and form
to the Required Holders in aggregate principal amount of the
outstanding Notes, all obligations of the Company under the Notes and
this Agreement, (C) such entity shall cause to be delivered to each
holder of Notes an opinion of independent counsel to the effect that
all agreements or instruments effecting such assumption are enforceable
in accordance with their terms and comply with the provisions of this
Section 10.8 and otherwise satisfactory in scope and form to the
Required Holders in aggregate principal amount of the outstanding
Notes, (ii) at the time of such consolidation or merger and after
giving effect thereto, no Default or Event of Default shall have
occurred and be continuing, and (iii) at the time of such consolidation
or merger and after giving effect thereto, the Company could incur
$1.00 of additional Consolidated Funded Debt pursuant to Section
10.2(c).
(b) The Company will not permit any Restricted Subsidiary to issue or
sell any shares of stock of any class (including as Astock@ for the purposes of
this Section 10.8(b), any warrants, rights or options to purchase or otherwise
acquire stock or other securities exchangeable for or convertible into stock) of
such Restricted Subsidiary to any Person other than the Company or Wholly-Owned
Restricted Subsidiary, except for the purpose of qualifying directors, or except
in satisfaction of the validly pre-existing preemptive rights of minority
shareholders in connection with the simultaneous issuance of stock to the
Company and/or a Restricted Subsidiary whereby
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the Company and/or such Restricted Subsidiary maintain their same
proportionate interest in such Restricted Subsidiary.
(c) The Company will not sell, transfer or otherwise dispose of any
shares of stock of any Restricted Subsidiary (except to qualify directors), and
will not permit any Restricted Subsidiary to sell, transfer or otherwise dispose
of (except to the Company or another Restricted Subsidiary) any shares of stock
of any other Restricted Subsidiary, unless such sale or other disposition can be
made within the limitations of Section 10.7.
SECTION 10.9. DESIGNATION OF RESTRICTED AND UNRESTRICTED
SUBSIDIARIES. (a) The Board of Directors of the Company may designate any
Unrestricted Subsidiary as a Restricted Subsidiary and may designate any
Restricted Subsidiary as an Unrestricted Subsidiary, PROVIDED that (i) at
such time and immediately after giving effect thereto no Default or Event of
Default shall have occurred and be continuing, and (ii) the designation of
such Subsidiary as Restricted or Unrestricted shall not be changed pursuant
to this Section 10.9 on more than two occasions. The Company shall give
written notice of such action to each holder of a Note within 10 days after
the designation of any Subsidiary as Restricted or Unrestricted. Any
Subsidiary acquired or created by the Company after the date of this
Agreement will be a Restricted Subsidiary unless such Subsidiary shall be
designated an Unrestricted Subsidiary in accordance with this Section 10.9.
(b) The Company acknowledges and agrees that if, after the date
hereof, any Person becomes a Restricted Subsidiary, all Debt, leases and
other obligations and all Liens and Investments of such Person existing as of
the date such Person becomes a Restricted Subsidiary shall be deemed, for all
purposes of this Agreement, to have been incurred, entered into, made or
created at the same time such Person so becomes a Restricted Subsidiary.
SECTION 10.10. NATURE OF BUSINESS. Neither the Company nor any
Restricted Subsidiary will engage in any business if, as a result, the
general nature of the business, taken on a consolidated basis, which would
then be engaged in by the Company and its Restricted Subsidiaries would be
substantially changed from the general nature of the business engaged in by
the Company and its Restricted Subsidiaries on the date of this Agreement.
SECTION 10.11. TRANSACTIONS WITH AFFILIATES. The Company will not and
will not permit any Restricted Subsidiary to enter into directly or
indirectly any Material transaction or Material group of related transactions
(including without limitation the purchase, lease, sale or exchange of
properties of any kind or the rendering of any service) with any Affiliate
(other than the Company or another Restricted Subsidiary), except pursuant to
the reasonable conduct of the Company's or such Restricted Subsidiary's
business and upon fair and reasonable terms no less favorable to the Company
or such Restricted Subsidiary than would be obtainable in a comparable
arm's-length transaction with a Person not an Affiliate.
SECTION 11. EVENTS OF DEFAULT
An "EVENT OF DEFAULT" shall exist if any of the following conditions or
events shall occur and be continuing:
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(a) the Company defaults in the payment of any principal or
Make-Whole Amount, if any, on any Note when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise; or
(b) the Company defaults in the payment of any interest on
any Note for more than five Business Days after the same becomes due
and payable; or
(c) the Company defaults in the performance of or compliance
with any term contained in Section 10 and such default is not remedied
within 10 days after the earlier of (i) a Responsible Officer obtaining
actual knowledge of such default and (ii) the Company receiving written
notice of such default from any holder of a Note (any such written
notice to be identified as a "notice of default" and to refer
specifically to this paragraph (c) of Section 11); or
(d) the Company defaults in the performance of or compliance
with any term contained herein or in any Supplement (other than those
referred to in paragraphs (a), (b) and (c) of this Section 11) and such
default is not remedied within 30 days after the earlier of (i) a
Responsible Officer obtaining actual knowledge of such default and (ii)
the Company receiving written notice of such default from any holder of
a Note (any such written notice to be identified as a "notice of
default" and to refer specifically to this paragraph (d) of Section
11); or
(e) any representation or warranty made in writing by or on
behalf of the Company or by any officer of the Company in this
Agreement or any Supplement or in any writing furnished in connection
with the transactions contemplated hereby proves to have been false or
incorrect in any Material respect on the date as of which made; or
(f) (i) the Company or any Restricted Subsidiary is in
default (as principal or as guarantor or other surety) in the payment
of any principal of or premium or make-whole amount or interest in an
amount of at least $100,000 on any Debt that is outstanding in an
aggregate principal amount of at least $5,000,000 beyond any period of
grace provided with respect thereto, or (ii) the Company or any
Restricted Subsidiary is in default in the performance of or compliance
with any term of any evidence of any Debt in an aggregate outstanding
principal amount of at least $5,000,000 or of any mortgage, indenture
or other agreement relating thereto or any other condition exists, and
as a consequence of such default or condition (which default or
condition shall be continuing and unwaived by the holders of such Debt)
such Debt has become, or has been declared (or one or more Persons are
entitled to declare such Debt to be), due and payable before its stated
maturity or before its regularly scheduled dates of payment, or (iii)
as a consequence of the occurrence or continuation of any event or
condition (other than the passage of time or the right of the holder of
Debt to convert such Debt into equity interests), (x) the Company or
any Restricted Subsidiary has become obligated to purchase or repay
Debt before its regular maturity or before its regularly scheduled
dates of payment in an aggregate outstanding principal amount of at
least $5,000,000, or (y) one or more Persons have the right to require
the Company or any Restricted Subsidiary so to purchase or repay such
Debt; or
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(g) the Company or any Significant Subsidiary (i) is
generally not paying, or admits in writing its inability to pay, its
debts as they become due, (ii) files, or consents by answer or
otherwise to the filing against it of, a petition for relief or
reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction,
(iii) makes an assignment for the benefit of its creditors, (iv)
consents to the appointment of a custodian, receiver, trustee or other
officer with similar powers with respect to it or with respect to any
substantial part of its property, (v) is adjudicated as insolvent or to
be liquidated, or (vi) takes corporate action for the purpose of any of
the foregoing; or
(h) a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by the Company
or any Significant Subsidiary, a custodian, receiver, trustee or other
officer with similar powers with respect to it or with respect to any
substantial part of its property, or constituting an order for relief
or approving a petition for relief or reorganization or any other
petition in bankruptcy or for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the
dissolution, winding-up or liquidation of the Company or any of its
Significant Subsidiaries, or any such petition shall be filed against
the Company or any of its Significant Subsidiaries and such petition
shall not be dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money
aggregating in excess of $5,000,000 are rendered against one or more of
the Company or any Restricted Subsidiary and which judgments are not,
within 60 days after entry thereof, bonded, discharged or stayed
pending appeal, or are not discharged within 60 days (or such lesser
period of time as applicable law or rules of court allow a judgment
creditor to levy on such judgments) after the expiration of such stay;
or
(j) If (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is
sought or granted under Section 412 of the Code, (ii) a notice of
intent to terminate any Plan shall have been or is reasonably expected
to be filed with the PBGC or the PBGC shall have instituted proceedings
under Section 4042 of ERISA to terminate or appoint a trustee to
administer any Plan or the PBGC shall have notified the Company or any
ERISA Affiliate that a Plan may become a subject of any such
proceedings, (iii) the aggregate "amount of unfunded benefit
liabilities" (within the meaning of Section 4001(a)(18) of ERISA) under
all Plans, determined in accordance with Title IV of ERISA, shall
exceed $5,000,000, (iv) the Company or any ERISA Affiliate shall have
incurred or is reasonably expected to incur any liability pursuant to
Title I or IV of ERISA or the penalty or excise tax provisions of the
Code relating to employee benefit plans, (v) the Company or any ERISA
Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or
any Subsidiary establishes or amends any employee welfare benefit plan
that provides post-employment welfare benefits in a manner that would
increase the liability of the Company or any Subsidiary thereunder; and
any such event or events described in clauses (i) through (vi) above,
either
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individually or together with any other such event or events, could
reasonably be expected to have a Material Adverse Effect.
As used in Section 11(j), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE
WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms
in Section 3 of ERISA; or
(k) Default shall occur in the observance or performance of
any provision of the Guaranty Agreement or the Guaranty Agreement shall
cease to be in full force and effect for any reason whatsoever,
including, without limitation, a final and nonappealable determination
by any governmental body or court that the Guaranty Agreement is
invalid, void or unenforceable as to one or more Restricted
Subsidiaries, or any Restricted Subsidiary shall contest or deny in
writing the validity or enforceability of any provision of, or
obligation under, the Guaranty Agreement.
SECTION 12. REMEDIES ON DEFAULT, ETC.
SECTION 12.1. ACCELERATION. (a) If an Event of Default with respect
to the Company described in paragraph (g) or (h) of Section 11 (other than an
Event of Default described in clause (i) of paragraph (g) or described in
clause (vi) of paragraph (g) by virtue of the fact that such clause
encompasses clause (i) of paragraph (g)) has occurred, all the Notes of every
series then outstanding shall automatically become immediately due and
payable.
(b) If any other Event of Default has occurred and is continuing, any
holder or holders of more than 50% in principal amount of the Notes at the time
outstanding may at any time at its or their option, by notice or notices to the
Company, declare all the Notes then outstanding to be immediately due and
payable.
(c) If any Event of Default described in paragraph (a) or (b) of
Section 11 has occurred and is continuing with respect to any series of Notes,
any holder or holders of Notes at the time outstanding affected by such Event of
Default may at any time, at its or their option, by notice or notices to the
Company, declare all the Notes of such series held by it or them to be
immediately due and payable.
Upon any Note's becoming due and payable under this Section 12.1,
whether automatically or by declaration, such Note will forthwith mature and the
entire unpaid principal amount of such Note, plus (i) all accrued and unpaid
interest thereon and (ii) the Make-Whole Amount determined in respect of such
principal amount (to the full extent permitted by applicable law), shall all be
immediately due and payable, in each and every case without presentment, demand,
protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for) and that the provision for payment
of a Make-Whole Amount by the Company in the event that the Notes are prepaid or
are accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.
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SECTION 12.2. OTHER REMEDIES. If any Default or Event of Default has
occurred and is continuing, and irrespective of whether any Notes have become
or have been declared immediately due and payable under Section 12.1, the
holder of any Note at the time outstanding may proceed to protect and enforce
the rights of such holder by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any agreement
contained herein or in any Note, or for an injunction against a violation of
any of the terms hereof or thereof, or in aid of the exercise of any power
granted hereby or thereby or by law or otherwise.
SECTION 12.3. RESCISSION. At any time after any Notes of any series
have been declared due and payable pursuant to clause (b) or (c) of Section
12.1, the holders of more than 50% in principal amount of the Notes of all
series then outstanding, by written notice to the Company, may rescind and
annul any such declaration and its consequences if (a) the Company has paid
all overdue interest on the Notes of such series, all principal of and
Make-Whole Amount, if any, on any Notes of such series that are due and
payable and are unpaid other than by reason of such declaration, and all
interest on such overdue principal and Make-Whole Amount, if any, and (to the
extent permitted by applicable law) any overdue interest in respect of the
Notes of such series, at the Default Rate, (b) all Events of Default and
Defaults, other than non-payment of amounts that have become due solely by
reason of such declaration, have been cured or have been waived pursuant to
Section 17, and (c) no judgment or decree has been entered for the payment of
any monies due pursuant hereto or to any Notes. No rescission and annulment
under this Section 12.3 will extend to or affect any subsequent Event of
Default or Default or impair any right consequent thereon.
SECTION 12.4. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC. No
course of dealing and no delay on the part of any holder of any Note in
exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power
or remedy conferred by this Agreement or by any Note upon any holder thereof
shall be exclusive of any other right, power or remedy referred to herein or
therein or now or hereafter available at law, in equity, by statute or
otherwise. Without limiting the obligations of the Company under Section 15,
the Company will pay to the holder of each Note on demand such further amount
as shall be sufficient to cover all costs and expenses of such holder
incurred in any enforcement or collection under this Section 12, including,
without limitation, reasonable attorneys' fees, expenses and disbursements.
SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
SECTION 13.1. REGISTRATION OF NOTES. The Company shall keep at its
principal executive office a register for the registration and registration
of transfers of Notes. The name and address of each holder of one or more
Notes, each transfer thereof and the name and address of each transferee of
one or more Notes shall be registered in such register. Prior to due
presentment for registration of transfer, the Person in whose name any Note
shall be registered shall be deemed and treated as the owner and holder
thereof for all purposes hereof, and the Company shall not be affected by any
notice or knowledge to the
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contrary. The Company shall give to any holder of a Note that is an
Institutional Investor promptly upon request therefor, a complete and correct
copy of the names and addresses of all registered holders of Notes.
SECTION 13.2. TRANSFER AND EXCHANGE OF NOTES. Upon surrender of any
Note at the principal executive office of the Company for registration of
transfer or exchange (and in the case of a surrender for registration of
transfer, duly endorsed or accompanied by a written instrument of transfer
duly executed by the registered holder of such Note or its attorney duly
authorized in writing and accompanied by the address for notices of each
transferee of such Note or part thereof), the Company shall execute and
deliver, at the Company's expense (except as provided below), one or more new
Notes (as requested by the holder thereof) of an identical series (and of an
identical tranche if such series has separate tranches) in exchange therefor,
in an aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Each such new Note shall be payable to such Person as such
holder may request and shall be substantially in the form of the Note of such
series originally issued hereunder or pursuant to any Supplement. Each such
new Note shall be dated and bear interest from the date to which interest
shall have been paid on the surrendered Note or dated the date of the
surrendered Note if no interest shall have been paid thereon. The Company may
require payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any such transfer of Notes. Notes shall not be
transferred in denominations of less than $100,000, PROVIDED that if
necessary to enable the registration of transfer by a holder of its entire
holding of Notes, one Note may be in a denomination of less than $100,000.
Any transferee, by its acceptance of a Note registered in its name (or the
name of its nominee), shall be deemed to have made the representation set
forth in Section 6.2, PROVIDED that such holder may (in reliance upon
information provided by the Company, which shall not be unreasonably
withheld) make a representation to the effect that the purchase by such
holder of any Note will not constitute a non-exempt prohibited transaction
under Section 406(a) of ERISA.
SECTION 13.3. REPLACEMENT OF NOTES. Upon receipt by the Company of
evidence reasonably satisfactory to it of the ownership of and the loss,
theft, destruction or mutilation of any Note (which evidence shall be, in the
case of an Institutional Investor, notice from such Institutional Investor of
such ownership and such loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (PROVIDED that if the holder of such Note
is, or is a nominee for, an original Purchaser or another holder of a
Note with a minimum net worth of at least $10,000,000, such Person's
own unsecured agreement of indemnity shall be deemed to be
satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a new
Note of an identical series (and of an identical tranche if such series has
separate tranches), dated and bearing interest from the date to which interest
shall have been paid on such lost, stolen, destroyed or mutilated Note or dated
the date of such lost, stolen,
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destroyed or mutilated Note if no interest shall have been paid thereon.
SECTION 14. PAYMENTS ON NOTES.
SECTION 14.1. PLACE OF PAYMENT. Subject to Section 14.2, payments of
principal, Make-Whole Amount, if any, and interest becoming due and payable
on the Notes shall be made in New York, New York at the principal office of
Bank of America National Trust and Savings Association in such jurisdiction.
The Company may at any time, by notice to each holder of a Note, change the
place of payment of the Notes so long as such place of payment shall be
either the principal office of the Company in such jurisdiction or the
principal office of a bank or trust company in such jurisdiction.
SECTION 14.2. HOME OFFICE PAYMENT. So long as any Purchaser or such
Purchaser's nominee shall be the holder of any Note, and notwithstanding
anything contained in Section 14.1 or in such Note to the contrary, the
Company will pay all sums becoming due on such Note for principal, Make-Whole
Amount, if any, and interest by the method and at the address specified for
such purpose for such Purchaser on Schedule A hereto or Schedule A attached
to any Supplement, or by such other method or at such other address as such
Purchaser shall have from time to time specified to the Company in writing
for such purpose, without the presentation or surrender of such Note or the
making of any notation thereon, except that upon written request of the
Company made concurrently with or reasonably promptly after payment or
prepayment in full of any Note, such Purchaser shall surrender such Note for
cancellation, reasonably promptly after any such request, to the Company at
its principal executive office or at the place of payment most recently
designated by the Company pursuant to Section 14.1. Prior to any sale or
other disposition of any Note held by any Purchaser or such Purchaser's
nominee such Purchaser will, at its election, either endorse thereon the
amount of principal paid thereon and the last date to which interest has been
paid thereon or surrender such Note to the Company in exchange for a new Note
or Notes of the same series pursuant to Section 13.2. The Company will afford
the benefits of this Section 14.2 to any Institutional Investor that is the
direct or indirect transferee of any Note.
SECTION 15. EXPENSES, ETC.
SECTION 15.1. TRANSACTION EXPENSES. Whether or not the transactions
contemplated hereby are consummated, the Company will pay all costs and
expenses (including reasonable attorneys' fees of a special counsel and, if
reasonably required, local or other counsel) incurred by each Purchaser and
each other holder of a Note in connection with such transactions and in
connection with any amendments, waivers or consents under or in respect of
this Agreement (including any Supplement), the Guaranty Agreement or the
Notes (whether or not such amendment, waiver or consent becomes effective),
including, without limitation: (a) the costs and expenses incurred in
enforcing or defending (or determining whether or how to enforce or defend)
any rights under this Agreement (including any Supplement), the Guaranty
Agreement or the Notes or in responding to any subpoena or other legal
process or informal investigative demand issued in connection with this
Agreement (including any Supplement), the Guaranty or the Notes, or by reason
of being a holder of any Note, and (b) the
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costs and expenses, including financial advisors' fees, incurred in
connection with the insolvency or bankruptcy of the Company or any Subsidiary
or in connection with any work-out or restructuring of the transactions
contemplated hereby and by the Notes. The Company will pay, and will save
each Purchaser and each other holder of a Note harmless from, all claims in
respect of any fees, costs or expenses if any, of brokers and finders (other
than those retained by the Purchasers).
SECTION 15.2. SURVIVAL. The obligations of the Company under this
Section 15 will survive the payment or transfer of any Note, the enforcement,
amendment or waiver of any provision of this Agreement, any Supplement or the
Notes, and the termination of this Agreement or any Supplement.
SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
AGREEMENT.
All representations and warranties contained herein or in any
Supplement shall survive the execution and delivery of this Agreement, such
Supplement and the Notes, the purchase or transfer by any Purchaser or any
Additional Purchaser of any Note or portion thereof or interest therein and
may be relied upon by any subsequent holder of a Note, regardless of any
investigation made at any time by or on behalf of any Purchaser or any
Additional Purchaser or any other holder of a Note. All statements contained
in any certificate or other instrument delivered by or on behalf of the
Company pursuant to this Agreement or any Supplement shall be deemed
representations and warranties of the Company under this Agreement. Subject
to the preceding sentence, this Agreement (including every Supplement) and
the Notes embody the entire agreement and understanding between the
Purchasers and the Additional Purchasers and the Company and supersede all
prior agreements and understandings relating to the subject matter hereof.
SECTION 17. AMENDMENT AND WAIVER.
SECTION 17.1. REQUIREMENTS. (a) This Agreement (including any
Supplement) and the Notes may be amended, and the observance of any term
hereof or of the Notes may be waived (either retroactively or prospectively),
with (and only with) the written consent of the Company and the holders of
Notes holding more than 50% in aggregate principal amount of the Notes of
each series at the time outstanding, except that (a) no amendment or waiver
of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any
defined term (as it is used therein), will be effective as to any Purchaser
unless consented to by such Purchaser in writing, and (b) no such amendment
or waiver may, without the written consent of the all of the holders of Notes
of all series at the time outstanding affected thereby, (i) subject to the
provisions of Section 12 relating to acceleration or rescission, change the
amount or time of any prepayment or payment of principal of, or reduce the
rate or change the time of payment or method of computation of interest or of
the Make-Whole Amount on, the Notes of such series, (ii) change the
percentage of the principal amount of the Notes the holders of which are
required to consent to any such amendment or waiver, or (iii) amend any of
Sections 8, 11(a), 11(b), 12, 17 or 20.
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(b) SUPPLEMENTS. Notwithstanding anything to the contrary contained
herein, the Company may enter into any Supplement providing for the issuance
of one or more series of Additional Notes consistent with Sections 2.2 and
4.11 hereof without obtaining the consent of any holder of any other series
of Notes.
SECTION 17.2. SOLICITATION OF HOLDERS OF NOTES.
(a) SOLICITATION. The Company will provide each holder of the Notes
(irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required,
to enable such holder to make an informed and considered decision with
respect to any proposed amendment, waiver or consent in respect of any of the
provisions hereof, any Supplement or of the Notes. The Company will deliver
executed or true and correct copies of each amendment, waiver or consent
effected pursuant to the provisions of this Section 17 to each holder of
outstanding Notes promptly following the date on which it is executed and
delivered by, or receives the consent or approval of, the requisite holders
of Notes.
(b) PAYMENT. The Company will not directly or indirectly pay or
cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to any holder
of Notes as consideration for or as an inducement to the entering into by any
holder of Notes of any waiver or amendment of any of the terms and provisions
hereof or any Supplement unless such remuneration is concurrently paid, or
security is concurrently granted, on the same terms, ratably to each holder
of Notes then outstanding even if such holder did not consent to such waiver
or amendment.
SECTION 17.3. BINDING EFFECT, ETC. Any amendment or waiver consented
to as provided in this Section 17 applies equally to all holders of Notes and
is binding upon them and upon each future holder of any Note and upon the
Company without regard to whether such Note has been marked to indicate such
amendment or waiver. No such amendment or waiver will extend to or affect any
obligation, covenant, agreement, Default or Event of Default not expressly
amended or waived or impair any right consequent thereon. No course of
dealing between the Company and the holder of any Note nor any delay in
exercising any rights hereunder or under any Note shall operate as a waiver
of any rights of any holder of such Note. As used herein, the term "this
Agreement" and references thereto shall mean this Agreement as it may from
time to time be amended or supplemented.
SECTION 17.4. NOTES HELD BY COMPANY, ETC. Solely for the purpose of
determining whether the holders of the requisite percentage of the aggregate
principal amount of Notes then outstanding approved or consented to any
amendment, waiver or consent to be given under this Agreement or the Notes,
or have directed the taking of any action provided herein or in the Notes to
be taken upon the direction of the holders of a specified percentage of the
aggregate principal amount of Notes then outstanding, Notes directly or
indirectly owned by the Company or any of its Affiliates shall be deemed not
to be outstanding.
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SECTION 18. NOTICES.
All notices and communications provided for hereunder shall be in
writing and sent (a) by telefacsimile if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery
service (with charges prepaid). Any such notice must be sent:
(i) if to a Purchaser or such Purchaser's nominee, to such
Purchaser or such Purchaser's nominee at the address specified for such
communications in Schedule A to this Agreement or any Supplement, or at
such other address as such Purchaser or such Purchaser's nominee shall
have specified to the Company in writing,
(ii) if to any other holder of any Note, to such holder at
such address as such other holder shall have specified to the Company
in writing, or
(iii) if to the Company, to the Company at its address set
forth at the beginning hereof to the attention of Chief Financial
Officer, or at such other address as the Company shall have specified
to the holder of each Note in writing.
Notices under this Section 18 will be deemed given only when actually received.
SECTION 19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications that may
hereafter be executed, (b) documents received by each Purchaser at the
Closing (except the Notes themselves), and (c) financial statements,
certificates and other information previously or hereafter furnished to each
Purchaser, may be reproduced by such Purchaser by any photographic,
photostatic, microfilm, microcard, miniature photographic or other similar
process and such Purchaser may destroy any original document so reproduced.
The Company agrees and stipulates that, to the extent permitted by applicable
law, any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by
such Purchaser in the regular course of business) and any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence. This Section 19 shall not prohibit the Company or any
other holder of Notes from contesting any such reproduction to the same
extent that it could contest the original, or from introducing evidence to
demonstrate the inaccuracy of any such reproduction.
SECTION 20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "CONFIDENTIAL INFORMATION" means
information delivered to any Purchaser by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by or otherwise
pursuant to this Agreement that is proprietary in
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nature and that was clearly marked or labeled or otherwise adequately
identified when received by such Purchaser as being confidential information
of the Company or such Subsidiary, PROVIDED that such term does not include
information that (a) was publicly known or otherwise known to such Purchaser
prior to the time of such disclosure, (b) subsequently becomes publicly known
through no act or omission by such Purchaser or any Person acting on such
Purchaser's behalf, (c) otherwise becomes known to such Purchaser other than
through disclosure by the Company or any Subsidiary or (d) constitutes
financial statements delivered to such Purchaser under Section 7.1 that are
otherwise publicly available. Each Purchaser will maintain the
confidentiality of such Confidential Information in accordance with
procedures adopted by such Purchaser in good faith to protect confidential
information of third parties delivered to such Purchaser, provided that such
Purchaser may deliver or disclose Confidential Information to (i) such
Purchaser's directors, trustees, officers, employees, agents, attorneys and
affiliates (to the extent such disclosure reasonably relates to the
administration of the investment represented by such Purchaser's Notes), (ii)
such Purchaser's financial advisors and other professional advisors who agree
to hold confidential the Confidential Information substantially in accordance
with the terms of this Section 20, (iii) any other holder of any Note, (iv)
any Institutional Investor to which such Purchaser sells or offers to sell
such Note or any part thereof or any participation therein (if such Person
has agreed in writing prior to its receipt of such Confidential Information
to be bound by the provisions of this Section 20), (v) any Person from which
such Purchaser offers to purchase any security of the Company (if such Person
has agreed in writing prior to its receipt of such Confidential Information
to be bound by the provisions of this Section 20), (vi) any federal or state
regulatory authority having jurisdiction over such Purchaser, (vii) the
National Association of Insurance Commissioners or any similar organization,
or any nationally recognized rating agency that requires access to
information about such Purchaser's investment portfolio, or (viii) any other
Person to which such delivery or disclosure may be necessary or appropriate
(w) to effect compliance with any law, Rule, regulation or order applicable
to such Purchaser, (x) in response to any subpoena or other legal process,
(y) in connection with any litigation to which such Purchaser is a party or
(z) if an Event of Default has occurred and is continuing, to the extent such
Purchaser may reasonably determine such delivery and disclosure to be
necessary or appropriate in the enforcement or for the protection of the
rights and remedies under such Purchaser's Notes and this Agreement. Each
holder of a Note, by its acceptance of a Note, will be deemed to have agreed
to be bound by and to be entitled to the benefits of this Section 20 as
though it were a party to this Agreement. On reasonable request by the
Company in connection with the delivery to any holder of a Note of
information required to be delivered to such holder under this Agreement or
requested by such holder (other than a holder that is a party to this
Agreement or its nominee), such holder will enter into an agreement with the
Company embodying the provisions of this Section 20.
SECTION 21. SUBSTITUTION OF PURCHASER.
Each Purchaser shall have the right to substitute any one of such
Purchaser's Affiliates as the purchaser of the Notes that such Purchaser has
agreed to purchase hereunder, by written notice to the Company, which notice
shall be signed by both such Purchaser and such Purchaser's Affiliate, shall
contain such Affiliate's agreement to be bound by this Agreement and shall
contain a confirmation by such Affiliate of the accuracy with respect to it of
the
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representations set forth in Section 6. Upon receipt of such notice, wherever
the word "Purchaser" is used in this Agreement (other than in this Section
21), such word shall be deemed to refer to such Affiliate in lieu of such
Purchaser. In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to such Purchaser all of
the Notes then held by such Affiliate, upon receipt by the Company of notice
of such transfer, wherever the word "Purchaser" is used in this Agreement
(other than in this Section 21), such word shall no longer be deemed to refer
to such Affiliate, but shall refer to such Purchaser, and such Purchaser
shall have all the rights of an original holder of the Notes under this
Agreement.
SECTION 22. MISCELLANEOUS.
SECTION 22.1. SUCCESSORS AND ASSIGNS. All covenants and other
agreements contained in this Agreement (including all covenants and other
agreements contained in any Supplement) by or on behalf of any of the parties
hereto bind and inure to the benefit of their respective successors and
assigns (including, without limitation, any subsequent holder of a Note)
whether so expressed or not.
SECTION 22.2. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this
Agreement or the Notes to the contrary notwithstanding, any payment of
principal of or Make-Whole Amount or interest on any Note that is due on a
date other than a Business Day shall be made on the next succeeding Business
Day without including the additional days elapsed in the computation of the
interest payable on such next succeeding Business Day.
SECTION 22.3. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall (to the
full extent permitted by law) not invalidate or render unenforceable such
provision in any other jurisdiction.
SECTION 22.4. CONSTRUCTION. Each covenant contained herein shall be
construed (absent express provision to the contrary) as being independent of
each other covenant contained herein, so that compliance with any one
covenant shall not (absent such an express contrary provision) be deemed to
excuse compliance with any other covenant. Where any provision herein refers
to action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken
directly or indirectly by such Person.
SECTION 22.5. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies hereof, each signed by less than all, but together signed by
all, of the parties hereto.
SECTION 22.6. SUBMISSION TO JURISDICTION. The Company hereby irrevocably
submits and consents to the jurisdiction of the federal court located within the
County of New York, State of
-42-
<PAGE>
New York (or if such court lacks jurisdictions, the State courts located
therein), and irrevocably agrees that all actions or proceedings relating to
this Agreement and the Notes may be litigated in such courts, and the Company
waives any objection which it may have based on improper venue or FORUM NON
CONVENIENS to the conduct of any proceeding in any such court and waives
personal service of any and all process upon it, and consents that all such
service of process be made by delivery to it at the address of the Company
set forth in Section 18 above.
SECTION 22.7. GOVERNING LAW. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed
by, the law of the State of New York excluding choice-of-law principles of
the law of such State that would require the application of the laws of a
jurisdiction other than such State.
* * * * *
-43-
<PAGE>
The execution hereof by the Purchasers shall constitute a contract
among the Company and the Purchasers for the uses and purposes hereinabove set
forth. This Agreement may be executed in any number of counterparts, each
executed counterpart constituting an original but all together only one
agreement.
Signature Very truly yours,
K2 INC.
By
Name:
-------------------------
Title:
-------------------------
-44-
<PAGE>
Accepted as of December 1, 1999
[VARIATION]
By
Name:
-------------------------
Title:
-------------------------
-45-
<PAGE>
PRINCIPAL AMOUNT OF
NAME AND ADDRESS SERIES 1999-A NOTES
OF PURCHASERS TO BE PURCHASED
CONNECTICUT GENERAL LIFE INSURANCE COMPANY $11,700,000
c/o CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, Connecticut 06152-2307
Attention: Private Securities Division - S-307
Fax: 860-726-7203
Payments
All payments on or in respect of the Note to be by bank wire transfer of Federal
or other immediately available funds (identifying each payment as "K2 Inc.,
8.41% Series 1999-A Senior Note due December 1, 2009, PPN 482732 A* 5, principal
or interest") to:
Chase NYC/CTR/
BNF=CIGNA Private Placements/AC=9009001802
ABA #021000021
Address for Notices Related to Payments:
CIG & Co.
c/o CIGNA Investments, Inc.
Attention: Securities Processing S-309
900 Cottage Grove Road
Hartford, Connecticut 06152-2309
CIG & Co.
c/o CIGNA Investments, Inc.
Attention: Private Securities - S-307
Operations Group
900 Cottage Grove Road
Hartford, Connecticut 06152-2307
Fax: 860-726-7203
with a copy to:
Chase Manhattan Bank, N.A.
Private Placement Servicing
P. O. Box 1508
Bowling Green Station
New York, New York 10081
Attention: CIGNA Private Placements
Fax: 212-552-3107/1005
SCHEDULE A
(to Note Purchase Agreement)
<PAGE>
Address for All Other Notices:
CIG & Co.
c/o CIGNA Investments, Inc.
Attention: Private Securities Division - S-307
900 Cottage Grove Road
Hartford, Connecticut 06152-2307
Fax: 860-726-7203
Name of Nominee in which Notes are to be issued: CIG & Co.
Taxpayer I.D. Number for CIG & Co.: 13-3574027
-2-
<PAGE>
PRINCIPAL AMOUNT OF
NAME AND ADDRESS SERIES 1999-A NOTES
OF PURCHASERS TO BE PURCHASED
CONNECTICUT GENERAL LIFE INSURANCE COMPANY $5,800,000
c/o CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, Connecticut 06152-2307
Attention: Private Securities Division - S-307
Fax: 860-726-7203
Payments
All payments on or in respect of the Note to be by bank wire transfer of Federal
or other immediately available funds (identifying each payment as "K2 Inc.,
8.41% Series 1999-A Senior Note due December 1, 2009, PPN 482732 A* 5, principal
or interest") to:
Chase NYC/CTR/
BNF=CIGNA Private Placements/AC=9009001802
ABA #021000021
Address for Notices Related to Payments:
CIG & Co.
c/o CIGNA Investments, Inc.
Attention: Securities Processing S-309
900 Cottage Grove Road
Hartford, Connecticut 06152-2309
CIG & Co.
c/o CIGNA Investments, Inc.
Attention: Private Securities - S-307
Operations Group
900 Cottage Grove Road
Hartford, Connecticut 06152-2307
Fax: 860-726-7203
-3-
<PAGE>
with a copy to:
Chase Manhattan Bank, N.A.
Private Placement Servicing
P. O. Box 1508
Bowling Green Station
New York, New York 10081
Attention: CIGNA Private Placements
Fax: 212-552-3107/1005
Address for All Other Notices:
CIG & Co.
c/o CIGNA Investments, Inc.
Attention: Private Securities Division - S-307
900 Cottage Grove Road
Hartford, Connecticut 06152-2307
Fax: 860-726-7203
Name of Nominee in which Notes are to be issued: CIG & Co.
Taxpayer I.D. Number for CIG & Co.: 13-3574027
-4-
<PAGE>
PRINCIPAL AMOUNT OF
NAME AND ADDRESS SERIES 1999-A NOTES
OF PURCHASERS TO BE PURCHASED
CONNECTICUT GENERAL LIFE INSURANCE COMPANY $1,000,000
c/o CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, Connecticut 06152-2307
Attention: Private Securities Division - S-307
Fax: 860-726-7203
Payments
All payments on or in respect of the Note to be by bank wire transfer of Federal
or other immediately available funds (identifying each payment as "K2 Inc.,
8.41% Series 1999-A Senior Note due December 1, 2009, PPN 482732 A* 5, principal
or interest") to:
Chase NYC/CTR/
BNF=CIGNA Private Placements/AC=9009001802
ABA #021000021
Address for Notices Related to Payments:
CIG & Co.
c/o CIGNA Investments, Inc.
Attention: Securities Processing S-309
900 Cottage Grove Road
Hartford, Connecticut 06152-2309
CIG & Co.
c/o CIGNA Investments, Inc.
Attention: Private Securities - S-307
Operations Group
900 Cottage Grove Road
Hartford, Connecticut 06152-2307
Fax: 860-726-7203
-5-
<PAGE>
with a copy to:
Chase Manhattan Bank, N.A.
Private Placement Servicing
P. O. Box 1508
Bowling Green Station
New York, New York 10081
Attention: CIGNA Private Placements
Fax: 212-552-3107/1005
Address for All Other Notices:
CIG & Co.
c/o CIGNA Investments, Inc.
Attention: Private Securities Division - S-307
900 Cottage Grove Road
Hartford, Connecticut 06152-2307
Fax: 860-726-7203
Name of Nominee in which Notes are to be issued: CIG & Co.
Taxpayer I.D. Number for CIG & Co.: 13-3574027
-6-
<PAGE>
PRINCIPAL AMOUNT OF
NAME AND ADDRESS SERIES 1999-A NOTES
OF PURCHASERS TO BE PURCHASED
THE NORTHWESTERN MUTUAL LIFE $22,500,000
INSURANCE COMPANY
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attention: Securities Department
Telecopier Number: (414) 299-7124
Payments
All payments on or in respect of the Note to be by bank wire transfer of Federal
or other immediately available funds (identifying each payment as "K2 Inc.,
8.41% Series 1999-A Senior Note due December 1, 2009, PPN 482732 A* 5, principal
or interest") to:
Bankers Trust Company
16 Wall Street
Insurance Unit, 4th Floor
New York, New York 10005
ABA #0210-0103-3
For the account of: The Northwestern Mutual Life Insurance Company
Account Number 00-000-027
Notices
All notices of payment, on or in respect of the Notes and written confirmation
of each such payment to:
The Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attention: Investment Operations
Telecopier Number: (414) 299-7124
All other notices and communications to be addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 39-0509570
-7-
<PAGE>
PRINCIPAL AMOUNT OF
NAME AND ADDRESS SERIES 1999-A NOTES
OF PURCHASERS TO BE PURCHASED
THE CANADA LIFE ASSURANCE COMPANY $9,000,000
U.S. Private Placements, SP-11
330 University Avenue
Toronto, Ontario, Canada M5G 1R8
Attention: Paul English, Treasurer, U.S.
