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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
BAILEY CORPORATION
(Name of Issuer)
Common Stock, par value $.10/share
(Title of Class of Securities)
None
(CUSIP Number)
John R. Maimone, Route 20, Harmon Road
North Kingsville, OH 44068 (216) 224-2181
(Name, address and telephone number of Person Authorized to Receive Notices and
Communications)
August 1, 1995
(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following
box / /.
Check the following box if a fee is being paid with this statement /x/.
CUSIP No._____________
______________________________________________________________________________
1) Names of Reporting Persons/S.S. or I.R.S. Identification No. of Above
Persons: Premix/E.M.S. Inc. Fed. I.D. # 31-0904335
______________________________________________________________________________
2) Check the Appropriate Row if a Member of a Group
(a)_____
(b)_____
______________________________________________________________________________
3) SEC Use
Only__________________________________________________________________________
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4) Source of Funds: OO
________________________________________________________________________________
5) Check if Disclosure of Legal Proceedings is Required Pursuant to Item (2(d)
or
(2(e)______________________________________________
______________________________________________________________________________
6) Citizenship or Place of Organization: Ohio
______________________________________________________________________________
Number of Shares 7) Sole Voting Power: 0
Beneficially Owned 8) Shared Voting Power: 0
by Each Reporting 9) Sole Dispositive Power: 0
Person With 10)Shared Dispositive Power: 0
______________________________________________________________________________
11) Aggregate Amount Beneficially Owned by Each Reporting Person: 0
______________________________________________________________________________
12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares__X__
______________________________________________________________________________
13) Percent of Class Represented by Amount in Row (11)0%
______________________________________________________________________________
14) Type of Reporting Person: CO
______________________________________________________________________________
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ITEM 1. SECURITY AND ISSUER.
This statement relates to the Common Stock, par value $.10/per share,
of Bailey Corporation ("Bailey"), 700 Lafayette Road, Seabrook, N.H. 03874.
ITEM 2. IDENTITY AND BACKGROUND
This statement is filed by Premix/E.M.S. Inc., an Ohio corporation
("EMS"). On August 3, 1994, EMS sold substantially all of its automotive parts
manufacturing business to Bailey, for consideration which included, in part, the
Convertible Debenture described below. EMS has not engaged in any other business
since such date. The address of EMS's business and principal executive offices
is Route 20, Harmon Road, North Kingsville, Ohio 44068.
The directors and executive officers of EMS, their business addresses and their
principal occupation or employment are:
John R. Maimone,
Chief Executive Officer and Director
Route 20, Harmon Road
North Kingsville, Ohio 44068
Occupation: Chief Executive Officer of
Premix, Inc. (same address)
Wilbur Schenk III
Director and Vice President
Route 20, Harmon Road
North Kingsville, Ohio 44068
Occupation: Chief Operating Officer of
Premix, Inc. (same address)
W. Allan Zama
Director and Vice President
777 Walker Street
Houston, Texas 77002
Occupation, Manager, Shell Chemical Company
(same address)
S.R. Brenner
Treasurer and Director
777 Walker Street
Houston, Texas 77002
Occupation: Consultant (same address)
None of the foregoing has, during the last five years, been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors). None
of the foregoing, during the last five years, was a party to a civil proceeding
of any judicial or administrative body of competent jurisdiction and as a result
of such proceeding was or is subject to a judgment, decree or final
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order enjoining future violations of, or prohibiting or mandating activities
subject to, Federal or State securities laws or finding any violation with
respect to such laws.
Each of the foregoing is a United States citizen.
ITEM 3. SOURCES AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The Convertible Debenture was acquired by EMS in partial consideration
of the sale of substantially all of the assets of EMS to Bailey.
ITEM 4. PURPOSE OF TRANSACTION.
On August 3, 1994, EMS sold to Bailey substantially all of the assets
of EMS, and received, in partial consideration therefor, a convertible note
issued by Bailey (the "Convertible Debenture") in the principal amount of
$9,000,000. The Convertible Debenture is convertible, in whole or in part, into
the common stock of Bailey on and after July 31, 1995 at a conversion price of
$10.00 per share. The Convertible Debenture has a maturity date of July 31,
1999. EMS has no plans to consider convert the Convertible Debenture unless and
until it should become economic to do so.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
The Convertible Debenture may be converted, at the option of EMS, into
up to 900,000 shares of the Common Stock of Bailey, constituting (if fully
converted) approximately 14.2% of the outstanding common stock of Bailey
(adjusted for such conversion), based upon Bailey's most recent available filing
with the Securities and Exchange Commission.
As EMS has no present intention to convert the Convertible Debenture,
EMS disclaims beneficial ownership of any of the Common Stock of Bailey.
In addition, Mr. John Maimone owns 2,500 shares of the Common Stock of
Bailey, representing less than 1% of the outstanding common stock of Bailey.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
SECURITIES OF THE ISSUER.
None, except for the terms of the Convertible Debenture.
ITEM 7. EXHIBITS
(a) the Convertible Debenture.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
July 31, 1995
S.R. BRENNER
S.R. Brenner, Treasurer
Premix/E.M.S. Inc.
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Exhibits
Exhibit 99.1 Convertible Debenture dated August 3, 1994 issued by
Bailey Corporation
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THIS DEBENTURE AND THE SHARES OF COMMON STOCK INTO
WHICH IT IS CONVERTIBLE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD,
OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT, AN OPINION OF COUNSEL SATISFACTORY TO THE
MAKER THAT SUCH REGISTRATION IS NOT REQUIRED, OR
UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
THIS DEBENTURE IS SUBJECT TO
A RIGHT OF SETOFF. SEE SECTION 20, HEREIN.
