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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1998
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file number 0-13940
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CENTRAL SPRINKLER CORPORATION
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(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2328106
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
451 North Cannon Avenue, Lansdale, Pennsylvania 19446
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: 215-362-0700
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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The aggregate market value of the voting stock held by non-affiliates
of the Registrant (computed by reference to the closing price of such stock in
the NASDAQ National Market System on December 31, 1998 -- $9.6875) was
approximately $33.1 million.
The number of shares of the Registrant's common stock outstanding as of
December 31, 1998 was 3,845,637 shares.
DOCUMENTS INCORPORATED BY REFERENCE
(Specific pages incorporated are indicated
under applicable Item herein):
Registrant's definitive Proxy Statement for its 1999 Annual Meeting of
Shareholders is incorporated by reference into Part III hereof.
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PART I
Item 1. Business.
(a) General Development of Business
Central Sprinkler Corporation (the "Company"), through its
wholly-owned subsidiaries, Central Sprinkler Company ("Central Sprinkler"),
Spraysafe Automatic Sprinklers Limited ("Spraysafe"), Central Castings
Corporation ("Castings"), Central CPVC Corporation ("Central CPVC"), and Central
Sprinkler Export Corporation ("Export") is a leading manufacturer of automatic
fire sprinkler heads, valves, grooved couplings and fittings, CPVC plastic pipe
and fittings, steel pipe, and other sprinkler system components as well as a
distributor of component parts of complete automatic fire sprinkler systems that
are either manufactured by the Company or purchased by the Company for resale to
its customers.
The Company acquired Central Sprinkler in May 1984. Key
executives of Central Sprinkler remained with the business and purchased a
portion of the Company's common stock with the remainder purchased by an outside
investor group. Prior to the acquisition, the Company did not have any
significant assets or liabilities or engage in any activities other than those
related to the acquisition. In May 1985, the Company went public by its sale of
shares of common stock of the Company in an underwritten public offering.
On November 1, 1985, the Company acquired 80% of the outstanding
common stock and 100% of the outstanding preferred stock of Spraysafe, a
sprinkler head manufacturer and distributor in the United Kingdom. During 1989,
the Company increased its ownership in Spraysafe from 80% to 100% by purchasing
all of the remaining common stock from the minority shareholder. The acquisition
resulted in an expansion of the Company's product lines to include Spraysafe's
glass bulb sprinkler heads and provide a further means of distributing the
Company's products in foreign markets.
In July 1994, Central Sprinkler formed a new company, Castings,
and acquired substantially all of the business assets of a foundry in the
Southeastern United States engaged in manufacturing piping system components.
The purchase price was approximately $1.8 million for assets consisting
primarily of property, plant and equipment. The Company has incurred significant
capital expenditures for the expansion of this facility to accommodate
production of several additional product lines. Castings is also an importer of
product purchased for resale to its customers to supplement manufactured product
lines.
In May 1995, Central Sprinkler formed a new company, Central
CPVC, and contributed business assets to Central CPVC. Central CPVC is engaged
in manufacturing CPVC plastic pipe and fittings. The Company built a
manufacturing facility in Huntsville, Alabama for CPVC pipe and fittings
components. The new facility commenced production in May 1997.
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(b) Financial Information About Industry Segments.
The Company operates in one industry; the manufacture and
sale or purchase and sale of component parts of complete automatic fire
sprinkler systems.
(c) Narrative Description of Business.
General
The Company is a leading designer, manufacturer, and distributor
of automatic fire sprinkler heads, valves, CPVC plastic pipe and fittings, steel
pipe, grooved fittings and couplings, and other sprinkler system components as
well as a distributor of component parts of complete automatic fire sprinkler
systems. Approximately 82% of the Company's fiscal 1998 annual net sales are
derived from product manufactured by the Company and approximately 18% is
purchased by the Company for resale to its customers.
The Company's wide variety of products are marketed for
commercial, industrial, residential and institutional uses throughout the world.
The Company sells its products to more than 3 thousand customers, most of which
are sprinkler installation contractors.
Products
The principal components of a sprinkler system are the sprinkler
heads and the valves, both of which are manufactured and marketed by the Company
and represented approximately 49% of the Company's sales in fiscal 1998 and 51%
in fiscal 1997 and fiscal 1996. The Company also manufactures and distributes
other sprinkler system component parts. The Company's other product lines which
are sold under the Company's various trade names include steel pipe, CPVC
plastic pipe and fittings and ductile iron grooved fittings and couplings as
well as other piping system components. The success of the Company's product
line expansion and diversification efforts has resulted in sprinkler heads and
valves becoming a lower percentage of consolidated sales than in prior years.