Payments
All payments on or in respect of the Note to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as "K2
Inc., 8.41% Series 1999-A Senior Note due December 1, 2009, PPN 482732 A* 5,
principal or interest, and due date or if call or maturity, date thereof and
due date or, if call or maturity, effective date thereof") to:
Chase Manhattan Bank
ABA #021-000-021
Acct. No. 900-9-000200 (in the case of call or maturity:
Acct. No. 900-9-000192)
Attention: Doll Balbadar
Trust Account No. G52708, The Canada Life Assurance Company
Attention: Doll Balbadar
Notices
All notices and communications (including financial statements) to be addressed
as first provided above, except notices with respect to payments and written
confirmation of each such payment, to be addressed:
Chase Manhattan Bank
North America Insurance
3 Chase MetroTech Centre - 6th Floor
Brooklyn, New York 11245
Attention: Ms. Doll Balbadar
with a copy to:
The Canada Life Assurance Company
330 University Avenue, SP-12
Toronto, Ontario, Canada M5G 1R8
Attention: Supervisor, Securities Accounting
Name of Nominee in which Notes are to be issued: J. Romeo & Co.
-8-
<PAGE>
Taxpayer I.D. Number: 38-0397420
-9-
<PAGE>
DEFINED TERMS
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
"ADDITIONAL NOTES" is defined in Section 2.2.
"ADDITIONAL PURCHASERS" means purchasers of Additional Notes.
"AFFILIATE" means, at any time, and with respect to any Person, (a)
any other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control
with, such first Person, and (b) any Person beneficially owning or holding,
directly or indirectly, 10% or more of any class of voting or equity
interests of the Company or any Subsidiary or any corporation of which the
Company and its Subsidiaries beneficially own or hold, in the aggregate,
directly or indirectly, 10% or more of any class of voting or equity
interests. As used in this definition, "CONTROL" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. Unless the context otherwise clearly
requires, any reference to an "AFFILIATE" is a reference to an Affiliate of
the Company.
"BANK CREDIT AGREEMENT" means the credit agreement between the
Company and its bank lenders, dated as of December ___, 1999, as amended,
restated, refinanced, replaced, increased or reduced from time to time and
any successor bank credit agreement.
"BUSINESS DAY" means (a) for the purposes of Section 8.6 only, any
day other than a Saturday, a Sunday or a day on which commercial banks in New
York City are required or authorized to be closed, and (b) for the purposes
of any other provision of this Agreement, any day other than a Saturday, a
Sunday or a day on which commercial banks in New York City, New York or Los
Angeles, California are required or authorized to be closed.
"CAPITAL LEASE" means, at any time, a lease with respect to which
the lessee is required concurrently to recognize the acquisition of an asset
and the incurrence of a liability in accordance with GAAP.
"CAPITAL LEASE OBLIGATION" means, with respect to any Person and a
Capital Lease, the amount of the obligation of such Person, as the lessee
under the Capital Lease, which would appear as a liability on a balance sheet
of such Person in accordance with GAAP.
"CHANGE IN CONTROL" has the meaning set forth in Section 8.7.
"CLOSING" is defined in Section 3.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time, and the rules and regulations promulgated thereunder from time to
time.
SCHEDULE B
(to Note Purchase Agreement)
<PAGE>
"COMPANY" means K2 Inc., a Delaware corporation.
"CONFIDENTIAL INFORMATION" is defined in Section 20.
"CONSOLIDATED DEBT" means as of any date of determination, the total
of all Debt of the Company and its Restricted Subsidiaries determined on a
consolidated basis in accordance with GAAP.
"CONSOLIDATED FUNDED DEBT" means as of any date of determination,
the total of all Funded Debt of the Company and its Restricted Subsidiaries
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED CURRENT DEBT" means as of any date of determination,
the total of all Current Debt of the Company and its Restricted Subsidiaries
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED INCOME AVAILABLE FOR FIXED CHARGES" means for any
period the sum of (i) Consolidated Net Income, (ii) income tax expense,
determined in accordance with GAAP, (iii) non-cash, non-recurring charges
deducted from Consolidated Net Income during such period, and (iv) Fixed
Charges.
"CONSOLIDATED NET INCOME" for any period shall mean the net income
of the Company and its Restricted Subsidiaries for such period, determined in
accordance with GAAP, but excluding in any event:
(a) any extraordinary gains or losses as defined in APBO
Nos. 11, 16 and 30 and FASB Statement No. 4;
(b) net earnings and losses of any Restricted Subsidiary
accrued prior to the date it became a Restricted Subsidiary;
(c) net earnings and losses of any corporation (other than
a Restricted Subsidiary), substantially all the assets of which have
been acquired in any manner by the Company or any Restricted
Subsidiary, realized by such corporation prior to the date of such
acquisition;
(d) net earnings and losses of any corporation (other than
a Restricted Subsidiary) with which the Company or a Restricted
Subsidiary shall have consolidated or which shall have merged into
or with the Company or a Restricted Subsidiary prior to the date of
such consolidation or merger;
(e) net earnings of any business entity (other than a
Restricted Subsidiary) in which the Company or any Restricted
Subsidiary has an ownership interest unless such net earnings shall
have actually been received or are receivable by the Company or such
Restricted Subsidiary in the form of cash distributions;
B-2
<PAGE>
(f) any portion of the net earnings of any Restricted
Subsidiary which for any reason is unavailable for payment of
dividends to the Company or any other Restricted Subsidiary except
to the extent applied to the repayment of Debt of such Restricted
Subsidiary to the Company or any other Restricted Subsidiary;
(g) earnings or amortization resulting from any
reappraisal, revaluation or write-up of assets;
(h) to the extent not otherwise excluded pursuant to clause
(a) above, any aggregate net gain (or any aggregate net loss) during
such period arising from the sale, conversion, exchange or other
disposition of capital assets (such term to include, without
limitation, (i) all non-current assets and, without duplication,
(ii) the following, whether or not current: all fixed assets,
whether tangible or intangible, all inventory sold in conjunction
with the disposition of fixed assets, and all securities);
(i) any deferred or other credit or amortization thereof
representing any excess of the equity in any Subsidiary at the date
of acquisition thereof over the amount invested in such Subsidiary;
and
(j) any gain arising from the acquisition of any securities
of the Company or any Restricted Subsidiary.
"CONSOLIDATED NET WORTH" means the consolidated stockholders' equity of
the Company and its Restricted Subsidiaries, as defined according to GAAP, less
the sum of (i) minority interests and (ii) Restricted Investments in excess of
20% of consolidated stockholders' equity.
"CONSOLIDATED TOTAL ASSETS" means, as of the date of any determination
thereof, the total amount of all assets of the Company and its Restricted
Subsidiaries, determined on a consolidated basis in accordance with GAAP.
"CURRENT DEBT" means, without duplication, all Debt other than Funded
Debt.
"DEBT" means, with respect to any Person, without duplication,
(a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorially redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable arising
in the ordinary course of business but including, without
limitation, all liabilities created or arising under any conditional
sale or other title retention agreement with respect to any such
property);
(c) its Capital Lease Obligations;
B-3
<PAGE>
(d) all liabilities for borrowed money secured by any Lien
with respect to any property owned by such Person (whether or not it
has assumed or otherwise become liable for such liabilities);
(e) Guarantees of such Person with respect to liabilities of
a type described in any of clauses (a) through (d) hereof; and
(f) recourse obligations related to Receivables
Securitization transactions.
Debt of any Person shall include all obligations of such Person of
the character described in clauses (a) through (f) to the extent such Person
remains legally liable in respect thereof notwithstanding that any such
obligation is deemed to be extinguished under GAAP.
"DEFAULT" means an event or condition the occurrence or existence of
which would, with the lapse of time or the giving of notice or both, become
an Event of Default.
"DEFAULT RATE" means that rate of interest that is the greater of
(i) 2% per annum above the rate of interest stated in clause (a) of the first
paragraph of any series of Notes or (ii) 2% over the rate of interest
publicly announced by Bank of America National Trust and Savings Association
in New York, New York as its "base" or "prime" rate.
"ENVIRONMENTAL LAWS" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including
but not limited to those related to hazardous substances or wastes, air
emissions and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under Section 414 of the Code.
"EVENT OF DEFAULT" is defined in Section 11.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCLUDED SALE AND LEASEBACK TRANSACTION" shall mean any sale or
transfer of property acquired by the Company or any Restricted Subsidiary
after the date of this Agreement to any Person within 365 days following the
acquisition or construction of such property by the Company or any Restricted
Subsidiary if the Company or a Restricted Subsidiary shall concurrently with
such sale or transfer, lease such property, as lessee.
B-4
<PAGE>
"EXCLUDED SUBSIDIARY OBLIGATIONS" shall mean (a) the Guaranty
Agreement and any other Guaranty of Debt of the Company by a Subsidiary
Guarantor which shall be a party to the Guaranty Agreement and (b)
obligations of Subsidiary Guarantors as co-obligors with the Company on Debt;
PROVIDED that each creditor which is a beneficiary of an Excluded Subsidiary
Obligation shall have become a party to the Intercreditor Agreement.
"FAIR MARKET VALUE" means, at any time and with respect to any
Property, the sale value of such Property that would be realized in an
arm's-length sale at such time between an informed and willing buyer and an
informed and willing seller (neither being under a compulsion to buy or sell).
"FIXED CHARGES" means, with respect to any period, the sum of (i)
Interest Expense and (ii) Lease Rentals for such period.
"FUNDED DEBT" means, with respect to any Person, (i) all Debt of
such Person which by its terms or the terms of any instrument or agreement
matures one year or more from, or is directly renewable or extendible at the
option of the obligor to a date one year or more from the date of the
creation, (ii) current maturities of Funded Debt, and (iii) all amounts
outstanding under the Bank Credit Agreement.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States of America.
"GOVERNMENTAL AUTHORITY" means
(a) the government of
(i) the United States of America or any State or
other political subdivision thereof, or
(ii) any jurisdiction in which the Company or any
Subsidiary conducts all or any part of its business, or which
asserts jurisdiction over any properties of the Company or any
Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"GUARANTY" means, with respect to any Person, any obligation (except
the endorsement in the ordinary course of business of negotiable instruments
for deposit or collection) of such Person guaranteeing or in effect
guaranteeing any Debt, dividend or other obligation of any other Person in
any manner, whether directly or indirectly, including (without limitation)
obligations incurred through an agreement, contingent or otherwise, by such
Person:
(a) to purchase such Debt or obligation or any property
constituting security therefor;
B-5
<PAGE>
(b) to advance or supply funds (i) for the purchase or
payment of such Debt or obligation, or (ii) to maintain any working
capital or other balance sheet condition or any income statement
condition of any other Person or otherwise to advance or make
available funds for the purchase or payment of such Debt or
obligation;
(c) to lease properties or to purchase properties or
services primarily for the purpose of assuring the owner of such
Debt or obligation of the ability of any other Person to make
payment of the Debt or obligation; or
(d) otherwise to assure the owner of such Debt or
obligation against loss in respect thereof.
In any computation of the Debt or other liabilities of the obligor under any
Guaranty, the Debt or other obligations that are the subject of such Guaranty
shall be assumed to be direct obligations of such obligor.
"GUARANTY AGREEMENT" is defined in Section 1.
"HAZARDOUS MATERIAL" means any and all pollutants, toxic or
hazardous wastes or any other substances that might pose a hazard to health
or safety, the removal of which may be required or the generation,
manufacture, refining, production, processing, treatment, storage, handling,
transportation, transfer, use, disposal, release, discharge, spillage,
seepage, or filtration of which is or shall be restricted, prohibited or
penalized by any applicable law (including, without limitation, asbestos,
urea formaldehyde foam insulation and polychlorinated biphenyls).
"HOLDER" means, with respect to any Note, the Person in whose name
such Note is registered in the register maintained by the Company pursuant to
Section 13.1.
"INSTITUTIONAL INVESTOR" means (a) any original purchaser of a Note,
(b) any holder of a Note holding more than $2,000,000 of the aggregate
principal amount of the Notes then outstanding, and (c) any bank, trust
company, savings and loan association or other financial institution, any
pension plan, any investment company, any insurance company, any broker or
dealer, or any other similar financial institution or entity, regardless of
legal form.
"INTERCREDITOR AGREEMENT" is defined in Section 1.
"INTEREST EXPENSE" means, with respect to any period, the sum
(without duplication) of the following: (i) all interest expense in respect
of Debt of the Company and its Restricted Subsidiaries (including imputed
interest on Capital Leases) deducted in determining Consolidated Net Income
for such period and (ii) all debt discount and expense amortized in such
period.
"INVESTMENTS" shall mean all investments, in cash or by delivery of
property made, directly or indirectly in any Person, whether by acquisition
of shares of capital stock, indebtedness or other obligations or securities
or by loan, advance, capital contribution or otherwise.
B-6
<PAGE>
"LEASE RENTALS" means, with respect to any period, the sum of the
minimum amount of rental and other obligations required to be paid during
such period by the Company or its Restricted Subsidiaries as lessee under all
leases of real or personal property (other than Capital Leases), excluding
any amounts required to be paid by the lessee (whether or not designated as
rental) which are (i) on account of maintenance and repairs, insurance,
taxes, assessments, water rates and similar charges, or (ii) which are based
on profits, revenues or sales realized by the lessee from all leased property
or otherwise based on the performance of the lessee.
"LIEN" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest or
title of any vendor, lessor, lender or other secured party to or of such
Person under any conditional sale or other title retention agreement or
Capital Lease, upon or with respect to any property or asset of such Person
(including in the case of stock, stockholder agreements, voting trust
agreements and all similar arrangements).
"MAKE-WHOLE AMOUNT" shall have the meaning (i) set forth in Section
8.6 with respect to any Series 1999-A Note and (ii) set forth in the
applicable Supplement with respect to any other series of Notes.
"MATERIAL" means material in relation to the business, operations,
affairs, financial condition, assets or properties of the Company and its
Restricted Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of
the Company and its Restricted Subsidiaries taken as a whole, or (b) the
ability of the Company to perform its obligations under this Agreement
(including any Supplement) and the Notes, or (c) the validity or
enforceability of this Agreement (including any Supplement) or the Notes.
"MEMORANDUM" is defined in Section 5.3.
"MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan"
(as such term is defined in Section 4001(a)(3) of ERISA).
"NATIONALLY RECOGNIZED RATING AGENCY" means any of Standard & Poor's
Ratings Group, Moody's Investors Service, Inc., Duff & Phelps Credit Rating
Co. or Fitch Investors Service, Inc.
"NET PROCEEDS" means, with respect to any sale, lease or other
disposition of any property by any Person, an amount equal to the DIFFERENCE of
(a) the aggregate amount of the consideration (valued at
the Fair Market Value of such consideration at the time of the
consummation of such sale, lease or other disposition but net of
applicable taxes) received by such Person in respect of such
disposition, MINUS
(b) all ordinary and reasonable out-of-pocket costs and
expenses actually incurred by such Person in connection with such
disposition.
B-7
<PAGE>
"NOTES" is defined in Section 1.
"OFFICER'S CERTIFICATE" means a certificate of a Senior Financial
Officer or of any other officer of the Company whose responsibilities extend
to the subject matter of such certificate.
"PBGC" means the Pension Benefit Guaranty Corporation referred to
and defined in ERISA or any successor thereto.
"PERSON" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"PLAN" means an "employee benefit plan" (as defined in Section 3(3)
of ERISA) that is or, within the preceding five years, has been established
or maintained, or to which contributions are or, within the preceding five
years, have been made or required to be made, by the Company or any ERISA
Affiliate or with respect to which the Company or any ERISA Affiliate may
have any liability.
"PREFERRED STOCK" means any class of capital stock of a corporation
that is preferred over any other class of capital stock of such corporation
as to the payment of dividends or the payment of any amount upon liquidation
or dissolution of such corporation.
"PRIORITY DEBT" means (without duplication) the sum of (a) all
unsecured Funded Debt of Restricted Subsidiaries other than (i) Funded Debt
owed to the Company or any Wholly-Owned Restricted Subsidiary, (ii) Funded
Debt outstanding at the time such Person becomes a Restricted Subsidiary;
PROVIDED that (x) such Funded Debt shall not have been incurred in
contemplation of the acquisition of such Restricted Subsidiary, (y) such
Funded Debt has not been extended, renewed or refunded, and (z) such Funded
Debt shall not have been incurred by an Unrestricted Subsidiary which was
formerly a Restricted Subsidiary and which is being redesignated as a
Restricted Subsidiary, and (iii) Funded Debt outstanding pursuant to Excluded
Subsidiary Obligations, and (b) Debt of the Company and its Restricted
Subsidiaries secured by Liens other than Liens permitted by Section 10.6(a)
through (k).
"PROPERTY" or "PROPERTIES" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible,
choate or inchoate.
"QPAM EXEMPTION" means Prohibited Transaction Class Exemption 84-14
issued by the United States Department of Labor.
"RECEIVABLES SECURITIZATION" shall mean any transaction pursuant to
which (i) accounts receivables are sold or transferred and (ii) the seller
(a) retains directly or indirectly an interest in the accounts receivables
sold or transferred or (b) assumes any liability on account of any
representation or warranty, Guaranty or other agreement in connection with
such sale or transfer.
B-8
<PAGE>
"REQUIRED HOLDERS" means, at any time, the holders of at least 50%
in principal amount of the Notes of each series at the time outstanding
(exclusive of Notes then owned by the Company or any of its Affiliates).
"RESPONSIBLE OFFICER" means any Senior Financial Officer and any
other officer of the Company with responsibility for the administration of
the relevant portion of this Agreement.
"RESTRICTED INVESTMENTS" shall mean all Investments except any of
the following: (i) property to be used in the ordinary course of business;
(ii) assets arising from the sale of goods and services in the ordinary
course of business; (iii) Investments in one or more Restricted Subsidiaries
or any person that becomes a Restricted Subsidiary; (iv) Investments existing
at the date of closing; (v) Investments in obligations, maturing within one
year, issued by or guaranteed by the United States of America, or an agency
thereof, or Canada, or any province thereof; (vi) Investments in tax-exempt
obligations, maturing within one year, which are rated in one of the top two
rating classifications by at least one national rating agency; (vii)
Investments in certificates of deposit or banker's acceptances maturing
within one year issued by Bank of America or other commercial banks which are
rated in one of the top two rating classifications by at least one national
rating agency; (viii) Investments in commercial paper, maturing within 270
days, rated in one of the top two rating classifications by at least one
national rating agency; (ix) Investments in repurchase agreements (x)
treasury stock; or (xi) Investments in money market instrument programs which
are classified as current assets in accordance with GAAP.
"RESTRICTED SUBSIDIARY" means any Subsidiary which (i) at least a
majority of the voting securities of such Subsidiary are owned by the Company
and/or one or more Wholly-Owned Restricted Subsidiaries, and (ii) has been
designated as a Restricted Subsidiary by the Company as reflected in Schedule
5.4 or by written notice given to the holders of all Notes in accordance with
Section 10.9.
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time.
"SENIOR DEBT" means, as of the date of any determination thereof,
all Consolidated Debt, other than Subordinated Debt.
"SENIOR FINANCIAL OFFICER" means the chief financial officer,
principal accounting officer, treasurer or comptroller of the Company.
"SIGNIFICANT SUBSIDIARY" means at any time any Restricted Subsidiary
that accounts for more than (i) 10% of the Consolidated Total Assets or (ii)
10% of consolidated revenue of the Company and its Restricted Subsidiaries.
"SIMPLEX PRODUCTS DISPOSITION" means any sale or transfer of assets
of the Simplex Products Division of the Company or refinancing or
recapitalization of the assets or operation of the Simplex Products Division,
whether in the form of a sale of stock, borrowing, issuance of debt or equity
securities or otherwise, as a result of which (i) the Company ceases to own
directly substantially all of the assets of the Simplex Products Division,
(ii) the Company ceases to be liable directly or indirectly for any Debt or
trade payables of the Simplex Products Division
B-9
<PAGE>
(other than pursuant to any indemnification provision for the benefit of the
transferee of the assets of the Simplex Products Division or any affiliate of
such transferee contained in the agreements memorializing such transaction),
and (iii) the Company receives in such transaction, by way of sale proceeds,
refinancing proceeds, dividend proceeds, proceeds of the issuance of
securities or otherwise, at least $20 million in cash.
"SUBORDINATED DEBT" means, as of the date of any determination
thereof, all unsecured Debt of the Company which shall contain or have
applicable thereto subordination provisions providing for the subordination
thereof to other Debt of the Company (including, without limitation, the
Notes).
"SUBSIDIARY" means, as to any Person, any corporation, association
or other business entity in which such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries owns
sufficient equity or voting interests to enable it or them (as a group)
ordinarily, in the absence of contingencies, to elect a majority of the
directors (or Persons performing similar functions) of such entity, and any
partnership or joint venture if more than a 50% interest in the profits or
capital thereof is owned by such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries (unless such partnership can
and does ordinarily take major business actions without the prior approval of
such Person or one or more of its Subsidiaries). Unless the context otherwise
clearly requires, any reference to a "Subsidiary" is a reference to a
Subsidiary of the Company.
"SUBSIDIARY GUARANTOR" shall mean each Subsidiary of the Company
which shall be a party to the Guaranty Agreement.
"SUBSIDIARY GUARANTY AGREEMENTS" shall mean the Guaranty Agreement
and any other Guaranty of Debt of the Company by a Restricted Subsidiary
which shall be a party to the Guaranty Agreement; PROVIDED that each creditor
which is a beneficiary of a Subsidiary Guaranty Agreement shall have become a
party to the Intercreditor Agreement.
"SUPPLEMENT" is defined in Section 2.2.
"TOTAL CAPITALIZATION" means, at any time, the sum of (i)
Consolidated Net Worth and (ii) Consolidated Funded Debt.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary which is not a
Restricted Subsidiary.
"WHOLLY-OWNED RESTRICTED SUBSIDIARY" means, at any time, any
Restricted Subsidiary one hundred percent (100%) of all of the equity
interests (except directors' qualifying shares) and voting interests of which
are owned by any one or more of the Company and the Company's other
Wholly-Owned Restricted Subsidiaries at such time.
B-10
<PAGE>
SCHEDULE 4.9
CHANGES IN CORPORATE STRUCTURE
Subsequent to the financial statements referred to in Schedule 5.5, the
Company completed the acquisition of Ride, Inc., a designer and manufacturer of
snowboard equipment, apparel and accessories through the merger of one of the
Company's wholly-owned Subsidiaries, KT Acquisitions, Inc., with and into Ride,
Inc. on October 7, 1999.
<PAGE>
SCHEDULE 5.3
DISCLOSURE MATERIALS
None
<PAGE>
SCHEDULE 5. 4(A)
(i) RESTRICTED SUBSIDIARIES AS OF CLOSING DATE
<TABLE>
<CAPTION>
JURISDICTION PERCENTAGE OF VOTING STOCK
OF OWNED BY COMPANY AND EACH
NAME OF SUBSIDIARY INCORPORATION OTHER SUBSIDIARY STATUS
------------------ ------------- ---------------- --------
<S> <C> <C> <C>
Ride, Inc. Washington 100% Active
Dana Design, Ltd. Montana 100% Inactive
Anthony Sales (Barbados) Ltd. Barbados 100% Active
K2 Bike Inc. Delaware 100% Inactive
K2 Funding, Inc. Delaware 100% Active
Shakespeare Company Delaware 100% Active
SUBSIDIARIES OF SHAKESPEARE COMPANY:
Shakespeare (Hong Kong) Ltd. Hong Kong 100% Active
SUBSIDIARY OF SHAKESPEARE (HONG KONG) LTD.:
Pacific Rim Metallic Products Ltd. Hong Kong 100% Active
Shakespeare International Ltd. U.K. 100% Active
SUBSIDIARIES OF SHAKESPEARE INTERNATIONAL LTD.:
Shakespeare Company (UK) Ltd. U.K. 100% Active
Shakespeare Monofilament U.K.Ltd. U.K. 100% Active
Shakespeare Hengelsport, B.V. Netherlands 100% Active
Shakespeare (Australia) Pty. Ltd. Australia 100% Active
K2 Ski Sport und Mode GmbH Germany 100% Active
Shakespeare Industries, Inc. Delaware 100% Inactive
Sitca Corporation Washington 100% Active
SUBSIDIARY OF SITCA CORPORATION:
K-2 Corporation Indiana 100% Active
SUBSIDIARIES OF K2 CORPORATION:
Katin, Inc. Delaware 100% Inactive
Planet Earth Skateboards, Inc. California 100% Active
K-2 International, Inc. Indiana 100% Inactive
K2 Japan Corporation Japan 100% Active
Morrow Snowboards Inc. Delaware 100% Inactive
Madshus A.S. Norway 100% Active
SMCA, Inc. Minnesota 100% 100%
SUBSIDIARY OF SMCA, INC.:
Stearns Inc. Minnesota 100% Active
</TABLE>
UNRESTRICTED SUBSIDIARIES AS OF CLOSING DATE
NONE
<PAGE>
INVESTMENTS OF THE COMPANY AND ITS SUBSIDIARIES
<TABLE>
<CAPTION>
COMMON STOCK INVESTMENTS NUMBER OF SHARES
------------------------ ----------------
<S> <C>
Albany International Corporation 10
Bell Sports Company 10
Brunswick Corporation 20
Cascade Industries, Incorporated 10
Centuri, Inc. 100
Champion International Corporation 2
Coleco Industries 4
Coleman Company, Inc. 10
Escalade, Inc. 120
Figgie International 16
First Team Sports 15
Glassmaster 10
Hallwood Industries Incorporated 2,760
Huffy 10
Johnson Worldwide Associates 10
Major Pool Equipment Corp. 11
Metromedia International Group 10
Mossimo Inc. 10
Nike, Inc. 40
Pro-Group 10
Quiksilver 10
Reebok International, Ltd. 10
Seatrain Lines, Inc. 3
Skis Rossignol 10
Starter Corporation 10
The Mead Corporation 4
</TABLE>
(ii) KNOWN AFFILIATES
Trust under the Company's Employee Stock Ownership Plan owns
approximately 10% of the Company's outstanding Common Stock.
<PAGE>
(iii) COMPANY DIRECTORS
DIRECTORS:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
B. I. Forester Director, Chairman of the Board
Richard M. Rodstein Director
Susan E. Engel Director
Jerry E. Goldress Director
Wilford D. Godbold, Jr. Director
Richard J. Heckmann Director
Stewart M. Kasen Director
John H. Offermans Director
Alfred E. Osborne, Ph. D. Director
</TABLE>
COMPANY OFFICERS:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Richard M. Rodstein President and Chief Executive Officer of K2 Inc.; President of K2
John J. Rangel Senior Vice President B Finance
Tony H. Chow Vice President and Director of Taxes
Susan E. McConnell Secretary
Marie Browne Vice President, K2 Business Operations
Amy Buckalter Vice President and General Manager, K2 North America In-Line Skates
Anthony DeRocco Vice President, K2 Research and Development
Darren Jones Vice President and General Counsel of K2
John Rauvola Vice President and General Manager, K2 International Operations, Bikes
Stuart N. Rempel Vice President and General Manager, K2 Skis
Brent Turner Vice President and General Manager, K2 Snowboards
James A. Vandergrift Vice President, K2 Research and Development
Kurt Wolf Senior Vice President, K2 International Operations Europe
Koji Matsunaga General Manager, K2 Japan
Scott Hogsett Vice President and General Manager, Shakespeare Fishing Tackle Domestic
Bruce Brown Vice President Worldwide Sourcing, Shakespeare Fishing Tackle Domestic
John L. Tomsett Vice President and Managing Director, Shakespeare Fishing Tackle United Kingdom
Robert G. Hughes Managing Director, Shakespeare Fishing Tackle Holland
Robert Ni General Manager, Shakespeare Fishing Tackle Hong Kong
Christopher Miller President, Planet Earth and Katin
David G. Cook Vice President; President of Stearns
Paul Ebnet Vice President Sales and Marketing, Stearns
Charles Hall Vice President Product Development, Stearns
Michael J. Krmpotich Vice President Finance, Stearns
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Joel Lindmeier Vice President Manufacturing, Stearns
Timothy C. Cronin Vice President; President of Hilton Corporate Casuals
Hilton R. Leibow Chairman Emeritus, Hilton Corporate Casuals
David H. Herzberg Vice President; President of Shakespeare Monofilament
Peter J. Brissette Vice President Research and Development, Shakespeare Monofilament
R. Ray Bryson Vice President Finance, Shakespeare Monofilament
Timothy N. Dell Vice President Sales and Marketing, Shakespeare Monofilament
Barry D. Johns Vice President Manufacturing, Shakespeare Monofilament
J. Wayne Merck Vice President; President of Shakespeare Composites and Electronics
Edward C. Blair Vice President and Controller, Shakespeare Composites and Electronics
James W. Davidson Vice President Research and Development, Shakespeare Composites and Electronics
Charles R. Jeffords Vice President Manufacturing, Shakespeare Composites and Electronics
Robert E. Doyle Senior Vice President; President of Simplex Products
Jeffrey W. Baskett Vice President International Sales and Market Development, Simplex Products
Leonard L. Cannon Vice President Finance, Simplex Products
Mohamed Fahmy Vice President and General Manager, Simplex Products
Besty J. Mossing Monday Vice President and General Manager, Simplex Products
</TABLE>
<PAGE>
SCHEDULE 5.4(B)
None
<PAGE>
SCHEDULE 5.4(C)
None
<PAGE>
SCHEDULE 5.5
FINANCIAL STATEMENTS
The Company's Form 10-K Annual Report for the year ending December 31, 1998 and
the Form 10-Q for the quarter ending September 30, 1999.
<PAGE>
SCHEDULE 5.8
CERTAIN LITIGATION
K2 Inc. is one of several potentially responsible parties ("PRP")
named in an Environmental Protection Agency matter involving discharge of
hazardous materials at an old waste site in South Carolina. The extent of K2
Inc.'s required financial contribution to the cleanup of the site is expected
to be limited based upon the number and financial strength of the other named
PRPs and the volume and types of waste involved which might be attributable
to K2 Inc. Although environmental and related remediation costs are difficult
to quantify, K2 Inc.'s environmental engineers, consultants and legal counsel
have developed estimates based upon cost analyses and other available
information. K2 Inc. accrues for these costs when it is probable that a
liability has been incurred and the amount can be reasonably estimated. At
December 31, 1998 and 1997, K2 Inc. accrued approximately $963,000 and
$930,000, respectively, with no provision for expected insurance recovery.
<PAGE>
SCHEDULE 5. 11
PATENTS
None
<PAGE>
SCHEDULE 5.14
USE OF PROCEEDS
The $50,000,000 of proceeds received will be used entirely to pay down the
Company's existing $100 million revolving credit facility with Bank of America,
Agent, which has an outstanding balance of $88,500,000 as of December 17, 1999.
<PAGE>
SCHEDULE 5.15
EXISTING DEBT / FUTURE LIENS
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING AS OF
SUBSIDIARY DESCRIPTION SEPTEMBER 30, 1999 (US$)
---------- ----------- ------------------------
<S> <S> <C>
K2 Inc. Bank of America revolver 71,500,000
K2 Inc. Private Placement 26,668,000
K2 Corp. Flow International Equipment Capital Lease 118,000
K2 Japan Union Bank 15,253,000
K2 GmbH Bank of America 24,437,000
Shakespeare Hong Kong Norwest Bank 1,967,000
Shakespeare Australia National Australia Bank 437,000
Capitalized Leases:
AMOUNT OUTSTANDING AS OF
SUBSIDIARY DESCRIPTION DECEMBER 8, 1999 (US$)
K2 Corp. Bank of America $142,000
</TABLE>
<PAGE>
SCHEDULE 5.18
ENVIRONMENTAL LIABILITIES
Please see Schedule 5.08 Certain Litigation.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 10.6
LIENS EXISTING AS OF CLOSING DATE
SUBSIDIARY/DIVISION DESCRIPTION LIENHOLDER LIEN AMOUNT
<S> <C> <C> <C>
K2 Inc./K2 Corp. Accounts Receivable Asset K2 Funding, Inc./Nations
Securitization Bank 50,000,000
K2 Corp. Dark Room Supplies Prime Source 11,000
K2 Corp. Factory Safety Supplies Magid Glove & Safety 12,000
Shakespeare Monofilament Forklifts Associated Leasing 26,092
Shakespeare Monofilament Forklifts Hyster Credit 11,534
Shakespeare Monofilament Telephone Equipment NEC America 41,886
Shakespeare Monofilament Welder Equipment Industrial Credit 250
Shakespeare Monofilament Copiers IBM 57,120
Stearns Inc. Computer Equipment IBM 142,296
Simplex Products Division Lift Trucks Old Kent Leasing 7,478
Simplex Products Division Copiers GE Capital 87,468
Planet Earth Skateboards, Inc. Forklifts Hawthorne Machinery 13,825
Ride, Inc. Secured Line of Credit CIT Group Credit Finance, 10,367,000
Inc.
Ride, Inc. Misc. Computer and other Keycorp Leasing 315,000
equipment
</TABLE>
<PAGE>
[FORM OF NOTE]
K2 INC.
8.41% Series 1999-A Senior Note due December 1, 2009
No. [_______] [Date]
$[__________] PPN 482732 A* 5
FOR VALUE RECEIVED, the undersigned, K2 INC. (herein called the
"COMPANY"), a corporation organized and existing under the laws of the State
of Delaware, hereby promises to pay to [_____________________] or registered
assigns, the principal sum of [______________] DOLLARS on December 1, 2009
with interest (computed on the basis of a 360-day year of twelve 30-day
months) (a) on the unpaid balance thereof at the rate of 8.41% per annum from
the date hereof, payable semi-annually, on the first day of June and December
in each year, commencing with the June 1 or December 1 next succeeding the
date hereof, until the principal hereof shall have become due and payable,
and (b) to the extent permitted by law on any overdue payment (including any
overdue prepayment) of principal, any overdue payment of interest and any
overdue payment of any Make-Whole Amount (as defined in the Note Purchase
Agreement referred to below), payable semi-annually as aforesaid (or, at the
option of the registered holder hereof, on demand), at a rate per annum from
time to time equal to the greater of (i) 10.41% or (ii) 2% over the rate of
interest publicly announced by Bank of America National Trust and Savings
Association from time to time in New York, New York as its "base" or "prime"
rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at the principal office of Bank of America National Trust and Savings
Association in New York, New York or at such other place as the Company shall
have designated by written notice to the holder of this Note as provided in
the Note Purchase Agreement referred to below.
This Note is one of a series of Senior Notes (herein called the
"NOTES") issued pursuant to separate Note Purchase Agreement, dated as of
December 1, 1999 (as from time to time amended, supplemented or modified, the
"NOTE PURCHASE AGREEMENT"), between the Company and the respective Purchasers
named therein and is entitled to the benefits thereof. Each holder of this Note
will be deemed, by its acceptance hereof, (i) to have agreed to the
confidentiality provisions set forth in Section 20 of the Note Purchase
Agreement and (ii) to have made the representation set forth in Section 6.2 of
the Note Purchase Agreement.
This Note is a registered Note and, as provided in the Note Purchase
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
EXHIBIT 1
(to Note Purchase Agreement)
<PAGE>
The Company will make required prepayments of principal on the dates
and in the amounts specified in the Note Purchase Agreement. This Note is
also subject to optional prepayment, in whole or from time to time in part,
at the times and on the terms specified in the Note Purchase Agreement, but
not otherwise.
The interest rate borne by this Note and the other Notes issued
pursuant to the Note Purchase Agreement may be changed upon the terms and
conditions set forth in Section 1 of the Note Purchase Agreement.
If an Event of Default, as defined in the Note Purchase Agreement,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.
All amounts of principal, interest and Make-Whole Amount payable with
respect to the Notes are unconditionally guaranteed by all Subsidiaries under
and pursuant to that certain Guaranty Agreement dated as of December 1, 1999
from said Subsidiaries.
This Note shall be construed and enforced in accordance with, and the
rights of the issuer and holder hereof shall be governed by, the law of the
State of New York excluding choice-of-law principles of the law of such State
that would require the application of the laws of a jurisdiction other than such
State.
K2 INC.
By
Name:________________________
Title:_______________________
E-1-2
<PAGE>
FORM OF GUARANTY AGREEMENT
EXHIBIT 2
(to Note Purchase Agreement)
<PAGE>
FORM OF OPINION OF SPECIAL COUNSEL
The closing opinion of Gibson, Dunn & Crutcher LLP, counsel to the
Company, which is called for by Section 4.4 of the Note Purchase Agreement,
shall be dated the date of Closing and addressed to the Purchasers, shall be
satisfactory in scope and form to each Purchaser and shall be to the effect
that:
1. The Company is a validly existing corporation, in good standing
under the laws of its jurisdiction of incorporation, has the corporate power and
the corporate authority to execute and perform the Note Purchase Agreement and
to issue the Notes and has the full corporate power and the corporate authority
to conduct the activities in which it is now engaged.
2. Each Subsidiary is a validly existing corporation in good standing
under the laws of its jurisdiction of incorporation.
3. The Note Purchase Agreement has been duly authorized by all
necessary corporate action on the part of the Company, has been duly executed
and delivered by the Company and constitutes the legal, valid and binding
contract of the Company enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent conveyance and similar laws affecting
creditors= rights generally, and general principles of equity (regardless of
whether the application of such principles is considered in a proceeding in
equity or at law).
4. The Series 1999-A Notes issued to the Purchasers on the Closing Date
have been duly authorized by all necessary corporate action on the part of the
Company, have been duly executed and delivered by the Company and constitute the
legal, valid and binding obligations of the Company enforceable in accordance
with their terms, subject to bankruptcy, insolvency, fraudulent conveyance and
similar laws affecting creditors' rights generally, and general principles of
equity (regardless of whether the application of such principles is considered
in a proceeding in equity or at law).