8 % CONVERTIBLE DEBENTURE DUE 1999
No.01
$9,000,000.00 Issuance Date: August 3, 1994
BAILEY CORPORATION, a Delaware corporation (the "Maker"), promises to
pay to Premix/E.M.S. Inc., an Ohio corporation, or registered assigns ("EMS"),
the principal sum of NINE MILLION AND NO/100 DOLLARS ($9,000,000.00) as follows:
1. Payment of Principal and Interest. Subject to conversion of this
Debenture or acceleration of its Maturity Date, the Maker shall pay interest and
principal on this Debenture as follows:
(a) The Maker shall pay interest at the rate of 8% per annum,
semiannually on January 31 and July 31 of each year, commencing on
January 31, 1995. Interest on this Debenture shall accrue from the most
recent date on which interest has been paid or if no interest has been
paid from the Date of Issuance.
(b) The Maker shall pay the outstanding principal amount of this
Debenture on July 31, 1999 (the "Maturity Date").
In the event any payment of principal, interest or other amount is due on a day
which is a Legal Holiday (as defined below), the payment shall be extended to
the next succeeding day which is not a Legal Holiday, together with interest
thereon to the date of payment.
The Maker further agrees to pay all out-of-pocket expenses reasonably incurred
by EMS in connection with any amendments, modifications or waivers of the
provisions hereof or reasonably incurred by EMS in connection with the
enforcement or protection of its rights in connection with this Debenture,
including but not limited to reasonable attorneys' fees.
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2. Manner of Payment. The Maker will make payments of principal on this
Debenture to EMS or to EMS's order in immediately available funds according to
wire transfer directions provided by EMS to the Maker, which directions may be
changed by written notice to the Maker, and will make payments of interest in
immediately available funds by said wire transfer or by check mailed to the
office of EMS as set forth in the registration books of the Maker established
for this Debenture or as otherwise directed by EMS by written notice to the
Maker.
3. Asset Purchase Agreement. This Debenture is given as partial payment
for the purchase of substantially all the assets of EMS, in accordance with the
terms of an Asset Purchase and Sale Agreement, dated as of July 31, 1994, by and
between Maker and EMS ("Asset Purchase Agreement"). The Maker repeats and
reaffirms its representations and warranties contained in the Asset Purchase
Agreement as if set forth herein at length. Capitalized terms herein, unless
otherwise defined herein shall have the meanings given therein in the Asset
Purchase Agreement.
4. Prepayment. This Debenture may not be prepaid.
5. Concerning Interest. All agreements between Maker and EMS are
expressly limited so that in no contingency or event shall the amount paid or
agreed to be paid to EMS for the use, forbearance or detention of the money to
be lent hereunder exceed the maximum amount permissible under the applicable
federal and state usury laws. It is therefore the intention of the Maker and EMS
to conform strictly to state and federal usury laws applicable to this Debenture
and to limit the interest paid on this Debenture to the amount herein stated or
the highest rate of interest according to law, whichever is the lesser.
Therefore, in this Debenture or in any of the documents securing payment hereof
or otherwise relating hereto, the aggregate of all interest or any other charges
constituting interest under the applicable law contracted for, chargeable, or
receivable under this Debenture or otherwise in connection with this Debenture
shall under no circumstances exceed the maximum amount of interest permitted by
law. If any excess of interest in such respect is provided for or shall be
adjudicated to be so provided for in this Debenture or in any of the documents
securing payment hereof or otherwise relating hereto, then in such event:
(a) The provisions of this Section 5 shall govern and control;
(b) Neither Maker, its successors or assigns nor any other
party liable for the payment hereof shall be obligated to pay the
amount of such interest to the extent that it is in excess of the
maximum permitted by law;
(c) Any excess of said interest shall be deemed a mistake and
is hereby canceled automatically and if theretofore paid, shall at the
option of EMS be refunded to Maker or, to the
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extent permitted by law, notwithstanding Section 4 hereof, credited to
the principal amount of this Debenture as a prepayment; and (d) The
effective rate of interest shall be automatically subject to reduction
to the maximum lawful contract rate allowed under said law as is now or
may hereinafter be construed by courts of appropriate jurisdiction and
to the extent permitted by law, the determination of the rate of
interest shall be made by amortizing, prorating, allocating and
spreading in equal parts during the period of the full stated term of
this Debenture, all interest at any time contracted for, charged or
received from Maker in connection with this Debenture.
6. Conversion. The holder of this Debenture may convert it in whole or
in part (but if in part in an amount not less than $25,000.00) into Common Stock
of the Maker at any time after July 31, 1995 and prior to 5 p.m. Eastern time on
the Maturity Date; provided. however that except for conversion on the Maturity
Date, it shall be a condition to such conversion that the holder of this
Debenture deposit into escrow pursuant to the Escrow Agreement dated as of July
31, 1994 among Maker, EMS and Huntington Trust Company N.A. (the "Escrow
Agreement") an amount of cash equal to the lesser of Nine Million Dollars
($9,000,000.00) or the Fair Market Value as of the conversion date of the Common
Stock received upon the conversion. The number of shares of Common Stock
issuable upon conversion of this Debenture shall be determined by dividing the
principal amount to be converted by the Conversion Price and rounding to the
nearest full share. The "Conversion Price" shall be $10.00. The Conversion Price
shall be subject to adjustment as provided in Sections 9, 10, and 11 hereto.
Provisions of this Debenture that apply to conversion of the entire Debenture
also apply to conversion of a portion of it.