Sprinkler Heads
The sprinkler head is the mechanism that is activated by heat
and discharges a water spray. The sprinkler head is composed principally of
copper, brass and other corrosion resistant materials. The Company presently
produces and markets five basic types of sprinkler heads: the standard
commercial sprinkler, the residential/life-safety sprinkler, the extended
coverage commercial sprinkler, the early suppression fast response sprinkler and
specific application series sprinklers.
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The standard commercial sprinkler head is installed near the
ceiling of a structure and consists of a fusable alloy pellet which is sealed
into a bronze center strut by a stainless steel ball. When the alloy melts at
its rated temperature, the ball is forced upward into the center strut,
releasing two ejector springs and activating the sprinkler, which discharges
water in a prescribed flow path. The Company also has standard commercial
sprinklers with glass bulb activating mechanisms. Generally, standard commercial
sprinklers are designed to activate at specified temperatures between 135 and
286 degrees. Standard commercial sprinkler heads are manufactured in a wide
variety of models, sizes, and finishes. The Company also has several adjustable
concealed standard commercial sprinklers. These models have several advantages
over previous models produced by both the Company and its competitors.
The second type of sprinkler head produced and marketed by the
Company are residential/life-safety sprinklers. These sprinklers have quick
response features and are designed to react to a fire before it has a chance to
spread, which effectively minimizes the smoke, fumes and toxic by-products of
the fire. These residential/life-safety sprinklers are recognized today as the
best means to protect a life in the event of a fire. In late 1989, the Company
introduced residential/life-safety sprinklers with glass bulb activating
mechanisms. These models featured more traditional sprinkler designs along with
the quick response features previously only available in the Omega TM model. The
production of Omega TM models was discontinued in fiscal 1998. The Company has
several new models of its Glass Bulb residential sprinklers. Additionally, the
Company introduced a new residential series of concealed sprinklers called ROC
(Residential Optima Concealed). These sprinklers offer the best flows at the
greatest area of coverage on the market.
The third type of sprinkler head produced by the Company is the
extended coverage commercial sprinkler. This sprinkler line brings about a
dramatic turning point in sprinkler technology by extending ordinary spacing
from 130 sq. ft. to 400 sq. ft. These sprinklers are being marketed under the
trade name of Optima sprinklers. The Company introduced the Optima sprinkler in
1993 and developed its newest models in fiscal year 1998. Patents have been
issued or are pending on these sprinklers that provide uniform distribution of
minimum densities at very low start pressures, while achieving superior fire
control when compared to the standard commercial sprinkler line.
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The fourth type of sprinkler head produced by the Company
starting in fiscal 1993 is the early suppression fast response ("ESFR")
sprinkler. This sprinkler is designed for use in special hazards situations. It
is used primarily to protect storage areas where there is a need for a high
density of water with a quick responding sprinkler head. The Company has
developed new ESFR sprinklers with a larger orifice. The new K25 ESFR sprinkler
was developed in fiscal 1997. By making the orifice larger, the pressure
required is lowered. The newer models of the ESFR sprinklers will provide all of
the advantages of the traditional ESFR sprinkler and an overall economic savings
to our customers due to the lower pressure.
The fifth type of sprinkler produced and marketed by the Company
is the specific application series. These sprinklers, such as the Window
Sprinklers introduced in fiscal 1995 and the Attic and the ELO-231 specific
application sprinklers, are designed to provide better fire protection for
specific occupancies while providing overall economic savings to our
installation contractor customers. The Company continues to expand the specific
application series to include new sprinklers for storage applications with
larger orifices. These sprinklers will further reduce the pressure required and
continue from the very successful ELO-231 series of sprinklers. The newest
sprinklers developed are the K17-231 TM Upright and Pendent and Ultra K17 TM
models.
The Company discontinued production of Omega TM sprinklers in
fiscal year 1998. The sales of these products represented less than 3% of
consolidated sales in fiscal year 1997. See Note 14 to the Consolidated
Financial Statements contained herein for a further discussion of the Omega TM
product.
In fiscal 1993, the Company started to manufacture its own line
of glass bulb ampules for use as activating mechanisms in sprinkler heads. The
Company currently manufactures several varieties of these glass bulb ampules for
internal use. Such products are not sold to customers outside the Company. The
Company also supplements its own production with glass bulb ampoules purchased
from several outside suppliers.