5. Assuming the accuracy of the Purchasers' representations and
warranties and compliance by the Purchasers with their covenants and agreements
contained in the Note Purchase Agreement, no approval, consent or withholding of
objection on the part of, or filing, registration or qualification with, any
Federal governmental body or any governmental body organized under the laws of
the states of New York or California, is necessary in connection with the
execution and delivery of the Note Purchase Agreement or the Series 1999-A Notes
or insofar as the Restricted Subsidiaries are concerned, the Guaranty Agreement.
6. Each of the Subsidiaries has the corporate power and authority and
is duly authorized to enter into and perform all of its obligations under the
Guaranty Agreement and the Guaranty Agreement has been duly authorized, executed
and delivered by each of the Subsidiaries and constitutes the legal, valid and
binding contract of each of the Subsidiaries enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws
affecting creditors' rights generally, and general principles of equity
EXHIBIT 4.4(a)
(to Note Purchase Agreement)
<PAGE>
(regardless of whether the application of such principles is considered in a
proceeding in equity or at law).
7. The issuance and sale of the Series 1999-A Notes and the execution,
delivery and performance by the Company of the Note Purchase Agreement do not
conflict with or result in any breach of any of the provisions of or constitute
a default under or result in the creation or imposition of any Lien upon any of
the property of the Company pursuant to the provisions of the Articles of
Incorporation or By-laws of the Company or any agreement or other instrument
disclosed on Schedule ___ to such opinion to which the Company is a party or by
which the Company may be bound.
8. Assuming the accuracy of the Purchasers' representations and
warranties and compliance by the Purchasers with their covenants and agreements
contained in the Note Purchase Agreement, the issuance, sale and delivery of the
Series 1999-A Notes under the circumstances contemplated by the Note Purchase
Agreement do not, under existing law, require the registration of the 1999-A
Notes or the Guaranty Agreement under the Securities Act of 1933, as amended, or
the qualification of an indenture under the Trust Indenture Act of 1939, as
amended.
9. Neither the issuance of the Series 1999-A Notes nor the application
of the proceeds of the sale of the Notes will violate or result in a violation
of Section 7 of the Securities Exchange Act of 1934, as amended, or any
regulation issued pursuant thereto, including, without limitation, Regulation U,
T or X of the Board of Governors of the Federal Reserve System.
10. Except as disclosed in Schedule 5.8 of the Note Purchase Agreement
or in Schedule ___ to this opinion, there are no actions, suits or proceedings,
to the knowledge of such counsel pending or threatened against the Company or
any Subsidiary in any court or before any governmental authority or arbitration
board or tribunal which, seeks to restrain the transactions contemplated by the
Note Purchase Agreement or which if adversely determined, would call into
question the ability of the Company to perform its obligations under the Note
Purchase Agreement and the Series 1999-A Notes or on the legality, validity or
enforceability of the Company=s obligations under the Note Purchase Agreement or
the Series 1999-A Notes or of the Restricted Subsidiaries to comply with the
provisions of the Guaranty Agreement. To the knowledge of such counsel, neither
the Company nor any Subsidiary is in default with respect to any order, judgment
or decree of any court or governmental authority, or arbitration board or
tribunal.
11. The Company is not an "investment company" or a company
"controlled" by an "investment company", within the meaning of the Investment
Company Act of 1940, as amended.
The opinion of Gibson, Dunn & Crutcher LLP shall cover such other
matters relating to the sale of the Series 1999-A Notes as each Purchaser may
reasonably request and shall be subject to such customary qualifications,
limitations and exceptions as shall be reasonably satisfactory to the
Purchasers. With respect to matters of fact on which such opinion is based,
EXHIBIT 4.4(a)-2
<PAGE>
such counsel shall be entitled to rely on appropriate certificates of public
officials and other officers of the Company.
EXHIBIT 4.4(a)-3
<PAGE>
FORM OF OPINION OF SPECIAL COUNSEL
TO THE PURCHASERS
The closing opinion of Chapman and Cutler, special counsel to the
Purchasers, called for by Section 4.4 of the Note Purchase Agreement, shall
be dated the date of Closing and addressed to each Purchaser, shall be
satisfactory in form and substance to each Purchaser and shall be to the
effect that:
1. The Company is a corporation, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has the
corporate power and the corporate authority to execute and deliver the Note
Purchase Agreement and to issue the Series 1999-A Notes.
2. The Note Purchase Agreement has been duly authorized by all
necessary corporate action on the part of the Company, has been duly executed
and delivered by the Company and constitutes the legal, valid and binding
contract of the Company enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent conveyance and similar laws affecting
creditors' rights generally, and general principles of equity (regardless of
whether the application of such principles is considered in a proceeding in
equity or at law).
3. The Series 1999-A Notes have been duly authorized by all
necessary corporate action on the part of the Company, and the Notes being
delivered on the date hereof have been duly executed and delivered by the
Company and constitute the legal, valid and binding obligations of the
Company enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent conveyance and similar laws affecting creditors'
rights generally, and general principles of equity (regardless of whether the
application of such principles is considered in a proceeding in equity or at
law).
4. The issuance, sale and delivery of the Series 1999-A Notes under
the circumstances contemplated by the Note Purchase Agreement do not, under
existing law, require the registration of the Series 1999-A Notes under the
Securities Act of 1933, as amended, or the qualification of an indenture
under the Trust Indenture Act of 1939, as amended.
The opinion of Chapman and Cutler shall also state that the opinion
of Gibson, Dunn & Crutcher LLP, counsel to the Company, is satisfactory in
scope and form to Chapman and Cutler and that, in their opinion, the
Purchasers are justified in relying thereon. With respect to matters of fact
upon which such opinion is based, Chapman and Cutler may rely on appropriate
certificates of public officials and officers of the Company and upon
representations of the Company and the Purchasers delivered in connection
with the issuance and sale of the Series 1999-A Notes.
EXHIBIT 4.4(b)
(to Note Purchase Agreement)
<PAGE>
In rendering the opinion set forth in paragraph 1 above, Chapman and
Cutler may rely, as to matters referred to in paragraph 1, solely upon an
examination of the Articles of Incorporation certified by, and a certificate of
good standing of the Company from, the Secretary of State of the State of
Delaware, the Bylaws of the Company and the general business corporation law of
the State of Delaware. The opinion of Chapman and Cutler is limited to the laws
of the State of New York, the general business corporation law of the State of
Delaware and the Federal laws of the United States.
EXHIBIT 4.4(b)-2
<PAGE>
===============================================================================
K2 INC.
[NUMBER] SUPPLEMENT TO NOTE PURCHASE AGREEMENT
Dated as of ______________________
Re: $____________ _____% Series __ Senior Notes
DUE _____________________
===============================================================================
EXHIBIT S
(to Note Purchase Agreement)
<PAGE>
K2 INC.
4900 SOUTH EASTERN AVENUE
LOS ANGELES, CALIFORNIA 90040
Dated as of
--------------------, ----
To the Purchaser(s) named in
Schedule A hereto
Ladies and Gentlemen:
This [Number] Supplement to Note Purchase Agreement (the "SUPPLEMENT")
is between K2 Inc., a Delaware corporation (the "COMPANY"), and the
institutional investors named on Schedule A attached hereto (the "Purchasers").
Reference is hereby made to that certain Note Purchase Agreement dated
as of December 1, 1999 (the "NOTE PURCHASE AGREEMENT") between the Company and
the purchasers listed on Schedule A thereto. All capitalized terms not otherwise
defined herein shall have the same meaning as specified in the Note Purchase
Agreement. Reference is further made to Section 4.12 of the Note Purchase
Agreement which requires that, prior to the delivery of any Additional Notes,
the Company and each Additional Purchaser shall execute and deliver a
Supplement.
The Company hereby agrees with the Purchaser(s) as follows:
1. The Company has authorized the issue and sale of $__________
aggregate principal amount of its _____% Series ___ Senior Notes due _________,
____ (the "SERIES ___ NOTES"). The Series ___ Notes, together with the Series
1999-A Notes [and the Series __ Notes] initially issued pursuant to the Note
Purchase Agreement and each series of Additional Notes which may from time to
time hereafter be issued pursuant to the provisions of Section 2.2 of the Note
Purchase Agreement, are collectively referred to as the "Notes" (such term shall
also include any such notes issued in substitution therefor pursuant to Section
13 of the Note Purchase Agreement). The Series ___ Notes shall be substantially
in the form set out in Exhibit 1 hereto with such changes therefrom, if any, as
may be approved by the Purchaser(s) and the Company.
2. Subject to the terms and conditions hereof and as set forth in the
Note Purchase Agreement and on the basis of the representations and warranties
hereinafter set forth, the Company agrees to issue and sell to each Purchaser,
and each Purchaser agrees to purchase from the Company, Series __ Notes in the
principal amount set forth opposite such Purchaser's name on Schedule A hereto
at a price of 100% of the principal amount thereof on the closing date hereafter
mentioned.
<PAGE>
3. The sale and purchase of the Series __ Notes to be purchased by each
Purchaser shall occur at the offices of [Chapman and Cutler, 111 West Monroe
Street, Chicago, Illinois 60603,] at 11:00 A.M. Chicago time, at a closing (the
"CLOSING") on ______, ____ or on such other Business Day thereafter on or prior
to _______, ____ as may be agreed upon by the Company and the Purchasers. At the
Closing, the Company will deliver to each Purchaser the Series __ Notes to be
purchased by such Purchaser in the form of a single Series __ Note (or such
greater number of Series __ Notes in denominations of at least $100,000 as such
Purchaser may request) dated the date of the Closing and registered in such
Purchaser's name (or in the name of such Purchaser's nominee), against delivery
by such Purchaser to the Company or its order of immediately available funds in
the amount of the purchase price therefor by wire transfer of immediately
available funds for the account of the Company to account number
[__________________________] at ____________ Bank, [INSERT BANK ADDRESS, ABA
NUMBER FOR WIRE TRANSFERS, AND ANY OTHER RELEVANT WIRE TRANSFER INFORMATION].
If, at the Closing, the Company shall fail to tender such Series __ Notes to any
Purchaser as provided above in this Section 3, or any of the conditions
specified in Section 4 shall not have been fulfilled to any Purchaser's
satisfaction, such Purchaser shall, at such Purchaser's election, be relieved of
all further obligations under this Agreement, without thereby waiving any rights
such Purchaser may have by reason of such failure or such nonfulfillment.
4. The obligation of each Purchaser to purchase and pay for the Series
__ Notes to be sold to such Purchaser at the Closing is subject to the
fulfillment to such Purchaser's satisfaction, prior to the Closing, of the
conditions set forth in Section 4 of the Note Purchase Agreement with respect to
the Series __ Notes to be purchased at the Closing, and to the following
additional conditions:
(a) Except as supplemented, amended or superceded by the
representations and warranties set forth in Exhibit A hereto, each of
the representations and warranties of the Company set forth in Section
5 of the Note Purchase Agreement shall be correct as of the date of
Closing and the Company shall have delivered to each Purchaser an
Officer's Certificate, dated the date of the Closing certifying that
such condition has been fulfilled.
(b) Contemporaneously with the Closing, the Company shall
sell to each Purchaser, and each Purchaser shall purchase, the Series
__ Notes to be purchased by such Purchaser at the Closing as specified
in Schedule A.
5. [Here insert special provisions for Series __ Notes including
prepayment provisions applicable to Series __ Notes (including Make-Whole
Amount) and closing conditions applicable to Series ___ Notes].
6. Each Purchaser represents and warrants that the representations and
warranties set forth in Section 6 of the Note Purchase Agreement are true and
correct on the date hereof with respect to the purchase of the Series __ Notes
by such Purchaser.
7. The Company and each Purchaser agree to be bound by and comply with
the terms and provisions of the Note Purchase Agreement as fully and completely
as if such Purchaser were an original signatory to the Note Purchase Agreement.
<PAGE>
The execution hereof shall constitute a contract between the Company
and the Purchaser(s) for the uses and purposes hereinabove set forth, and this
agreement may be executed in any number of counterparts, each executed
counterpart constituting an original but all together only one agreement.
K2 INC.
By _______________________________
Name:__________________________
Title:_________________________
Accepted as of __________, _____
[VARIATION]
By________________________________
Name:___________________________
Title:__________________________
-3-
<PAGE>
INFORMATION RELATING TO PURCHASERS
PRINCIPAL
NAME AND ADDRESS OF PURCHASER AMOUNT OF SERIES
__ NOTES TO BE
PURCHASED
[NAME OF PURCHASER] $
(1) All payments by wire transfer of immediately
available funds to:
with sufficient information to identify the source
and application of such funds.
(2) All notices of payments and written confirmations of such wire
transfers:
(3) All other communications:
SCHEDULE A
(to Supplement)
<PAGE>
SUPPLEMENTAL REPRESENTATIONS
The Company represents and warrants to each Purchaser that except as
hereinafter set forth in this Exhibit A, each of the representations and
warranties set forth in Section 5 of the Note Purchase Agreement is true and
correct as of the date hereof with respect to the Series __ Notes with the
same force and effect as if each reference to "Series 1999-A Notes" set forth
therein was modified to refer the "Series __ Notes" and each reference to
"this Agreement" therein was modified to refer to the Note Purchase Agreement
as supplemented by the _______ Supplement. The Section references hereinafter
set forth correspond to the similar sections of the Note Purchase Agreement
which are supplemented hereby:
SECTION 5.3. DISCLOSURE. The Company, through its agent, Banc of
America Securities LLC, has delivered to each Purchaser a copy of a Private
Placement Memorandum, dated ____________ (the "MEMORANDUM"), relating to the
transactions contemplated by the ______ Supplement. The Note Purchase
Agreement, the Memorandum, the documents, certificates or other writings
delivered to each Purchaser by or on behalf of the Company in connection with
the transactions contemplated by the Note Purchase Agreement and the _______
Supplement and the financial statements listed in Schedule 5.5 to the _____
Supplement, taken as a whole, do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading in light of the circumstances under which
they were made. Since ____________, there has been no change in the financial
condition, operations, business, properties or prospects of the Company or
any Restricted Subsidiary except changes that individually or in the
aggregate could not reasonably be expected to have a Material Adverse Effect.
SECTION 5.4. ORGANIZATION AND OWNERSHIP OF SHARES OF RESTRICTED
SUBSIDIARIES. (a) Schedule 5.4 to the ______ Supplement contains (except as
noted therein) complete and correct lists of the Company's Restricted and
Unrestricted Subsidiaries, and showing, as to each Subsidiary, the correct
name thereof, the jurisdiction of its organization, and the percentage of
shares of each class of its capital stock or similar equity interests
outstanding owned by the Company and each other Subsidiary.
SECTION 5.13. PRIVATE OFFERING BY THE COMPANY. Neither the Company
nor anyone acting on its behalf has offered the Series __ Notes or any
similar securities for sale to, or solicited any offer to buy any of the same
from, or otherwise approached or negotiated in respect thereof with, any
Person other than the Purchasers and not more than [_] other Institutional
Investors, each of which has been offered the Series __ Notes at a private
sale for investment. Neither the Company nor anyone acting on its behalf has
taken, or will take, any action that would subject the issuance or sale of
the Notes to the registration requirements of Section 5 of the Securities Act.
SECTION 5.14. USE OF PROCEEDS; MARGIN REGULATIONS. The Company will
apply the proceeds of the sale of the Series __ Notes to
______________________________ and for general corporate purposes. No part of
the proceeds from the sale of the Series __ Notes pursuant to the _____
Supplement will be used, directly or indirectly, for the purpose of buying or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the
EXHIBIT A
(to Supplement)
<PAGE>
Federal Reserve System (12 CFR 222), or for the purpose of buying or carrying
or trading in any securities under such circumstances as to involve the
Company in a violation of Regulation X of said Board (12 CFR 224) or to
involve any broker or dealer in a violation of Regulation T of said Board (12
CFR 220). As used in this Section, the terms "margin stock" and "purpose of
buying or carrying" shall have the meanings assigned to them in said
Regulation U.
SECTION 5.15. EXISTING DEBT; FUTURE LIENS. (a) Schedule 5.15 to the
_________ Supplement sets forth a complete and correct list of all
outstanding Debt of the Company and its Restricted Subsidiaries as of
_____________, since which date there has been no Material change in the
amounts, interest rates, sinking funds, installment payments or maturities of
the Debt of the Company or its Restricted Subsidiaries. Neither the Company
nor any Restricted Subsidiary is in default and no waiver of default is
currently in effect, in the payment of any principal or interest on any Debt
of the Company or such Restricted Subsidiary and no event or condition exists
with respect to any Debt of the Company or any Restricted Subsidiary that
would permit (or that with notice or the lapse of time, or both, would
permit) one or more Persons to cause such Debt to become due and payable
before its stated maturity or before its regularly scheduled dates of payment.
[Add any additional Sections as appropriate at the time the Series ___ Notes
are issued]
-2-
<PAGE>
[FORM OF SERIES __ NOTE]
K2 INC.
___% SERIES __ SENIOR NOTE DUE ______________
No. [_________] [Date]
$[____________] PPN [____________]
FOR VALUE RECEIVED, the undersigned, K2 Inc. (herein called the
ACOMPANY"), a corporation organized and existing under the laws of the State
of Delaware hereby promises to pay to [________________], or registered
assigns, the principal sum of [________________] DOLLARS on _______________,
with interest (computed on the basis of a 360-day year of twelve 30-day
months) (a) on the unpaid balance thereof at the rate of ____% per annum from
the date hereof, payable semiannually, on the _____ day of ______ and ______
in each year, commencing on the first of such dates after the date hereof,
until the principal hereof shall have become due and payable, and (b) to the
extent permitted by law on any overdue payment (including any overdue
prepayment) of principal, any overdue payment of interest and any overdue
payment of any Make-Whole Amount (as defined in the Note Purchase Agreement
referred to below), payable semiannually as aforesaid (or, at the option of
the registered holder hereof, on demand), at a rate per annum from time to
time equal to the greater of (i) [coupon + 2%]% or (ii) 2% over the rate of
interest publicly announced by _________________ from time to time in
____________________ as its "base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at ______________________, in ______________________, or at such
other place as the Company shall have designated by written notice to the
holder of this Note as provided in the Note Purchase Agreement referred to
below.
This Note is one of a series of Senior Notes (the "NOTES") issued
pursuant to a Supplement to the Note Purchase Agreement dated as of December
1, 1999 (as from time to time amended, supplemented or modified, the "NOTE
PURCHASE AGREEMENT"), between the Company, the Purchasers named therein and
Additional Purchasers of Notes from time to time issued pursuant to any
Supplement to the Note Purchase Agreement. This Note and the holder hereof
are entitled equally and ratably with the holders of all other Notes of all
series from time to time outstanding under the Note Purchase Agreement to all
the benefits provided for thereby or referred to therein. Each holder of this
Note will be deemed, by its acceptance hereof, to have made the
representation set forth in Section 6.2 of the Note Purchase Agreement,
PROVIDED that such holder may (in reliance upon information provided by the
Company, which shall not be unreasonably withheld) make a representation to
the effect that the purchase by such holder of any Note will not constitute a
non-exempt prohibited transaction under Section 406(a) of ERISA.
EXHIBIT A
(to Supplement)
<PAGE>
This Note is registered with the Company and, as provided in the Note
Purchase Agreement, upon surrender of this Note for registration of transfer,
duly endorsed, or accompanied by a written instrument of transfer duly executed,
by the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note of an identical series for a like principal amount will be
issued to, and registered in the name of, the transferee. Prior to due
presentment for registration of transfer, the Company may treat the person in
whose name this Note is registered as the owner hereof for the purpose of
receiving payment and for all other purposes, and the Company will not be
affected by any notice to the contrary.
[The Company will make required prepayments of principal on the dates
and in the amounts specified in the Note Purchase Agreement.] [This Note is not
subject to regularly scheduled prepayments of principal.] This Note is [also]
subject to optional prepayment, in whole or from time to time in part, at the
times and on the terms specified in the Note Purchase Agreement, but not
otherwise.
If an Event of Default, as defined in the Note Purchase Agreement,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.
All amounts of principal, interest and Make-Whole Amount payable with
respect to the Notes are unconditionally guaranteed by all Subsidiaries under
and pursuant to that certain Guaranty Agreement dated as of December 1, 1999
from said Subsidiaries.
This Note shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of New York
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.
K2 INC.
By
Name:_____________________
Title:____________________
<PAGE>
EXHIBIT (10)(d)
===============================================================================
Credit Agreement
Dated as of December 21, 1999
among
K2 Inc.,
Bank of America, N.A.,
as Administrative Agent, Swing Line Lender
and
Letter of Credit Issuing Lender
and
The Other Financial
Institutions Party Hereto
Banc of America Securities LLC,
as Sole Lead Arranger and Sole Book Manager
[BANK OF AMERICA LOGO]
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
SECTION 1. DEFINITIONS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.01 Certain Defined Terms.. . . . . . . . . . . . . . . . . . . . . . . . .1
1.02 Use of Certain Terms. . . . . . . . . . . . . . . . . . . . . . . . . 23
1.03 Accounting Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
1.04 Rounding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
1.05 Exhibits and Schedules. . . . . . . . . . . . . . . . . . . . . . . . 24
1.06 References to Agreements and Laws.. . . . . . . . . . . . . . . . . . 24
SECTION 2. THE COMMITMENTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.01 Amounts and Terms of Commitments. . . . . . . . . . . . . . . . . . . 24
2.02 Borrowings, Conversions and Continuations of Loans. . . . . . . . . . 25
2.03 Letters of Credit.. . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.04 The Swing Line. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.05 Prepayments.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.06 Reduction or Termination of Commitments.. . . . . . . . . . . . . . . 31
2.07 Principal and Interest. . . . . . . . . . . . . . . . . . . . . . . . 32
2.08 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.09 Computation of Fees and Interest. . . . . . . . . . . . . . . . . . . 33
2.10 Making Payments.. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.11 Funding Sources.. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.12 Increase in Commitments.. . . . . . . . . . . . . . . . . . . . . . . 34
2.13 Master Subsidiary Guaranty. . . . . . . . . . . . . . . . . . . . . . 35
SECTION 3. TAXES, YIELD PROTECTION AND ILLEGALITY. . . . . . . . . . . . . . . . . 36
3.01 Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.02 Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.03 Inability to Determine Rates. . . . . . . . . . . . . . . . . . . . . 37
3.04 Increased Cost and Reduced Return; Capital Adequacy.. . . . . . . . . 37
3.05 Breakfunding Costs. . . . . . . . . . . . . . . . . . . . . . . . . . 38
3.06 Matters Applicable to all Requests for Compensation.. . . . . . . . . 38
3.07 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 4. CONDITIONS TO EFFECTIVENESS OF AGREEMENT AND EXTENSIONS OF
CREDIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.01 Conditions of Initial Loans.. . . . . . . . . . . . . . . . . . . . . 39
4.02 Conditions to all Extensions of Credit. . . . . . . . . . . . . . . . 40
SECTION 5. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . 42
5.01 Corporate Existence and Power.. . . . . . . . . . . . . . . . . . . . 42
5.02 Corporate Authorization; No Contravention.. . . . . . . . . . . . . . 42
5.03 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.04 Subsidiaries; Subsidiary Guarantors.. . . . . . . . . . . . . . . . . 42
5.05 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . 43
5.06 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.07 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.08 Pending Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.09 Title to Properties.. . . . . . . . . . . . . . . . . . . . . . . . . 44
-i-
<PAGE>
5.10 Patents and Trademarks. . . . . . . . . . . . . . . . . . . . . . . . 44
5.11 Governmental Consent. . . . . . . . . . . . . . . . . . . . . . . . . 44
5.12 Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.13 Use of Proceeds.. . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.14 ERISA.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.15 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . 45
5.16 Compliance with Environmental Laws. . . . . . . . . . . . . . . . . . 45
5.17 Regulated Entities. . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.18 No Burdensome Restrictions. . . . . . . . . . . . . . . . . . . . . . 46
5.19 Labor Relations.. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.20 Insurance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.21 No Restrictions on Subsidiaries.. . . . . . . . . . . . . . . . . . . 46
5.22 Year 2000.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.01 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . 47
6.02 Notices.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.03 Corporate Existence, Etc. . . . . . . . . . . . . . . . . . . . . . . 49
6.04 Insurance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.05 Taxes, Claims for Labor and Materials, Compliance with Laws.. . . . . 50
6.06 Maintenance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.07 Payment of Obligations. . . . . . . . . . . . . . . . . . . . . . . . 51
6.08 Environmental Laws. . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.09 Inspection of Property and Books and Records. . . . . . . . . . . . . 51
6.10 Guaranties by New Domestic Subsidiaries.. . . . . . . . . . . . . . . 51
SECTION 7. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.01 Limitation on Liens.. . . . . . . . . . . . . . . . . . . . . . . . . 51
7.02 Limitations on Indebtedness.. . . . . . . . . . . . . . . . . . . . . 52
7.03 No Restrictions on Subsidiaries.. . . . . . . . . . . . . . . . . . . 53
7.04 Fundamental Changes.. . . . . . . . . . . . . . . . . . . . . . . . . 53
7.05 Dispositions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.06 Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.07 Operating Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.08 Loans and Investments.. . . . . . . . . . . . . . . . . . . . . . . . 55
7.09 Restricted Payments.. . . . . . . . . . . . . . . . . . . . . . . . . 55
7.10 Termination of Pension Plans. . . . . . . . . . . . . . . . . . . . . 56
7.11 Compliance with ERISA.. . . . . . . . . . . . . . . . . . . . . . . . 56
7.12 Capital Expenditures. . . . . . . . . . . . . . . . . . . . . . . . . 56
7.13 Consolidated Net Worth. . . . . . . . . . . . . . . . . . . . . . . . 56
7.14 Leverage Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
7.15 Interest Coverage Ratio.. . . . . . . . . . . . . . . . . . . . . . . 57
7.16 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . . 57
7.17 Nature of Business. . . . . . . . . . . . . . . . . . . . . . . . . . 57
7.18 Accounting Changes. . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
8.01 Events of Default.. . . . . . . . . . . . . . . . . . . . . . . . . . 58
8.02 Remedies Upon Event of Default. . . . . . . . . . . . . . . . . . . . 60
SECTION 9. ADMINISTRATIVE AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . 61
-ii-
<PAGE>
9.01 Appointment and Authorization of Administrative Agent.. . . . . . . . 61
9.02 Delegation of Duties. . . . . . . . . . . . . . . . . . . . . . . . . 62
9.03 Liability of Administrative Agent.. . . . . . . . . . . . . . . . . . 62
9.04 Reliance by Administrative Agent. . . . . . . . . . . . . . . . . . . 62
9.05 Notice of Default.. . . . . . . . . . . . . . . . . . . . . . . . . . 63
9.06 Credit Decision; Disclosure of Information by Administrative
Agent.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
9.07 Indemnification of Administrative Agent.. . . . . . . . . . . . . . . 64
9.08 Administrative Agent in Individual Capacity.. . . . . . . . . . . . . 64
9.09 Successor Administrative Agent. . . . . . . . . . . . . . . . . . . . 64
SECTION 10. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.01 Amendments; Consents. . . . . . . . . . . . . . . . . . . . . . . . . 65
10.02 Transmission and Effectiveness of Notices and Signatures. . . . . . . 66
10.03 Attorney Costs, Expenses and Taxes. . . . . . . . . . . . . . . . . . 67
10.04 Binding Effect; Assignment. . . . . . . . . . . . . . . . . . . . . . 67
10.05 Set-off.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
10.06 Sharing of Payments.. . . . . . . . . . . . . . . . . . . . . . . . . 69
10.07 No Waiver; Cumulative Remedies. . . . . . . . . . . . . . . . . . . . 70
10.08 Usury.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
10.09 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
10.10 Integration.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
10.11 Nature of Lenders' Obligations. . . . . . . . . . . . . . . . . . . . 71
10.12 Survival of Representations and Warranties. . . . . . . . . . . . . . 71
10.13 Indemnity by Borrower.. . . . . . . . . . . . . . . . . . . . . . . . 71
10.14 Nonliability of Lenders.. . . . . . . . . . . . . . . . . . . . . . . 71
10.15 No Third Parties Benefited. . . . . . . . . . . . . . . . . . . . . . 72
10.16 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
10.17 Confidentiality.. . . . . . . . . . . . . . . . . . . . . . . . . . . 73
10.18 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . 73
10.19 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
10.20 Time of the Essence.. . . . . . . . . . . . . . . . . . . . . . . . . 73
10.21 Foreign Lenders and Participants. . . . . . . . . . . . . . . . . . . 73
10.22 Governing Law.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
10.23 Waiver of Right to Trial by Jury. . . . . . . . . . . . . . . . . . . 75
10.24 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 75
10.25 Termination of Existing Syndicated Agreement. . . . . . . . . . . . . 75
</TABLE>
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<PAGE>
EXHIBITS
FORM OF:
A Request for Extension of Credit
B Compliance Certificate
C Note
D Notice of Assignment and Acceptance
E Guaranty
F Intercreditor Agreement
SCHEDULES
2.01 Commitments and Pro Rata Shares
5.04 Subsidiaries as of Closing Date
5.06 Existing Indebtedness
5.08 Certain Litigation
5.12 Tax Assessments
5.14 Certain ERISA Matters
5.16 Environmental Liabilities
7.01 Existing Liens
7.08 Existing Investments
10.02 Offshore and Domestic Lending Offices, Addresses for Notices
-iv-
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "AGREEMENT") is dated as of December 21, 1999
and is entered into by and among K2 INC., a Delaware corporation ("BORROWER"),
THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (individually
referred to herein as a "LENDER" and collectively as "LENDERS"), and BANK OF
AMERICA, N.A. as Administrative Agent for Lenders ("ADMINISTRATIVE AGENT").
RECITAL
Lenders and Administrative Agent have agreed to make available a
revolving credit facility to Borrower upon the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties agree as follows:
SECTION 1.
DEFINITIONS.
1.01 CERTAIN DEFINED TERMS.
The following terms used in this Agreement shall have the following
meanings:
"ACQUISITION" means any transaction or series of related transactions for
the purpose of or resulting, directly or indirectly, in (a) the acquisition of
all or substantially all of the assets of a Person, or of any business or
division of a Person, (b) the acquisition of in excess of 50% of the capital
stock, partnership interests or equity of any Person or otherwise causing any
Person to become a Subsidiary of Borrower, or (c) a merger or consolidation or
any other combination with another Person (other than a Person that is a
Subsidiary of Borrower) provided that Borrower or Borrower's Subsidiary is the
surviving entity; PROVIDED, HOWEVER, that "Acquisition" shall not include any of
the foregoing transactions between Borrower and any Subsidiary that is a
Subsidiary Guarantor prior to such transaction or between companies that are
Subsidiary Guarantors prior to such transaction; PROVIDED, FURTHER, that
"Acquisition" shall not include Investments.
"ADMINISTRATIVE AGENT" means Bank of America, N.A., in its capacity as
administrative agent under any of the Loan Documents, or any successor
administrative agent.
"ADMINISTRATIVE AGENT'S OFFICE" means Administrative Agent's address and,
as appropriate, account as set forth on SCHEDULE 10.02, or such other address or
account as Administrative Agent hereafter may designate by written notice to
Borrower and Lenders.
"ADMINISTRATIVE AGENT-RELATED PERSONS" means Administrative Agent
(including any successor agent), together with its Affiliates (including, in the
case of Administrative Agent, the Arranger), and the officers, directors,
employees, agents and attorneys-in-fact of such Persons and Affiliates.
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<PAGE>
"AFFILIATE" means, as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, by contract or otherwise. Without
limitation, any director, executive officer or beneficial owner of 5% or more of
the equity of a Person shall for the purposes of this Agreement, be deemed to
control such Person.
"AGREEMENT" means this Credit Agreement, as it may hereafter be amended,
supplemented, restated or otherwise modified from time to time.
"APPLICABLE MARGIN" means, for any period, from and after the Closing
Date, the amounts set forth in the following pricing grid:
<TABLE>
<CAPTION>
OFFSHORE
RATE LOANS
-----------
FINANCIAL PERFORMANCE
LETTER OF LETTER OF COMMITMENT
LEVEL LEVERAGE RATIO CREDIT FEES CREDIT FEES FEE
----- -------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
5 greater-than4.00:1 2.000% 1.000% 0.500%
4 less-than4.00:1 but greater-than3.50:1 1.750% 0.875% 0.375%
3 less-than3.50:1 but greater-than3.00:1 1.500% 0.750% 0.325%
2 less-than3.00:1 but greater-than2.50:1 1.250% 0.625% 0.275%
1 less-than2.50:1 1.000% 0.500% 0.225%
</TABLE>
The Applicable Margin shall be based upon the Leverage Ratio set forth in
the most recent Compliance Certificate delivered to Administrative Agent, and
shall be effective during the Pricing Period (as defined in the chart below)
applicable to such Compliance Certificate as indicated in the chart below. If
Administrative Agent does not receive a Compliance Certificate by the date
required by SECTION 6.01(F), the Applicable Margin shall, effective as of the
first day of the Pricing Period that would be applicable, be the highest Level
set forth above to but excluding the date Administrative Agent receives such
Compliance Certificate. Thereafter, and for the remaining portion of the
applicable Pricing Period, the Applicable Margin shall be that indicated by the
Leverage Ratio in such late Compliance Certificate. The initial Applicable
Margin shall be based on Level 5 from the Closing Date through and including
December 31, 1999.
<TABLE>
<CAPTION>
FOR COMPLIANCE CERTIFICATE
RECEIVED IN RESPECT OF FISCAL
PERIOD ENDING: THE APPLICABLE PRICING PERIOD IS:
----------------------------- ---------------------------------
<S> <C>
March 31 April 1 through next June 30
June 30 July 1 through next September 30
September 30 October 1 through next December 31
December 31 January 1 through next March 31
</TABLE>
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<PAGE>
"APPLICABLE PAYMENT DATE" means, (a) as to any Offshore Rate Loan, the
last day of the relevant Interest Period and any date that such Loan is prepaid
or converted in whole or in part and the Maturity Date; PROVIDED, HOWEVER, that
if any Interest Period for an Offshore Rate Loan exceeds three months, interest
shall also be paid on the date which falls every three months after the
beginning of such Interest Period, and (b) as to any other Obligations, the last
Business Day of each calendar quarter and the Maturity Date; PROVIDED, FURTHER,
that interest accruing at the Default Rate shall be payable from time to time at
any time upon demand of Administrative Agent.
"ARRANGER" means Banc of America Securities LLC, in its capacity as sole
arranger and sole book manager.
"ATTORNEY COSTS" means and includes all reasonable fees and disbursements
of any law firm or other external counsel and the allocated cost of internal
legal services and all disbursements of internal counsel.
"BANK OF AMERICA" means Bank of America, N.A.
"BASE RATE" means a fluctuating rate per annum equal to the higher of (a)
the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for
such day as publicly announced from time to time by Bank of America as its
"prime rate." Such rate is a rate set by Bank of America based upon various
factors including Bank of America's costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some
loans, which may be priced at, above, or below such announced rate. Any change
in such rate announced by Bank of America shall take effect at the opening of
business on the day specified in the public announcement of such change.
"BASKET TOTAL DEBT" means Total Debt excluding Indebtedness permitted
under SECTION 7.02(A), (B), (C) and (D).
"BASE RATE LOAN" means a Loan which bears interest based on the Base
Rate.
"BORROWER" means K2 Inc.
"BORROWER PARTY" means Borrower, each Subsidiary Guarantor or any Person
other than Lenders and any Affiliates of Lenders, Administrative Agent, or
Issuing Lender from time to time party to a Loan Document.
"BORROWING" and "BORROW" each mean a borrowing hereunder consisting of
Loans of the same type made on the same day and, in the case of Offshore Rate
Loans, having the same Interest Periods.
"BORROWING DATE" means the date that a Loan is made, which shall be a
Business Day.
"BUSINESS DAY" means any day other than a Saturday, Sunday, or other
day on which commercial banks are authorized to close under the Laws of, or
are in fact closed in, the state where Administrative Agent's Office is
located and, if such day relates to any Offshore Rate
-3-
<PAGE>
Loan, means any such day on which dealings in Dollar deposits are conducted
by and between banks in the offshore Dollar interbank market.
"CAPITAL EXPENDITURES" means any expenditure that is considered a capital
expenditure under GAAP, including any amount which is required to be treated as
an asset subject to a Capital Lease.
"CAPITALIZED LEASES" means all leases which contain Capitalized Lease
Obligations.
"CAPITALIZED LEASE OBLIGATION" means any rental obligation which, under
generally accepted accounting principles, is or will be required to be
capitalized on the books of Borrower or any Subsidiary, taken at the amount
thereof accounted for as indebtedness (net of interest expense) in accordance
with such principles.
"CERCLA" has the meaning specified in the definition of "Environmental
Laws."
"CHANGE IN CONTROL" means each and every issue, sale or other disposition
of shares of stock of the Borrower which results in any person (as such term is
used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended) or related person constituting a group (as such term is used in Section
13d-5 of the Securities Exchange Act of 1934, as amended) (herein, an "ACQUIRING
PERSON") becoming the "beneficial owners" (as such term is used in Section 13d-3
of the Securities Exchange Act of 1934 as in effect on the Closing Date),
directly or indirectly, of more than 50% or more of the outstanding Voting Stock
of Borrower.
"CLOSING DATE" means the date on which this Agreement becomes effective
and all the conditions in SECTION 4.01 are satisfied or waived.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
"COMMERCIAL LETTER OF CREDIT" means a commercial Letter of Credit issued
for the purpose of providing a payment mechanism in connection with the conduct
of Borrower's or any of its Subsidiary's ordinary course of business.
"COMMITMENT" means, for each Lender, the obligation of such Lender to
make Extensions of Credit in an aggregate principal amount not exceeding the
amount set forth opposite such Lender's name on SCHEDULE 2.01 at any one time
outstanding, as such amount may be reduced or adjusted from time to time in
accordance with this Agreement (collectively, the "COMBINED COMMITMENTS").
"COMPLIANCE CERTIFICATE" means a certificate in the form of EXHIBIT B,
properly completed and signed by a Responsible Officer of Borrower.