7. Conversion Procedure. To convert this Debenture, the holder must (1)
complete and sign the conversion notice at the end of this Debenture, (2)
surrender the Debenture to the Maker, (3) furnish appropriate endorsements and
transfer documents if required by this Debenture and (4) fund the escrow as
provided in Section 6 hereof. The date on which the holder hereof completes
these requirements is the conversion date. As soon as practical, the Maker shall
deliver or cause to be delivered a certificate for the number of shares of
Common Stock issuable upon the conversion, registered in the name or according
to the instructions of EMS, and shall pay accrued interest on the principal
amount so converted from the date interest on this Debenture was last paid to
the conversion date. In the event less than all of the principal amount of this
Debenture is converted, the Maker will also issue a new Debenture with the same
tenor and terms, reflecting the new principal amount. The person in whose name
the certificate is registered shall be treated as a stockholder of record on or
after the conversion date. The Maker will pay the costs of any documentary,
stamp, transfer or similar tax incurred in connection with the conversion of
this Debenture. However, EMS shall pay any such tax which is due because the
shares are issued in a name other than EMS's name. A conversion
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date may not be a Legal Holiday, provided that if the Maturity Date is a Legal
Holiday, a conversion notice and this Debenture may be submitted for conversion
on the next succeeding day that is not a Legal Holiday. "Legal Holiday" shall
mean a Saturday, a Sunday or any other day on which banking institutions in the
State of Ohio are not required to be open.
8. Reservation of Common Stock. The Maker shall reserve out of its
authorized but unissued Common Stock or its Common Stock held in treasury
sufficient shares of Common Stock to permit the conversion of this Debenture.
All shares of Common Stock which may be issued upon conversion of this Debenture
shall be validly issued, fully paid and nonassessable shares of Common Stock of
the Maker. The Maker shall comply with all securities laws regulating the offer
and delivery of shares of Common Stock upon conversion of this Debenture and
shall use its best efforts to list such shares on each national securities
exchange on which the Common Stock is listed and on the NASDAQ if the Common
Stock is so listed.
9. Adjustment for Changes in Capital Stock. If the Maker:
(a) pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock;
(b) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(c) combines its outstanding shares of Common Stock into a
smaller number of shares;
(d) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; or
(e) issues by reclassification of its Common Stock any shares
of its capital stock,
then the conversion privilege and the Conversion Price in effect immediately
prior to such action shall be adjusted so that the holder of this Debenture
thereafter converted may receive the number of shares of capital stock of the
Maker or amount of other consideration which such holder would have received
immediately following such action if such holder had converted the Debenture
immediately prior to such action.
The adjustment shall become effective immediately after the record date
in the case of a dividend or distribution and immediately after the effective
date in the case of a subdivision, combination or reclassification.
10. Adjustment for Rights Issue. If the Maker distributes any rights or
warrants to all holders of its Common Stock entitling them for a period expiring
within 60 days after the record date mentioned below to purchase shares of
Common Stock at a price per share less than the Current Market Price per share
on that record
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date, the Conversion Price shall be adjusted in accordance with the formula:
N X P
-----
0 + M
---------
C' =C X
0 + N
where:
C'= the adjusted Conversion Price. C = the current Conversion Price.
O = the number of shares of Common Stock outstanding on the record
date.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
M = the current market price per share of Common Stock on the record
date.
The adjustment shall become effective immediately after the record date
for the determination of stockholders entitled to receive the rights or
warrants.
"Current Market Price" means the average of the Closing Market Prices
(as hereinafter defined) for each of the trailing 30 trading days commencing 45
trading days prior to the determination of the Current Market Price. The
"Closing Market Price" means (a) the closing bid price on the NASDAQ National
Market System (if so quoted) or the NASDAQ Small Cap listings (if so quoted), in
each case as reported in the Wall Street Journal, or by the National Quotation
Bureau, Inc., or (b) if the Common Stock shall not be so quoted, if the Common
Stock shall be traded on the New York Stock Exchange or the American Stock
Exchange, the closing sales price of the Common Stock on the exchange on which
the Common Stock is listed or if there shall have been no sales on any day for
which the Current Market Price is to be determined then the average of the bid
and asked price at the end of such day. In the absence of such a quotation, the
Maker shall determine the Current Market Price on the basis of such quotations
as its considers appropriate in good faith.
11. Adjustment for Other Distributions. If the Maker
distributes to all holders of its Common Stock any of its assets or debt
securities or any rights or warrants to purchase securities of the Maker, the
Conversion Price shall be adjusted in accordance with the formula:
M - F
-----
C' = C X
M
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where:
C'= the adjusted Conversion Price
C = the current Conversion Price.
M = the Current Market Price per share of Common Stock on the record
date mentioned below.
F = the fair market value on the record date of the assets,
securities, rights or warrants applicable to one share of Common
Stock. The Maker's Board of Directors shall determine the fair
market value in good faith.
The adjustment shall become effective immediately after the record date
for the determination of stockholders entitled to receive the distribution.
This Section 11 does not apply to (a) cash dividends or cash
distributions paid out of consolidated current or retained earnings as shown on
the books of the Maker, or (b) rights or warrants referred to in Section 10.
12. When Adjustment may be Deferred. No adjustment in the Conversion
Price need to be made unless the adjustment would require an increase or
decrease of at least 1% in the Conversion Price. Any adjustments that are not
made shall be carried forward and taken into account in any subsequent
adjustment.
All calculations shall be made to the nearest cent or to the nearest
whole share, as the case may be
13. When No Adjustment Required. No adjustment need be made for rights
to purchase Common Stock pursuant to a Maker plan for reinvestment of dividends
or interest. No adjustment need be made for a change in, or elimination of, the
par value of the Common Stock.
14. Notice of Adjustment. Whenever the Conversion Price is adjusted,
the Maker shall promptly mail to holders of this Debenture a certificate from
the Maker's chief financial officer briefly stating the facts requiring the
adjustment and the manner of computing it. Absent manifest error, the notice
shall be conclusive evidence that the adjustment is correct.
15. Notice of Certain Transactions. If:
(a) the Maker takes any action that would require an
adjustment in the Conversion Price pursuant to Sections 9, 10, or 11;
or
(b) the Maker takes any action that would require a supplement
to this Debenture pursuant to Section 16; or
(c) there is a liquidation or dissolution of the Maker,
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the Maker shall mail the holders of this Debenture a notice stating the proposed
record date for a dividend or distribution or the proposed effective date of a
subdivision, combination, reclassification, consolidation, merger, transfer,
lease, liquidation or dissolution. The Maker shall mail the notice at least 15
days before such date. Failure to mail the notice or any defect in it shall not
affect the validity of the transaction.