Valves
The Company markets a wide variety of sprinkler system valves
which are used specifically in fire sprinkler installations. A sprinkler system
valve is the mechanical device by which the water supply is controlled. When the
sprinkler head is activated, the valve allows water to flow into and through the
system. Several of these valves are manufactured by the Company (alarm valve,
butterfly valve, check valve, deluge valve and dry pipe valve), while certain
other valves are manufactured by others and marketed by the Company. The Company
also produces a full line of preaction and deluge valve equipment. The Company
introduced several new manufactured valve models during the year.
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CPVC Plastic Pipe and Fittings
The Company manufactures a line of Blazemaster TM CPVC
plastic pipe and fittings for use in residential and light commercial
applications. The Company expanded such CPVC product lines and manufacturing
capacity in each of the last several fiscal years. The Company continues its
leadership position in the BlazeMaster TM CPVC market. The Company built a new
manufacturing facility for Blazemaster TM CPVC pipe and fittings components that
commenced production in May 1997. Prior to this date, the Company manufactured
the Blazemaster TM CPVC pipe and fittings using principally Company owned
machinery and equipment under a production supply contract whereby the Company
used facilities and certain personnel of an unaffiliated plastic manufacturer.
Steel Pipe
The Company produces its proprietary line of steel sprinkler
pipe through a production supply contract in which the Company procures the
semi-processed steel coils from domestic producers and provides it to the
supplier for processing. The production supply contract allows the Company to
control the majority of production time and produce a full line of electric
resistance welded steel pipe for sprinkler systems. The Company owns all raw
materials, work in process, finished goods, selected tooling and product
approvals and listings. Approximately 80% of the product is delivered directly
to Central Sprinkler's contractor customer base and 20% is sold through the
Company's distribution network to customers.
The product is fabricated for use with various coupling methods.
The steel pipe, which is Underwriters Laboratory Listed and Factory Mutual
Approved, is utilized to fabricate the piping system to carry water to the fire
sprinklers. The pipe ends are fabricated to accept grooved couplings, threaded
fittings or plain end fittings. These product lines install together in order to
provide a completed piping system capable of supplying the necessary water
supply to the fire protection sprinklers or other quick opening devices.
Grooved Fittings and Couplings
The Central Grooved Piping product line was first established
through a 1993 acquisition of an importer of such products. The 1994 acquisition
of a ductile iron foundry by Castings and subsequent expansion of the foundry
resulted in the Company's ability to manufacture grooved fittings and couplings
and other piping system components. The product line was expanded in each of the
last several fiscal years and is principally domestic with some product lines
from imports including threaded
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fittings. The product line is used in several markets, but is primarily focused
by the Company into the fire protection and heating, ventilation, and air
conditioning markets. These markets represent the majority of the Company's
business in this product line, and should also provide the potential growth to
maximize capacity. The grooved couplings and fittings are used to attach to all
iron pipe, standard steel pipe, high-density polyethylene plastic pipe, and
other types of piping. The grooved method provides a cost-effective way to
attach pipe ends together, primarily in two inch and above sizing. The method is
readily accepted in the fire protection, mechanical, industrial, original
equipment manufacturing and heating, ventilation and air conditioning markets
which provide the Company with sales growth opportunities
Other
The Company also distributes a wide variety of other parts used
in sprinkler system installations. The majority of the other components include
fittings, control valves, electric switches, hangers and a variety of other
items. The Company also develops and markets computer aided design ("CAD")
systems to architects, designers, and contractors for use in the design and
installation of sprinkler systems. The Company also provides other CAD related
services through its SprinkCAD division.
Marketing and Customers
The Company's products are marketed by its own sales and
marketing staff. The sales, marketing and distribution staff consists of
approximately 200 people and operates from seventeen regional sales
office/distribution centers located near Boston, Atlanta, Miami, Dallas,
Chicago, Los Angeles, San Francisco, Seattle, Philadelphia, Baltimore, Salt Lake
City, Greensboro, Portland, Cleveland and from one distribution center in the
United Kingdom, one in Singapore and one in China. Unlike the majority of the
industry which markets its products primarily through wholesale distributors,
the Company sells most of its products directly to sprinkler installation
contractors. This places the Company in direct contact with its customers and
allows it to respond effectively to customer demands and suggestions.