"CONSOLIDATED EBITDA" means, for the period of the four fiscal quarters
ending on any date of determination (the "measurement period"), for Borrower and
its Subsidiaries on a consolidated basis, an amount equal to (i) the sum of
(a) Consolidated Net Income for such measurement period, (b) Consolidated
Interest Expense for such measurement period, (c) the amount of taxes, based on
or measured by income, used or included in the determination of such
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<PAGE>
Consolidated Net Income for such measurement period, (d) the amount of
depreciation and amortization expense deducted in determining such
Consolidated Net Income for such measurement period and (e) non-cash
nonrecurring charges and expenses included in the determination of
Consolidated Net Income for such measurement period to the extent relating to
items originally purchased in periods prior to the measurement period;
PROVIDED, HOWEVER, that charges and expenses related to inventory excluded
from the determination of Consolidated EBITDA by this clause (e) shall not
exceed $5,000,000 in any measurement period, LESS (ii) non-cash nonrecurring
gains included in the determination of Consolidated Net Income for such
measurement period to the extent relating to items originally purchased in
periods prior to the measurement period; PROVIDED, FURTHER, that, with
respect to the Acquisition of a Subsidiary within such measurement period
which would have added at least $3,000,000 to Consolidated EBITDA had it been
included in the calculation thereof for such measurement period, Borrower may
also include items (i) and (ii) above for such Subsidiary for such
measurement period in Consolidated EBITDA if Borrower has provided to
Administrative Agent (who shall promptly deliver the same to all Lenders) (x)
the most recent year-end audited financial statements for that Subsidiary
(which audited statements must be as of a date occurring within five fiscal
quarters prior to the date of such Acquisition (even if such date is prior to
the measurement period and, therefore, such audited statements are not
actually used in computing Consolidated EBITDA for such measurement period))
and (y) company-prepared financial statements for that Subsidiary for any
portion of such measurement period to be included; PROVIDED, FURTHER, that
the items in the foregoing proviso may only be included if the items set
forth in the proviso to Consolidated Interest Expense relating to such
Subsidiary are also included when determining any covenant hereunder.
"CONSOLIDATED INTEREST EXPENSE" means, for the period of the four
fiscal quarters ending on any date of determination (the "measurement
period"), the sum, without duplication, of (a) total interest expense
(including that portion attributable to Capitalized Leases in conformity with
GAAP) of Borrower and its Subsidiaries for such measurement period on a
consolidated basis and (b) fees, commissions and interest related to
Permitted Accounts Receivable Financing Facilities for such measurement
period; PROVIDED, HOWEVER, that, with respect to the Acquisition of a
Subsidiary within such measurement period which would have added at least
$3,000,000 to Consolidated EBITDA had it been included in the calculation
thereof for such measurement period, Borrower may also include items (a) and
(b) above for such Subsidiary for such measurement period in Consolidated
Interest Expense if Borrower has provided to Administrative Agent (who shall
promptly deliver the same to all Lenders) (i) the most recent year-end
audited financial statements for that Subsidiary (which audited statements
must be as of a date occurring within five fiscal quarters prior to the date
of such Acquisition (even if such date is prior to the measurement period
and, therefore, such audited statements are not actually used in computing
Consolidated Interest Expense for such measurement period)) and (ii)
company-prepared financial statements for that Subsidiary for any portion of
such measurement period to be included.
"CONSOLIDATED NET INCOME" means, for any period, the net income of
Borrower and its Subsidiaries on a consolidated basis for such period,
determined in accordance with GAAP, but excluding in any event:
-5-
<PAGE>
(a) any extraordinary gains or losses as defined in APBO Nos. 11, 16
and 30 and FASB Statement No. 4;
(b) net earnings and losses of any Subsidiary accrued prior to the
date it became a Subsidiary;
(c) net earnings and losses of any corporation (other than a
Subsidiary), substantially all the assets of which have been acquired in any
manner by Borrower or any Subsidiary, accrued by such corporation prior to the
date of such Acquisition;
(d) net earnings and losses of any corporation (other than a
Subsidiary) with which Borrower or a Subsidiary shall have consolidated or which
shall have merged into or with Borrower or a Subsidiary, accrued by such
corporation prior to the date of such consolidation or merger;
(e) net earnings of any business entity (other than a Subsidiary) in
which Borrower or any Subsidiary has an ownership interest unless such net
earnings shall have actually been received or are receivable by Borrower or such
Subsidiary in the form of cash distributions;
(f) any portion of the net earnings of any Subsidiary which for any
reason is unavailable for payment of dividends to Borrower or any other
Subsidiary except to the extent applied to the repayment of Indebtedness of such
Subsidiary to Borrower or any other Subsidiary;
(g) earnings or amortization resulting from any reappraisal,
revaluation or write-up of assets (other than pursuant to any purchase
accounting adjustments made to the book value of assets of an acquired Person in
connection with an Acquisition);
(h) to the extent not otherwise excluded pursuant to clause (a) above,
any aggregate net gain (or any aggregate net loss) during such period arising
from the sale, conversion, exchange or other disposition of capital assets (such
term to include, without limitation (i) all noncurrent assets and, without
duplication, (ii) the following, whether or not current: all fixed assets,
whether tangible or intangible, all inventory sold in the conjunction with the
disposition of fixed assets, and all securities);
(i) any deferred or other credit or amortization thereof representing
any excess of the equity in any Subsidiary at the date of Acquisition thereof
over the amount invested in such Subsidiary; and
(j) any gain arising from the acquisition of any securities of
Borrower or any Subsidiary.
"CONSOLIDATED NET WORTH" means, as of the date of any determination
thereof, the total consolidated assets of Borrower and its Subsidiaries on a
consolidated basis less the total liabilities of Borrower and its Subsidiaries
on a consolidated basis determined in accordance with GAAP.
-6-
<PAGE>
"CONSOLIDATED TANGIBLE NET WORTH" means at any date Consolidated Net
Worth LESS the Intangible Assets of Borrower and its Subsidiaries on a
consolidated basis, all determined as of such date. For purposes of this
definition, "Intangible Assets" means the amount (to the extent reflected in
determining such Consolidated Net Worth) of all unamortized debt discount and
expense, unamortized deferred charges (other than deferred employee benefit
liabilities), goodwill, patents, trademarks, service marks, trade names,
copyrights, organization or development expenses and other intangible items.
"CONSOLIDATED TOTAL ASSETS" mean, as of the date of any determination
thereof, the total assets of Borrower and its Subsidiaries on a consolidated
basis determined in accordance with GAAP.
"CONTINUATION" and "CONTINUE" mean, with respect to any Offshore Rate
Loan, the continuation of such Offshore Rate Loan as an Offshore Rate Loan on
the last day of the Interest Period for such Loan.
"CONTRACTUAL OBLIGATION," as applied to any Person, means any provision
of any security issued by that Person or of any material indenture, mortgage,
deed of trust, contract, undertaking, agreement or other instrument to which
that Person is a party or by which it or any of its properties is bound or to
which it or any of its properties is subject.
"CONTROLLED GROUP" means Borrower and all Persons (whether or not
incorporated) under common control or treated as a single employer with Borrower
or any of its Subsidiaries pursuant to Section 414(b) or (c) of the Code.
"CONVERSION" and "CONVERT" mean, with respect to any Loan, the conversion
of such Loan from or into another type of Loan.
"COVERED DISPOSITION" is any Disposition, the proceeds of which are used
to make Investments otherwise permitted hereunder within 180 days from the date
of such Disposition.
"DEBTOR RELIEF LAWS" means the Bankruptcy Code of the United States of
America, and all other liquidation, conservatorship, bankruptcy, assignment for
the benefit of creditors, moratorium, rearrangement, receivership, insolvency,
reorganization, or similar debtor relief Laws of the United States of America or
other applicable jurisdictions from time to time in effect affecting the rights
of creditors generally.
"DEFAULT" means any event which, with the giving of notice, the lapse of
time, or both, would constitute an Event of Default.
"DEFAULT RATE" means an interest rate equal to the Base Rate PLUS the
Applicable Margin, if any, applicable to Base Rate Loans PLUS 2% per annum, to
the fullest extent permitted by applicable Laws; PROVIDED, HOWEVER, that with
respect to an Offshore Rate Loan, the Default Rate shall be an interest rate
equal to the interest rate (including any Applicable Margin) otherwise
applicable to such Loan plus 2% per annum.
-7-
<PAGE>
"DESIGNATED DEPOSIT ACCOUNT" means a deposit account to be maintained by
Borrower with Bank of America, as from time to time designated by Borrower by
written notification to Administrative Agent.
"DISPOSITION" or "DISPOSE" means the sale, transfer, license or other
disposition (including any sale and leaseback transaction) of any property by
any Person, including any sale, assignment, transfer or other disposal with or
without recourse of any notes or accounts receivable or any rights and claims
associated therewith.
"DOLLARS" means lawful money of the United States of America.
"DOMESTIC LENDING OFFICE" means, with respect to each Lender, the office
of that Lender designated as such on SCHEDULE 10.02 hereto or such other office
of Lender as it may from time to time specify in writing to Borrower and
Administrative Agent.
"DOMESTIC SUBSIDIARIES" means those Subsidiaries of Borrower which are
incorporated under the laws of any State of the United States and which are
engaged in business primarily in the United States, other than Subsidiaries
which are Subsidiaries of a Foreign Subsidiary.
"ELIGIBLE ASSIGNEE" means (a) a financial institution organized under the
laws of the United States, or any state thereof, and having a combined capital
and surplus of at least $100,000,000; (b) a commercial bank organized under the
laws of any other country which is a member of the Organization for Economic
Cooperation and Development, or a political subdivision of any such country, and
having a combined capital and surplus of at least $100,000,000, provided that
such bank is acting through a branch or agency located in the United States; (c)
a Person that is primarily engaged in the business of commercial banking and
that is (i) a Subsidiary of a Lender, (ii) a Subsidiary of a Person of which a
Lender is a Subsidiary, or (iii) a Person of which a Lender is a Subsidiary; (d)
another Lender; (e) any other entity which is an "accredited investor" (as
defined in Regulation D under the Securities Exchange Act of 1934, as amended)
which extends credit or buys loans as one of its businesses, including but not
limited to, insurance companies, mutual funds and lease financing companies; or
(f) other lenders or institutional investors consented to in writing in advance
by Administrative Agent and Borrower. No Borrower Party or any Affiliate of a
Borrower Party shall be an Eligible Assignee.
"ENVIRONMENTAL CLAIM" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law or for release or injury
to the environment or otherwise alleging liability or responsibility for damages
(punitive or otherwise), cleanup, removal, remedial or response costs,
restitution, civil or criminal penalties, injunctive relief, or other type of
relief, resulting from or based upon (a) the presence, placement, discharge,
emission or release (including intentional and unintentional, negligent and
non-negligent, sudden or non-sudden, accidental or non-accidental placement,
spills, leaks, discharges, emissions or releases) of any Hazardous Material at,
in or from property, whether or not owned by Borrower or any of its
Subsidiaries, or (b) any other circumstances forming the basis of any violation,
or alleged violation, of any Environmental Laws.
-8-
<PAGE>
"ENVIRONMENTAL LAWS" means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any Governmental Authorities, in each case
relating to environmental, matters; including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), the Clean Air Act,
the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act,
the Federal Resource Conservation and Recovery Act, the Toxic Substances Control
Act, the Emergency Planning and Community Right-to-Know Act.
"ERISA" means the Employee Retirement Income Security Act of 1974 and any
regulation promulgated thereunder.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) under common control with Borrower within the meaning of Sections
414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes
of provisions relating to Section 412 of the Code).
"ERISA EVENT" means (a) a Reportable Event with respect to a Pension
Plan; (b) a withdrawal by Borrower or any ERISA Affiliate from a Pension Plan
subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation
of operations which is treated as such a withdrawal under Section 4062(e) of
ERISA; (c) a complete or partial withdrawal by Borrower or any ERISA Affiliate
from a Multiemployer Plan or notification that a Multiemployer Plan is in
reorganization; (d) the filing of a notice of intent to terminate, the treatment
of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or
the commencement of proceedings by the PBGC to terminate a Pension Plan or
Multiemployer Plan; (e) an event or condition which might reasonably be expected
to constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan or Multiemployer Plan;
or (f) the imposition of any liability under Title IV of ERISA, other than PBGC
premiums due but not delinquent under Section 4007 of ERISA, upon Borrower or
any ERISA Affiliate.
"EVENT OF DEFAULT" means any of the events set forth in SECTION 8.01.
"EXCHANGE ACT" means, at any time, the Securities Exchange Act of 1934,
as amended from time to time, and any successor statute.
"EXISTING SYNDICATED AGREEMENT" means that certain Credit Agreement dated
as of May 21, 1996, as amended, among Borrower, the lenders party thereto, and
Bank of America as agent for such lenders.
"EXTENSION OF CREDIT" means (a) a Borrowing, Conversion or Continuation
of Loans, (b) a Letter of Credit Action wherein a new Letter of Credit is issued
or which has the effect of increasing the amount of, extending the maturity of,
or making a material modification to an outstanding Letter of Credit or the
reimbursement of drawings thereunder, (c) each Lender's purchase of a risk
participation in a new Letter of Credit, or (d) each Lender's purchase of a risk
participation in a Swing Line Loan made by Swing Line Lender (collectively, the
"EXTENSIONS OF CREDIT").
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<PAGE>
"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upwards to the nearest 1/100 of 1%) equal to the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank on the Business Day next succeeding such day;
PROVIDED that (a) if such day is not a Business Day, the Federal Funds Rate
for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day, and (b) if
no such rate is so published on such next succeeding Business Day, the
Federal Funds Rate for such day shall be the average rate charged to Bank of
America on such day on such transactions as determined by Administrative
Agent.
"FINANCIAL LETTER OF CREDIT" means any standby letter of credit covering
the potential default of a financial contractual obligation, and includes
without limitation all letters of credit required to be classified as such by
the Federal Reserve Board or by the Office of the Comptroller of the Currency.
"FINANCIAL LETTER OF CREDIT SUBLIMIT" means an amount equal to the lesser
of the combined Commitments and $10,000,000.
"FOREIGN SUBSIDIARIES" means those Subsidiaries of Borrower which are not
Domestic Subsidiaries.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or such other
principles as may be approved by a significant segment of the accounting
profession, that are applicable to the circumstances as of the date of
determination, consistently applied. If at any time any change in GAAP would
affect the computation of any financial ratio or requirement set forth in any
Loan Document, and either Borrower or the Requisite Lenders shall so request,
Administrative Agent, Lenders and Borrower shall negotiate in good faith to
amend such ratio or requirement to preserve the original intent thereof in
light of reflect such change in GAAP (subject to the approval of the
Requisite Lenders), provided that, until so amended, (a) such ratio or
requirement shall continue to be computed in accordance with GAAP prior to
such change therein and (b) Borrower shall provide to Administrative Agent,
and Lenders financial statements and other documents required under this
Agreement or as reasonably requested hereunder setting forth a reconciliation
between calculations of such ratio or requirement made before and after
giving effect to such change in GAAP.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof, any central Lender (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"GUARANTY OBLIGATION" means, as to any Person, any (a) guaranty by that
Person of Indebtedness of, or other obligation payable or performable by, any
other Person or (b) assurance, agreement, letter of responsibility, letter of
awareness, undertaking or arrangement given by that Person to an obligee of any
other Person with respect to the payment or
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<PAGE>
performance of an obligation by, or the financial condition of, such other
Person, whether direct, indirect or contingent, including any purchase or
repurchase agreement covering such obligation or any collateral security
therefor, any agreement to provide funds (by means of loans, capital
contributions or otherwise) to such other Person, any agreement to support
the solvency or level of any balance sheet item of such other Person or any
"keep-well" or other arrangement of whatever nature given for the purpose of
assuring or holding harmless such obligee against loss with respect to any
obligation of such other Person; PROVIDED, HOWEVER, that the term Guaranty
Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any Guaranty
Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the related primary obligation, or portion thereof,
covered by such Guaranty Obligation or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined by
the Person in good faith.
"HAZARDOUS MATERIALS" means all those substances which are regulated by,
or which may form the basis of liability under, any Environmental Laws,
including all substances identified under any Environmental Laws as a pollutant,
contaminant, hazardous waste, hazardous constituent, special waste, hazardous
substance, hazardous material, or toxic substance, or petroleum or petroleum
derived substance or waste.
"INDEBTEDNESS" means as to any Person at a particular time, all items
which would, in conformity with GAAP, be classified as liabilities on a balance
sheet of such Person as at such time (excluding trade and other accounts payable
in the ordinary course of business in accordance with customary trade terms and
which are not overdue for a period of more than 60 days and excluding deferred
taxes), but in any event including, without duplication:
(a) all obligations of such Person for borrowed money and all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments;
(b) any direct or contingent obligations of such Person arising under
letters of credit (including standby and commercial), banker's acceptances, bank
guaranties, surety bonds and similar instruments;
(c) net obligations under any Swap Contract in an amount equal to
(i) if such Swap Contract has been closed out, the termination value thereof,
or (ii) if such Swap Contract has not been closed out, the mark-to-market
value thereof determined on the basis of readily available quotations
provided by any recognized dealer in such Swap Contract;
(d) whether or not so included as liabilities in accordance with GAAP,
all obligations of such Person to pay the deferred purchase price of property or
services, and indebtedness (excluding prepaid interest thereon) secured by a
Lien on property owned or being purchased by such Person (including indebtedness
arising under conditional sales or other title retention agreements), whether or
not such indebtedness shall have been assumed by such Person or is limited in
recourse;
(e) lease payment obligations under Capitalized Leases or Synthetic
Lease Obligations; and
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<PAGE>
(f) all Guaranty Obligations of such Person in respect of any of the
foregoing.
For all purposes of this Agreement, the Indebtedness of any Person shall
include the Indebtedness of any partnership or joint venture in which such
Person is a general partner or a joint venturer, unless such Indebtedness is
expressly made non-recourse to such Person except for customary exceptions
acceptable to the Requisite Lenders.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement
substantially in the form of EXHIBIT F hereto, as amended, supplemented or
otherwise modified from time to time.
"INTEREST COVERAGE RATIO" means, as of any date of determination, the
ratio of (a) Consolidated EBITDA for the period of the four prior fiscal
quarters ending on such date TO (b) Consolidated Interest Expense during such
period.
"INTEREST PERIOD" means, for each Offshore Rate Loan as requested by
Borrower, (a) initially, the period commencing on the date such Offshore Rate
Loan is disbursed, Continued as, or Converted into, an Offshore Rate Loan and
(b) thereafter, the period commencing on the last day of the preceding Interest
Period, and ending, in each case, on the earlier of (x) the scheduled Maturity
Date, or (y) one, two, three or six months thereafter; PROVIDED that:
(i) any Interest Period that would otherwise end on a day that
is not a Business Day shall be extended to the next succeeding Business
Day unless such Business Day falls in another calendar month, in which
case such Interest Period shall end on the next preceding Business Day;
(ii) any Interest Period which begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month at the
end of such Interest Period; and
(iii) unless Administrative Agent otherwise consents, there
may not be more than 10 Interest Periods in effect at any time.
"INVESTMENTS" means all investments, in cash or by delivery of property
made, directly or indirectly in any Person, whether by acquisition of shares of
capital stock, indebtedness or other obligations or securities or by loan,
advance, capital contribution or otherwise; PROVIDED, HOWEVER, that
"Investments" shall not include Acquisitions. In valuing any Investments for
purposes of this Agreement, such Investments shall be taken at the original cost
thereof, without allowance for any subsequent write-offs or appreciation or
depreciation therein, but less any amount repaid or recovered on account of
capital or principal.
"IRS" means the Internal Revenue Service.
"ISSUING LENDER" means Bank of America, or any successor issuing lender
hereunder.
"K2 FUNDING" means K2 Funding, Inc., a Delaware corporation, which is a
Subsidiary.
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<PAGE>
"LAWS" or "LAW" means, collectively, all international, foreign, federal,
state and local statutes, treaties, rules, guidelines, regulations, ordinances,
codes and administrative or judicial precedents or authorities, including the
interpretation or administration thereof by any Governmental Authority charged
with the enforcement, interpretation or administration thereof, in each case
whether or not having the force of law.
"LENDER" means each lender from time to time party hereto and, as the
context requires, Swing Line Lender and Issuing Lender.
"LENDING OFFICE" means, as to any Lender, the office or offices of such
Lender described as such on SCHEDULE 10.02, or such other office or offices as a
Lender may from time to time notify Administrative Agent.
"LETTER OF CREDIT" means any letter of credit issued or outstanding
hereunder. A Letter of Credit may be a Commercial Letter of Credit, a
Performance Letter of Credit or a Financial Letter of Credit.
"LETTER OF CREDIT ACTION" means the issuance, supplement, amendment,
renewal, extension, modification or other action relating to a Letter of Credit.
"LETTER OF CREDIT APPLICATION" means an application for a Letter of
Credit Action as shall at any time be in use by Issuing Lender.
"LETTER OF CREDIT CASH COLLATERAL ACCOUNT" means a blocked deposit
account at Bank of America with respect to which Borrower hereby grants a
security interest in such account to Administrative Agent for and on behalf of
Lenders as security for Letter of Credit Usage and with respect to which
Borrower agrees to execute and deliver from time to time such documentation as
Administrative Agent may reasonably request to further assure and confirm such
security interest.
"LETTER OF CREDIT EXPIRATION DATE" means the date which is 30 days
prior to the Maturity Date.
"LETTER OF CREDIT USAGE" means, as at any date of determination, the
aggregate undrawn face amount of outstanding Letters of Credit PLUS the
aggregate amount of all drawings under the Letters of Credit honored by Issuing
Lender and not reimbursed to Issuing Lender by Borrower or converted into Loans.
"LEVERAGE RATIO" means, as of any date of determination, for Borrower and
its Subsidiaries on a consolidated basis, the ratio of (a) Total Debt as of such
date TO (b) Consolidated EBITDA for the period of the four fiscal quarters
ending on that date.
"LIEN" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement (in the nature of compensating balances, cash collateral accounts
or security interests), encumbrance, lien (statutory or other), charge, or
preference, priority or other security interest or preferential arrangement
of any kind or nature whatsoever (including any conditional sale or other
title retention agreement, any financing lease having substantially the same
economic effect as any of
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the foregoing, and the filing of any financing statement under the Uniform
Commercial Code or comparable Laws of any jurisdiction), including the
interest of a purchaser of accounts receivable.
"LOAN" means any advance made by any Lender to Borrower as provided in
SECTION 2 (collectively, the "LOANS").
"LOAN DOCUMENTS" means this Agreement, the Master Subsidiary Guaranty,
the Intercreditor Agreement, any Letter of Credit Application, any Request
for Extension of Credit and any Note, certificate, any fee letter, and other
instrument, document or agreement from time to time delivered in connection
with this Agreement.
"MASTER SUBSIDIARY GUARANTY" means the continuing guaranty of the
Obligations to be executed and delivered by the Subsidiary Guarantors,
substantially in the form of EXHIBIT E, and any amendments or supplements
thereto.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse effect upon the
business, operations, properties, assets, business prospects or condition
(financial or otherwise) of Borrower and its Subsidiaries, taken as a whole, or
(b) a material impairment of the ability of any Borrower Party to perform the
Obligations in any material respect or (c) a material adverse effect upon the
legality, validity, binding effect or enforceability of any Loan Document.
"MATURITY DATE" means September 30, 2004, as it may be earlier terminated
or extended in accordance with the terms hereof.
"MINIMUM AMOUNT" means, with respect to each of the following actions,
the minimum amount and any multiples in excess thereof set forth opposite such
action:
<TABLE>
<CAPTION>
MULTIPLES IN EXCESS
TYPE OF ACTION MINIMUM AMOUNT THEREOF
--------------------- -------------- --------------------
<S> <C> <C>
Borrowing or prepayment of or
Conversion into, Base Rate Loans $500,000 none
Borrowing, prepayment, Continuation
of, or Conversion into, Offshore Rate
Loans $1,500,000 $500,000
Borrowing or prepayment of Swing Line
Loans $500,000 $500,000
Letter of Credit Action $100,000 None
Reduction in Commitments $10,000,000 $5,000,000
Assignments $5,000,000
</TABLE>
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"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA which is maintained for employees of Borrower or any ERISA
Affiliate of Borrower.
"NEGATIVE PLEDGE" means a Contractual Obligation that restricts Liens on
property.
"NET ISSUANCE PROCEEDS" means, in respect of any issuance of equity, the
cash proceeds and non-cash proceeds received or receivable in connection
therewith, net of reasonable costs and expenses and underwriting discounts and
commissions paid or incurred in connection therewith in favor of any Person not
an Affiliate of Borrower.
"NOTE" means a promissory note made by Borrower in favor of a Lender
evidencing Loans made by such Lender, substantially in the form of EXHIBIT C
(collectively, the "NOTES").
"NOTICE OF ASSIGNMENT AND ACCEPTANCE" means a Notice of Assignment and
Acceptance substantially in the form of EXHIBIT D.
"NOTICE OF LIEN" means any "notice of lien" or similar document
intended to be filed or recorded with any court, registry, recorder's office,
central filing office or Governmental Authority for the purpose of
evidencing, creating, perfecting or preserving the priority of a Lien
securing obligations owing to a Governmental Authority.
"OBLIGATIONS" means all advances to, and debts, liabilities, obligations,
covenants and duties of, any Borrower Party arising under any Loan Document,
whether direct or indirect (including those acquired by assignment), absolute or
contingent, due or to become due, now existing or hereafter arising and
including interest that accrues after the commencement of any proceeding under
any Debtor Relief Laws by or against any Borrower Party or any Subsidiary or
Affiliate of any Borrower Party.
"OFFSHORE BASE RATE" has the meaning set forth in the definition of
Offshore Rate.
"OFFSHORE RATE" means for any Interest Period with respect to any
Offshore Rate Loan, a rate per annum determined by Administrative Agent pursuant
to the following formula:
OFFSHORE BASE RATE
Offshore Rate = ------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"OFFSHORE BASE RATE" means, for such Interest Period:
(a) the rate per annum (carried out to the fifth decimal place) equal
to the rate determined by Administrative Agent to be the offered rate that
appears on the page of the Telerate Screen that displays an average British
Bankers Association Interest Settlement Rate for deposits in Dollars (for
delivery on the first day of such Interest Period) with a term equivalent to
such Interest Period, determined as of approximately 11:00 a.m. (London time)
two Business Days prior to the first day of such Interest Period, or
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(b) in the event the rate referenced in the preceding subsection
(a) does not appear on such page or service or such page or service shall
cease to be available, the rate per annum (carried out to the fifth decimal
place) equal to the rate determined by Administrative Agent to be the offered
rate on such other page or other service that displays an average British
Bankers Association Interest Settlement Rate for deposits in Dollars (for
delivery on the first day of such Interest Period) with a term equivalent to
such Interest Period, determined as of approximately 11:00 a.m. (London time)
two Business Days prior to the first day of such Interest Period, or
(c) in the event the rates referenced in the preceding subsections (a)
and (b) are not available, the rate per annum determined by Administrative Agent
as the rate of interest at which deposits in Dollars (for delivery on the first
day of such Interest Period) in same day funds in the approximate amount of the
applicable Offshore Rate Loan and with a term equivalent to such Interest Period
would be offered by its London Branch to major banks in the offshore market at
their request at approximately 11:00 a.m. (London time) two Business Days prior
to the first day of such Interest Period.
"EURODOLLAR RESERVE PERCENTAGE" means, for any day during any Interest
Period, the reserve percentage (expressed as a decimal, rounded upward to the
next 1/100th of 1%) in effect on such day, whether or not applicable to any
Lender, under regulations issued from time to time by the Board of Governors of
the Federal Reserve System for determining the maximum reserve requirement
(including any emergency, supplemental or other marginal reserve requirement)
with respect to Eurocurrency funding (currently referred to as "Eurocurrency
liabilities"). The Offshore Rate for each outstanding Offshore Rate Loan shall
be adjusted automatically as of the effective date of any change in the
Eurodollar Reserve Percentage.
"OFFSHORE RATE LOAN" means a Loan bearing interest based on the Offshore
Rate.
"OPERATING LEASE" means, as applied to any Person, any lease of property
(whether real, personal or mixed) which is not a lease that would, in conformity
with GAAP, be required to be accounted for as a capital lease on the balance
sheet of that Person and excluding, in the case of Borrower or any of its
Subsidiaries, any such lease under which Borrower or that Subsidiary is the
lessor.
"ORDINARY COURSE DISPOSITIONS" means:
(a) Dispositions of obsolete or worn out property, whether now owned
or hereafter acquired, in the ordinary course of business;
(b) Dispositions of cash, cash equivalents, inventory and other
property in the ordinary course of business;
(c) Dispositions of property to the extent that such property is
exchanged for credit against the purchase price of similar replacement property,
or the proceeds of such sale are reasonably promptly applied to the purchase
price of such replacement property or where Borrower or its Subsidiary determine
in good faith that the failure to replace such equipment will not be detrimental
to the business of Borrower or such Subsidiary; and
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(d) Dispositions of assets or property by any Subsidiary of Borrower
to Borrower or another wholly-owned Subsidiary of Borrower;
PROVIDED, HOWEVER, that no such Disposition shall be for less than the fair
market value of the property being disposed of.
"ORDINARY COURSE INDEBTEDNESS" means:
(a) intercompany Guaranty Obligations of Borrower or any of its
Subsidiaries guarantying Indebtedness otherwise permitted hereunder of Borrower
or any wholly-owned Subsidiary of Borrower;
(b) Indebtedness arising from the honoring of a check, draft or
similar instrument against insufficient funds;
(c) Indebtedness of a Subsidiary to Borrower or to a wholly-owned
Subsidiary;
(d) Indebtedness of Borrower to a Subsidiary Guarantor; and
(e) in connection with Letters of credit issued in the ordinary
course of business.
"ORDINARY COURSE INVESTMENTS" means Investments of Borrower and its
Subsidiaries, consisting of:
(a) Investments in and to Subsidiaries and Borrower and in any Person
that is a Subsidiary after giving effect to such Investment;
(b) Investments in commercial paper maturing in 270 days or less from
the date of issuance which, at the time of acquisition by Borrower or its
Subsidiaries, is accorded the highest rating by Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc. ("S&P"), Moody's
Investors Service, Inc. ("MOODY'S") or other nationally recognized credit rating
agency of similar standing;
(c) Investments in direct obligations of the United States of America
or any agency or instrumentality of the United States of America, the payment or
guarantee of which constitutes a full faith and credit obligation of the United
States of America, in either case, maturing in 12 months or less from the date
of acquisition thereof;
(d) Investments in certificates of deposit maturing within one year
from the date of issuance thereof, issued by a bank or trust company organized
under the laws of the United States or any state thereof, having capital,
surplus and undivided profits aggregating at least $100,000,000 and whose
long-term certificates of deposit are, at the time of acquisition thereof by
Borrower or its Subsidiaries, rated A or better by S&P or A or better by
Moody's;
(e) receivables, including negotiable instruments and letters of
credit in respect of which Borrower or its Subsidiaries is the beneficiary,
arising from the sale of goods and services in the ordinary course of business
of Borrower and its Subsidiaries;
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<PAGE>
(f) Investments in repurchase agreements or bankers acceptances,
having terms of less than 30 days, with a United States bank or trust company
meeting the requirements of paragraph (d) hereof, which Investments mature
within one year and which are fully secured by obligations of the type described
in paragraphs (c) and (d) hereof; and
(g) Investments in offshore certificates of deposit maturing within
one year from the date of issuance thereof, issued by a bank or trust company
having capital, surplus and undivided profits aggregating at least
$1,000,000,000 and whose long term offshore certificates of deposit are at the
time of acquisition thereof by Borrower or its Subsidiaries, accorded a rating
of A or better by S&P or Moody's.
"ORDINARY COURSE LIENS" means:
(a) Liens for property taxes and assessments or governmental charges
or levies and Liens securing claims or demands of carriers, warehousemen,
landlords, mechanics and materialmen, provided payment thereof is not at the
time required by SECTION 6.05;
(b) Liens of or resulting from any judgment or award the time for
the appeal or petition for rehearing of which shall not have expired, or in
respect of which Borrower or its Subsidiaries shall at any time in good faith
be prosecuting an appeal or proceeding for a review and in respect of which a
stay of execution pending such appeal or proceeding for review shall have
been secured;
(c) Liens and Negative Pledges incidental to the conduct of business
or the ownership of assets (including Liens and Negative Pledges in connection
with worker's compensation, unemployment insurance and other like laws,
warehouseman's and attorneys' liens and statutory landlords' liens) and Liens
and Negative Pledges to secure the performance of bids, tenders or trade
contracts or to secure statutory obligations, surety or appeal bonds or other
Liens and Negative Pledges of like general nature incurred in the ordinary
course of business and not in connection with the borrowing of money; provided
in each case, the obligation secured is not overdue or, if overdue, is being
contested in good faith by appropriate actions or proceedings;
(d) survey exceptions or encumbrances, easements or reservations, or
rights of others for rights-of-way, utilities and other similar purposes, or
zoning or other restrictions as to the use of real properties, which are
necessary for the conduct of the activities of Borrower and its Subsidiaries or
which customarily exist on properties of corporations engaged in similar
activities and similarly situated and which do not in any event materially
impair their use in the operation of the business of Borrower and its
Subsidiaries; and
(e) Liens securing Indebtedness of a Subsidiary to Borrower or to
another Subsidiary.
"ORGANIZATION DOCUMENTS" means, (a) with respect to any corporation, the
certificate or articles of incorporation and the bylaws; (b) with respect to any
limited liability company, the articles of formation and operating agreement;
and (c) with respect to any partnership, joint venture or other form of business
entity, the partnership agreement and any agreement, filing or notice with
respect thereto filed with the secretary of state of the state of its formation,
in each case as amended from time to time.
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"OUTSTANDING OBLIGATIONS" means, as of any date, and giving effect to
making any Extensions of Credit requested on such date and all payments,
repayments and prepayments made on such date, (a) when reference is made to all
Lenders, the sum of (i) the aggregate outstanding principal amount of all Loans,
and (ii) all Letter of Credit Usage, and (b) when reference is made to one
Lender the sum of (i) the aggregate outstanding principal amount of all Loans
(excluding, in the case of Swing Line Lender, Swing Line Loans) made by such
Lender, (ii) such Lender's ratable participation in all Letter of Credit Usage,
and (iii) such Lender's ratable participation in all outstanding Swing Line
Loans.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PENSION PLAN" means any "employee pension benefit plan" (as such term
is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that
is subject to Title IV of ERISA and is sponsored or maintained by Borrower or
any ERISA Affiliates or to which Borrower or any ERISA Affiliate contributes
or has an obligation to contribute, or in the case of a multiple employer
plan (as described in Section 4064(a) of ERISA) has made contributions at any
time during the immediately preceding five plan years.
"PERFORMANCE LETTER OF CREDIT" means a standby Letter of Credit used
directly or indirectly to cover bid, performance, advance and retention
obligations, including, without limitation, Letters of Credit issued in favor of
sureties who in connection therewith cover bid, performance and retention
obligations.
"PERMITTED ACCOUNTS RECEIVABLE FINANCING FACILITIES" means (a) a single
facility not exceeding $75,000,000 in the aggregate involving the sale or
discount of undivided ownership interests not exceeding $75,000,000 in domestic
accounts receivable, and (b) a single facility not exceeding $20,000,000 in the
aggregate involving the sale or discount of undivided ownership interests not
exceeding $20,000,000 in foreign accounts receivable of Borrower and its
Subsidiaries; PROVIDED, HOWEVER, that, in each case (x) such facility does not
involve the creation of a Lien or Negative Pledge on any accounts receivable
except to the extent of the undivided ownership interests in such accounts
receivable so purportedly sold or discounted.
"PERSON" means any individual, partnership, corporation (including a
business trust), limited liability company, limited liability partnership, joint
stock company, joint venture, trust, Lender, trust company, unincorporated
association or other entity or a government or any agency or political
subdivision thereof.
"PLAN" means any employee benefit plan maintained or contributed to by a
Borrower Party or by any trade or business (whether or not incorporated) under
common control with a Borrower Party as defined in Section 4001(b) of ERISA and
insured by the Pension Benefit Guaranty Corporation under Title IV of ERISA.
"PRO RATA SHARE" means, with respect to each Lender, the percentage of
the combined Commitments set forth opposite the name of that Lender on
SCHEDULE 2.01, as such share may be adjusted pursuant to SECTION 2.12.
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"REPORTABLE EVENT" means any of the events set forth in Section 4043(b)
of ERISA or the regulations thereunder, a withdrawal from a Plan described in
Section 4063 of ERISA, or a cessation of operations described in Section 4062(e)
of ERISA.
"REQUEST FOR EXTENSION OF CREDIT" means, unless otherwise specified
herein, (a) with respect to a Borrowing, Conversion or Continuance of Loans, a
written request substantially in the form of EXHIBIT A, (b) with respect to a
Letter of Credit Action, a Letter of Credit Application, and (c) with respect to
a Swing Line Loan, any written or verbal notice acceptable to Swing Line Lender,
in each case delivered by Requisite Notice.
"REQUISITE LENDERS" means (a) as of any date of determination if the
Commitments are then in effect, Lenders(excluding any Lenders not funding when
required to so hereunder) having in the aggregate more than 50% of the combined
Commitments then in effect and (b) as of any date of determination if the
Commitments have then been terminated and there are Loans and/or Letter of
Credit Usage outstanding, Lenders holding Loans and Letter of Credit Usage
aggregating more than 50% of the aggregate outstanding principal amount of the
Loans and Letter of Credit Usage.