16. Reorganization of Maker. If the Maker is a party to a transaction
subject to Section 15 or a merger which reclassifies or changes its outstanding
Common Stock, the person obligated to deliver securities, cash or other assets
upon conversion of this Debenture shall enter into a supplement to this
Debenture If the issuer of securities deliverable upon conversion of this
Debenture is an affiliate of the surviving, transferee or lessee corporation,
that issuer shall join in the supplement.
The supplement to this Debenture shall provide that the holder of this
Debenture may convert it into the kind and amount of securities, cash or other
assets which he would have owned immediately after the consolidation, merger,
transfer or lease if he had converted the Debenture immediately before the
effective date of the transaction. The supplement to this Agreement shall
provide for adjustments which shall be as nearly equivalent as may be practical
to the adjustments provided for in Sections 9, 10, or 11. The successor Maker
shall mail to the holder of this Debenture a notice briefly describing the
supplement to this Agreement.
If this Section applies, Section 9 shall not apply.
17. Covenants. The Maker covenants and agrees that so long as this
Debenture is outstanding and until all principal, accrued interest and other
amounts due hereunder have been paid in full, unless otherwise consented to by
EMS in writing:
(a) Reporting.
(1) Annual Reports. Within 90 days after the
end of its fiscal year, the Maker shall furnish to EMS two copies of
its consolidated financial statement consisting of consolidated balance
sheets, consolidated statements of operations, consolidated statements
of stockholders' equity and consolidated statements of cash flows,
together with notes to consolidated financial statements for such
fiscal year, audited and certified by its independent certified public
accountants. These financial statements may be furnished as
incorporated in the Maker's Annual Report to its stockholders and/or in
its Annual Report on Form 10-K as filed with the Securities and
Exchange Commission. Such financial statements shall be accompanied by
a certificate signed by the Maker's President or Chief Financial
Officer stating that, as of the date of the certificate, the Maker was
not in default of any representation, agreement or covenant set forth
herein, or if
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a condition or event of non-compliance or default exists, specifying
the nature and status thereof.
(2) Quarterly Reports. Within 45 days after
the end of each fiscal quarter, the Maker shall furnish to EMS two
copies of its unaudited consolidated financial statements consisting of
consolidated balance sheets, consolidated statements of operations and
consolidated statements of cash flows. These financial statements may
be furnished as incorporated in the Maker' s Quarterly Report on Form
10-Q as filed with the Securities and Exchange Commission.
(3) Other Reports. Promptly after release or
submission, the Maker shall furnish to EMS two copies of all reports,
proxy statements and financial statements which it sends to its
stockholders or which are filed with the Securities and Exchange
Commission or the National Association of Securities Dealers ("NASD")
(4) Additional Information. From time to time
the Maker shall furnish to EMS other data and information as EMS may
reasonably request. In the event any of such information is proprietary
or confidential, EMS will comply with Section 7.9 of the Asset Purchase
Agreement with respect to such information.
(b) Insurance. The Maker shall maintain and keep in
force and will cause each Subsidiary to maintain and keep in force,
insurance carried with financially sound and reputable insurance
companies on all their property, in such amounts and covering such
risks as is consistent with sound business practice for companies
similarly situated and in the same or similar businesses, including
such insurance as is required by the terms of any Security Documents.
(c) Taxes. The Maker will, and will cause each Subsidiary to
file all required tax returns or filings and to pay when due all taxes,
assessments and governmental charges and levies upon it or its income,
profits or property, except those which are being contested in good
faith by appropriate proceedings and with respect to which adequate
reserves have been set aside.
(d) Inspection. The Maker shall permit authorized
representatives of EMS to visit and inspect the properties, and
financial and accounting records of the Maker and their Subsidiaries,
and to make copies and take extracts therefrom, and to discuss its
affairs, finances and accounts with officers and accountants, all upon
reasonable notice during normal business hours. In the event any of
such information is proprietary or confidential, EMS will comply with
Section 7.9 of the Asset Purchase Agreement with respect to such
information. The Maker shall maintain complete and accurate books and
records of its transactions in accordance with GAAP.
<PAGE> 9
(e) Dividends; Voluntary Repayment of Debt. The Maker
will not, nor will it permit any Subsidiary to, declare or pay any
dividends on its capital stock (other than dividends payable in its own
capital stock) or redeem, repurchase or otherwise acquire or retire any
of its capital stock at any time outstanding or voluntarily prepay any
Indebtedness; provided, however, that (i) a Subsidiary may declare and
pay dividends to Maker and prepay indebtedness to Maker, (ii) Maker's
subsidiary, Bailey Manufacturing Corporation, may make a voluntary
prepayment not exceeding $5,050,000.00 in principal amount of its
Non-Negotiable Fixed Asset Promissory Note issued to The Boler Company,
and (iii) as long as Maker has Consolidated Net Worth at least equal to
twice the outstanding principal amount of this Debenture (as reported
in Maker's quarterly or annual financial statements filed with the SEC)
Maker may declare and pay dividends to holders out of its capital stock
and voluntarily prepay Indebtedness in a cumulative amount not
exceeding for any quarterly or annual period 80% of its net income
after taxes for such period.