The Company's sales and marketing efforts are directed primarily
to these sprinkler installation contractors. Additional sales and marketing
efforts are directed to the introduction and promotion of the Company's products
to architects, engineers, builders, end-users, local fire authorities and
insurance underwriters, for purposes of encouraging them to recommend or specify
the Company's sprinklers for use in new construction and retrofit installations.
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The Company markets its products to more than 3 thousand
customers, the majority of whom are sprinkler industry contractors, for
commercial, industrial, residential and institutional use throughout the world.
In fiscal 1998, no single customer accounted for more than 5% of
the Company's net sales.
The Company principally manufactures products for estimated
shipping demands. The Company also produces product to specific customer orders.
The Company does not have any significant order backlog.
The Company advertises its products through various media
including insurance publications and trade journals. The Company also
participates in trade shows and trade organizations. Approximately $659 thousand
was spent on advertising and sales promotions of the Company's products in 1998.
The Company's products are not marketed pursuant to long-term
purchase agreements, but are sold pursuant to individual purchase orders. Often,
the Company's published sales terms sheet is the controlling purchase document.
The Company is affected by seasonal factors and the weather as
well as the level of new construction activity, remodeling and retrofitting of
older properties in the commercial, industrial, residential and institutional
real estate markets. The Company's sales tend to increase the most when there is
a high level of new construction activity in all such real estate markets and
decline when there is a slowdown in new construction activity. In addition, as a
result of relatively higher levels of new construction during warmer spring and
summer months, the demand for sprinkler system components tends to be greater
during the summer and fall than during other seasons.
Competition
The Company competes on the basis of price, service,
product quality, design and performance characteristics. The Company encounters
competition worldwide primarily from approximately six domestic manufacturers of
sprinkler heads and valves and a large number of manufacturers and/or
distributors of other sprinkler system component parts.
The Company is the world's leading manufacturer of fire
sprinklers. The Company also believes its position is due in large part to its
relationships with customers and the innovative technological features of its
products.
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Research and Development
Research and development has contributed significantly to the
Company's success over the years and will be a major factor in the Company's
ability to continue its future growth.
The Company maintains a staff of approximately fifty-five
engineers and support staff who devote their time to research and development
activities. During the 1998 fiscal year, the Company spent $6.4 million on
research and development compared to $7.4 million in fiscal 1997 and $5.5
million in fiscal 1996. The Company's efforts in this area are primarily focused
on sprinkler head and valve design and development, and are directed toward both
new product development and further refinement of the quick response technology
designed for residential/life-safety purposes, extended coverage sprinklers,
enhancements to dry pendent and Optima sprinklers, and the specific application
sprinkler series. The Company's heavy emphasis on the development of new
products across most product lines continued throughout the year and led to new
products in fiscal years 1998, 1997 and 1996.
Patents
The Company holds a number of patents. In fiscal year 1998, the
Company received patents on the K-25 ESFR sprinkler head and several other
products. In September 1997, the Company was issued a patent on directional
sprinklers for usage in attics under pitched roofs, hipped roofs, dormers,
interior cathedral ceilings and other pitched overhead interior walls. In
September 1997 and December 1996, the Company was issued patents on various
models of the extended coverage ceiling sprinklers. The Company was issued a
patent in fiscal 1995 on the new extended coverage sprinkler and additional
related patent applications are pending. These patents are very important to the
Company based upon the Company's substantial investment in the development of
new products and the dramatic turning point they provide in fire sprinkler
protection and technology. The Company has also filed for patent protection on
other products.
Trademarks
The Company has a number of trademarks on various product names
and selected product components.
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Sources of Supply
The Company uses a number of component parts in its manufacture
of sprinkler heads and valves. The principal components of the sprinkler head
include the frame, the deflector and the activating mechanism. The major
component of the valve is the metal casting.
Materials, parts and components purchased by the Company for the
production of its sprinkler heads, valves, ductile iron and steel pipe products
are generally available from a large number of suppliers. The vast majority of
items are manufactured specifically for the Company's needs from molds, dies and
patterns owned by the Company. The Company has not experienced any shortages or
significant delays in delivery of these materials in the recent past, and
management believes that adequate supplies will continue to be available.
The Company also has a non-exclusive supply contract with the
B.F. Goodrich Company to supply the resin that the Company uses to produce
BlazeMaster TM CPVC plastic pipe and fittings. This supply contract, which
expires in December 2002, provides the Company with a source of resin that is
not generally available. Other products manufactured by the Company such as
steel pipe, fittings and couplings and other piping system components use raw
materials that are available from a wide variety of suppliers.