"REQUISITE NOTICE" means, unless otherwise provided herein, (a)
irrevocable written notice to the intended recipient or (b) except with respect
to Letter of Credit Actions (which must be in writing), irrevocable telephonic
notice to the intended recipient, promptly followed by a written notice to such
recipient. Such notices shall be (i) delivered to such recipient at the address
or telephone number specified on SCHEDULE 10.02 or as otherwise designated by
such recipient by Requisite Notice to each other party hereto, and (ii) if made
by any Borrower Party, duly given or made by a Responsible Officer of such
Borrower Party. Any written notice delivered in connection with any Loan
Document shall be in the form, if any, prescribed in the applicable section
hereof or thereof and may be delivered as provided in SECTION 10.02. Any notice
sent by other than hardcopy shall be promptly confirmed by a telephone call to
the recipient and, if requested by Administrative Agent, by a manually-signed
hardcopy thereof.
"REQUISITE TIME" means, with respect to any of the actions listed below,
the time and date set forth below opposite such action (all times are local time
(standard or daylight) as observed in the state where Administrative Agent's
Office is located):
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<TABLE>
<CAPTION>
TYPE OF ACTION TIME DATE OF ACTION
--------------------------------- ------- ---------------------
<S> <C> <C>
Delivery of Request for Extension
of Credit for, or notice for
- - Borrowing or prepayment of 8:30 a.m. Same date as such Borrowing,
or Conversion into, Base prepayment or Conversion
Rate Loans
- - Borrowing, prepayment or 10:00 a.m. 3 Business Days prior to
Continuation of, or such Borrowing, prepayment
Conversion into, Offshore or Conversion
Rate Loans
- - Borrowing or prepayment of 1:00 p.m. Same date as such Borrowing
Swing Line Loans or prepayment
- - Letter of Credit Action 10:00 a.m. 2 Business Days prior to
such action (OR SUCH LESSER
TIME WHICH IS ACCEPTABLE TO
ISSUING LENDER)
- - Voluntary reduction in or 10:00 a.m. 3 Business Days prior to
termination of Commitments such reduction or
termination
Payments by Lenders or Borrower to 11:00 a.m. On date payment is due
Administrative Agent
</TABLE>
"RESPONSIBLE OFFICER" means the President, any Senior Vice President, the
Chief Financial Officer or the Treasurer of Borrower who in the normal
performance of his or her duties would have knowledge of this Agreement and the
provisions thereof.
"RESTRICTED PAYMENTS" means:
(a) the declaration or payment of any dividend by Borrower, either in
cash or property, on any shares of the capital stock of any class of Borrower
(except dividends or other distributions payable solely in shares of capital
stock of Borrower);
(b) the purchase, redemption or retirement by Borrower of any shares
of the capital stock of any class of Borrower or any warrants, rights or options
to purchase or acquire any shares of its capital stock, whether directly or
indirectly, or through any Subsidiary; and
(c) any other payment or distribution by Borrower in respect of its
capital stock, either directly or indirectly or through any Subsidiary.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time, and any successor statute.
"SENIOR NOTE AGREEMENTS" means (a) that certain Note Agreement dated as
of October 15, 1992 among Borrower and the purchasers named in schedule 1
thereto, and (b) that certain Note Purchase Agreement dated as of December 1,
1999 among Borrower and the purchasers named in schedule A thereto, in each case
as amended, supplemented or otherwise modified from time to time.
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"SIMPLEX PRODUCTS DISPOSITION" means any sale or transfer of assets of
the Simplex Products Division of Borrower or refinancing or recapitalization of
the assets or operations of the Simplex Products Division, whether in the form
of a sale of stock, borrowing, issuance of debt or equity securities or
otherwise, as result of which (a) Borrower ceases to own directly substantially
all of the assets of the Simplex Products Division, (b) Borrower ceases to be
liable directly or indirectly for any Indebtedness or trade payables of the
Simplex Products Division (other than pursuant to any indemnification provision
for the benefit of the transferee of the assets of the Simplex Products Division
or any affiliate of such transferee contained in the agreements memorializing
such transaction), and (c) Borrower receives in such transaction, by way of sale
proceeds, refinancing proceeds, dividend proceeds, proceeds of the issuance of
securities or otherwise, at least $20,000,000 in cash.
"SUBSIDIARY" means any corporation, association or other business entity
of which more than 50% of the total voting power of shares of stock entitled to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more of the
other Subsidiaries of that Person or a combination thereof.
"SUBSIDIARY GUARANTORS" means each Person from time to time executing and
delivering the Master Subsidiary Guaranty.
"SWAP CONTRACT" means (a) any and all rate swap transactions, basis
swaps, forward rate transactions, commodity swaps, commodity options, forward
commodity contracts, equity or equity index swaps or options, bond or bond price
or bond index swaps or options or forward bond or forward bond price or forward
bond index transactions, interest rate options, forward foreign exchange
transactions, cap transactions, floor transactions, collar transactions,
currency swap transactions, cross-currency rate swap transactions, currency
options, or any other similar transactions or any combination of any of the
foregoing (including any options to enter into any of the foregoing), whether or
not any such transaction is governed by or subject to any master agreement, or
(b) any and all transactions of any kind, and the related confirmations, which
are subject to the terms and conditions of, or governed by, any form of master
agreement published by the International Swaps and Derivatives Association,
Inc., or any other master agreement (any such master agreement, together with
any related schedules, as amended, restated, extended, supplemented or otherwise
modified in writing from time to time, a "MASTER AGREEMENT"), including any such
obligations or liabilities under any Master Agreement.
"SWAP TERMINATION VALUE" means, in respect of any one or more Swap
Contracts, after taking into account the effect of any legally enforceable
netting agreement relating to such Swap Contracts, (a) for any date on or after
the date such Swap Contracts have been closed out and termination value(s)
determined in accordance therewith, such termination value(s), and (b) for any
date prior to the date referenced in clause (a) the amount(s) determined as the
mark-to-market value(s) for such Swap Contracts, as determined based upon one or
more mid-market or other readily available quotations provided by any recognized
dealer in such Swap Contracts (which may include any Lender).
"SWING LINE" means the revolving line of credit established by Swing Line
Lender in favor of Borrower pursuant to SECTION 2.04.
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"SWING LINE LENDER" means Bank of America, or any successor Swing Line
Lender hereunder.
"SWING LINE LOAN" means a loan which bears interest at a rate per
annum equal to interest payable on a Base Rate Loan (plus the Applicable
Margin, if any) and made by Swing Line Lender to Borrower under the Swing
Line.
"SWING LINE SUBLIMIT" means an amount equal to the lesser of (a)
$7,500,000 and (b) the combined Commitments.
"SYNTHETIC LEASE OBLIGATIONS" means all monetary obligations of a Person
under (a) a so-called synthetic, off-balance sheet or tax retention lease, or
(b) an agreement for the use or possession of property creating obligations
which do not appear on the balance sheet of such Person but which, upon the
insolvency or bankruptcy of such Person, would be characterized as the
Indebtedness of such Person (without regard to accounting treatment).
"TOTAL DEBT" of any Person means all (a) Indebtedness of such Person for
borrowed money, (b) drawn, but unreimbursed letters of credit; (c) all
Capitalized Lease Obligations of such Person, (d) Indebtedness in respect of
Permitted Accounts Receivable Financing Facilities, and, without duplication,
(e) all Guaranty Obligations of such Person with respect to the foregoing.
"TYPE" of Loan means (a) a Base Rate Loan, (b) an Offshore Rate Loan and
(c) a Swing Line Loan.
"UNFUNDED PENSION LIABILITY" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Plan's assets, determined in accordance with the assumptions used for funding
the Pension Plan pursuant to Section 412 of the Code for the applicable plan
year.
"VOTING STOCK" means securities of any class or classes, the holders of
which are ordinarily, in the absence of contingencies, entitled to elect a
majority of the corporate directors (or Persons performing similar functions).
1.02 USE OF CERTAIN TERMS.
(a) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto or thereto, unless otherwise defined therein.
(b) As used herein, unless the context requires otherwise, the
masculine, feminine and neuter genders and the singular and plural include one
another.
(c) The words "HEREIN" and "HEREUNDER" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement. The term "INCLUDING" is by way of
example and not limitation. References herein to a Section, subsection or
clause shall refer to the appropriate Section, subsection or clause in this
Agreement.
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(d) The term "or" is disjunctive; the term "and" is conjunctive. The
term "shall" is mandatory; the term "may" is permissive. Masculine terms also
apply to females; feminine terms also apply to males.
1.03 ACCOUNTING TERMS. All accounting terms not specifically or
completely defined in this Agreement shall be construed in conformity with, and
all financial data required to be submitted by this Agreement shall be prepared
in conformity with, GAAP applied on a consistent basis, as in effect from time
to time, applied in a manner consistent with that used in preparing the Audited
Financial Statements, EXCEPT as otherwise specifically prescribed herein.
1.04 ROUNDING. Any financial ratios required to be maintained by
Borrower pursuant to this Agreement shall be calculated by dividing the
appropriate component by the other component, carrying the result to one place
more than the number of places by which such ratio is expressed in this
Agreement and rounding the result up or down to the nearest number (with a
round-up if there is no nearest number) to the number of places by which such
ratio is expressed in this Agreement.
1.05 EXHIBITS AND SCHEDULES. All exhibits and schedules to this
Agreement, either as originally existing or as the same may from time to time be
supplemented, modified or amended, are incorporated herein by this reference. A
matter disclosed on any Schedule shall be deemed disclosed on all Schedules.
1.06 REFERENCES TO AGREEMENTS AND LAWS. Unless otherwise expressly
provided herein, (a) references to agreements (including the Loan Documents) and
other contractual instruments shall include all amendments and other
modifications thereto (unless prohibited by any Loan Document), and (b)
references to any statute or regulation shall include all statutory and
regulatory provisions consolidating, amending, replacing, supplementing or
interpreting the statute or regulation.
SECTION 2.
THE COMMITMENTS.
2.01 AMOUNTS AND TERMS OF COMMITMENTS.
(a) Subject to the terms and conditions set forth in this Agreement,
each Lender severally agrees to make, Convert and Continue Loans in Dollars
until the Maturity Date as Borrower may from time to time request; PROVIDED,
HOWEVER, that the Outstanding Obligations of each Lender shall not exceed such
Lender's Commitment, and the aggregate principal amount of all outstanding Loans
shall not at any time exceed the combined Commitments. Within the foregoing
limits, and subject to the other terms and conditions hereof, Borrower may
borrow, Convert, Continue, prepay and reborrow Loans as set forth herein without
premium or penalty.
(b) Loans made by each Lender shall be evidenced by one or more loan
accounts or records maintained by such Lender in the ordinary course of
business. Upon the request of any Lender made through Administrative Agent,
such Lender's Loans may be evidenced by one or more Notes, instead of or in
addition to loan accounts. Each such Lender may attach schedules
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to its Note(s) and endorse thereon the date, amount and maturity of its Loans
and payments with respect thereto. Such loan accounts, records or Notes
shall be conclusive absent manifest error of the amount of such Loans and
payments thereon. Any failure so to record or any error in doing so shall
not, however, limit or otherwise affect the obligation of Borrower to pay any
amount owing with respect to the Loans.
2.02 BORROWINGS, CONVERSIONS AND CONTINUATIONS OF LOANS.
(a) Borrower may irrevocably request a Borrowing, Conversion or
Continuation of Loans in a Minimum Amount therefor by delivering a Request for
Extension of Credit therefor by Requisite Notice to Administrative Agent not
later than the Requisite Time therefor. All Borrowings, Conversions and
Continuations shall constitute Base Rate Loans unless properly and timely
otherwise designated as set forth in the prior sentence.
(b) Following receipt of a Request for Extension of Credit,
Administrative Agent shall promptly notify each Lender of its Pro Rata Share
thereof by Requisite Notice. In the case of a Borrowing of Loans, each Lender
shall make available the funds for its Loan to Administrative Agent at
Administrative Agent's Office not later than the Requisite Time therefor on the
Business Day specified in such Request for Extension of Credit. Upon
satisfaction of the applicable conditions set forth in SECTION 4.02, all funds
so received shall be made available to Borrower in like funds received.
(c) Administrative Agent shall promptly notify Borrower and Lenders of
the interest rate applicable to any Loan other than a Base Rate Loan upon
determination of same.
(d) Except as otherwise provided herein, an Offshore Rate Loan may be
Continued or Converted only on the last day of the Interest Period for such
Offshore Rate Loan. No Loans may be requested as, Converted into or Continued
as Offshore Rate Loans during the existence of a Default or Event of Default.
During the existence of a Default or Event of Default, the Requisite Lender may
demand that any or all of the then outstanding Offshore Rate Loans be Converted
immediately into Base Rate Loans. Such Conversion shall be effective upon
notice to Borrower and shall continue so long as such Default or Event of
Default continues to exist.
(e) If a Loan is to be made on the same date that another Loan is due
and payable, Borrower or Lenders, as the case may be, shall, unless
Administrative Agent otherwise requests, make available to Administrative Agent
the net amount of funds giving effect to both such Loans and the effect for
purposes of this Agreement shall be the same as if separate transfers of funds
had been made with respect to each such Loan.
(f) The failure of any Lender to make any Loan on any date shall not
relieve any other Lender of any obligation to make a Loan on such date, but no
Lender shall be responsible for the failure of any other Lender to so make its
Loan.
2.03 LETTERS OF CREDIT.
(a) THE LETTER OF CREDIT SUBLIMIT. Subject to the terms and
conditions hereof, at any time and from time to time from the Closing Date
through the Letter of Credit Expiration
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Date, Issuing Lender shall take such Letter of Credit Actions under the
Commitments as Borrower may request; PROVIDED, HOWEVER, that (i) the
Outstanding Obligations of each Lender shall not exceed such Lender's
Commitment and the Outstanding Obligations of all Lenders shall not exceed
the combined Commitments at any time, and (ii) the aggregate outstanding
Letter of Credit Usage with respect to Financial Letters of Credit shall not
exceed the Financial Letter of Credit Sublimit at any time. Subject to
subsection (f) below, no Letter of Credit may expire more than 12 months
after the date of its issuance or last renewal; PROVIDED, HOWEVER, that no
Letter of Credit shall expire after the Letter of Credit Expiration Date. If
any Letter of Credit Usage remains outstanding after the Letter of Credit
Expiration Date, Borrower shall, not later than the Letter of Credit
Expiration Date, deposit cash in an amount equal to such Letter of Credit
Usage in a Letter of Credit Cash Collateral Account.
(b) REQUESTING LETTER OF CREDIT ACTIONS. Borrower may irrevocably
request a Letter of Credit Action in a Minimum Amount therefor by delivering a
Letter of Credit Application therefor to Issuing Lender, with a copy to
Administrative Agent (who shall notify Lenders), by Requisite Notice not later
than the Requisite Time therefor. Each Letter of Credit Action shall be in a
form acceptable to Issuing Lender in its sole discretion. Unless Administrative
Agent notifies Issuing Lender that such Letter of Credit Action is not permitted
hereunder, or Issuing Lender notifies Administrative Agent that it has
determined that such Letter of Credit Action is contrary to any Laws or policies
of Issuing Lender, Issuing Lender shall, upon satisfaction of the applicable
conditions set forth in SECTION 4.02 with respect to any Letter of Credit Action
constituting an Extension of Credit, effect such Letter of Credit Action. This
Agreement shall control in the event of any conflict with any Letter of Credit
Application. Upon the issuance of a Letter of Credit, each Lender shall be
deemed to have purchased from Issuing Lender a risk participation therein in an
amount equal to that Lender's Pro Rata Share TIMES the amount of such Letter of
Credit Usage.
(c) REIMBURSEMENT OF PAYMENTS UNDER LETTERS OF CREDIT. Borrower shall
reimburse Issuing Lender through Administrative Agent for any payment that
Issuing Lender makes under a Letter of Credit on or before the date of such
payment; PROVIDED, HOWEVER, that if the conditions precedent set forth in
SECTION 4 can be satisfied, Borrower may request a Borrowing of Loans to
reimburse Issuing Lender for such payment on or before the date thereof by
complying with SECTION 2.02, or Borrower may allow a deemed Borrowing of Loans
which are Base Rate Loans to take place on such payment date pursuant to
subsection (e) below.
(d) FUNDING BY LENDERS WHEN ISSUING LENDER NOT REIMBURSED. Upon any
drawing under a Letter of Credit, Issuing Lender shall notify Administrative
Agent and Borrower. If Borrower fails to timely make the payment required
pursuant to subsection (c) above, Issuing Lender shall notify Administrative
Agent of such fact and the amount of such unreimbursed payment. Administrative
Agent shall promptly notify each Lender of its Pro Rata Share of such amount by
Requisite Notice. Each Lender shall make funds in an amount equal its Pro Rata
Share of such unreimbursed payment available to Administrative Agent at
Administrative Agent's Office not later than the Requisite Time on the Business
Day specified by Administrative Agent, and Administrative Agent shall remit the
funds so received to reimburse Issuing Lender. The obligation of each Lender to
so reimburse Issuing Lender shall be absolute and unconditional and shall not be
affected by the occurrence of an Event of Default or
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any other occurrence or event. Any such reimbursement shall not relieve or
otherwise impair the obligation of Borrower to reimburse Issuing Lender for
the amount of any payment made by Issuing Lender under any Letter of Credit,
together with interest as provided herein.
(e) NATURE OF LENDERS' FUNDING. If the conditions precedent set
forth in SECTION 4.02 can be satisfied (except for the giving of a Request
for Extension of Credit) on any date Borrower is obligated to, but fails to,
reimburse Issuing Lender for a drawing under a Letter of Credit, the funding
by Lenders pursuant to the previous subsection shall be deemed to be a
Borrowing of Base Rate Loans (without regard to the Minimum Amount therefor)
deemed requested by Borrower. If the conditions precedent set forth in
SECTION 4.02 cannot be satisfied on the date Borrower is obligated to, but
fails to, reimburse Issuing Lender for a drawing under a Letter of Credit,
the funding by Lenders pursuant to the previous subsection shall be deemed to
be a funding by each Lender of its risk participation in such Letter of
Credit, and each Lender making such funding shall thereupon acquire a pro
rata participation, to the extent of its reimbursement, in the claim of
Issuing Lender against Borrower in respect of such payment and shall share,
in accordance with that pro rata participation, in any payment made by
Borrower with respect to such claim. Any amounts made available by a Lender
under its risk participation shall be payable by Borrower upon demand of
Administrative Agent, and shall bear interest at a rate per annum equal to
the Default Rate.
(f) SPECIAL PROVISIONS RELATING TO EVERGREEN LETTERS OF CREDIT.
Borrower may request Letters of Credit that have automatic extension or renewal
provisions ("evergreen" Letters of Credit) so long as Issuing Lender consents in
its sole and absolute discretion thereto and has the right to not permit any
such extension or renewal at least annually within a notice period to be agreed
upon at the time each such Letter of Credit is issued. Once an evergreen Letter
of Credit is issued, unless Administrative Agent has notified Issuing Lender
that Requisite Lenders have elected not to permit such extension or renewal, the
Borrower Parties, Administrative Agent and Lenders shall be deemed to have
authorized (but may not require) Issuing Lender to, in its sole and absolute
discretion, permit the renewal of such evergreen Letter of Credit at any time to
a date not later than the Letter of Credit Expiration Date, and, unless directed
by Issuing Lender, Borrower shall not be required to request such extension or
renewal. Issuing Lender may, in its sole and absolute discretion elect not to
permit an evergreen Letter of Credit to be extended or renewed at any time.
(G) OBLIGATIONS ABSOLUTE. The obligation of Borrower to pay to
Issuing Lender the amount of any payment made by Issuing Lender under any Letter
of Credit shall be absolute, unconditional, and irrevocable. Without limiting
the foregoing or limiting Borrower's rights to pursue such rights and remedies
as it may have against Issuing Lender, Administrative Agent or any Lender or
beneficiaries of a Letter of Credit, Borrower's obligation shall not be affected
by any of the following circumstances:
(i) any lack of validity or enforceability of the Letter of
Credit, this Agreement, or any other agreement or instrument relating
thereto;
(ii) any amendment or waiver of or any consent to departure from
the Letter of Credit, this Agreement, or any other agreement or
instrument relating thereto;
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(iii) the existence of any claim, setoff, defense, or other
rights which Borrower may have at any time against Issuing Lender,
Administrative Agent or any Lender, any beneficiary of the Letter of
Credit (or any persons or entities for whom any such beneficiary may be
acting) or any other Person, whether in connection with the Letter of
Credit, this Agreement, or any other agreement or instrument relating
thereto, or any unrelated transactions;
(iv) any demand, statement, or any other document presented
under the Letter of Credit proving to be forged, fraudulent, invalid, or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever so long as any such document
appeared to comply with the terms of the Letter of Credit;
(v) payment by Issuing Lender in good faith under the Letter of
Credit against presentation of a draft or any accompanying document which
does not strictly comply with the terms of the Letter of Credit; or any
payment made by Issuing Lender under any Letter of Credit to any Person
purporting to be a trustee in bankruptcy, debtor-in-possession, assignee
for the benefit of creditors, liquidator, receiver or other
representative of or successor to any beneficiary or any transferee of
any Letter of Credit, including any arising in connection with any
proceeding under any Debtor Relief Laws;
(vi) the existence, character, quality, quantity, condition,
packing, value or delivery of any property purported to be represented by
documents presented in connection with any Letter of Credit or for any
difference between any such property and the character, quality,
quantity, condition, or value of such property as described in such
documents;
(vii) the time, place, manner, order or contents of shipments or
deliveries of property as described in documents presented in connection
with any Letter of Credit or the existence, nature and extent of any
insurance relative thereto;
(viii) the solvency or financial responsibility of any party
issuing any documents in connection with a Letter of Credit;
(ix) any failure or delay in notice of shipments or arrival of
any property;
(x) any error in the transmission of any message relating to a
Letter of Credit not caused by Issuing Lender, or any delay or
interruption in any such message;
(xi) any error, neglect or default of any correspondent of
Issuing Lender in connection with a Letter of Credit;
(xii) any consequence arising from acts of God, wars,
insurrections, civil unrest, disturbances, labor disputes, emergency
conditions or other causes beyond the control of Issuing Lender;
(xiii) so long as Issuing Lender in good faith determines that the
document appears to comply with the terms of the Letter of Credit, the
form, accuracy, genuineness
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or legal effect of any contract or document referred to in any document
submitted to Issuing Lender in connection with a Letter of Credit; and
(xiv) where Issuing Lender has acted in good faith under any
other circumstances whatsoever.
In addition, Borrower will promptly examine a copy of each Letter of
Credit and amendments thereto delivered to it and, in the event of any claim of
noncompliance with Borrower's instructions or other irregularity, Borrower will
immediately notify Issuing Lender in writing. Borrower shall be conclusively
deemed to have waived any such claim against Issuing Lender and its
correspondents unless such notice is given as aforesaid.
(h) ROLE OF ISSUING LENDER. Each Lender and Borrower Parties agree
that, in paying any drawing under a Letter of Credit, Issuing Lender shall not
have any responsibility to obtain any document (other than any sight draft,
certificates and documents expressly required by the Letter of Credit) or to
ascertain or inquire as to the validity or accuracy of any such document or the
authority of the Person executing or delivering any such document. No
Administrative Agent-Related Person nor any of the respective correspondents,
participants or assignees of Issuing Lender shall be liable to any Lender for
any action taken or omitted in connection herewith at the request or with the
approval of Lenders or the Requisite Lenders, as applicable; any action taken or
omitted in the absence of gross negligence or willful misconduct; or the due
execution, effectiveness, validity or enforceability of any document or
instrument related to any Letter of Credit. Borrower hereby assumes all risks
of the acts or omissions of any beneficiary or transferee with respect to its
use of any Letter of Credit; PROVIDED, HOWEVER, that this assumption is not
intended to, and shall not, preclude Borrower's pursuing such rights and
remedies as it may have against the beneficiary or transferee at law or under
any other agreement. No Administrative Agent-Related Person, nor any of the
respective correspondents, participants or assignees of Issuing Lender, shall be
liable or responsible for any of the matters described in subsection (g) above.
In furtherance and not in limitation of the foregoing, Issuing Lender may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary,
and Issuing Lender shall not be responsible for the validity or sufficiency of
any instrument transferring or assigning or purporting to transfer or assign a
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any reason.
(i) APPLICABILITY OF ISP98 AND UCP. Unless otherwise expressly agreed
by the Issuing Lender and Borrower when a Letter of Credit is issued,
performance under Letters of Credit by the Issuing Lender, its correspondents,
and beneficiaries will be governed by (i) with respect to standby Letters of
Credit, the rules of the "International Standby Practices 1998" (ISP98) or such
later revision as may be published by the International Chamber of Commerce (the
"ICC"), and (ii) with respect to commercial Letters of Credit, the rules of the
Uniform Customs and Practice for Documentary Credits, as published in its most
recent version by the ICC on the date any commercial Letter of Credit is issued.
(j) LETTER OF CREDIT FEES. On each Applicable Payment Date,
Borrower shall pay to Administrative Agent in arrears, for the account of
each Lender in accordance with its Pro Rata Share, a Letter of Credit fee
equal to the indicated Applicable Margin for the type of Letters of
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Credit in each case such fee to be MULTIPLIED BY the actual daily maximum
amount available to be drawn under each such Letter of Credit since the later
of the Closing Date and the previous Applicable Payment Date. If there is
any change in the Applicable Margin during any quarter, the actual daily
amount shall be computed and multiplied by the Applicable Margin separately
for each period during such quarter that such Applicable Margin was in
effect. In addition, Borrower shall pay directly to Issuing Lender for its
account a fronting fee in an amount (i) with respect to Performance Letters
of Credit and Financial Letters of Credit, equal to 1/8 of 1% per annum on
the daily average face amount thereof, payable quarterly in arrears on each
Applicable Payment Date, and (ii) with respect to Commercial Letters of
Credit, equal to the greater of (A) $400 and (B) 1/8 of 1% of the face amount
thereof, payable upon the issuance thereof.
(k) DOCUMENTARY AND PROCESSING CHARGES PAYABLE TO ISSUING LENDER.
Borrower shall pay directly to Issuing Lender for its sole account its customary
documentary and processing charges in accordance with its standard schedule, as
from time to time in effect, for any Letter of Credit Action or other occurrence
relating to a Letter of Credit for which such charges are customarily made.
Such fees and charges are nonrefundable.
2.04 THE SWING LINE.
(a) Subject to the terms and conditions set forth in this Agreement,
Swing Line Lender agrees to make Swing Line Loans to Borrower until the Maturity
Date in such amounts as Borrower may from time to time request; PROVIDED,
HOWEVER, that (i) the aggregate principal amount of all Swing Line Loans shall
not exceed the Swing Line Sublimit, and (ii) the Outstanding Obligations of each
Lender shall not exceed such Lender's Commitment and the Outstanding Obligations
of all Lenders shall not exceed the combined Commitments at any time. This is a
revolving credit and, subject to the foregoing and the other terms and
conditions hereof, Borrower may borrow, prepay and reborrow Swing Line Loans as
set forth herein without premium or penalty; PROVIDED, HOWEVER, that Swing Line
Lender may terminate or suspend the Swing Line at any time in its sole
discretion upon at least 24 hours Requisite Notice to Borrower. Each Swing Line
Loan shall be a Base Rate Loan.
(b) Unless notified to the contrary by Swing Line Lender, Borrower may
irrevocably request a Swing Line Loan in the Minimum Amount therefor upon
Requisite Notice to Swing Line Lender not later than the Requisite Time
therefor. Each such request for a Swing Line Loan shall constitute a
representation and warranty by Borrower that the conditions set forth in
SECTIONS 4.02(A) and (B) are satisfied. Promptly after receipt of such request,
Swing Line Lender shall obtain telephonic verification from Administrative Agent
that such Swing Line Loan is permitted hereunder. Upon receiving such
verification, Swing Line Lender shall make such Swing Line Loan available to
Borrower. Without the consent of Requisite Lenders and Swing Line Lender, no
Swing Line Loan shall be made during the continuation of a Default or Event of
Default. Upon the making of each Swing Line Loan, each Lender shall be deemed
to have purchased from Swing Line Lender a risk participation therein in an
amount equal to that Lender's Pro Rata Share TIMES the amount of the Swing Line
Loan.
(c) Each Swing Line Loan shall bear interest at a fluctuating rate per
annum equal to the rate of interest payable on Base Rate Loans (plus the
Applicable Margin, if any) upon demand of Swing Line Lender and on the Maturity
Date. Swing Line Lender shall be
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responsible for invoicing Borrower (or notifying Administrative Agent to so
invoice Borrower) for such interest. The interest payable on Swing Line
Loans is solely for the account of Swing Line Lender.
(d) Borrower shall repay each Swing Line Loan not later than the
Requisite Time for payments hereunder on the earliest of (i) the fifth Business
Day after it is made, (ii) upon demand made by Swing Line Lender and (iii) the
Maturity Date. If the conditions precedent set forth in SECTION 4.02 can be
satisfied, Borrower may request a Borrowing of Loans to repay Swing Line Lender
pursuant to SECTION 2.02 or, failing to make such request, Borrower shall be
deemed to have requested a Borrowing of Base Rate Loans (without regard to the
Minimum Amount therefor) on such payment date in a principal amount equal to
such payment. Swing Line Lender shall promptly notify Administrative Agent of
each Swing Line Loan and each payment thereof.
(e) If Swing Line Lender does not timely receive (by payment, a
Borrowing or a deemed Borrowing) any payment of principal of or interest on any
Swing Line Loan, Swing Line Lender shall notify Administrative Agent of such
fact and the unpaid amount. Administrative Agent shall promptly notify each
Lender of its Pro Rata Share of such amount by Requisite Notice. Each Lender
shall make funds in an amount equal its Pro Rata Share of such amount available
to Administrative Agent at Administrative Agent's Office not later than the
Requisite Time for payments hereunder on the following Business Day. The
obligation of each Lender to make such payment shall be absolute and
unconditional and shall not be affected by the occurrence of an Event of Default
or any other occurrence or event. Each Lender's payment shall be deemed to be a
funding of such Lender's participation in such Swing Line Loan, and each Lender
making such funding shall thereupon acquire a pro rata participation, to the
extent of its payment, in the claim of Swing Line Lender against Borrower in
respect of such payment and shall share, in accordance with that pro rata
participation, in any payment made by Borrower with respect to such claim. Any
amounts made available by a Lender under its risk participation shall not
relieve or otherwise impair the obligation of Borrower to repay Swing Line
Lender for any amount of Swing Line Loans, together with interest as provided
herein, and such amounts made available shall be payable by Borrower upon demand
of Administrative Agent, and shall bear interest at a rate per annum equal to
the Default Rate.
2.05 PREPAYMENTS.
(a) Upon Requisite Notice to Administrative Agent not later than the
Requisite Time therefor, Borrower may at any time and from time to time
voluntarily prepay Loans in part in the Minimum Amount therefor or in full
without premium or penalty. Administrative Agent will promptly notify each
Lender thereof and of such Lender's Pro Rata Share of such prepayment. Any
prepayment of an Offshore Rate Loan shall be accompanied by all accrued interest
thereon, together with the costs set forth in SECTION 3.05.
(b) If for any reason the Outstanding Obligations exceed the combined
Commitments as in effect or as reduced or because of any limitation set forth in
this Agreement or otherwise, Borrower shall immediately prepay Loans and/or
deposit cash in a Letter of Credit Cash Collateral Account in an aggregate
amount equal to such excess.
2.06 REDUCTION OR TERMINATION OF COMMITMENTS.
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(a) Upon Requisite Notice to Administrative Agent not later than the
Requisite Time therefor, Borrower may at any time and from time to time, without
premium or penalty, permanently and irrevocably reduce the Commitments in a
Minimum Amount therefor to an amount not less than the Outstanding Obligations
at such time or terminate the Commitments. Any such reduction or termination
shall be accompanied by payment of all accrued and unpaid commitment fees with
respect to the portion of the Commitments being reduced or terminated.
Administrative Agent shall promptly notify Lenders of any such request for
reduction or termination of the Commitments. Each Lender's Commitment shall be
reduced by an amount equal to such Lender's Pro Rata Share TIMES the amount of
such reduction.
2.07 PRINCIPAL AND INTEREST.
(a) If not sooner paid, Borrower agrees to pay the outstanding
principal amount of each Loan on the Maturity Date.
(b) Subject to subsection (c) below, Borrower shall pay interest on
the unpaid principal amount of each Loan (before and after default, before and
after maturity, before and after judgment, and before and after the commencement
of any proceeding under any Debtor Relief Laws) from the date borrowed until
paid in full (whether by acceleration or otherwise) on each Applicable Payment
Date at a rate per annum equal to the interest rate determined in accordance
with the definition of such type of Loan, PLUS, to the extent applicable in each
case, the Applicable Margin.
(c) If any amount payable by any Borrower Party under any Loan
Document is not paid when due (without regard to any applicable grace periods),
it shall thereafter bear interest (after as well as before entry of judgment
thereon to the extent permitted by law) at a fluctuating interest rate per annum
at all times equal to the Default Rate to the fullest extent permitted by
applicable Law. Accrued and unpaid interest on past due amounts (including
interest on past due interest) shall be payable upon demand.
2.08 FEES.
(a) COMMITMENT FEE. Borrower shall pay to Administrative Agent, for
the ratable accounts of Lenders pro rata according to their Pro Rata Share, a
commitment fee equal to the Applicable Margin TIMES the actual daily amount by
which the combined Commitments exceed the sum of all Outstanding Obligations
(excluding Swing Line Loans). The commitment fee shall accrue at all times from
the Closing Date until the Maturity Date and shall be payable quarterly in
arrears on each Applicable Payment Date and on the Maturity Date. The
commitment fee shall be calculated quarterly in arrears; if there is any change
in the Applicable Margin during any quarter, the actual daily amount shall be
computed and multiplied by the Applicable Margin separately for each period that
such Applicable Margin was in effect during such quarter. The commitment fee
shall accrue at all times, including at any time during which one or more
conditions in SECTION 4 are not met.
(b) AGENCY FEES. Borrower shall pay to Administrative Agent an agency
fee in such amounts and at such times as set forth in separate letter agreement
between Borrower and Administrative Agent. The agency fee is for the services
to be performed by Administrative
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Agent in acting as Administrative Agent and is fully earned on the date paid.
The agency fee paid to Administrative Agent is solely for its own account
and is nonrefundable.
(c) ARRANGEMENT FEE. On the Closing Date, Borrower shall pay to the
Arranger an arrangement fee in the amount set forth in separate a separate
letter agreement between Borrower and the Arranger. Such arrangement fee is for
the services of the Arranger in arranging the credit facilities under this
Agreement and is fully earned on the date paid. The arrangement fee paid to the
Arranger is solely for its own account and is nonrefundable.
(d) PARTICIPATION FEE. On the Closing Date, Borrower shall pay to
each Lender an upfront participation fee in the amount set forth in separate
letter agreement between Borrower and Administrative Agent. Such upfront fee is
fully earned on the date paid. The participation fee paid to each Lender is
solely for its own account and is nonrefundable.
2.09 COMPUTATION OF FEES AND INTEREST. All computations of interest
payable in respect of Base Rate Loans shall be made on the basis of a year of
365 or 366 days, as the case may be, and actual days elapsed. All computations
of interest payable in respect of Offshore Rate Loans and all fees shall be made
on the basis of a 360 day year and actual days elapsed, which results in more
interest being paid than if computed on the basis of a 365-day year. Interest
and fees shall accrue during each period during which interest or such fees are
computed from, and including, the first day thereof to, but excluding, the last
day thereof.
2.10 MAKING PAYMENTS.
(a) Except as otherwise provided herein, all payments by Borrower or
any Lender hereunder shall be made to Administrative Agent at Administrative
Agent's Office not later than the Requisite Time for such type of payment. All
payments received after such Requisite Time shall be deemed received on the next
succeeding Business Day. Except as otherwise provided herein, all payments
shall be made in immediately available funds in lawful money of the United
States of America. All payments by Borrower shall be made without condition or
deduction for any counterclaim, defense, recoupment or setoff.
(b) Upon satisfaction of any applicable terms and conditions set forth
herein, Administrative Agent shall promptly make any amounts received in
accordance with the prior subsection available in like funds received as
follows: (i) if payable to Borrower, by crediting the Designated Deposit
Account, and (ii) if payable to any Lender, by wire transfer to such Lender at
its Lending Office. If such conditions are not so satisfied, Administrative
Agent shall return any funds it is holding to the Lenders making such funds
available, without interest.
(c) Subject to the definition of "Interest Period," if any payment to
be made by any Borrower Party shall come due on a day other than a Business Day,
payment shall instead be considered due on the next succeeding Business Day, and
such extension of time shall be reflected in computing interest and fees.
(d) Unless Borrower or any Lender has notified Administrative Agent
prior to the date any payment to be made by it is due, that it does not intend
to remit such payment, Administrative Agent may, in its sole and absolute
discretion, assume that Borrower or Lender,
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as the case may be, has timely remitted such payment and may, in its sole and
absolute discretion and in reliance thereon, make available such payment to
the Person entitled thereto. If such payment was not in fact remitted to
Administrative Agent in immediately available funds, then:
(i) if Borrower failed to make such payment, each Lender shall
forthwith on demand repay to Administrative Agent the amount of such
assumed payment made available to such Lender, together with interest
thereon in respect of each day from and including the date such amount
was made available by Administrative Agent to such Lender to the date
such amount is repaid to Administrative Agent at the Federal Funds Rate;
and
(ii) if any Lender failed to make such payment, Administrative
Agent shall be entitled to recover such corresponding amount on demand
from such Lender. If such Lender does not pay such corresponding amount
forthwith upon Administrative Agent's demand therefor, Administrative
Agent promptly shall notify Borrower, and Borrower shall pay such
corresponding amount to Administrative Agent. Administrative Agent also
shall be entitled to recover from such Lender interest on such
corresponding amount in respect of each day from the date such
corresponding amount was made available by Administrative Agent to
Borrower to the date such corresponding amount is recovered by
Administrative Agent, (A) from such Lender at a rate per annum equal to
the daily Federal Funds Rate. and (B) from Borrower, at a rate per annum
equal to the interest rate applicable to such Borrowing. Nothing herein
shall be deemed to relieve any Lender from its obligation to fulfill its
Commitment or to prejudice any rights which Administrative Agent or
Borrower may have against any Lender as a result of any default by such
Lender hereunder.