(f) Indebtedness. The Maker shall not, nor shall it
permit any Subsidiary to, create, incur, suffer to exist any
Indebtedness, except Indebtedness:
(1) existing as of the Closing Date (including
refinancings and replacements thereof);
(2) under this Convertible Debenture and a secured
promissory note of Maker to EMS of even date;
(3) under the Maker's credit facility with BayBank or
any replacement facility;
(4) under Maker's existing lease lines of credit or
any additions or replacements thereto;
(5) to finance the cost of fixed assets provided that
the principal amount of such Indebtedness shall at no time
exceed the lesser of cost or fair market value of such fixed
assets;
(6) which is unsecured or which consists of mandatory
redeemable preferred stock; and
(7) which arises from guarantees issued in the
ordinary course of business by the Maker and any Subsidiary
including contingent reimbursement obligations relating to
workers' compensation, retiree healthcare and other local,
state and federal funding obligations.
(g) Liens. The Maker shall not, nor shall it permit any
Subsidiary to, create, incur or suffer to exist any Lien in, of or on
the property of the Maker or any Subsidiary, except for:
<PAGE> 10
(1) Liens existing as of the Closing Date;
(2) Liens granted in favor of EMS pursuant to the
Security Documents;
(3) Liens expressly permitted by the terms of the
Security Documents;
(4) Liens imposed by law, such as carriers',
materialmans', mechanics' and landlords' liens and other
similar liens arising in the ordinary course of business which
secure payment of obligations either not overdue or being
contested in good faith;
(5) Utility easements, building restrictions and such
other encumbrances or charges against real property as are of
a nature generally existing with respect to properties of a
similar character and which do not in any material adverse way
affect the marketability of the same or the use thereof;
(6) Liens incurred in the ordinary course of business
in connection with workers' compensation, unemployment
insurance or other forms of governmental insurance or benefits
and, in each case, for which adequate reserves are maintained;
(7) Liens securing any Indebtedness permitted to be
existing and secured under Section 17(f) hereof; and
(8) Liens evidenced by informational filings pursuant
to Section 9408 of the Uniform Commercial Code by lessors
under Section 17(g) hereof.
(h) Transactions With Affiliates. The Maker shall not, and shall not
permit any Subsidiary to, enter into any transaction (including the purchase or
sale of any property or service) with, or make any payment or transfer to, any
Affiliate except in the ordinary course of business and pursuant to the
reasonable requirements of the Maker's or such Subsidiary's business and upon
fair and reasonable terms no less favorable to the Maker or such Subsidiary than
the Maker or such Subsidiary would obtain in a bonafide arm's-length transaction
with a nonaffiliated person or entity. As used herein an Affiliate shall include
any Person who is a member of the Maker's or any Subsidiaries' board of
directors and any Person who (alone or in conjunction with spouse, children,
parents or siblings or entities owned or controlled by them) owns 5 % or more of
the capital stock of the Maker.
(i) ERISA Obligations. The Maker shall not and shall not permit any
affiliates of the Maker to terminate any defined benefit employee benefit plan
or take any other action which could result in any material liability to the
Pension Benefit Guaranty Corporation, nor shall Maker engage in any transaction
which would
<PAGE> 11
cause it to be subject to any civil penalty under the ERISA or tax under Section
4975 of the Internal Revenue Code in excess of $1,000,000, or permit to exist
any accumulated funding deficiency in excess of $1,000,000 with respect to any
employee benefit plan subject to Title IV of ERISA.
(j) Leverage Ratio. The Maker will not permit the ratio of its
Consolidated Total Liabilities to Consolidated Net Worth (as calculated from
Maker's quarterly and annual balance sheet) to exceed 5 to 1 as at the end of
any quarterly or annual period.
(k) Merger. The Maker will not, nor will it permit any Subsidiary to,
merge or consolidate with or into any other Person or change the nature of its
business in any material respect; provided, however, that any Subsidiary may
merge with and into the Maker or any other wholly-owned Subsidiary, and any
wholly-owned Subsidiary may be dissolved with its assets distributed to the
Maker or another wholly-owned Subsidiary.
18. Events of Default. Upon the occurrence of any of the following
specified events (each an "Event of Default"):
(a) Except as provided in Section 20, default in payment of
interest or any other amounts on this Debenture for more than five (5)
days after the due date; or default in payment of principal on this
Debenture when due for more than three (3) days after the due date;
(b) Default in the due performance of any term, covenant or
agreement contained Section 17, clauses (e), (f), (g), (h), (i), (j)
and (k) of this Debenture;
(c) Default in the due performance of any term, covenant or
agreement (other than default in the terms, covenants, or agreements
specified in Section 18(b) hereof) and such default is not cured within
thirty (30) days;
(d) (x) Default continuing longer than any period of grace
provided for therein in any payment of any principal or interest of any
Indebtedness of Maker or any Subsidiary, and such default is not waived
or (y) default in any other material term thereof which results in the
acceleration of the maturity of such Indebtedness;
(e) The Maker or any Subsidiary shall commence a voluntary case
concerning itself under the Bankruptcy Code in Title 11 of the United
States Code (as amended, modified, succeeded or replaced, from time to
time, the "Bankruptcy Code"); or an involuntary case is commenced
against the Maker or any Subsidiary under the Bankruptcy Code and the
petition is not dismissed or stayed within 60 days after commencement
of the case; or a custodian (as defined in the Bankruptcy Code) is
appointed for, or takes charge of all or substantially all of the
property of the Maker or any Subsidiary; or the Maker or any Subsidiary
commences any other proceeding under any reorganization, arrangement,
adjustment of the debt, relief of creditors, dissolution, insolvency or
similar law of any jurisdiction whether now or hereafter in effect
relating to the Maker or any
<PAGE> 12
Subsidiary; or there is commenced against the Maker or any Subsidiary
any such proceeding which remains undismissed for or which is not
stayed within a period of 60 days; or the Maker or any Subsidiary is
adjudicated insolvent or bankrupt; or any order of relief or other
order approving any such case or proceeding is entered; or the Maker or
any Subsidiary suffers appointment of any custodian or the like for it
or for any substantial part of its property to continue unchanged or
unstayed for a period of 60 days; or the Maker or any Subsidiary makes
a general assignment for the benefit of creditors; or any corporate
action is taken by the Maker or any Subsidiary for the purpose of
effecting any of the foregoing;
(f) A judgment or decree for the payment of money is entered
against the Maker or any Subsidiary in excess of $1,000,000 (but only
to the extent not paid or covered by insurance provided by a carrier
who has acknowledged coverage) or an attachment, execution or levy is
made upon any of the assets of Maker or any Subsidiary and is not
discharged within 60 days or stayed on appeal;
then, in any such event, and at any time thereafter, EMS may with notice to the
Maker take any of the following actions without prejudice to the rights of EMS
to enforce its claims against the Maker except as otherwise specifically
provided for herein:
(i) declare the unpaid principal and any accrued and unpaid
interest in respect of this Debenture to be due, whereupon the same
shall be immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by
the Maker;
(ii) reduce any claim to judgment;
(iii) without notice of default or demand, pursue and enforce
any of EMS's rights and remedies under this Debenture, or otherwise
provided under pursuant to any applicable law or agreement.