(e) If Administrative Agent or any Lender is required at any time to
return to Borrower, or to a trustee, receiver, liquidator, custodian, or any
official under any proceeding under Debtor Relief Laws, any portion of a
payments made by Borrower, each Lender shall, on demand of Administrative Agent,
return its share of the amount to be returned, plus interest thereon from the
date of such demand to the date such payment is made at a rate per annum equal
to the daily Federal Funds Rate.
2.11 FUNDING SOURCES. Nothing in this Agreement shall be deemed to
obligate any Lender to obtain the funds for any Loan in any particular place or
manner or to constitute a representation by any Lender that it has obtained or
will obtain the funds for any Loan in any particular place or manner.
2.12 INCREASE IN COMMITMENTS.
(a) Borrower may from time to time (but no more often than once in
every 12 months) request an increase in the combined Commitments up to an
aggregate of $100,000,000 upon Requisite Notice to Administrative Agent. Such
request shall include a certificate signed by a Responsible Officer stating that
(i) the representations and warranties contained in SECTION 5 are true and
correct on and as of the date of such certificate, and (ii) no Default or Event
of Default exists. Administrative Agent shall promptly notify each Lender of
such request. Each Lender shall, within 15 Business days of such notice, notify
Administrative
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Agent by Requisite Notice whether (x) it agrees to increase its Commitment by
an amount less than or equal to its Pro Rata Share of such requested
increase, or (y) it does not agree to any increase in its Commitment. Any
Lender not responding within the above time period shall be deemed to have
elected not to increase its Commitment. Administrative Agent shall, after
receiving the notifications from all of Lenders or the expiration of such
period, whichever is earlier, notify Borrower and Lenders of the results
thereof.
(b) If any Lender declines, or is deemed to have declined, to
participate in any such increase to the full extent of its Pro Rata Share
thereof (a "DECLINING LENDER"), Borrower may request, through Administrative
Agent, that one or more other Lenders, in their sole discretion, provide
Commitment(s) equal to such shortfall, If any shortfall remains after all
existing Lenders have declined or been deemed to have declined, Borrower may
then request, through Administrative Agent, that one or more Eligible Assignees,
in their sole discretion, provide Commitment(s) equal to the remaining
shortfall; PROVIDED, HOWEVER, that the Commitment of any Eligible Assignee shall
not be less than any existing Lender's Commitment before giving effect to any
increase in the Commitments contemplated hereby. No existing Lender's
Commitment may be reduced without its consent to facilitate the prior proviso.
Administrative Agent and Borrower shall thereafter determine the final, revised
Commitment allocations and determine an effective date therefor (the "INCREASE
EFFECTIVE DATE"). Administrative Agent shall promptly notify Lenders of such
revised Commitment allocations and the Increase Effective Date. This section
shall supercede any provisions in SECTION 10.02 to the contrary.
(c) On or prior to the Increase Effective Date, Borrower shall deliver
to Administrative Agent, in form and substance satisfactory to Administrative
Agent (with sufficient copies for each Lender): (i) corporate resolutions and
incumbency certificates of Borrower and any Guarantor dated as of the Increase
Effective Date approving such increase; (ii) new or amended Notes, if requested
by any new or affected Lender, evidencing such new or revised Commitments; (iii)
with respect to any Eligible Assignees becoming Lenders, one or more Assignments
and Acceptances. Administrative Agent shall distribute an amended SCHEDULE 2.01
(which shall thereafter be incorporated into this Agreement), to reflect any new
or increased Commitments and each Lender's Pro Rata Share thereof. In order to
make all Lender's interests in any outstanding Loans ratable in accordance with
any revised Pro Rata Shares after giving effect to any increase in the
Commitments, Borrower shall pay or prepay, if necessary, on the Increase
Effective Date, all outstanding Loans and pay, to the extent applicable, any
amounts due under SECTION 3.05. Borrower may then borrow Loans from Lenders in
accordance with their revised Pro Rata Shares.
2.13 MASTER SUBSIDIARY GUARANTY. The Obligations shall be guarantied
under the Master Subsidiary Guaranty.
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SECTION 3.
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 TAXES.
(a) Any and all payments by Borrower to or for the account of
Administrative Agent or any Lender under any Loan Document shall be made free
and clear of and without deduction for any and all present or future taxes,
duties, levies, imposts, deductions, assessments, fees, withholding or similar
charges, and all liabilities with respect thereto, EXCLUDING, in the case of
Administrative Agent and any Lender, taxes imposed on or measured by its net
income, and franchise taxes imposed on it (in lieu of net income taxes), by the
jurisdiction (or any political subdivision thereof) under the Laws of which
Administrative Agent or such Lender, as the case may be, is organized or
maintains a lending office (all such non-excluded taxes, duties, levies,
imposts, deductions, charges, and liabilities being hereinafter referred to as
"TAXES"). If Borrower shall be required by any Laws to deduct any Taxes from or
in respect of any sum payable under any Loan Document to Administrative Agent or
any Lender, (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section), Administrative Agent and such Lender receives
an amount equal to the sum it would have received had no such deductions been
made, (ii) Borrower shall make such deductions, (iii) Borrower shall pay the
full amount deducted to the relevant taxation authority or other authority in
accordance with applicable Laws, and (iv) within 30 days after the date of such
payment, Borrower shall furnish to Administrative Agent (who shall forward the
same to such Lender) the original or a certified copy of a receipt evidencing
payment thereof.
(b) In addition, Borrower agrees to pay any and all present or future
stamp, court or documentary taxes and any other excise or property taxes or
charges or similar levies which arise from any payment made under any Loan
Document or from the execution, delivery, performance, enforcement or
registration of, or otherwise with respect to, any Loan Document (hereinafter
referred to as "OTHER TAXES").
(c) If Borrower shall be required by the Laws of any jurisdiction
outside the United States to deduct any Taxes from or in respect of any sum
payable under any Loan Document to Administrative Agent or any Lender, Borrower
shall also pay to such Lender or Administrative Agent (for the account of such
Lender), at the time interest is paid, such additional amount that that
respective Lender specifies as necessary to preserve the after-tax yield (after
factoring in United States (federal and state) taxes imposed on or measured by
net income) the Lender would have received if such deductions (including
deductions applicable to additional sums payable under this Section) had not
been made.
(d) Borrower agrees to indemnify Administrative Agent and each Lender
for the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes
imposed or asserted by any jurisdiction on amounts payable under this Section)
paid by Administrative Agent and such Lender and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto.
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3.02 ILLEGALITY. If any Lender determines that any Laws adopted on or
after the date hereof have made it unlawful, or that any Governmental Authority
has asserted that it is unlawful, for any Lender or its applicable Lending
Office to make, maintain or fund Offshore Rate Loans, or materially restricts
the authority of such Lender to purchase or sell, or to take deposits of,
Dollars in the applicable offshore interbank market, or to determine or charge
interest rates based upon the Offshore Rate, then, on notice thereof by Lender
to Borrower through Administrative Agent, any obligation of that Lender to make
Offshore Rate Loans shall be suspended until Lender notifies Administrative
Agent and Borrower that the circumstances giving rise to such determination no
longer exist. Upon receipt of such notice, Borrower shall, upon demand from
such Lender (with a copy to Administrative Agent), prepay or Convert all
Offshore Rate Loans of that Lender, either on the last day of the Interest
Period thereof, if Lender may lawfully continue to maintain such Offshore Rate
Loans to such day, or immediately, if Lender may not lawfully continue to
maintain such Offshore Rate Loans. Each Lender agrees to designate a different
Lending Office if such designation will avoid the need for such notice and will
not, in the good faith judgment of such Lender, otherwise be materially
disadvantageous to such Lender.
3.03 INABILITY TO DETERMINE RATES. If, in connection with any
Extension of Credit involving any Offshore Rate Loan, Administrative Agent
determines that (a) deposits in Dollars are not being offered to banks in the
applicable offshore dollar market for the Applicable Margin and Interest Period
of the requested Offshore Rate Loan, (b) adequate and reasonable means do not
exist for determining the underlying interest rate for such Offshore Rate Loan,
or (c) such underlying interest rate does not adequately and fairly reflect the
cost to Lender of funding such Offshore Rate Loan, Administrative Agent will
promptly notify Borrower and all Lenders. Thereafter, the obligation of all
Lenders to make or maintain such Offshore Rate Loan shall be suspended until
Administrative Agent revokes such notice. Upon receipt of such notice, Borrower
may revoke any pending request for a Borrowing of Offshore Rate Loans or,
failing that, be deemed to have converted such request into a request for a
Borrowing of Base Rate Loans in the amount specified therein.
3.04 INCREASED COST AND REDUCED RETURN; CAPITAL ADEQUACY.
(a) If any Lender determines that any Laws adopted on or after the
date hereof:
(i) subject such Lender to any Tax, duty, or other charge with
respect to any Offshore Rate Loans or its obligation to make Offshore
Rate Loans, or change the basis on which taxes are imposed on any amounts
payable to such Lender under this Agreement in respect of any Offshore
Rate Loans;
(ii) shall impose or modify any reserve, special deposit, or
similar requirement (other than the reserve requirement utilized in the
determination of the Offshore Rate) relating to any extensions of credit
or other assets of, or any deposits with or other liabilities or
commitments of, such Lender (including its Commitment); or
(iii) shall impose on such Lender or on the offshore Dollar
interbank market any other condition affecting this Agreement or any of
such extensions of credit or liabilities or commitments;
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and the result of any of the foregoing is to increase the cost to such Lender
of making, Converting into, Continuing, or maintaining any Offshore Rate
Loans or to reduce any sum received or receivable by such Lender under this
Agreement with respect to any Offshore Rate Loans, then from time to time
upon demand of Lender (with a copy of such demand to Administrative Agent),
Borrower shall pay to such Lender such additional amounts as will compensate
such Lender for such increased cost or reduction. Each Lender requesting
compensation shall deliver a certificate setting forth the amount and
calculation thereof in reasonable detail, which amount shall be presumptive
evidence of the amount owing.
(b) If any Lender determines that any change in or the
interpretation of any Laws adopted on or after the date hereof have the
effect of reducing the rate of return on the capital of such Lender or
compliance by such Lender (or its Lending Office) or any corporation
controlling such Lender as a consequence of such Lender's obligations
hereunder (taking into consideration its policies with respect to capital
adequacy and such Lender's desired return on capital), then from time to time
upon demand of such Lender (with a copy to Administrative Agent), Borrower
shall pay to such Lender such additional amounts as will compensate such
Lender for such reduction. Each Lender requesting compensation shall deliver
a certificate setting forth the amount and calculation thereof in reasonable
detail, which amount shall be presumptive evidence of the amount owing.
3.05 BREAKFUNDING COSTS. Upon demand of any Lender (with a copy to
Administrative Agent) from time to time, Borrower shall promptly compensate such
Lender for and hold such Lender harmless from any loss, cost or expense incurred
by it as a result of:
(a) any Continuation, Conversion, payment or prepayment of any
Offshore Rate Loan on a day other than the last day of the Interest Period for
such Loan (whether voluntary, mandatory, automatic, by reason of acceleration,
or otherwise); or
(b) any failure by Borrower (for a reason other than the failure of
such Lender to make a Loan) to prepay, borrow, Continue or Convert any
Offshore Rate Loan on the date or in the amount notified by Borrower;
including any loss of anticipated profits and any loss or expense arising
from the liquidation or reemployment of funds obtained by it to maintain such
Loan or from fees payable to terminate the deposits from which such funds
were obtained. Borrower shall also pay any customary administrative fees
charged by such Lender in connection with the foregoing.
3.06 MATTERS APPLICABLE TO ALL REQUESTS FOR COMPENSATION.
A certificate of Administrative Agent claiming compensation under this
SECTION 3 and setting forth the additional amount or amounts to be paid to it
hereunder shall be conclusive in the absence of clearly demonstrable error.
In determining such amount, Administrative Agent may use any reasonable
averaging and attribution methods. For purposes of this SECTION 3, a Lender
shall be deemed to have funded each Offshore Rate Loan at the Offshore Base
Rate used in determining the Offshore Rate for such Loan by a matching
deposit or other borrowing in the offshore Dollar interbank market, whether
or not such Offshore Rate Loan was in fact so funded.
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3.07 SURVIVAL. All of Borrower's obligations under this SECTION 3
shall survive termination of the Commitments and payment in full of all
Obligations.
SECTION 4.
CONDITIONS TO EFFECTIVENESS OF AGREEMENT
AND EXTENSIONS OF CREDIT.
4.01 CONDITIONS OF INITIAL LOANS. The obligation of each Lender to
make its initial Extension of Credit hereunder is subject to the condition that
Administrative Agent shall have received on or before the Closing Date all of
the following, in form and substance satisfactory to Administrative Agent and
its counsel and in sufficient copies for each Lender and the Issuing Lender:
(a) CREDIT AGREEMENT. This Agreement executed by Borrower,
Administrative Agent and each of Lenders.
(b) MASTER SUBSIDIARY GUARANTY. The Master Subsidiary Guaranty
executed by each Person required to be a Subsidiary Guarantor;
(c) RESOLUTIONS; INCUMBENCY.
(i) Copies of the resolutions of the board of directors or the
executive committee of the board of directors of each Borrower Party
approving and authorizing the execution, delivery and performance by such
Borrower Party of the Loan Documents to which it is a party, certified as
of the Closing Date by the Secretary or an Assistant Secretary of such
Borrower Party; and
(ii) A certificate of the Secretary or Assistant Secretary of
each Borrower Party, certifying the names and true signatures of the
officers of each Borrower Party authorized to execute and deliver the
Loan Documents to which it is a party.
(d) ARTICLES OF INCORPORATION; BY-LAWS AND GOOD STANDING. Each of the
following documents:
(i) the articles or certificate of incorporation of each
Borrower Party as in effect on the Closing Date, certified by the
Secretary of State of the State of incorporation of each Borrower Party
as of a recent date and by the Secretary or Assistant Secretary of each
Borrower Party as of the Closing Date and the bylaws of each Borrower
Party as in effect on the Closing Date, certified by the Secretary or
Assistant Secretary of each Borrower Party as of the Closing Date; and
(ii) a good standing certificate for Borrower from the Secretary
of State of its state of incorporation and the State of California as of
a recent date, together with bring-down certificate by telex or telecopy,
dated as of a recent date.
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(e) SENIOR NOTES. Evidence that Borrower has issued, or concurrently
herewith is issuing, not less than $50,000,000 in aggregate principal amount of
senior unsecured notes pursuant to that certain Note Purchase Agreement dated as
of December 1, 1999.
(f) INTERCREDITOR AGREEMENT. The Intercreditor Agreement executed by
each of the parties thereto.
(g) LEGAL OPINIONS. An opinion of Gibson, Dunn & Crutcher, counsel to
the Borrower Parties, and addressed to Administrative Agent and Lenders in form
and substance satisfactory to Administrative Agent and Lenders.
(h) PAYMENT OF FEES. Borrower shall have paid all accrued and unpaid
fees, costs and expenses to the extent then due and payable on the Closing Date,
together with reasonable attorney fees, costs and expenses (including the
allocated cost of Administrative Agent's inhouse counsel and staff) to the
extent invoiced prior to or on the Closing Date, together with such additional
amounts of such fees, costs and expenses as shall constitute Administrative
Agent's reasonable estimate of such reasonable fees, costs and expenses incurred
or to be incurred through the closing proceedings, provided that such estimate
shall not thereafter preclude final settling of accounts between Borrower and
Administrative Agent; including any such costs, fees and expenses arising under
or referenced in SECTION 2.08;
(i) CERTIFICATE. A certificate signed by a Responsible Officer, dated
as of the Closing Date, stating that: (i) the representations and warranties
contained in SECTION 5 are true and correct on and as of such date, as though
made on and as of such date; (ii) no Default or Event of Default exists on the
Closing Date; and (iii) since December 31, 1998, there has been no change that
has caused or evidences, either in any case or in the aggregate, a Material
Adverse Effect.
(j) TERMINATION OF EXISTING SYNDICATED AGREEMENT. The Existing
Syndicated Agreement shall have been, or concurrently herewith is being,
terminated, and all amounts due and owing thereunder shall have been, or
concurrently herewith are being, paid in full.
(k) YEAR 2000 COMPLIANCE. Receipt and review, with results
satisfactory to Administrative Agent and Lenders, of information confirming that
(a) Borrower and its Subsidiaries are taking all necessary and appropriate steps
to ascertain the extent of, and to quantify and successfully address, business
and financial risks facing Borrower and its subsidiaries as a result of what is
commonly referred to as the "Year 2000 problem" (as defined in SECTION 5.22),
including risks resulting from the failure of key vendors and customers of
Borrower and its Subsidiaries to successfully address the Year 2000 problem, and
(b) Borrower's and its Subsidiaries' material computer applications and those of
its key vendors and customers will, on a timely basis, adequately address the
Year 2000 problem in all material respects.
(l) OTHER DOCUMENTS. Such other approvals, opinions or documents as
Administrative Agent or any Lender may reasonably request.
4.02 CONDITIONS TO ALL EXTENSIONS OF CREDIT. In addition to any
applicable conditions precedent set forth elsewhere in this Section, the
obligation of each Lender to honor any Request for Extension of Credit is
subject to the following conditions precedent:
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(a) the representations and warranties of Borrower contained in
SECTION 5, or which are contained in any certificate, document or financial or
other statement furnished at any time under or in connection herewith or
therewith, shall be correct on and as of the date of such Extension of Credit,
except to the extent that such representations and warranties specifically refer
to any earlier date.
(b) No Default or Event of Default exists, or would result from such
proposed Extension of Credit.
(c) Administrative Agent shall have timely received a Request for
Extension of Credit by Requisite Notice by the Requisite Time therefor.
(d) Administrative Agent shall have received, in form and substance
satisfactory to it, such other assurances, certificates, documents or consents
related to the foregoing as Administrative Agent or Requisite Lenders reasonably
may require.
Each request for an Extension of Credit by Borrower shall be deemed to be
a representation and warranty that the conditions specified in SECTIONS 4.02(A)
and 4.02(B) have been satisfied and on and as of the date of such Extension of
Credit.
4.03 CONDITIONS FOR A SUBSIDIARY BECOMING A SUBSIDIARY GUARANTOR.
As a condition precedent to a Domestic Subsidiary becoming a Subsidiary
Guarantor under the Master Subsidiary Guaranty, Administrative Agent shall have
received the following with respect to such Subsidiary, in form and substance
satisfactory to Administrative Agent:
(a) The items referred to in SECTION 4.01(C) and, to the extent not
previously delivered, the items referred in SECTION 4.01(D).
(b) The opinion of the general counsel or assistant general counsel of
Borrower (or such other counsel designated by Borrower and acceptable to
Administrative Agent) as to (i) such Subsidiary's obligations under the
Subsidiary Guaranty being the legal, valid, binding and enforceable obligation
of such Subsidiary and (ii) the execution, delivery and performance of
Subsidiary Guaranty by such Subsidiary (A) being authorized by all necessary
corporate, company or partnership action, as applicable, (B) not violating any
law, decree, judgment or contractual obligation to which such Subsidiary is a
party or by which it or its assets are bound, and (C) not requiring any
government approvals, consents, registrations or filings.
(c) Exhibit A to the Master Subsidiary Guaranty duly executed by such
Domestic Subsidiary, whereby such Domestic Subsidiary agrees to be bound by the
terms and conditions of the Master Subsidiary Guaranty and an Addendum to the
Intercreditor Agreement in accordance with the terms thereof.
(d) Such other approvals, opinions or documents as Administrative
Agent or any Lender may reasonably request.
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SECTION 5.
REPRESENTATIONS AND WARRANTIES
In order to induce Lenders, the Issuing Lender and Administrative
Agent to enter into this Agreement and to make any extension of credit
hereunder, Borrower represents and warrants to each Lender, the Issuing
Lender and Administrative Agent that the following statements are true,
correct and complete:
5.01 CORPORATE EXISTENCE AND POWER. Each Borrower Party and their
Subsidiaries: (a) are corporation duly organized, validly existing and in good
standing under the Laws of the jurisdiction of their incorporation; (b) have the
corporate power and authority to own their assets, carry on their business and
to execute, deliver and perform their obligations under the Loan Documents; and
(c) are duly qualified as foreign corporations or licensed and in good standing
under the Laws of each jurisdiction where their ownership, lease or operation of
property or the conduct of their business requires such qualification, except
where the failure to be so qualified, licensed or in good standing could not
reasonably be expected to cause a Material Adverse Effect.
5.02 CORPORATE AUTHORIZATION; NO CONTRAVENTION. The execution,
delivery and performance by each Borrower Party of the Loan Documents to
which such Person is party, have been duly authorized by all necessary
corporate action and do not and will not: (a) contravene the terms of that
Person's certificate of incorporation, bylaws or other organization document;
(b) conflict with or result in any breach or contravention of, or the
creation of any material Lien under, any Contractual Obligation, injunction,
order or decree to which such Person is a party; or (c) violate any material
Law. The Loan Document has been duly executed and delivered by each Borrower
Party which is a party hereto or thereto.
5.03 BINDING EFFECT. The Loan Document to which each Borrower Party is
a party constitute the legal, valid and binding obligations of each respective
Person, enforceable against such Person in accordance with their respective
terms, except as enforceability may be limited by applicable Debtor Relief Laws
affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability.
5.04 SUBSIDIARIES; SUBSIDIARY GUARANTORS.
(a) SCHEDULE 5.04 correctly sets forth, as of the Closing Date, for
each direct or indirect Subsidiary of Borrower, its name, jurisdiction of
formation, type of legal entity, the amount, type and ownership of all issued
and outstanding equity interests and whether it is a Domestic Subsidiary,
Subsidiary Guarantor or Foreign Subsidiary. All active Domestic Subsidiaries of
Borrower (EXCLUDING special purpose bankruptcy remote financing entities) are
Subsidiary Guarantors.
(b) Except as described in SCHEDULE 5.04, Borrower does not as of
the Closing Date own directly or indirectly any capital stock, partnership or
other equity interest or debt security which is convertible, or exchangeable,
for capital stock or partnership or other equity interests in any Person
which, if fully or partially exercised by any party, would be a Subsidiary.
Unless otherwise indicated on in SCHEDULE 5.04, all outstanding equity
interests in each Subsidiary are
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owned of record and beneficially by the Person specified thereon, there are
no outstanding options, warrants or other rights to purchase capital stock of
any such Subsidiary, and all such equity interests so owned are duly
authorized, validly issued, fully paid and non-assessable, and were issued in
compliance with all applicable state and federal securities and other Laws,
and are free and clear of all Liens.
5.05 FINANCIAL STATEMENTS.
(a) The consolidated balance sheet of Borrower and its Subsidiaries
as of December 31, 1998, and the consolidated statement of income and
shareholders' equity and cash flows for the fiscal year ended on said date,
accompanied by a report thereon containing an opinion unqualified as to scope
limitations imposed by Borrower and otherwise without qualification, by Ernst
& Young, have been prepared in accordance with GAAP, consistently applied,
and present fairly the financial position of Borrower and its Subsidiaries as
of such date and the results of their operations and cash flows for such
period in accordance with GAAP. The unaudited consolidated and consolidating
balance sheets of Borrower and its Restricted Subsidiaries as of December
31, 1998 and June 30, 1999, and the unaudited consolidated and consolidating
statements of income and shareholders' equity and cash flows for the year and
quarter, respectively, ended on said dates prepared by Borrower have been
prepared in accordance with GAAP, consistently applied.
(b) Since December 31, 1998, there has been no change in the
condition, financial or otherwise, of Borrower and its Subsidiaries as shown on
the consolidated balance sheet as of such date except changes which individually
or in the aggregate have not had a Material Adverse Effect.
5.06 INDEBTEDNESS. SCHEDULE 5.06 correctly describes all Indebtedness,
including Total Debt and letters of credit of Borrower and its Subsidiaries
outstanding on the date indicated thereon.
5.07 DISCLOSURE. Neither the financial statements referred to in
SECTION 5.05 nor any other written statement furnished by Borrower to any
Lender or Administrative Agent in connection herewith contains any untrue
statement of a material fact or omits a material fact necessary to make the
statements contained therein or herein not misleading as of their respective
dates; PROVIDED, HOWEVER, that with respect to any financial projections
contained therein, Borrower represents only that such projections were
prepared in good faith based on assumptions determined by Borrower as
reasonable and appropriate. There is no fact peculiar to Borrower or its
Subsidiaries which Borrower has not disclosed to any Lender or Administrative
Agent in writing which could reasonably be expected to have a Material
Adverse Effect.
5.08 PENDING LITIGATION. Except as set forth in SCHEDULE 5.08, there
are no proceedings pending or, to the knowledge of Borrower, threatened against
or affecting any Borrower Party or any of their Subsidiaries in any court or
before any governmental authority or arbitration board or tribunal which, if
adversely determined, could reasonably be expected to have a Material Adverse
Effect.
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5.09 TITLE TO PROPERTIES. Each Borrower Party and their
Subsidiaries have good and marketable title in fee simple (or its equivalent
under applicable law) to all material parcels of real property and has good
title to all the other material items of property they purports to own,
including that reflected as owned in the most recent balance sheet referred
to in SECTION 5.05, except for Dispositions not in violation of SECTION 7.05
and except for Liens permitted under SECTION 7.01.
5.10 PATENTS AND TRADEMARKS. Each Borrower Party and their
Subsidiaries own or have the right to use all the material patents,
trademarks, trade names, service marks, copyrights, licenses and rights with
respect to the foregoing necessary for the present and planned future conduct
of their business, without any known conflict with the rights of others.
5.11 GOVERNMENTAL CONSENT. No approval, consent or withholding of
objection on the part of any regulatory body, state, Federal or local, which
has not been obtained is necessary in connection with the execution and
delivery by each Borrower Party of the Loan Documents or compliance by each
Borrower Party with any of the provisions of the Loan Documents.
5.12 TAXES. All tax returns required to be filed by any Borrower
Party and their Subsidiaries in any jurisdiction have, in fact, been filed,
except tax returns as to which the failure to file would not reasonably be
expected to have a Material Adverse Effect, and all taxes, assessments, fees
and other governmental charges upon any Borrower Party and their Subsidiaries
or upon any of their respective properties, income or franchises, which are
shown to be due and payable in such returns have been paid. For all taxable
years ending on or before December 31, 1996 either the period of limitations
on assessment of additional Federal income tax has expired or any Borrower
Party and their Subsidiaries has entered into an agreement with the Internal
Revenue Service closing conclusively the total tax liability for the taxable
year. Except as disclosed on SCHEDULE 5.12, as updated from time to time by
written notice from Borrower to Administrative Agent, Borrower does not know
of any proposed additional tax assessment against it for which adequate
provision has not been made on its accounts, and no material controversy in
respect of additional Federal or state income taxes due since said date is
pending or to the knowledge of Borrower threatened. The provisions for taxes
on the books of Borrower and each of its Subsidiaries are adequate in
accordance with GAAP for all open years, and for its current fiscal period.
5.13 USE OF PROCEEDS. Borrower shall use the proceeds of the Loans
solely for working capital, Acquisitions and Restricted Payments otherwise
permitted hereunder and other general corporate purposes not in contravention
in any material respect of any material Laws. None of the transactions
contemplated in the Loan Documents (including, without limitation thereof,
the use of proceeds of the Loans) will violate or result in a violation of
Regulations U and X of the Board of Governors of the Federal Reserve System,
12 C.F.R., Chapter II. Neither any Borrower Party nor any of their
Subsidiaries owns or intends to carry or purchase any "margin stock" within
the meaning of said Regulation U other than the capital stock of Borrower.
5.14 ERISA. Except as set forth in SCHEDULE 5.14, to Borrower's
knowledge, the consummation of the transactions provided for herein and
compliance by Borrower with the provisions hereof will not involve any
prohibited transaction within the meaning of ERISA or Section 4975 of the Code
other than a transaction for which a statutory exemption is available or
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an administrative exemption has been obtained. Each Qualified Plan complies
in all material respects with all applicable statutes and governmental
regulations, and (a) no Reportable Event has occurred and is continuing with
respect to any Qualified Plan, (b) neither Borrower nor any ERISA Affiliate
has withdrawn from any Multiemployer Plan, and (c) no steps have been
instituted to terminate any Qualified Plan in a distress termination under
Section 4041(c) of ERISA or a termination issued by the PBGC under Section
4042 of ERISA. No condition exists or event or transaction has occurred in
connection with any Qualified Plan which would result in the incurrence by
Borrower or any ERISA Affiliate or any liability, fine or penalty which would
reasonably be expected to have a Material Adverse Effect. No Qualified Plan
maintained by Borrower or any ERISA Affiliate, nor any trust created
thereunder, has incurred any "accumulated funding deficiency" as defined in
Section 302 of ERISA nor does the present value of all benefits vested under
all Qualified Plans exceed, as of the last annual valuation date, the value
of the assets of the Qualified Plans allocable to such vested benefits based
on the assumptions contained in the most recent actuarial valuation report
for the Qualified Plan by an amount greater than $5,000,000 in the aggregate.
Neither Borrower nor any ERISA Affiliate has any contingent liability in
excess of $1,500,000 with respect to any post-retirement "welfare benefit
plan" (as such term is defined in ERISA) that is required to be reflected on
Borrower's financial statements under FASB 106, except as so reflected in
such financial statements or as has been disclosed to Administrative Agent in
writing. Except as set forth on SCHEDULE 5.14, neither any Borrower Party
nor any of their Subsidiaries are part of any Multiemployer Plan.
5.15 COMPLIANCE WITH LAWS. Neither any Borrower Party nor any of their
Subsidiaries (a) is in violation of any Laws to which it is subject; or (b) has
failed to obtain any license, permit, franchise or other governmental
authorization necessary to the ownership of its property or to the conduct of
its business, which violation or failure to obtain would have a Material Adverse
Effect. Neither any Borrower Party nor any of their Subsidiaries is in default
with respect to any order of any court or governmental authority or arbitration
board or tribunal where such default could reasonably be expected to have a
Material Adverse Effect.
5.16 COMPLIANCE WITH ENVIRONMENTAL LAWS. Neither any Borrower Party
nor any of their Subsidiaries is in violation of any Environmental Laws relating
to public health, safety or the environment, including, without limitation,
relating to releases, discharges, emissions or disposals to air, water, land or
ground water, to the withdrawal or use of ground water, to the use, handling or
disposal of polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde, to
the treatment, storage, disposal or management of hazardous substances
(including, without limitation, petroleum, crude oil or any fraction thereof, or
other hydrocarbons), pollutants or contaminants, to exposure to toxic, hazardous
or other controlled, prohibited or regulated substances which violation could
reasonably be expected to have a Material Adverse Effect. Except as set forth
on SCHEDULE 5.16, as updated from time to time by written notice from Borrower
to Administrative Agent with the consent of the Requisite Lenders, Borrower does
not know of any liability or class of liability of any Borrower Party or any of
their Subsidiaries under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.), or the
Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C.
Section 6901 et seq.) which liability could reasonably be expected to have a
Material Adverse Effect.
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5.17 REGULATED ENTITIES. None of any Borrower Party, any Person
controlling any Borrower Party, or any Subsidiary of Borrower, is (a) an
"Investment Company" within the meaning of the Investment Company Act of 1940;
or (b) subject to regulation under the Public Utility Holding Company Act of
1935, the Federal Power Act, the Interstate Commerce Act, any state public
utilities code or any other Federal or state statute or regulation limiting its
ability to incur Indebtedness.
5.18 NO BURDENSOME RESTRICTIONS. Neither any Borrower Party nor any of
their Subsidiaries is a party to or bound by any Contractual Obligation or
subject to any charter or corporate restriction or any Laws which could
reasonably be expected to have a Material Adverse Effect.
5.19 LABOR RELATIONS. There are no strikes, lockouts or other labor
disputes against any Borrower Party or any of their Subsidiaries, or , to the
best of Borrower's knowledge, threatened against or affecting any Borrower Party
or any of their Subsidiaries, and no unfair labor practice complaint is pending
against any Borrower Party or any of their Subsidiaries or, to the best
knowledge of Borrower, threatened against any of them before any Governmental
Authority, which, in each case, could reasonably be expected to cause a Material
Adverse Effect.
5.20 INSURANCE. The properties of each Borrower Party and their
Subsidiaries are insured with financially sound and reputable insurance
companies, in such amounts, with such deductibles and covering such risks as is
customarily carried on by companies engaged in similar businesses and owning
similar properties in localities where such Borrower Party or such Subsidiary
operates.
5.21 NO RESTRICTIONS ON SUBSIDIARIES. Neither any Borrower Party nor
any of their Subsidiaries has entered into, or committed to enter into, any
agreement or understanding that could limit or restrict any Subsidiary making or
declaring any dividends, either in cash or property, to Borrower, repaying or
prepaying any Indebtedness (other than for amounts loaned by Borrower to
Subsidiaries on a subordinated basis in connection with Permitted Accounts
Receivable Financing Facilities) owing to Borrower, or making any Investment in
Borrower.
5.22 YEAR 2000. Borrower has (a) initiated a review and assessment of
all areas within its and each of its Subsidiaries' business and operations
(including those affected by customers and vendors) that could be adversely
affected by the "Year 2000 Problem" (that is, the risk that computer
applications and devices containing imbedded computer chips used by any Borrower
Party or any of its Subsidiaries (or their respective customers and vendors) may
be unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999), (b) developed a
plan and timeline for addressing the Year 2000 Problem on a timely basis, and
(c) to date, implemented that plan in accordance with that timetable. Based on
the foregoing, Borrower believes that all computer applications and devices
containing imbedded computer chips (including those of its and its Subsidiaries'
customers and vendors) that are material to its or any of its Subsidiaries'
business and operations are reasonably expected on a timely basis to be able to
perform properly date-sensitive functions for all dates before and after
January 1, 2000 (that is, be "Year 2000 Compliant"), except to the extent that a
failure to do so could not reasonably be expected to have a Material Adverse
Effect.
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SECTION 6.
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as any Lender or the
Issuing Lender shall have any Commitment hereunder, or any Obligation shall
remain unpaid, unless the Requisite Lenders waive compliance in writing:
6.01 FINANCIAL STATEMENTS. Borrower shall deliver to Administrative
Agent in form and detail satisfactory to the Requisite Lenders, with copies for
each Lender:
(a) QUARTERLY STATEMENTS. As soon as available and in any event
within 50 days after the end of each quarterly fiscal period (except the last)
of each fiscal year, copies of:
(1) consolidated and consolidating balance sheets of Borrower and
its Subsidiaries as of the close of such quarterly fiscal period, setting
forth in comparative form the consolidated figures for the fiscal year then
most recently ended,
(2) consolidated and consolidating statements of income of Borrower
and its Subsidiaries for such quarterly fiscal period and for the portion of
the fiscal year ending with such quarterly fiscal period, in each case
setting forth in comparative form the consolidated figures for the
corresponding periods of the preceding fiscal year, and
(3) consolidated and consolidating statements of cash flows of
Borrower and its Subsidiaries for each quarterly fiscal period and for the
portion of the fiscal year ending with such quarterly fiscal period, setting
forth in comparative form the consolidated figures for the corresponding period
of the preceding fiscal year,
all certified by an appropriate Responsible Officer as being to the best of
such officer's knowledge complete and correct and fairly presenting, in
accordance with GAAP (except for the use of abbreviated footnotes of the type
required by the Securities and Exchange Commission to be included in
quarterly reports on Form 10-Q), the financial position and the results of
operations of Borrower and its Subsidiaries.
(b) ANNUAL STATEMENTS. As soon as available and in any event within
105 days after the close of each fiscal year of Borrower, copies of:
(1) consolidated and consolidating balance sheets of Borrower and its
Subsidiaries as of the close of such fiscal year, and
(2) consolidated and consolidating statements of income and retained
earnings and cash flows of Borrower and its Subsidiaries for such fiscal year,
in each case setting forth in comparative form the consolidated figures for the
preceding fiscal year, all in reasonable detail and accompanied, with respect to
Borrower and its Subsidiaries, by a report thereon of a firm of independent
public accountants of recognized national standing selected by Borrower to the
effect that the consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Borrower and its
Subsidiaries as of the end of the fiscal year being reported on and the
consolidated results of operations and cash flows
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for said year in conformity with GAAP and that the audit of such accountants
in connection with such financial statements has been conducted in accordance
with generally accepted auditing standards. Such report and opinion shall
not be subject to any qualifications or exceptions as to the scope of the
audit nor to any qualifications and exceptions (including possible errors
generated by financial reporting and related systems due to the Year 2000
Problem) not reasonably acceptable to the Requisite Lenders;
(c) AUDIT REPORTS. Promptly upon receipt thereof, one copy of each
interim or special audit made by independent accountants of the books of
Borrower or any Subsidiary and any management letter received from such
accountants;
(d) SEC AND OTHER REPORTS. Promptly upon their becoming sent or
filed, one copy of each financial statement, report, notice or proxy statement
sent by Borrower to stockholders generally and of each regular or periodic
report, and any registration statement or prospectus filed by Borrower or any of
its Subsidiaries with any securities exchange or the Securities and Exchange
Commission or any successor agency, and copies of any orders in any material
proceedings to which Borrower or any of its Subsidiaries is a party, issued by
any governmental agency, Federal or state, having jurisdiction over Borrower or
any of its Subsidiaries;
(e) ERISA REPORTS. Notice of the occurrence of any of the following
events affecting Borrower or any ERISA Affiliate (but in no event more than 10
days after such event), and deliver to Administrative Agent and each Lender a
copy of any notice with respect to such event that is filed with a Governmental
Authority and any notice delivered by a Governmental Authority to Borrower or
any ERISA Affiliate with respect to such event: (i) an ERISA Event; (ii) a
material increase in the Unfunded Pension Liability of any Pension Plan; (iii)
the adoption of, or the commencement of contributions to, any Plan subject to
Section 412 of the Code by Borrower or any ERISA Affiliate; or (iv) the adoption
of any amendment to a Plan subject to Section 412 of the Code, if such amendment
results in a material increase in contributions or Unfunded Pension Liability;
(f) COMPLIANCE CERTIFICATES. Within the periods provided in
paragraphs (a) and (b) above, a Compliance Certificate signed by a Responsible
Officer;
(g) ACCOUNTANT'S CERTIFICATES. Within the period provided in
paragraph (b) above, a certificate of the accountants who render an opinion with
respect to such financial statements, stating that they have reviewed this
Agreement and stating further whether, in making their audit, (i) Borrower is in
compliance with SECTIONS 7.02(E), 7.13, 7.14 AND 7.15 as of the end of such year
and (ii) anything came to their attention that caused them to believe that
Borrower failed to comply with the terms, covenants, provisions or conditions of
SECTION 7.02 (excluding SECTION 7.02(E)) insofar as they relate to accounting
matters, and if any such condition or event then exists, specifying the nature
and period of existence thereof;
(h) YEAR 2000 COMPLIANCE. Promptly upon the discovery or
determination that any computer application (including those of its suppliers
and vendors) that is material to any Borrower Parties' or any of their
Subsidiaries' business and operations will not be Year 2000 Compliant on a
timely basis, except to the extent that such failure could not reasonably be
expected to have a Material Adverse Effect; and
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(i) REQUESTED INFORMATION. With reasonable promptness, such other
data and information as Administrative Agent or any Lender may reasonably
request and which may be furnished without unreasonable expense to Borrower.