19. Remedies Upon Default; Deposit of Proceeds into Escrow. The
rights and remedies of EMS as provided in this Debenture or otherwise shall be
cumulative and may be pursued singly, successively, or together against any
funds, property or security held by the holder for payment or security, in the
sole discretion of EMS. The failure to exercise any such right or remedy shall
not be a waiver or release of such rights or remedies or the right to exercise
any of them at another time.
<PAGE> 13
In the event that this Debenture becomes due and payable prior to the
Maturity Date then Maker shall pay such sums into escrow pursuant to the terms
of the Escrow Agreement to be held until the Maturity Date and to be available
in the event of claims for set-off pursuant to Section 20 hereof.
20. Right of Setoff in Environmental Indemnification Agreement.
Notwithstanding anything in this Debenture to the contrary, no default or Event
of Default will exist on account of nonpayment of interest or principal where,
acting strictly pursuant to the provisions of the Environmental Indemnification
Agreement, the Maker effects a valid setoff permitted thereby by deposit of such
sums pursuant to the Escrow Agreement.
21. No Recourse. A director, officer, employee or stockholder, as such,
of the Maker shall not have any liability for any obligations of the Maker under
this Debenture for any claim based on, in respect or by reason of such
obligations or their creation. Each holder of this Debenture by accepting this
Debenture waives and releases all such liability. The waiver and release are
part of the consideration for the issue of the Debenture.
22. Governing Law. This Debenture shall be governed and construed in
accordance with the internal laws of the State of Ohio, except where the
substantive laws of another jurisdiction mandatorily apply.
23. Enforcement. Any legal action or proceeding with respect to the
Debenture or any document related hereto may be brought in the courts of the
State of Ohio or of the United States of America located in Columbus, Ohio, and
by execution and delivery of this Debenture, the Maker hereby accepts for itself
and in respect of its property, generally and unconditionally, the jurisdiction
of the aforesaid courts. The Maker hereby irrevocably and unconditionally waives
any objection, including without limitation, any objection to the laying of
venue or based on the grounds of the forum non conveniens which it now or
hereafter may have to the bringing of any action or proceeding in such
jurisdiction.
24. Exchange, Registration, Transfer. EMS may surrender this Debenture
for exchange at the principal office of the Maker. As soon as practical
thereafter and without expense (other than transfer taxes, if any) to EMS, the
Maker shall issue in exchange therefor another Debenture or Debentures for the
same aggregate principal amount as the unpaid principal amount of the Debenture
so surrendered, having the same tenor and terms as this Debenture; provided that
new Debentures shall only be issued in a minimum denomination of $25,000. Each
such new Debenture shall be payable to such person or persons, or order, as EMS
may designate in writing, and each such new payee shall be deemed EMS hereunder.
This Debenture may be transferred by EMS to a new holder by surrender of this
Debenture at the principal office of the Maker for cancellation, endorsed or
accompanied by a written instrument
<PAGE> 14
of transfer, in form reasonably satisfactory to the Maker, duly executed by or
on behalf of EMS, and thereupon the Maker will issue and deliver a new Debenture
registered in the name of the transferee for a like principal amount and dated
as of the date to which interest had been paid on the Debenture so transferred.
The Maker will maintain appropriate records for the registration and transfer of
Debenture(s). The Maker will be required to record the transfer of a Debenture
only if and when a subsequent holder shall have presented such Debenture to the
Maker for inspection, properly endorsed or assigned and in order for transfer,
and delivered to the Maker and written notice of its acquisition of such
Debenture and designated in writing an address to which payments on and notices
in respect of such Debentures shall be transmitted. In addition, any subsequent
holder shall undertake to be bound by the terms of the Intercreditor Agreement,
and if such subsequent holder is an Affiliate of EMS, SPVI or Premix such holder
shall also execute an investment representation if such is deemed necessary in
the reasonable opinion of Maker's securities law counsel. The Maker may treat
the person shown on its books as the registered owner of a Debenture as the
owner thereof for all purposes.
25. Termination of Conversion Right upon Certain Assignments. Anything
in Section 24 to the contrary notwithstanding, in the event that this Debenture
is surrendered for registration in the name of an Unaffiliated Transferee, the
rights of the holder hereof to convert this Debenture into Common Stock of the
Maker shall thereupon terminate in their entirety. For purposes of this
provision, an "Unaffiliated Transferee" is any person who is not an Affiliate of
SPVI or Premix.
26. Registration Procedures and Expenses. The Maker shall:
(a) promptly following the date of issuance of this Debenture
but in no event later than thirty (30) business days thereafter, file
with the Commission a registration statement on a form available for
the registration and sale of the common stock which may be issued upon
conversion of this Debenture (the "Registrable Shares") by EMS from
time to time on the NASDAQ or in privately-negotiated transactions (the
"Registration Statement").