6.02 NOTICES. Borrower shall promptly notify Administrative Agent and
each Lender:
(a) upon becoming aware of the occurrence of any Default or Event of
Default and of the occurrence or existence of any event or circumstance that
foreseeably will become a Default or Event of Default and the action which
Borrower is taking or proposes to take with respect thereto;
(b) upon becoming aware of any (i) breach or non-performance of, or
any default under any Contractual Obligation of Borrower or any of its
Subsidiaries which could reasonably be expected to result in a Material Adverse
Effect;
(c) upon becoming aware of the commencement of, or any material
development in, any litigation, dispute, litigation, investigation,
proceeding or suspension affecting Borrower or any of its Subsidiaries (i) in
which the amount of damages claimed is $15,000,000 (or its equivalent in
another currency or currencies) or more, (ii) in which injunctive or similar
relief is sought and which, if adversely determined, could reasonably be
expected to have a Material Adverse Effect, or (iii) in which the relief
sought is an injunction or other stay of the performance of this Agreement or
any Loan Document or any material portion of the operations of Borrower or
any of its Subsidiaries;
(d) upon, but in no event later than ten business days after, receipt
of notice of (i) any and all enforcement, cleanup, removal or other governmental
or regulatory actions instituted, completed or threatened against Borrower or
any of its Subsidiaries or any of their properties pursuant to any applicable
Environmental Laws and (ii) all other Environmental Claims which, in the case of
each of clauses (i) and (ii) could reasonably be expected to have a Material
Adverse Effect;
(e) upon becoming aware of any other litigation or proceeding
affecting Borrower or any of its Subsidiaries which Borrower would be required
to report to the Securities and Exchange Commission pursuant to the Exchange
Act, within four days after reporting the same to the Securities and Exchange
Commission; and
(f) upon becoming aware of any Material Adverse Effect.
Each notice pursuant to this Section shall be accompanied by a written
statement by a Responsible Officer of Borrower setting forth details of the
occurrence referred to therein and stating what action, if any, Borrower
proposes to take with respect thereto.
6.03 CORPORATE EXISTENCE, ETC. Borrower will preserve and keep in full
force and effect, and will cause each of its Subsidiaries to preserve and keep
in full force and effect, its corporate existence and all licenses and permits
necessary to the proper conduct of its business; PROVIDED, HOWEVER, that the
foregoing shall not prevent any transactions permitted by
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SECTION 7.04 or 7.05 or prevent the dissolution, liquidation, merger or other
Disposition of Subsidiaries not holding any assets.
6.04 INSURANCE. Borrower shall maintain, and shall cause each of
its Subsidiaries to maintain, with financially sound and reputable
independent insurers, insurance with respect to its properties and business
against loss or damage of the kinds customarily insured against by Persons
engaged in the same or similar business, of such types and in such amounts as
are customarily carried under similar circumstances by such other Persons;
including workers' compensation insurance, public liability and property and
casualty insurance. Upon request of Administrative Agent or any Lender,
Borrower shall furnish Administrative Agent, with sufficient copies for each
Lender, at reasonable intervals (but not more than once per calendar year) a
copy of all insurance policies maintained by Borrower and its Subsidiaries
and a certificate of a Responsible Officer of Borrower (and, if requested by
Administrative Agent or any Lender, any insurance broker of Borrower) setting
forth the nature and extent of all insurance maintained by Borrower and its
Subsidiaries in accordance with this SECTION 6.04 (and which, in the case of
a certificate of a broker, were placed through such broker).
6.05 TAXES, CLAIMS FOR LABOR AND MATERIALS, COMPLIANCE WITH LAWS.
Borrower will promptly pay and discharge, and will cause each of its
Subsidiaries promptly to pay and discharge, all lawful taxes, assessments and
governmental charges or levies imposed upon Borrower or such Subsidiary,
respectively, or upon or in respect of all or any part of the property or
business of Borrower or such Subsidiary, all trade accounts payable in
accordance with usual and customary business terms, and all claims for work,
labor or materials, which if unpaid might become a Lien upon any property of
Borrower or such Subsidiary; PROVIDED, HOWEVER, that Borrower or such Subsidiary
shall not be required to pay any such tax, assessment, charge, levy, account
payable or claim if (i) the validity, applicability or amount thereof is being
contested in good faith by appropriate actions or proceedings which will prevent
the forfeiture or sale of any property of Borrower or such Subsidiary or any
material interference with the use thereof by Borrower or such Subsidiary, and
Borrower or such Subsidiary shall set aside on its books, reserves deemed by it
to be adequate with respect thereto in accordance with GAAP or (ii) the failure
to pay any such tax, assessment, charge, levy, account payable or claim could
not reasonably be expected to have a Material Adverse Effect. Neither Borrower
nor any of its Subsidiaries shall violate any law, ordinance or governmental
rule and regulation to which it is subject including, without limitation, the
Occupational Safety and Health Act of 1970, as amended, ERISA and all laws,
ordinances, governmental rules and regulations relating to environmental
protection in all applicable jurisdictions, if such violation could reasonably
be expected to have a Material Adverse Effect or would result in any Lien not
permitted under SECTION 7.01.
6.06 MAINTENANCE, ETC. Borrower will maintain, preserve and keep, and
will cause each of its Subsidiaries to maintain, preserve and keep, its material
properties which are used or useful in the conduct of its business (whether
owned in fee or a leasehold interest) in good repair and working order (ordinary
wear and tear excepted) and from time to time will make all necessary repairs,
replacements, renewals and additions so that at all times the efficiency thereof
shall be maintained.
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6.07 PAYMENT OF OBLIGATIONS. Subject to SECTION 6.05, Borrower
shall, and shall cause each of its Subsidiaries to, pay and discharge as the
same shall become due and payable, all their respective material obligations
and liabilities, including all material Indebtedness as and when due and
payable but subject to any subordination provisions contained in any
instrument or agreement evidencing such Indebtedness.
6.08 ENVIRONMENTAL LAWS. Upon the written request of Administrative
Agent or any Lender, Borrower shall submit and cause each of its Subsidiaries
to submit, to Administrative Agent with sufficient copies for each Lender, at
Borrower's sole cost and expense, at reasonable intervals, but in any event
no more frequently than quarterly, a report providing an update of the status
of any environmental compliance, hazard or liability issue identified in any
notice or report required pursuant to SECTION 6.02(D), that could,
individually or in the aggregate, reasonably be expected to result in
liability in excess of $5,000,000.
6.09 INSPECTION OF PROPERTY AND BOOKS AND RECORDS. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, proper books of
record and account, in which full, true and correct entries which will allow for
preparation of financial statements in conformity with GAAP consistently applied
shall be made of all financial transactions and matters involving the assets and
business of Borrower and such Subsidiaries. Borrower will permit, and will
cause each of its Subsidiaries to permit, representatives of Administrative
Agent or any Lender to visit and inspect any of their respective properties, to
examine their respective corporate, financial and operating records and make
copies thereof or abstracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective officers and independent public
accountants, all at the expense of Borrower and at such reasonable times during
normal business hours and as often as may be reasonably requested, upon
reasonable advance notice to Borrower.
6.10 GUARANTIES BY NEW DOMESTIC SUBSIDIARIES. Borrower shall cause
each Person that becomes an active Domestic Subsidiary (EXCLUDING special
purpose bankruptcy remote financing entities), within 30 days after becoming
such a Domestic Subsidiary, to become a Subsidiary Guarantor under the Master
Subsidiary Guaranty and, in connection therewith, deliver to Administrative
Agent the applicable documents pursuant to SECTION 4.03, and such other
documents as Administrative Agent and any Lender may reasonably request.
SECTION 7.
NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Lender or the Issuing
Lender shall have any Commitment hereunder, or any Obligations shall remain
unpaid, unless the Requisite Lenders waive compliance in writing:
7.01 LIMITATION ON LIENS. Borrower will not, nor will it permit any of
its Subsidiaries to, incur, assume or suffer to exist, any Lien or Negative
Pledge upon any of its property, assets or revenues, whether now owned or
hereafter acquired, EXCEPT:
(a) Ordinary Course Liens;
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(b) Liens and Negative Pledges existing on the Closing Date and listed
on SCHEDULE 7.01;
(c) Liens securing Indebtedness permitted to be secured under SECTIONS
7.02; PROVIDED HOWEVER that Liens permitted under SECTION 7.02(D) shall attach
solely to the assets financed by such purchase money Indebtedness;
(d) Liens in connection with Permitted Accounts Receivable Financing
Facilities;
(e) Liens resulting from or consisting of Operating Leases and
Capitalized Leases permitted hereunder;
(f) Negative Pledges on assets otherwise permitted to be subject to a
Lien hereunder; and
(g) extensions and renewals of Liens described above, PROVIDED that
(i) such Liens shall not be extended to other property of Borrower or any of its
Subsidiaries, and (ii) the principal amount of Indebtedness secured thereby
shall not be increased over the principal amount thereof outstanding immediately
prior to such extension or renewal.
7.02 LIMITATIONS ON INDEBTEDNESS. Borrower will not, nor will it
permit of its Subsidiaries to, create, assume, suffer to exist or incur or in
any manner become liable in respect of any Indebtedness for borrowed money or
other Indebtedness described in clauses (a) through (f) of the definition
thereof, EXCEPT:
(a) Ordinary Course Indebtedness;
(b) unsecured Indebtedness outstanding under the Senior Note
Agreements not exceeding $100,000,000 in the aggregate;
(c) Indebtedness under Permitted Accounts Receivable Financing
Facilities; PROVIDED, HOWEVER, that the Net Issuance Proceeds from increases in
outstandings under Permitted Accounts Receivable Financing Facilities after the
Closing Date shall be applied to repay or prepay Indebtedness owing by the
Borrower and its Subsidiaries.
(d) secured purchase money Indebtedness, including Capitalized Lease
Obligations, originally incurred to acquire fixed assets PROVIDED that at the
time of such acquisition, the aggregate amount remaining unpaid on all such
Indebtedness secured by Liens on such fixed assets, whether or not assumed by
Borrower or its Subsidiaries Subsidiary, does not exceed an amount equal to the
lesser of (i) 100%, in the case of fixed assets which are personal property
(including Capitalized Leases of fixed assets which are personal property) or
(ii) 80%, in the case of fixed assets which are real property, of the lesser of
the total purchase price or fair market value at the time of such acquisition as
determined in good faith by the Board of Directors of Borrower;
(e) other Indebtedness for borrowed money (including Indebtedness
hereunder); PROVIDED, HOWEVER, that, after giving effect thereto, ALL of the
following conditions are satisfied:
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(i) no Default or Event of Default shall exist;
(ii) the aggregate outstanding principal of the Basket Total
Debt of Borrower's Subsidiaries shall not exceed 20% of Consolidated Net
Worth; and
(iii) the aggregate outstanding principal of the secured Basket
Total Debt of Borrower and its Subsidiaries shall not exceed 10% of
Consolidated Net Worth;
(f) Indebtedness refinancing or extending Indebtedness permitted above
on terms and conditions no less favorable than the Indebtedness being
refinanced; PROVIDED, HOWEVER, that the principal amount of such new
Indebtedness shall not exceed the outstanding principal amount of Indebtedness
being refinanced immediately prior to such refinancing.
7.03 NO RESTRICTIONS ON SUBSIDIARIES. Borrower will not, nor will it
permit any of its Subsidiaries to, enter into, or commit to enter into, any
agreement or understanding that could limit or restrict any of its Subsidiaries
making or declaring any dividends, either in cash or property, to Borrower,
repaying or prepaying any Indebtedness (other than for amounts loaned by
Borrower to its Subsidiaries on a subordinated basis in connection with
Permitted Accounts Receivable Financing Facilities) owing to Borrower, or making
any Investment in Borrower.
7.04 FUNDAMENTAL CHANGES. Borrower will not, nor will it permit any of
its Subsidiaries to, merge or consolidate with or into any Person or liquidate,
wind-up or dissolve itself, or permit or suffer any liquidation or dissolution
or sell all or substantially all of its assets, EXCEPT, that so long as no
Default or Event of Default exists or would result therefrom:
(a) any of its Subsidiaries may merge or consolidate (i) with or into
Borrower or any wholly-owned Subsidiary so long as in any merger or
consolidation involving Borrower, Borrower shall be the surviving or continuing
corporation or (ii) with any other Person PROVIDED that such merger or
consolidation (EXCLUDING any Covered Dispositions) does not constitute a
Disposition of more than 15% of Consolidated Total Assets, determined as of the
end of the end of the immediately preceding fiscal year;
(b) Borrower may consolidate or merge with any other corporation if
(i) Borrower shall be the surviving or continuing corporation and (ii) at the
time of such consolidation or merger and after giving effect thereto no Default
or Event of Default shall have occurred and be continuing; and
(c) any of its Subsidiaries may sell, lease or otherwise dispose of
all or any substantial part of its assets to Borrower or any wholly-owned
Subsidiary.
7.05 DISPOSITIONS. Borrower will not, nor will it permit any of its
Subsidiaries to, make any Dispositions, EXCEPT:
(a) Ordinary Course Dispositions;
(b) Dispositions permitted by SECTION 7.04;
(c) in connection with Permitted Accounts Receivable Financing
Facilities;
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(d) the Simplex Products Disposition;
(e) Dispositions (EXCLUDING Covered Dispositions) of other assets
having a book value not exceeding during the 12-month period ending with the
date of such Disposition, 15% of Consolidated Total Assets, determined as of the
end of the end of the immediately preceding fiscal year; and
(f) any Covered Dispositions.
7.06 ACQUISITIONS. Borrower will not, nor will it suffer or permit any
of its Subsidiaries to, make any Acquisition unless, after giving effect to such
Acquisition (the "SUBJECT ACQUISITION"), ALL of the following requirements are
satisfied:
(a) during the 12-month period ending on the last day of the month
prior to the closing of the subject Acquisition, the aggregate consideration
paid (including, without limitation, Indebtedness for borrowed money incurred or
assumed) for all Acquisitions during such period (including, on a pro forma
basis, the subject Acquisition) does not exceed 50% of Consolidated Tangible Net
Worth as of the last day of such period (including all Acquisitions during such
period including, on a pro forma basis, the subject Acquisition);
(b) the total consideration paid (including, without limitation,
Indebtedness for borrowed money incurred or assumed, but excluding secured
purchase money Indebtedness, including Capitalized Lease Obligations permitted
under SECTION 7.02(D)) for any one Acquisition or series of related Acquisitions
does not exceed $75,000,000; PROVIDED, HOWEVER, that the cash consideration and
all Indebtedness incurred or assumed in any one Acquisition (excluding secured
purchase money Indebtedness, including Capitalized Lease Obligations permitted
under SECTION 7.02(D)) shall not exceed an amount equal to the SUM OF (i)
$25,000,000, (ii) the net cash proceeds received from Dispositions (OTHER THAN
Permitted Accounts Receivable Financing Facilities) within the prior 12 months
(EXCLUDING any such proceeds counted towards prior Acquisitions), and (iii) the
net cash proceeds received from any equity offering;
(c) at the time of any Acquisition and after giving effect thereto no
Default or Event of Default shall have occurred and be continuing; and
(d) such Acquisitions are not opposed by the board of directors or
management of any Person or business to be acquired.
7.07 OPERATING LEASES. Borrower will not, nor will it permit any of
its Subsidiaries to, create or suffer to exist any obligations for the payment
of rent for any property under any Operating Leases, EXCEPT
(a) Operating Leases of Borrower and its Subsidiaries in existence on
the Closing Date and any renewal, extension or refinancing thereof that does not
increase the rental payments therefor; and
(b) other Operating Leases PROVIDED that aggregate annual rental
payments for all such Operating Leases shall not exceed in any fiscal year
$15,000,000.
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7.08 LOANS AND INVESTMENTS. Borrower will not, nor will it suffer or
permit any of its Subsidiaries to, make any Investment in any Person including
any Affiliate of Borrower, EXCEPT:
(a) Ordinary Course Investments;
(b) Investments existing as of the date hereof and set forth on
SCHEDULE 7.08, including reinvestments of the same amounts in the same
instruments;
(c) Investments in, or Guaranty Obligations with respect to
Indebtedness of, joint ventures which respect to which Borrower or its
Subsidiaries is a partner not exceeding $2,000,000 in the aggregate at any time;
(d) loans or advances in the usual and ordinary course of business to
officers, directors and employees for expenses (including moving and relocation
expenses related to a transfer) incidental to carrying on the business of
Borrower or any of its Subsidiaries not exceeding $2,000,000 in the aggregate at
any time outstanding;
(e) loan and advances to officers, directors and employees to exercise
stock options of such employees to purchase stock of Borrower, if, after giving
effect thereto and to the application of the proceeds thereof, such loan does
not increase Consolidated Net Worth or Consolidated Net Income (other than an
increase due to interest on such loan or advance);
(f) advances on commissions in the ordinary course of business to
employees or subcontractors of Borrower or its Subsidiaries in an aggregate
amount not exceeding $5,000,000 at any time outstanding;
(g) loans, guarantees, or other extensions of credit not exceeding
$10,000,000 in the aggregate to Borrower's employee stock ownership plan
("ESOP") at any time outstanding;
(h) loans to the ESOP to purchase newly issued convertible shares of
stock of Borrower, if, after giving effect thereto and to the application of the
proceeds thereof, such loan does not increase Consolidated Tangible Net Worth;
(i) notes taken in connection with any Disposition permitted
hereunder;
(j) additional Investments in any fiscal year in an amount equal to
Restricted Payments that can be made under SECTION 7.09(A) in respect of such
fiscal year, but which are not made, PROVIDED that after giving effect to such
Investments, no Event of Default shall have occurred and be continuing; and
(k) additional Investments not exceeding $3,000,000 in the aggregate
in any fiscal year, PROVIDED that after giving effect to such Investments, no
Event of Default shall have occurred and be continuing.
7.09 RESTRICTED PAYMENTS. Borrower will not, nor will it permit any of
its Subsidiaries to, make any Restricted Payments EXCEPT:
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(a) Restricted Payments not exceeding $9,000,000 in the aggregate in
respect of any fiscal year; and
(b) Restricted Payments in any fiscal year in an amount equal to
Investments that can be made under SECTION 7.08(K) in such fiscal year, but
which are not made;
PROVIDED that, in each instance, after giving effect to any Restricted Payments,
no Event of Default shall have occurred and be continuing.
For the purposes of this SECTION 7.09, (a) the amount of any Restricted
Payment declared, paid or distributed in property shall be deemed to be the
greater of the book value or fair market value (as determined in good faith by
the Board of Directors of Borrower) of such property at the time of the making
of the Restricted Payment in question and (b) on the date which is twelve months
after the date on which a corporation becomes a Subsidiary, all Investments of
such corporation at such time shall be deemed to have been made by such
corporation, as a Subsidiary, at such time and such Investments will not be
taken into account for purposes of this SECTION 7.09 prior to such time.
7.10 TERMINATION OF PENSION PLANS. Borrower will not, nor will it
permit any ERISA Affiliate to, withdraw from any Multiemployer Plan if such
withdrawal would result in withdrawal liability (as described in Part I of
Subtitle E of Title IV of ERISA) which is currently owing which could reasonably
be expected to have a Material Adverse Effect. Borrower and any ERISA Affiliate
will not permit any employee benefit plan maintained by it to be terminated if
such termination could result in the imposition of a Lien on any property of
Borrower or any ERISA Affiliate pursuant to Section 4068 of ERISA.
7.11 COMPLIANCE WITH ERISA. Borrower will not directly or indirectly,
nor will it permit any ERISA Affiliate directly or indirectly, (i) to terminate
in a distress termination under Section 4041 of ERISA, any Plan subject to Title
IV of ERISA so as to result in any material liability to Borrower or any ERISA
Affiliate, (ii) to permit to exist any ERISA Event or any other event or
condition, which presents the risk of a material liability of Borrower or any
ERISA Affiliate, or (iii) to make a complete or partial withdrawal (within the
meaning of ERISA Section 4201) from any Multiemployer Plan so as to result in
any material liability to Borrower or any ERISA Affiliate. For purposes of this
SECTION 7.11, "material liability" means any liability which could reasonably be
expected to have a Material Adverse Effect.
7.12 CAPITAL EXPENDITURES. Borrower will not, nor will it suffer or
permit any Of its Subsidiaries to, make, or become legally obligated to make,
any Capital Expenditures, EXCEPT Capital Expenditures in any fiscal year of
Borrower not exceeding $30,000,000 in the aggregate.
7.13 CONSOLIDATED NET WORTH. Borrower will not permit its Consolidated
Net Worth at any time during any fiscal quarter to be less than $170,000,000
PLUS 50% of each fiscal quarter's Consolidated Net Income (with no deduction for
losses) commencing January 1, 1999 PLUS 75% of any Net Issuance Proceeds after
January 1, 1999.
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7.14 LEVERAGE RATIO. Borrower shall not permit the Leverage Ratio at
any time during any fiscal quarter set forth below to be greater than the ratio
set forth below opposite such fiscal quarter or the period during which such
fiscal quarter ends:
<TABLE>
<CAPTION>
MAXIMUM LEVERAGE
FISCAL QUARTERS ENDING RATIO
------------------------------ -----------------
<S> <C>
Closing through March 31, 2000 4.50 to 1
June 30, 2000 through September 30, 2000 3.75 to 1
December 31, 2000 3.50 to 1
March 31, 2001 through June 30, 2001 3.25 to 1
September 30, 2001 and thereafter 3.00 to 1
</TABLE>
7.15 INTEREST COVERAGE RATIO. Borrower will not permit its Interest
Coverage Ratio to be less than 3.50 to 1.00 at any time.
7.16 TRANSACTIONS WITH AFFILIATES. Borrower will not, nor will it
permit any Of its Subsidiaries to, enter into or be a party to any transaction
or arrangement with any Affiliate (including, without limitation, the purchase
from, sale to or exchange of property with, or the rendering of any service by
or for, any Affiliate, but excluding intercompany transactions with any
wholly-owned Subsidiary), EXCEPT
(a) employment, consulting and other compensation arrangements with
the officers and directors of Borrower,
(b) in the ordinary course of and pursuant to the reasonable
requirements of Borrower's or such Subsidiary's business and upon terms no less
favorable to Borrower or such Subsidiary than would obtain in a comparable
arm's-length transaction with a Person other than an Affiliate; and
(c) in connection with Permitted Accounts Receivable Financing
Facilities.
7.17 NATURE OF BUSINESS. Borrower will not, nor will it permit any Of
its Subsidiaries to, engage in any business if, as a result, the general nature
of the business, taken on a consolidated basis, which would then be engaged in
by Borrower and its Subsidiaries would be substantially changed from the general
nature of the business engaged in by Borrower and its Subsidiaries on the date
of this Agreement. No transaction or series of transactions permitted under
SECTION 7.04 or constituting Investments permitted under SECTION 7.08 shall be
deemed to violate this SECTION 7.17.
7.18 ACCOUNTING CHANGES. Borrower will not, nor will it permit any Of
its Subsidiaries to make any material changes in accounting, except as may be
allowed or required by GAAP and only if the impact of such changes are disclosed
and quantified in a note to Borrower's financial statements.
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SECTION 8.
EVENTS OF DEFAULT
8.01 EVENTS OF DEFAULT. Any of the following events shall constitute
an "Event of Default":
(a) Any Borrower Party fails to pay any principal or interest on any
Outstanding Obligation (other than fees) as and on the date when due; or fails
to pay any fees due hereunder within three days after the date when due; or
(b) Any representation or warranty by Borrower or any of its
Subsidiaries herein, in any Loan Document or which is contained in any
certificate, document or financial or other statement furnished at any time
under this Agreement, or in or under any Loan Document, shall prove to have been
incorrect in any material respect on or as of the date made or deemed made; or
(c) A default shall occur in the observance or performance of any
other provision of this Agreement which is not remedied within 10 business days
after the earlier of (i) the day on which a Responsible Officer of any Borrower
Party first obtains actual knowledge of such default, or (ii) the day on which
notice thereof is given to Borrower by Administrative Agent; or
(d) (i) Any Borrower Party (x) defaults in any payment when due of
principal of or interest on any Indebtedness (other than Indebtedness hereunder)
or (y) defaults in the observance or performance of any other agreement or
condition relating to any Indebtedness (other than Indebtedness hereunder) or
contained in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur, the effect of which default or other
event is to cause, or to permit the holder or holders of such Indebtedness (or a
trustee or agent on behalf of such holder or holders or beneficiary or
beneficiaries) to cause, with the giving of notice if required, Indebtedness
having an aggregate principal amount in excess of $5,000,000 to be demanded or
become due (automatically or otherwise) prior to its stated maturity, or any
Guaranty Obligation in such amount to become payable or cash collateral in
respect thereof to be demanded, or any Borrower Party is unable or admits in
writing its inability to pay its debts as they mature; or (ii) the occurrence
under any Swap Contract of an Early Termination Date (as defined in such Swap
Contract) resulting from (x) any event of default under such Swap Contract as to
which Borrower or any Subsidiary is the Defaulting Party (as defined in such
Swap Contract) or (y) any Termination Event occurs under any Swap Contract (as
defined therein) as to which Borrower or any Subsidiary is an Affected Party (as
so defined), which, in either event, the Swap Termination Value owed by Borrower
or such Subsidiary as a result thereof is greater than $5,000,000; or
(e) Final judgment or judgments for the payment of money aggregating
in excess of $1,000,000 is or are outstanding against Borrower and/or any Of its
Subsidiaries or against any property or assets of either and such judgments have
remained unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a
period of 10 business days from the date of entry; or
(f) Borrower or any of its Subsidiaries (i) becomes insolvent or
generally fails to pay, or admits in writing its inability to pay, its debts as
they become due, subject to applicable grace
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periods, if any, whether at stated maturity or otherwise; (ii) voluntarily
ceases to conduct its business in the ordinary course substantially as it is
conducted on the Closing Date except as permitted by SECTION 7.04; (iii)
commences any proceeding under Debtor Relief Laws or files any petition or
answer consenting to any proceeding under Debtor Relief Laws; (iv) acquiesces
in the appointment of a receiver, trustee, custodian or liquidator for itself
or a substantial portion of its property, assets or business or effects a
plan or other arrangement with its creditors; or (v) takes any action to
effectuate any of the foregoing; or
(g) Any involuntary proceeding under Debtor Relief Laws is commenced
or filed against Borrower or any Of its Subsidiaries holding a substantial part
of the assets of Borrower and its Subsidiaries on a consolidated basis, or any
writ, judgment, warrant of attachment, execution or similar process, is issued
or levied against a substantial part of the assets of Borrower and its
Subsidiaries on a consolidated basis and any such proceedings or petition shall
not be dismissed, or such writ, judgment, warrant of attachment, execution or
similar process shall not be released, vacated or fully bonded within 60 days
after commencement, filing or levy; or
(h) An ERISA Event shall occur with respect to a Pension Plan or
Multiemployer Plan which has resulted or could reasonably be expected to result
in liability of Borrower under Title IV of ERISA to the Pension Plan,
Multiemployer Plan or the PBGC in an aggregate amount in excess of 5% of
Consolidated Tangible Net Worth; the aggregate amount of Unfunded Pension
Liability among all Pension Plans at any time exceeds 5% of Consolidated
Tangible Net Worth; or (iii) Borrower or any ERISA Affiliate shall fail to pay
when due, after the expiration of any applicable grace period, any installment
payment with respect to its withdrawal liability under Section 4201 of ERISA
under a Multiemployer Plan in an aggregate amount in excess of 5% of
Consolidated Tangible Net Worth; or
(i) Any Event of Default shall occur under (and as defined in) any
Senior Note Agreement; or
(j) Any Person or group of Persons (within the meaning of Section 13
or 14 of the Exchange Act), other than an employee benefit or stock ownership
plan of Borrower, shall have acquired beneficial ownership (within the meaning
of Rule 13d-3 promulgated by the Securities and Exchange Commission under said
Act) of 50% or more of the outstanding shares of common stock of Borrower; or
(k) There occurs any termination (other than a scheduled termination),
liquidation, unwind or similar event or circumstance under any Permitted
Accounts Receivable Financing Facilities, which permits any purchaser of
receivables thereunder to cease purchasing such receivables and/or to apply all
collections on previously purchased receivables thereunder to the repayment of
such purchaser's interest in such previously purchased receivables; or
(l) Any Loan Document, at any time after its execution and delivery
and for any reason other than the agreement or action (or omission to act) of
Lenders or satisfaction in full of all the Obligations ceases to be in full
force and effect or is declared by a court of competent jurisdiction to be null
and void, invalid or unenforceable in any respect; or any Borrower Party
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thereto denies in writing that it has any or further liability or obligation
under any Loan Document, or purports to revoke, terminate or rescind same; or
(m) The occurrence of a Change in Control.
8.02 REMEDIES UPON EVENT OF DEFAULT. Without limiting any other rights
or remedies of Administrative Agent or Lenders provided for elsewhere in this
Agreement, or the other Loan Documents, or by applicable Law, or in equity, or
otherwise:
(a) Upon the occurrence, and during the continuance, of any Event of
Default OTHER THAN an Event of Default described in SECTION 8.01(f) or (g):
(i) the Requisite Lenders may request Administrative Agent to,
and Administrative Agent thereupon shall, terminate the Commitments
and/or declare all or any part of the unpaid principal of all Loans, all
interest accrued and unpaid thereon and all other amounts payable under
the Loan Documents to be immediately due and payable, whereupon the same
shall become and be immediately due and payable, without protest,
presentment, notice of dishonor, demand or further notice of any kind,
all of which are expressly waived by Borrower; and
(ii) Issuing Lender may, with the approval of Administrative
Agent on behalf of the Requisite Lenders, demand immediate payment by
Borrower of an amount equal to the aggregate amount of all outstanding
Letters of Credit Usage to be held in a Letter of Credit Cash Collateral
Account.
(b) Upon the occurrence of any Event of Default described in SECTION
8.01(f) or (g):
(i) the Commitments and all other obligations of Administrative
Agent or Lenders shall automatically terminate without notice to or
demand upon Borrower, which are expressly waived by Borrower;
(ii) the unpaid principal of all Loans, all interest accrued and
unpaid thereon and all other amounts payable under the Loan Documents
shall be immediately due and payable, without protest, presentment,
notice of dishonor, demand or further notice of any kind, all of which
are expressly waived by Borrower; and
(iii) an amount equal to the aggregate amount of all outstanding
Letters of Credit Usage shall be immediately due and payable to Issuing
Lender without notice to or demand upon Borrower, which are expressly
waived by Borrower, to be held in a Letter of Credit Cash Collateral
Account.
(c) Upon the occurrence of any Event of Default, Lenders and
Administrative Agent, or any of them, without notice to (except as expressly
provided for in any Loan Document) or demand upon Borrower, which are expressly
waived by Borrower (except as to notices expressly provided for in any Loan
Document), may proceed to (but only with the consent of the Requisite Lenders)
protect, exercise and enforce their rights and remedies under the Loan Documents
against any Borrower Party and such other rights and remedies as are provided by
Law or equity.
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(d) Except as permitted by SECTION 10.05, no Lender may exercise any
rights or remedies with respect to the Obligations without the consent of the
Requisite Lenders in their sole and absolute discretion. The order and manner
in which Administrative Agent's and Lenders' rights and remedies are to be
exercised shall be determined by the Requisite Lenders in their sole and
absolute discretion. Regardless of how a Lender may treat payments for the
purpose of its own accounting, for the purpose of computing the Obligations
hereunder, payments shall be applied FIRST, to costs and expenses (including
Attorney Costs) incurred by Administrative Agent and each Lender, SECOND, to the
payment of accrued and unpaid interest on the Loans to and including the date of
such application, THIRD, to the payment of the unpaid principal of the Loans,
and FOURTH, to the payment of all other amounts (including fees) then owing to
Administrative Agent and Lenders under the Loan Documents, in each case paid pro
rata to each Lender in the same proportions that the aggregate Obligations owed
to each Lender under the Loan Documents bear to the aggregate Obligations owed
under the Loan Documents to all Lenders, without priority or preference among
Lenders. No application of payments will cure any Event of Default, or prevent
acceleration, or continued acceleration, of amounts payable under the Loan
Documents, or prevent the exercise, or continued exercise, of rights or remedies
of Administrative Agent and Lenders hereunder or thereunder or at Law or in
equity.
SECTION 9.
ADMINISTRATIVE AGENT
9.01 APPOINTMENT AND AUTHORIZATION OF ADMINISTRATIVE AGENT.
(a) Each Lender hereby irrevocably (subject to SECTION 9.09) appoints,
designates and authorizes Administrative Agent to take such action on its behalf
under the provisions of this Agreement and each other Loan Document and to
exercise such powers and perform such duties as are expressly delegated to it by
the terms of this Agreement or any other Loan Document, together with such
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary contained elsewhere in this Agreement or in any other Loan
Document, Administrative Agent shall not have any duties or responsibilities,
except those expressly set forth herein, nor shall Administrative Agent have or
be deemed to have any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or any other Loan Document or otherwise exist
against Administrative Agent. Without limiting the generality of the foregoing
sentence, the use of the term "agent" in this Agreement with reference to
Administrative Agent is not intended to connote any fiduciary or other implied
(or express) obligations arising under agency doctrine of any applicable law.
Instead, such term is used merely as a matter of market custom, and is intended
to create or reflect only an administrative relationship between independent
contracting parties.
(b) Issuing Lender shall act on behalf of Lenders with respect to any
Letters of Credit issued by it and the documents associated therewith until such
time and except for so long as Administrative Agent may agree at the request of
the Requisite Lenders to act for such Issuing Lender with respect thereto;
PROVIDED, HOWEVER, that Issuing Lender shall have all of the benefits and
immunities (i) provided to Administrative Agent in this SECTION 9 with respect
to any acts taken or omissions suffered by Issuing Lender in connection with
Letters of Credit issued by it or
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proposed to be issued by it and the application and agreements for letters of
credit pertaining to the Letters of Credit as fully as if the term
"Administrative Agent" as used in this SECTION 9 included Issuing Lender with
respect to such acts or omissions, and (ii) as additionally provided in this
Agreement with respect to Issuing Lender.
9.02 DELEGATION OF DUTIES. Administrative Agent may execute any of its
duties under this Agreement or any other Loan Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. Administrative Agent shall
not be responsible for the negligence or misconduct of any agent or
attorney-in-fact that it selects with reasonable care.
9.03 LIABILITY OF ADMINISTRATIVE AGENT. None of Administrative
Agent-Related Persons shall (i) be liable for any action taken or omitted to be
taken by any of them under or in connection with this Agreement or any other
Loan Document or the transactions contemplated hereby (except for its own gross
negligence or willful misconduct), or (ii) be responsible in any manner to any
of Lenders for any recital, statement, representation or warranty made by any
Borrower Party or any Subsidiary or Affiliate of any Borrower Party, or any
officer thereof, contained in this Agreement or in any other Loan Document, or
in any certificate, report, statement or other document referred to or provided
for in, or received by Administrative Agent under or in connection with, this
Agreement or any other Loan Document, or the validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document, or for any failure of any Borrower Party or any other party to any
Loan Document to perform its obligations hereunder or thereunder. No
Administrative Agent-Related Person shall be under any obligation to any Lender
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of any Borrower Party
or any of any Borrower Party's Subsidiaries or Affiliates.
9.04 RELIANCE BY ADMINISTRATIVE AGENT.
(a) Administrative Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to Borrower),
independent accountants and other experts selected by Administrative Agent.
Administrative Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Requisite Lenders as it deems
appropriate and, if it so requests, it shall first be indemnified to its
satisfaction by Lenders against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any such action.
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement or any other Loan Document in
accordance with a request or consent of the Requisite Lenders or all Lenders, if
required hereunder, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all of Lenders. Where this Agreement
expressly permits or prohibits an action unless the Requisite Lenders otherwise
determine, and in all other instances, Administrative
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Agent may, but shall not be required to, initiate any solicitation for the
consent or a vote of Lenders.
(b) For purposes of determining compliance with the conditions
specified in SECTION 4.01, each Lender that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter either sent by Administrative Agent to such Lender for
consent, approval, acceptance or satisfaction, or required thereunder to be
consented to or approved by or acceptable or satisfactory to such Lender.
9.05 NOTICE OF DEFAULT. Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default,
except with respect to defaults in the payment of principal, interest and fees
required to be paid to Administrative Agent for the account of Lenders, unless
Administrative Agent shall have received written notice from a Lender or
Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". Administrative
Agent will notify Lenders of its receipt of any such notice. Administrative
Agent shall take such action with respect to such Default or Event of Default as
may be requested by the Requisite Lenders in accordance with SECTION 8;
PROVIDED, HOWEVER, that unless and until Administrative Agent has received any
such request, Administrative Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable or in the best interest of Lenders.
9.06 CREDIT DECISION; DISCLOSURE OF INFORMATION BY ADMINISTRATIVE
AGENT. Each Lender acknowledges that none of Administrative Agent-Related
Persons has made any representation or warranty to it, and that no act by
Administrative Agent hereinafter taken, including any consent to and acceptance
of any assignment or review of the affairs of any Borrower Party and its
Subsidiaries, shall be deemed to constitute any representation or warranty by
any Administrative Agent-Related Person to any Lender as to any matter,
including whether Administrative Agent-Related Persons have disclosed material
information in their possession. Each Lender, including any Lender by
assignment, represents to Administrative Agent that it has, independently and
without reliance upon any Administrative Agent-Related Person and based on such
documents and information as it has deemed appropriate, made its own appraisal
of and investigation into the business, prospects, operations, property,
financial and other condition and creditworthiness of any Borrower Party and its
Subsidiaries, and all applicable bank regulatory laws relating to the
transactions contemplated hereby, and made its own decision to enter into this
Agreement and to extend credit to any Borrower Party hereunder. Each Lender
also represents that it will, independently and without reliance upon any
Administrative Agent-Related Person and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
analysis, appraisals and decisions in taking or not taking action under this
Agreement and the other Loan Documents, and to make such investigations as it
deems necessary to inform itself as to the business, prospects, operations,
property, financial and other condition and creditworthiness of any Borrower
Party. Except for notices, reports and other documents expressly required to be
furnished to Lenders by Administrative Agent herein, Administrative Agent shall
not have any duty or responsibility to provide any Lender with any credit or
other information concerning the business, prospects, operations, property,
financial and
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other condition or creditworthiness of any Borrower Party or any of its
Subsidiaries which may come into the possession of any of Administrative
Agent-Related Persons.
9.07 INDEMNIFICATION OF ADMINISTRATIVE AGENT. Whether or not the
transactions contemplated hereby are consummated, Lenders shall indemnify upon
demand each Administrative Agent-Related Person (to the extent not reimbursed by
or on behalf of Borrower Parties and without limiting the obligation of Borrower
Parties to do so), pro rata, and hold harmless each Administrative Agent-Related
Person from and against any and all Indemnified Liabilities incurred by it;
PROVIDED, HOWEVER, that no Lender shall be liable for the payment to any
Administrative Agent-Related Person of any portion of such Indemnified
Liabilities resulting from such Person's gross negligence or willful misconduct;
PROVIDED, HOWEVER, that no action taken in accordance with the directions of the
Requisite Lenders shall be deemed to constitute gross negligence or willful
misconduct for purposes of this Section. Without limitation of the foregoing,
each Lender shall reimburse Administrative Agent upon demand for its ratable
share of any costs or out-of-pocket expenses (including Attorney Costs) incurred
by Administrative Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, any other Loan Document, or
any document contemplated by or referred to herein, to the extent that
Administrative Agent is not reimbursed for such expenses by or on behalf of
Borrower Parties. The undertaking in this Section shall survive the payment of
all Obligations hereunder and the resignation or replacement of Administrative
Agent.
9.08 ADMINISTRATIVE AGENT IN INDIVIDUAL CAPACITY. Bank of America and
its Affiliates may make loans to, issue letters of credit for the account of,
accept deposits from, acquire equity interests in and generally engage in any
kind of banking, trust, financial advisory, underwriting or other business with
Borrower and its Subsidiaries and Affiliates as though Bank of America were not
Administrative Agent or Issuing Lender hereunder and without notice to or
consent of Lenders. Lenders acknowledge that, pursuant to such activities, Bank
of America or its Affiliates may receive information regarding Borrower or its
Affiliates (including information that may be subject to confidentiality
obligations in favor of Borrower or such Affiliate) and acknowledge that
Administrative Agent shall be under no obligation to provide such information to
them. With respect to its Loans, Bank of America shall have the same rights and
powers under this Agreement as any other Lender and may exercise the same as
though it were not Administrative Agent or Issuing Lender.
9.09 SUCCESSOR ADMINISTRATIVE AGENT. Administrative Agent may, and
at the request of the Requisite Lenders shall, resign as Administrative Agent
upon 30 days' notice to Lenders. If Administrative Agent resigns under this
Agreement, the Requisite Lenders shall appoint from among Lenders a successor
administrative agent for Lenders which successor administrative agent shall
be approved by Borrower. If no successor administrative agent is appointed
prior to the effective date of the resignation of Administrative Agent,
Administrative Agent may appoint, after consulting with Lenders and Borrower,
a successor administrative agent from among Lenders. Upon the acceptance of
its appointment as successor administrative agent hereunder, such successor
administrative agent shall succeed to all the rights, powers and duties of
the retiring Administrative Agent and the term "Administrative Agent" shall
mean such successor
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administrative agent and the retiring Administrative Agent's appointment,
powers and duties as Administrative Agent shall be terminated. After any
retiring Administrative Agent's resignation hereunder as Administrative
Agent, the provisions of this SECTION 9 and SECTIONS 10.03 and 10.13 shall
inure to its benefit as to any actions taken or omitted to be taken by it
while it was Administrative Agent under this Agreement. If no successor
administrative agent has accepted appointment as Administrative Agent by the
date which is 30 days following a retiring Administrative Agent's notice of
resignation, the retiring Administrative Agent's resignation shall
nevertheless thereupon become effective and Lenders shall perform all of the
duties of Administrative Agent hereunder until such time, if any, as the
Requisite Lenders appoint a successor agent as provided for above.
Notwithstanding the foregoing, however, Bank of America may not be removed as
Administrative Agent at the request of the Requisite Lenders unless Bank of
America shall also simultaneously be replaced as "Issuing Lender" and "Swing
Line Lender" hereunder pursuant to documentation in form and substance
reasonably satisfactory to Bank of America.
SECTION 10.
MISCELLANEOUS.
10.01 AMENDMENTS; CONSENTS. No amendment, modification, supplement,
extension, termination or waiver of any provision of this Agreement or any other
Loan Document, no approval or consent thereunder, and no consent to any
departure by any Borrower Party therefrom shall be effective unless in writing
signed by the Requisite Lenders and acknowledged by Administrative Agent, and
each such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. Except as otherwise expressly
provided herein, without the approval in writing of Administrative Agent and all
Lenders, no amendment, modification, supplement, termination, waiver or consent
may be effective:
(a) To reduce the amount of principal, principal prepayments or the
rate of interest payable on, any Loan, or the amount of any fee or other amount
payable to any Lender under the Loan Documents (unless such modification is
consented to by each Lender entitled to receive such fee ) or to waive an Event
of Default consisting of the failure of any Borrower Party to pay when due
principal, interest or any commitment fee;
(b) To postpone any date fixed for any payment of principal of,
prepayment of principal of, or any installment of interest on, any Loan or any
installment of any commitment fee, to extend the term of, or, except as provided
in SECTION 2.12, increase the amount of, any Lender's Commitment (it being
understood that a waiver of an Event of Default shall not constitute an
extension or increase in the Commitment of any Lender) or, except as provided in
SECTION 2.12, modify the Pro Rata Share of any Lender;
(c) To amend the provisions of the definition of "REQUISITE LENDERS,"
this SECTION 10.01 or SECTION 10.06;
(d) Release all or substantially all of the Subsidiary Guarantors; or
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(e) To amend any provision of this Agreement that expressly requires
the consent or approval of all Lenders.
PROVIDED, HOWEVER, that (i) no amendment, waiver or consent shall, unless in
writing and signed by the Issuing Lender in addition to the Requisite Lenders or
all Lenders, as the case may be, affect the rights or duties of the Issuing
Lender under any Loan Document relating to Letters of Credit, (ii) no amendment,
waiver or consent shall, unless in writing and signed by Administrative Agent in
addition to the Requisite Lenders or all Lenders, as the case may be, affect the
rights or duties of Administrative Agent under any Loan Document, (iii) no
amendment, waiver or consent shall, unless in writing and signed by Swing Line
Lender in addition to the Requisite Lenders or all Lenders, as the case may be,
affect the rights or duties of Swing Line Lender under any Loan Document, and
(iv) any fee letter may be amended, or rights or privileges thereunder waived,
in a writing executed by the parties thereto. Any amendment, modification,
supplement, termination, waiver or consent pursuant to this Section shall apply
equally to, and shall be binding upon, all Lenders and Administrative Agent.
10.02 TRANSMISSION AND EFFECTIVENESS OF NOTICES AND SIGNATURES.
(a) MODES OF DELIVERY. Except as otherwise provided in any Loan
Document, notices, requests, demands, directions, agreements and documents
delivered in connection with the Loan Documents (collectively, "COMMUNICATIONS")
shall be transmitted by Requisite Notice to the number and address set forth on
SCHEDULE 10.02, may be delivered by the following modes of delivery, and shall
be effective as follows:
MODE OF DELIVERY EFFECTIVE ON EARLIER OF ACTUAL RECEIPT AND:
- ------------------------------------------------------------------------
Courier Scheduled delivery date
Facsimile When transmission in legible form complete
Mail Fourth Business Day after deposit in U.S. mail
first class postage pre-paid
Personal delivery When received
Telephone When conversation completed
PROVIDED, HOWEVER, that communications delivered to Administrative Agent
pursuant to SECTION 2 shall not be effective until actually received by
Administrative Agent.
(b) RELIANCE BY ADMINISTRATIVE AGENT AND LENDERS. Administrative
Agent and Lenders shall be entitled to rely and act on any communications
purportedly given by or on behalf of any Borrower Party even if such
communications (i) were not made in a manner specified herein, (ii) were
incomplete, (iii) were not preceded or followed by any other notice specified
herein, or (d) the terms thereof, as understood by the recipient, varied from
any subsequent related communications provided for herein. Each Borrower Party
shall indemnify Administrative Agent and Lenders from any loss, cost, expense or
liability as a result of relying on any communications permitted herein.
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(c) EFFECTIVENESS OF FACSIMILE SIGNATURES. Signatures on
communications may be transmitted by facsimile only with the consent of
Administrative Agent in its sole and absolute discretion in each instance. The
effectiveness of any such signatures accepted by Administrative Agent shall,
subject to applicable Law, have the same force and effect as manual signatures
and shall be binding on all Borrower Parties and Administrative Agent and
Lenders. Administrative Agent may also require that any such signature be
confirmed by a manually-signed hardcopy thereof; PROVIDED, HOWEVER, that the
failure to request any such manually-signed hardcopy confirmation shall not
effect the effectiveness of any facsimile signatures.
10.03 ATTORNEY COSTS, EXPENSES AND TAXES. Borrower agrees (a) to pay
or reimburse Administrative Agent for all costs and expenses incurred in
connection with the development, preparation, negotiation and execution of
the Loan Documents, and the development, preparation, negotiation and
execution of any amendment, waiver, consent, supplement or modification to,
any Loan Documents, and any other documents prepared in connection herewith
or therewith, and the consummation and administration of the transactions
contemplated hereby and thereby, including all Attorney Costs, and (b) to pay
or reimburse Administrative Agent and each Lender for all costs and expenses
incurred in connection with any refinancing, restructuring, reorganization
(including a bankruptcy reorganization) and enforcement or attempted
enforcement, or preservation of any rights under any Loan Documents, and any
other documents prepared in connection herewith or therewith, or in
connection with any refinancing, or restructuring of any such documents in
the nature of a "workout" or of any insolvency or bankruptcy proceeding,
including Attorney Costs. The foregoing costs and expenses shall include all
search, filing, recording, title insurance and appraisal charges and fees and
taxes related thereto, and other out-of-pocket expenses incurred by
Administrative Agent and the cost of independent public accountants and other
outside experts retained by Administrative Agent or any Lender. Such costs
and expenses shall also include administrative costs of Administrative Agent
reasonably attributable to the administration of the Loan Documents. Any
amount payable by Borrower under this Section shall bear interest from the
second Business Day following the date of demand for payment at the Default
Rate, unless waived by Administrative Agent. The agreements in this Section
shall survive repayment of all Obligations.
10.04 BINDING EFFECT; ASSIGNMENT.
(a) This Agreement and the other Loan Documents to which each Borrower
Party is a party will be binding upon and inure to the benefit of each Borrower
Party, Administrative Agent, Lenders and their respective successors and
assigns, except that, no Borrower Party may assign its rights hereunder or
thereunder or any interest herein or therein without the prior written consent
of all Lenders and any such attempted assignment shall be void. Any Lender may
at any time pledge its Note or any other instrument evidencing its rights as a
Lender under this Agreement to a Federal Reserve Lender, but no such pledge
shall release that Lender from its obligations hereunder or grant to such
Federal Reserve Lender the rights of a Lender hereunder absent foreclosure of
such pledge.
(b) From time to time following the Closing Date, each Lender may
assign to one or more Eligible Assignees all or any portion of its Pro Rata
Share of its Commitment and/or Extensions of Credit; PROVIDED that (i) such
assignment, if not to a Lender or an Affiliate of the assigning Lender, shall be
consented to by Borrower at all times other than during the existence
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of a Default or Event of Default and Administrative Agent and Issuing Lender
(which consents shall not be unreasonably withheld or delayed), (ii) a copy
of a duly signed and completed Notice of Assignment and Acceptance shall be
delivered to Administrative Agent, (iii) except in the case of an assignment
to an Affiliate of the assigning Lender, to another Lender or of the entire
remaining Commitment of the assigning Lender, the assignment shall not assign
a Pro Rata Share equivalent to less than the Minimum Amount therefor, and
(iv) the effective date of any such assignment shall be as specified in the
Notice of Assignment and Acceptance, but not earlier than the date which is
five Business Days after the date Administrative Agent has received the
Notice of Assignment and Acceptance. Upon acceptance by Administrative Agent
of such Notice Assignment and Acceptance and consent thereto by
Administrative Agent and Issuing Lender and payment of the requisite fee
described below, the Eligible Assignee named therein shall be a Lender for
all purposes of this Agreement, with the Pro Rata Share therein set forth
and, to the extent of such Pro Rata Share, the assigning Lender shall be
released from its further obligations under this Agreement. Borrower agrees
that it shall execute and deliver upon request (against delivery by the
assigning Lender to Borrower of any Note) to such assignee Lender, one or
more Notes evidencing that assignee Lender's Pro Rata Share, and to the
assigning Lender if requested, one or more Notes evidencing the remaining
balance Pro Rata Share retained by the assigning Lender. Administrative
Agent's consent to and acceptance of any assignment shall not be deemed to
constitute any representation or warranty by any Administrative Agent-Related
Person as to any matter. Each assignee shall concurrently execute and
deliver an Addendum to the Intercreditor Agreement in accordance with the
terms thereof.
(c) After receipt of a completed Notice of Assignment and Acceptance,
and receipt of an assignment fee of $3,500 from such Eligible Assignee
(including Affiliates of assigning Lenders), Administrative Agent shall,
promptly following the effective date thereof, provide to Borrower and Lenders a
revised SCHEDULE 10.02 giving effect thereto.
(d) Each Lender may from time to time grant participations to one or
more other Person (including another Lender) all or any portion of its Pro Rata
Share of its Commitment and/or Extensions of Credit; PROVIDED, HOWEVER, that (i)
such Lender's obligations under this Agreement shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) the participating banks or other
financial institutions shall not be a Lender hereunder for any purpose except,
if the participation agreement so provides, for the purposes of SECTION 3 (but
only to the extent that the cost of such benefits to a Borrower Party does not
exceed the cost which a Borrower Party would have incurred in respect of such
Lender absent the participation) and subject to SECTIONS 10.05 AND 10.06, (iv)
Borrower, Administrative Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, (v) the participation shall not restrict an
increase in the Commitment or in granting Lender's Pro Rata Share, so long as
the amount of the participation interest is not affected thereby, and (vi) the
consent of the holder of such participation interest shall not be required for
amendments or waivers of provisions of the Loan Documents; PROVIDED, HOWEVER,
that the assigning Lender may, in any agreement with a participant, give such
participant the right to consent to any matter which (A) extends the Maturity
Date as to such participant or any other date upon which any payment of money is
due to such participant, (B) reduces the rate of interest
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owing to such participant, any fee or any other monetary amount owing to such
participant, or (C) reduces the amount of any installment of principal owing
to such participant.
10.05 SET-OFF. In addition to any rights and remedies of Administrative
Agent and Lenders or any assignee or participant of Lenders or any Affiliates
thereof (each, a "PROCEEDING PARTY") provided by law, upon the occurrence and
during the continuance of any Event of Default, each Proceeding Party is
authorized at any time and from time to time, without prior notice to Borrower,
any such notice being waived by Borrower to the fullest extent permitted by law,
to proceed directly, by right of set-off, banker's lien, or otherwise, against
any assets of Borrower Parties which may be in the hands of such Proceeding
Party (including all general or special, time or demand, provisional or other
deposits and other indebtedness owing by such Proceeding Party to or for the
credit or the account of Borrower) and apply such assets against the
Obligations, irrespective of whether such Proceeding Party shall have made any
demand therefor and although such Obligations may be unmatured. Each Lender
agrees promptly to notify Borrower and Administrative Agent after any such
set-off and application made by such Lender; provided, however, that the failure
to give such notice shall not affect the validity of such set-off and
application.
10.06 SHARING OF PAYMENTS. Each Lender severally agrees that if it,
through the exercise of any right of setoff, banker's lien or counterclaim
against any Borrower Party, or otherwise, receives payment of the Obligations
held by it that is ratably more than any other Lender, through any means,
receives in payment of the Obligations held by that Lender, then, subject to
applicable Laws: (a) Lender exercising the right of setoff, banker's lien or
counterclaim or otherwise receiving such payment shall purchase, and shall be
deemed to have simultaneously purchased, from the other Lender a participation
in the Obligations held by the other Lender and shall pay to the other Lender a
purchase price in an amount so that the share of the Obligations held by each
Lender after the exercise of the right of setoff, banker's lien or counterclaim
or receipt of payment shall be in the same proportion that existed prior to the
exercise of the right of setoff, banker's lien or counterclaim or receipt of
payment; and (b) such other adjustments and purchases of participations shall be
made from time to time as shall be equitable to ensure that all of Lenders share
any payment obtained in respect of the Obligations ratably in accordance with
each Lender's share of the Obligations immediately prior to, and without taking
into account, the payment; PROVIDED that, if all or any portion of a
disproportionate payment obtained as a result of the exercise of the right of
setoff, banker's lien, counterclaim or otherwise is thereafter recovered from
the purchasing Lender by a Borrower Party or any Person claiming through or
succeeding to the rights of a Borrower Party, the purchase of a participation
shall be rescinded and the purchase price thereof shall be restored to the
extent of the recovery, but without interest. Each Lender that purchases a
participation in the Obligations pursuant to this Section shall from and after
the purchase have the right to give all notices, requests, demands, directions
and other communications under this Agreement with respect to the portion of the
Obligations purchased to the same extent as though the purchasing Lender were
the original owner of the Obligations purchased. Each Borrower Party expressly
consents to the foregoing arrangements and agrees that any Lender holding a
participation in an Obligation so purchased may exercise any and all rights of
setoff, banker's lien or counterclaim with respect to the participation as fully
as if Lender were the original owner of the Obligation purchased.
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10.07 NO WAIVER; CUMULATIVE REMEDIES.
(a) No failure by any Lender or Administrative Agent to exercise, and
no delay by any Lender or Administrative Agent in exercising, any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege under any
Loan Document preclude any other or further exercise thereof or the exercise of
any other right, remedy, power or privilege.
(b) The rights, remedies, powers and privileges herein or therein
provided are cumulative and not exclusive of any rights, remedies, powers and
privileges provided by Law. Any decision by Administrative Agent or any Lender
not to require payment of any interest (including Default Interest), fee, cost
or other amount payable under any Loan Document or to calculate any amount
payable by a particular method on any occasion shall in no way limit or be
deemed a waiver of Administrative Agent's or such Lender's right to require full
payment thereof, or to calculate an amount payable by another method that is not
inconsistent with this Agreement, on any other or subsequent occasion.
(c) The terms and conditions of SECTION 9 are inserted for the sole
benefit of Administrative Agent and Lenders; the same may be waived in whole or
in part, with or without terms or conditions, in respect of any Extension of
Credit without prejudicing Administrative Agent's or Lenders' rights to assert
them in whole or in part in respect of any other Loan.
10.08 USURY. Notwithstanding anything to the contrary contained in any
Loan Document, the interest and fees paid or agreed to be paid under the Loan
Documents shall not exceed the maximum rate of non-usurious interest permitted
by applicable Law (the "MAXIMUM RATE"). If Administrative Agent or any Lender
shall receive interest or a fee in an amount that exceeds the Maximum Rate, the
excessive interest or fee shall be applied to the principal of the Outstanding
Obligations or, if it exceeds the unpaid principal, refunded to Borrower. In
determining whether the interest or a fee contracted for, charged, or received
by Administrative Agent or a Lender exceeds the Maximum Rate, such Person may,
to the extent permitted by applicable Law, (a) characterize any payment that is
not principal as an expense, fee, or premium rather than interest, (b) exclude
voluntary prepayments and the effects thereof, and (c) amortize, prorate,
allocate, and spread in equal or unequal parts the total amount of interest
throughout the contemplated term of the Obligations.
10.09 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.10 INTEGRATION. This Agreement, together with the other Loan
Documents and any letter agreements referred to herein, comprises the complete
and integrated agreement of the parties on the subject matter hereof and
supersedes all prior agreements, written or oral, on the subject matter hereof.
In the event of any conflict between the provisions of this Agreement and those
of any other Loan Document, the provisions of this Agreement shall control and
govern; PROVIDED that the inclusion of supplemental rights or remedies in favor
of Administrative Agent or Lenders in any other Loan Document shall not be
deemed a conflict with this Agreement. Each Loan Document was drafted with the
joint participation of the respective parties thereto and
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shall be construed neither against nor in favor of any party, but rather in
accordance with the fair meaning thereof.
10.11 NATURE OF LENDERS' OBLIGATIONS. The obligations of Lenders
hereunder are several and not joint or joint and several. Nothing contained
in this Agreement or any other Loan Document and no action taken by
Administrative Agent or Lenders or any of them pursuant hereto or thereto
may, or may be deemed to, make Lenders a partnership, an association, a joint
venture or other entity, either among themselves or with Borrower or any
Affiliates of Borrower. Each Lender's obligation to make any Loan pursuant
hereto is several and not joint or joint and several, and in the case of the
initial Loan only is conditioned upon the performance by all other Lenders of
their obligations to make initial Loans A default by any Lender will not
increase the Pro Rata Share attributable to any other Lender.
10.12 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made hereunder and in any Loan Document, certificate or statement
delivered pursuant hereto or thereto or in connection herewith or therewith
shall survive the execution and delivery thereof but shall terminate the later
of (a) when the Commitments are terminated and (b) when no Obligations remain
outstanding under any Loan Document. Such representations and warranties have
been or will be relied upon by Administrative Agent and each Lender,
notwithstanding any investigation made by Administrative Agent or any Lender or
on their behalf.
10.13 INDEMNITY BY BORROWER. Borrower agrees to indemnify, save and
hold harmless each Administrative Agent-Related Person and each Lender and their
respective Affiliates, directors, officers, agents, attorneys and employees
(collectively the "INDEMNITEES") from and against: (a) any and all claims,
demands, actions or causes of action that are asserted against any Indemnitee by
any Person (other than Administrative Agent or any Lender) relating directly or
indirectly to a claim, demand, action or cause of action that such Person
asserts or may assert against any Borrower Party, any of their Affiliates or any
of their officers or directors; (b) any and all claims, demands, actions or
causes of action arising out of or relating to, the Loan Documents, any
predecessor loan documents, the Commitments, the use or contemplated use of the
proceeds of any Loan, or the relationship of any Borrower Party, Administrative
Agent and Lenders under this Agreement; (c) any administrative or investigative
proceeding by any Governmental Authority arising out of or related to a claim,
demand, action or cause of action described in subsection (a) or (b) above; and
(d) any and all liabilities, losses, costs or expenses (including Attorney
Costs) that any Indemnitee suffers or incurs as a result of the assertion of any
foregoing claim, demand, action, cause of action or proceeding, or as a result
of the preparation of any defense in connection with any foregoing claim,
demand, action, cause of action or proceeding, in all cases, whether or not an
Indemnitee is a party to such claim, demand, action, cause of action or
proceeding, including those liabilities caused by an Indemnitee's own negligence
(all the foregoing, collectively, the "INDEMNIFIED LIABILITIES"); PROVIDED that
no Indemnitee shall be entitled to indemnification for any loss caused by its
own gross negligence or willful misconduct or for any loss asserted against it
by another Indemnitee.
10.14 NONLIABILITY OF LENDERS.
Borrower acknowledges and agrees that:
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(a) Any inspections of any property of Borrower made by or through
Administrative Agent or Lenders are for purposes of administration of the Loan
Documents only, and Borrower is entitled to rely upon the same (whether or not
such inspections are at the expense of Borrower);
(b) By accepting or approving anything required to be observed,
performed, fulfilled or given to Administrative Agent or Lenders pursuant to the
Loan Documents, neither Administrative Agent nor Lenders shall be deemed to have
warranted or represented the sufficiency, legality, effectiveness or legal
effect of the same, or of any term, provision or condition thereof, and such
acceptance or approval thereof shall not constitute a warranty or representation
to anyone with respect thereto by Administrative Agent or Lenders;
(c) The relationship between Borrower and Administrative Agent and
Lenders is, and shall at all times remain, solely that of borrower and lenders;
neither Administrative Agent nor Lenders shall under any circumstance be
construed to be partners or joint venturers of Borrower or its Affiliates;
neither Administrative Agent nor Lenders shall under any circumstance be deemed
to be in a relationship of confidence or trust or a fiduciary relationship with
Borrower or its Affiliates, or to owe any fiduciary duty to Borrower or its
Affiliates; neither Administrative Agent nor Lenders undertake or assume any
responsibility or duty to Borrower or its Affiliates to select, review, inspect,
supervise, pass judgment upon or inform Borrower or its Affiliates of any matter
in connection with their property or the operations of Borrower or its
Affiliates; Borrower and it Affiliates shall rely entirely upon their own
judgment with respect to such matters; and any review, inspection, supervision,
exercise of judgment or supply of information undertaken or assumed by
Administrative Agent or Lenders in connection with such matters is solely for
the protection of Administrative Agent and Lenders and neither Borrower nor any
other Person is entitled to rely thereon; and
(d) Administrative Agent and Lenders shall not be responsible or
liable to any Person for any loss, damage, liability or claim of any kind
relating to injury or death to Persons or damage to property caused by the
actions, inaction or negligence of any Borrower and/or its Affiliates and
Borrower hereby indemnifies and holds Administrative Agent and Lenders harmless
from any such loss, damage, liability or claim.
10.15 NO THIRD PARTIES BENEFITED. This Agreement is made for the
purpose of defining and setting forth certain obligations, rights and duties of
Borrower, Administrative Agent and Lenders in connection with the Loans, and is
made for the sole benefit of Borrower, Administrative Agent and Lenders, and
Administrative Agent's and Lenders' successors and assigns. Except as provided
in SECTIONS 10.04 and 10.13, no other Person shall have any rights of any nature
hereunder or by reason hereof.
10.16 SEVERABILITY. Any provision of the Loan Documents that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
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10.17 CONFIDENTIALITY. Administrative Agent and each Lender shall use
any confidential non-public information concerning the Borrower Parties and
their Subsidiaries that is furnished to Administrative Agent or such Lender by
or on behalf of the Borrower Parties and their Subsidiaries in connection with
the Loan Documents (collectively, "CONFIDENTIAL INFORMATION") solely for the
purpose of evaluating and providing products and services to them and
administering and enforcing the Loan Documents, and it will hold the
Confidential Information in confidence. Notwithstanding the foregoing,
Administrative Agent and each Lender may disclose Confidential Information (a)
to their affiliates or any of their or their affiliates' directors, officers,
employees, advisors, or representatives (collectively, the "REPRESENTATIVES")
whom it determines need to know such information for the purposes set forth in
this Section; (b) to any bank or financial institution or other entity to which
such Lender has assigned or desires to assign an interest or participation in
the Loan Documents or the Obligations, PROVIDED that any such foregoing
recipient of such Confidential Information agrees to keep such Confidential
Information confidential as specified herein; (c) to any governmental agency or
regulatory body having or claiming to have authority to regulate or oversee any
aspect of Administrative Agent's or such Lender's business or that of their
Representatives in connection with the exercise of such authority or claimed
authority; (d) to the extent necessary or appropriate to effect or preserve
Administrative Agent's or such Lender's or any of their Affiliates' security (if
any) for any Obligation or to enforce any right or remedy or in connection with
any claims asserted by or against Administrative Agent or such Lender or any of
their Representatives; and (e) pursuant to any subpoena or any similar legal
process. For purposes hereof, the term "Confidential Information" shall not
include information that (x) is in Administrative Agent's or a Lender's
possession prior to its being provided by or on behalf of the Borrower Parties,
PROVIDED that such information is not known by Administrative Agent or such
Lender to be subject to another confidentiality agreement with, or other legal
or contractual obligation of confidentiality to, a Borrower Party, (y) is or
becomes publicly available (other than through a breach hereof by Administrative
Agent or such Lender), or (z) becomes available to Administrative Agent or such
Lender on a nonconfidential basis, PROVIDED that the source of such information
was not known by Administrative Agent or such Lender to be bound by a
confidentiality agreement or other legal or contractual obligation of
confidentiality with respect to such information.
10.18 FURTHER ASSURANCES. Borrower and its Subsidiaries shall, at their
expense and without expense to Lenders or Administrative Agent, do, execute and
deliver such further acts and documents as any Lender or Administrative Agent
from time to time reasonably requires for the assuring and confirming unto
Lenders or Administrative Agent of the rights hereby created or intended now or
hereafter so to be, or for carrying out the intention or facilitating the
performance of the terms of any Loan Document.
10.19 HEADINGS. Section headings in this Agreement and the other Loan
Documents are included for convenience of reference only and are not part of
this Agreement or the other Loan Documents for any other purpose.
10.20 TIME OF THE ESSENCE. Time is of the essence of the Loan
Documents.
10.21 FOREIGN LENDERS AND PARTICIPANTS. Each Lender, and each holder of
a participation interest herein, that is a "foreign corporation, partnership or
trust" within the
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meaning of the Code shall deliver to Administrative Agent, prior to receipt
of any payment subject to withholding (or after accepting an assignment or
receiving a participation interest herein), two duly signed completed copies
of either Form W-8BEN or any successor thereto (relating to such Person and
entitling it to a complete exemption from withholding on all payments to be
made to such Person by Borrower pursuant to this Agreement) or Form W-8ECI or
any successor thereto (relating to all payments to be made to such Person by
Borrower pursuant to this Agreement) of the United States Internal Revenue
Service or such other evidence satisfactory to Borrower and Administrative
Agent that no withholding under the federal income tax laws is required with
respect to such Person. Thereafter and from time to time, each such Person
shall (a) promptly submit to Administrative Agent such additional duly
completed and signed copies of one of such forms (or such successor forms as
shall be adopted from time to time by the relevant United States taxing
authorities) as may then be available under then current United States laws
and regulations to avoid, or such evidence as is satisfactory to Borrower and
Administrative Agent of any available exemption from, United States
withholding taxes in respect of all payments to be made to such Person by
Borrower pursuant to this Agreement and (b) take such steps as shall not be
materially disadvantageous to it, in the reasonable judgment of such Lender,
and as may be reasonably necessary (including the re-designation of its
Lending Office, if any) to avoid any requirement of applicable Laws that
Borrower make any deduction or withholding for taxes from amounts payable to
such Person. If such Persons fails to deliver the above forms or other
documentation, then Administrative Agent may withhold from any interest
payment to such Person an amount equivalent to the applicable withholding tax
imposed by Sections 1441 and 1442 of the Code, without reduction. If any
Governmental Authority asserts that Administrative Agent did not properly
withhold any tax or other amount from payments made in respect of such
Person, such Person shall indemnify Administrative Agent therefor, including
all penalties and interest and costs and expenses (including Attorney Costs)
of Administrative Agent. The obligation of Lenders under this subsection
shall survive the payment of all Obligations and the resignation or
replacement of Administrative Agent.
10.22 GOVERNING LAW.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF CALIFORNIA APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE; PROVIDED THAT ADMINISTRATIVE AGENT AND
EACH LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF
CALIFORNIA OR OF THE UNITED STATES FOR THE CENTRAL DISTRICT OF CALIFORNIA,
AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH BORROWER PARTY,
ADMINISTRATIVE AGENT AND EACH LENDER CONSENTS, FOR ITSELF AND IN RESPECT OF
ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH
BORROWER PARTY, ADMINISTRATIVE AGENT AND EACH LENDER IRREVOCABLY WAIVES ANY
OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR
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HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF ANY LOAN DOCUMENT OR OTHER DOCUMENT RELATED HERETO.
EACH BORROWER PARTY, ADMINISTRATIVE AGENT AND EACH LENDER WAIVES PERSONAL
SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY
OTHER MEANS PERMITTED BY THE LAW OF CALIFORNIA.
10.23 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM
WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT
OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR
A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
10.24 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
10.25 TERMINATION OF EXISTING SYNDICATED AGREEMENT. The parties to the
Existing Syndicated Agreement which are parties hereto hereby agree that the
Existing Syndicated Agreement shall terminate on as of the Closing Date, except
with respect to provisions thereof which by their terms survive the termination
of the Existing Syndicated Agreement PROVIDED that all amounts due and owing
thereunder are paid in full.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
K2 INC.
By
-------------------------------------
John J. Rangel
Senior Vice President, Finance
BANK OF AMERICA, N.A., AS ADMINISTRATIVE
AGENT
By
-------------------------------------
Gina Meador
Vice President
BANK OF AMERICA, N.A., AS ISSUING LENDER, A
LENDER AND SWING LINE LENDER
By
-------------------------------------
Therese Fontaine
Principal
-S-1-
<PAGE>
BANK ONE, N.A.
By
----------------------------
Name
--------------------------
Title
-------------------------
-S-2-
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By
------------------------------
Name
----------------------------
Title
---------------------------
-S-3-
<PAGE>
COMERICA WEST INCORPORATED
By
---------------------------
Name
-------------------------
Title
------------------------
-S-4-
<PAGE>
<PAGE>
EXHIBIT (21)
SUBSIDIARIES OF K2 INC.
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING SECURITIES
OWNED OR SUBJECT TO VOTING
CONTROL BY
-------------------------------
COMPANY OTHER
------- -----
<S> <C> <C>
Shakespeare Company, a Delaware corporation 100%
Subsidiaries of Shakespeare Company:
Shakespeare (Hong Kong) Ltd., a Hong Kong corporation 100%
Subsidiary of Shakespeare (Hong Kong) Ltd.:
Pacific Rim Metallic Products Ltd., a Hong Kong corporation 100%
Shakespeare International Ltd., a British corporation 100%
Subsidiaries of Shakespeare International Ltd.:
Shakespeare Company (UK) Ltd., a British corporation 100%
Shakespeare Monofilament U.K. Ltd., a British corporation 100%
Shakespeare Hengelsport, B.V., a Dutch corporation 100%
Shakespeare (Australia) Pty. Ltd., an Australian corporation 100%
K2 Ski Sport und Mode GmbH, a German corporation 100%
Sitca Corporation, a Washington corporation 100%
Subsidiaries of Sitca Corporation:
K-2 Corporation, an Indiana corporation 100%
Subsidiaries of K-2 Corporation:
Planet Earth Skateboards, Inc., a California corporation 100%
K-2 International, Inc., an Indiana corporation 100%
K2 Japan Corporation, a Japanese corporation 100%
Madshus A.S., a Norwegian corporation 100%
SMCA, Inc., a Minnesota corporation 100%
Subsidiary of SMCA, Inc.:
Stearns Inc., a Minnesota corporation 100%
Ride, Inc., a Washington corporation 100%
Subsidiaries of Ride, Inc.:
Ride Snowboard Company, a Washington corporation 100%
Ride Manufacturing, Inc, a California corporation 100%
SMP Clothing, Inc., a Washington corporation 100%
Smiley Hats, Inc., a Nevada corporation 100%
K2 Corporation of Canada, a Canadian corporation 100%
K2 Funding, Inc., a Delaware corporation 100%
Anthony Sales (Barbados), Ltd., a Barbados corporation 100%
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 dated October 14, 1988 and Form S-8 dated December 28, 1994)
pertaining to the 1988 Incentive Stock Option Plan and the 1994 Incentive Stock
Option Plan of K2 Inc. of our report dated February 21, 2000, with respect to
the consolidated financial statements of K2 Inc. included in the Annual Report
on Form 10-K for the year ended December 31, 1999. We also consent to the
incorporation by reference in the Registration Statement (Form S-4 dated August
9, 1999) of K2 Inc. and in the related Proxy Statement of our report dated
February 21, 2000 with respect to the consolidated financial statements of K2
Inc. included in this Annual Report on Form 10-K for the year ended December 31,
1999.
Our audits also include the financial statement schedule of K2 Inc. listed in
Item 14(a). This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Los Angeles, California
March 24, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,421
<SECURITIES> 0
<RECEIVABLES> 155,723
<ALLOWANCES> (6,572)
<INVENTORY> 172,154
<CURRENT-ASSETS> 345,809
<PP&E> 162,453
<DEPRECIATION> (89,858)
<TOTAL-ASSETS> 487,878
<CURRENT-LIABILITIES> 158,623
<BONDS> 0
0
0
<COMMON> 18,673
<OTHER-SE> 199,847
<TOTAL-LIABILITY-AND-EQUITY> 487,878
<SALES> 635,105
<TOTAL-REVENUES> 635,518
<CGS> 462,033
<TOTAL-COSTS> 462,033
<OTHER-EXPENSES> 145,634
<LOSS-PROVISION> 2,594
<INTEREST-EXPENSE> 12,741
<INCOME-PRETAX> 12,516
<INCOME-TAX> 4,005
<INCOME-CONTINUING> 8,511
<DISCONTINUED> 1,332
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,843
<EPS-BASIC> .58
<EPS-DILUTED> .58
</TABLE>