(b) use its best efforts, subject to receipt of necessary
information from EMS, to cause the Registration Statement to become
effective within ninety (90) days after it has been filed with the
Commission (the Registration Statement, at the time it becomes
effective, shall comply as to form in all material respects with the
applicable requirements of the Securites Act, the General Rules and
Regulations and Instructions of the Commission, and at such time
neither the Registration Statement nor the prospectus included therein
shall contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they are
made, not misleading;
<PAGE> 15
provided, however, that the Maker makes no representations or
warranties as to any statement made in the Registration Statement or
the prospectus included therein in reliance upon an in conformity with
information furnished in writing to Maker by or on behalf of EMS,
specifically for use in connection with the preparation of the
Registration Statement and such prospectus).
(c) subject to receipt of necessary information from EMS,
prepare and file with the Commission with all reasonable speed under
the circumstances such amendments and supplements to the Registration
Statement and the prospectus used in connection therewith and such
reports as may be required to be filed pursuant to the Exchange Act to
keep the Registration Statement effective until the earlier of (i) the
time all the Registrable Shares have been sold pursuant thereto or
otherwise; (ii) the time all the Registrable Shares then held by
Purchasers could be sold without a registration statement under Rule
144 promulgated under the Securities Act or otherwise; or (iii) the
time at which the Debenture is transferred to an Unaffiliated
Transferee.
(d) furnish (so long as the Maker shall be obligated to keep
the Registration Statement effective) to EMS with respect to the
Registrable Shares registered under the Registration Statement (and to
each underwriter, if any, of such Registrable Shares) such number of
copies of prospectuses and preliminary prospectuses in conformity with
the requirements of the Securities Act and such other documents as EMS
may reasonably request, in order to facilitate the public sale or other
disposition of all or any of the Registrable Shares by EMS.
(e) file (so long as the Maker shall be obligated to keep the
Registration Statement effective) documents required of the Maker for
normal blue sky clearance in states specified in writing by EMS;
provided, however, that the Maker shall not be required to qualify to
do business, or qualify as a broker or dealer in securities or consent
to service of process or subject itself to taxation in any jurisdiction
in which it is not now so qualified or so subjected or has not so
consented.
(f) bear all reasonable expenses in connection with the
procedures in paragraphs (a) through (e) of this Section 26, other
than fees and expenses, if any, of counsel or other advisers to EMS.
EMS agrees that it will not effect any disposition of the Registrable
Shares that would constitute a sale within the meaning of the Securities Act
except in compliance with the Securities Act. In addition, EMS hereby severally
covenants with the Maker not to make any sale of the Registrable Shares without
effectively causing the prospectus delivery requirement under the Securities Act
to be satisfied and to promptly advise the Maker of any changes in the
<PAGE> 16
information concerning the Maker contained in the aforesaid Registration
Statement EMS acknowledges that occasionally there may be times when the Maker
must suspend the use of the prospectus forming a part of the Registration
Statement until such time as an amendment to the Registration Statement has been
filed by the Maker and declared effective by the Commission, or until such time
as the Maker has filed an appropriate report with the Commission pursuant to the
Exchange Act. EMS hereby covenants that it will not offer or sell any
Registrable Shares pursuant to any prospectus during the period commencing at
the time at which the Maker gives EMS notice of the suspension of the use of
said prospectus and ending at the time the Maker gives EMS notice that the Maker
may thereafter effect sales pursuant to said prospectus.
Until the third annual anniversary of the earlier of the Maturity Date
or the last conversion date which results in the complete conversion of this
Debenture, absent the written consent of Maker, sales of Registrable Shares by
EMS shall be limited in amount in any three month period to the greater of (x)
one percent of the number of shares of Maker's Common Stock that are then issued
and outstanding or (y) the average weekly reported volume of trading in such
securities on all national securities exchanges and/or reported through the
NASDAQ/NMS during the four calendar weeks preceding any such sale.
27. Indemnification. For the purpose of this Section 27:
(a) the term "Selling Stockholder" shall include EMS and any
affiliate of such Purchaser;
(b) the term "Registration Statement" shall include any final
prospectus, exhibit, supplement or amendment included in or relating to
either Registration Statement referred to in Section 26; and
(c) the term "untrue statement" shall include any untrue
statement or alleged untrue statement, or any omission or alleged
omission to state in the Registration Statement a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances in which they were made, not
misleading. The Maker agrees to indemnify and hold harmless EMS from
and against any losses, claims, damages or liabilities to which EMS may
become subject (under the Securities Act or otherwise) insofar as such
losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon, any untrue statement
contained in the Registration Statement on the effective date thereof,
or arise out of any failure by the Maker to fulfill any undertaking
included in the Registration Statement and the Maker will reimburse EMS
for any reasonable legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action,
proceeding or claim; provided, however, that the Maker shall not be
liable in any such case to the extent that such
<PAGE> 17
loss, claim, damage or liability arises out of, or is based upon, an
untrue statement made in such Registration Statement in reliance upon
and in conformity with written information furnished to the Maker by or
on behalf of EMS for use in preparation of the Registration Statement,
or the failure of EMS to comply with the W covenants and agreements
contained in Section 26 hereof respecting sale of the Registrable
Shares.
EMS agrees to indemnify and hold harmless the Maker (and each person,
if any, who controls the Maker within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, each officer of the Maker who
signs the Registration Statements and each director of the Maker) from and
against any losses, claims, damages or liabilities to which the Maker (or any
such officer, director or controlling person) may become subject (under the
Securities Act or otherwise), insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of, or are
based upon, any failure to comply with the covenants and agreements contained in
Section 26 hereof respecting sale of the Registrable Shares, or any untrue
statement contained in the Registration Statement on the effective date thereof
if such untrue statement was made in reliance upon and in conformity with
written information furnished by or on behalf of EMS for use in preparation of
the Registration Statement, and EMS will reimburse the Maker (or such officer,
director or controlling person), as the case may be, for any reasonable legal or
other expenses reasonably incurred in investigating, defending or preparing to
defend any such action, proceeding or claim.
Promptly after receipt by an indemnified person of notice of the
commencement of any action (including any governmental investigation or
inquiry), such indemnified person will, if a claim in respect thereof is to be
made against an indemnifying person pursuant to this Section 27, give written
notice to such indemnifying person of the commencement thereof, but the omission
so to notify the indemnifying person will not relieve it from any liability
which it may have to any indemnified person otherwise than pursuant to the
provisions of this Section 27. In case any such action is brought against any
indemnified person, and it notifies an indemnifying person of the commencement
thereof, the indemnifying person will be entitled to participate in, and to the
extent that it may wish, jointly with any other indemnifying person similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified person, and after notice from the indemnifying person to such
indemnified person, the indemnifying person shall not, except as hereinafter
provided, be responsible for any legal or other expenses subsequently incurred
by such indemnified person in connection with the defense thereof. Such
indemnified person shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be the expense of such indemnified person unless (i) the
indemnifying person has agreed to pay such fees and expenses or (ii) the
indemnifying person shall have failed to assume the defense of such action or
proceeding or
<PAGE> 18
has failed to employ counsel satisfactory to such indemnified person in any such
action or proceeding or (iii) the named parties to any such action or proceeding
(including any impleaded parties) include both such indemnified person and the
indemnifying person, and such indemnified person shall have been advised by
counsel that representation of both parties by the same counsel would be
inappropriate due to actual material differing interests between them (in which
case, if such indemnified person notifies the indemnifying person in writing
that it elects to employ separate counsel at the expense of the indemnifying
person, the indemnifying person shall not have the right to assume the defense
of such action or proceeding on behalf of such indemnified person, it being
understood, however, that the indemnifying person shall not, in connection with
any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys at any time for such indemnified person
and any other indemnified persons, which firm shall be designated in writing by
such indemnified parties). The indemnifying person shall not be liable for any
settlement of any such action or proceeding effected without its written
consent, which consent shall not be unreasonably withheld, delayed or
conditioned, but if settled with its written consent, or if there by a final
judgment for the plaintiff in any such action or proceeding, the indemnifying
person agrees to indemnify and hold harmless such indemnified person or persons
from and against any loss or liability by reason of such settlement or judgment.
In order to provide for just and equitable contribution, if a claim for
indemnification pursuant to this Section 27 is made but it is found in a final
judgment of a court of competent jurisdiction (not subject to further appeal)
that such indemnification may not be enforced in such case, even though the
express provisions hereof provided for indemnification in such case, then the
Maker, on the one hand, and EMS, on the other hand, shall contribute to the
losses, claims, damages, liabilities or costs to which the indemnified persons
may be subject in such proportion as is appropriate to reflect the relative
fault of the indemnifying party and indemnified parties in connection with the
actions which resulted in such losses, claims, liabilities or costs, as well as
any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined with reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities or costs referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
<PAGE> 19
28. Definitions. Capitalized terms used herein shall have the following
meanings:
"Commission" or " "SEC" means the Securities and Exchange
Commission.
"Common Stock" means the common stock of Maker, par value
$0.10 per share.
"Consolidated Net Worth" means, on any date, the consolidated
stockholder's equity of Maker and its Subsidiaries on that date.
"Consolidated Total Liabilities" means, on any date, the
consolidated liabilities (including both current and long term
liabilities) and other long term obligations of Maker and its
Subsidiaries on that date.
"Environmental Indemnification Agreement" means the
Environmental Indemnification Agreement dated as of July 31, 1994
between Maker and EMS.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles,
consistently applied.
"Indebtedness" shall mean, with respect to any person, the
following classes of indebtedness, obligations and liabilities of such
person: (1) all"liabilities" for indebtedness for borrowed money which
would be reflected on a balance sheet of such person prepared in
accordance with GAAP; (2) all obligations of such person in respect of
any guaranty; (3) all obligations of such person in respect of any
capital lease, (4) all obligations, indebtedness and liabilities
secured by an lien or any security interest on any property or assets
of such Person, and (5) all mandatory redeemable preferred stock of
such person valued at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends.
"Intercreditor Agreement" means the Intercreditor Agreement
dated as of July 31, 1994 between Baybank, a Massachusetts trust
company, and EMS.
"Lien" means any mortgage, pledge, security interest, or other
encumbrance.
"Material Adverse Effect" means with respect to Maker a
material adverse change in, or an event or condition which has or could
reasonably be expected to have a material adverse effect upon, the
business, properties, financial condition,
<PAGE> 20
prospects or results of operations of Maker and its Subsidiaries, taken
as a whole, from that reflected in Maker's July 31, 1993 audited
consolidated financial statements.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Documents" means the three Purchase Money
First Mortgage and Security Agreements dated of even date between Maker
and EMS with respect to land, buildings, equipment and machinery
located at Portland, Indiana, Hartford City, Indiana and Lancaster,
Ohio.
"Subsidiaries" means Bailey Manufacturing Corporation
and Bailey Transportation Products, Inc, and each other corporation,
partnership or other person which may be controlled by Maker through
the ownership of 50% or more of the voting securities of such person.
<PAGE> 21
IN TESTIMONY WHEREOF, the Maker has caused this instrument to be
executed in its corporate name by its Vice Chairman of its Board of Directors,
and its corporate seal to be hereto affixed.
BAILEY CORPORATION
By: __________________________________
[Corporate Seal]
<PAGE> 22
CONVERSION NOTICE
To convert this Debenture into Common Stock of the Maker, place a check in this
line:
__________
To convert only a part of this Debenture, state the principal amount to be
converted:
If you want the stock certificate made out in another person's name, fill in the
form below:
__________________________________
Name
__________________________________
Address
__________________________________
City, State and Zip Code
__________________________________
Social Security or Tax I.D. Number