Other component parts purchased by the Company for distribution
purposes are generally available from a number of manufacturers.
Effect of Environmental Protection Regulations
The Company is subject to compliance with various federal, state
and local regulations relating to protection of the environment. The Company has
not made nor does it currently expect to make any material capital expenditures
for environmental protection and control equipment for its current operations.
As more fully discussed in Item 3, "Legal Proceedings" and Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations", the
Company has been advised by the Environmental Protection Agency of a potential
contamination problem in the vicinity of the Company's primary plant.
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Employees
The Company employs approximately 1,300 people, of whom
approximately 950 are production or shipping employees, with the remainder
serving in executive, administrative or sales capacities. The Company's
sprinkler and valve production and shipping employees are covered by a
collective bargaining agreement with the International Association of Machinists
& Aerospace Workers that expires in October 2000. All of the covered employees
are located at the Company's primary manufacturing plant in Lansdale,
Pennsylvania.
(d) Financial Information about Foreign and Domestic
Operations and Export Sales.
The Company operates in one business segment and engages
in business activity outside the United States. During fiscal
1998, 1997 and 1996, the combined export and foreign sales represented
approximately 11.4%, 13.6% and 12.5%, respectively, of the Company's net sales.
Included in foreign sales are the sales of the Company's United Kingdom
subsidiary (Spraysafe). Spraysafe primarily manufactures sprinkler heads and
distributes them and other products in Europe and other foreign countries.
Significant financial information about Spraysafe's operations consists of the
following in thousands of dollars:
Year Ended October 31,
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1998 1997 1996
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Sales $15,099 $17,254 $16,807
Operating Income 996 1,264 1,390
Net Income 445 495 789
Total Assets 10,406 12,382 10,803
Total Liabilities 5,221 7,747 6,799
Item 2. Properties.
The Company's primary manufacturing plant and executive offices
are located in Lansdale, Pennsylvania. The Lansdale facility is owned by the
Company. It is comprised of several buildings which contain approximately 166
thousand square feet of floor space on a parcel of about 7 acres. In fiscal
1996, the Company purchased a building and land for additional offices in
Lansdale, Pennsylvania which contains approximately 14 thousand square feet. The
Company also owns a separate fire sprinkler component manufacturing facility of
approximately 15 thousand square feet in Pennsylvania. The Company's subsidiary,
Castings, owns a piping systems components manufacturing facility and foundry of
approximately 155 thousand square feet on a 67 acre parcel in Anniston, Alabama
purchased in fiscal 1994. The Company's Central CPVC Corporation subsidiary owns
a manufacturing plant located in Huntsville, Alabama containing approximately 79
thousand square feet of floor space on a parcel of approximately 15 acres. The
plant houses offices, manufacturing operations and inventory.
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The Company's fourteen domestic sales office/distribution
centers are located in major cities across the United States listed in Item
1(c), "Marketing and Customers," hereof and range in size from 11 thousand to 66
thousand square feet per building. These facilities are leased by the Company
pursuant to leases which terminate through 2002. The Company has options to
extend certain of its leases for additional periods on similar terms.
The Company's United Kingdom subsidiary owns a manufacturing
plant in the United Kingdom that contains approximately 12 thousand square feet
of floor space on a parcel of about 1 acre. This facility is also pledged as
security for a loan. The United Kingdom subsidiary also leases a distribution
center of approximately 5 thousand square feet in the United Kingdom under a
lease that expires in 2000, leases a distribution center of approximately 3
thousand square feet in Singapore under a lease that expires in 1999, and leases
approximately 1 thousand square feet in Beijing, China.
The Company's manufacturing and assembly facilities
operate on a two-shift or three-shift per day basis. Principally all of the
manufacturing equipment used in the production process is owned by the Company.
At October 31, 1998, the Company's owned and leased facilities are generally
adequate and suitable for the Company's needs and are virtually fully utilized
for their intended use. In the normal course of business, the Company
continually evaluates its properties and facilities for their adequacy and
suitability.
Item 3. Legal Proceedings.
The Company is engaged in discussions with the Environmental
Protection Agency concerning a claim which may develop in connection with the
Company's primary manufacturing plant in Lansdale, Pennsylvania. This potential
claim is more fully discussed in Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
The Company has been involved in seven class action lawsuits as well as
an administrative lawsuit filed in March 1998, by the United States Consumer
Product Safety Commission ("Commission") related to the Company's Omega(TM)
sprinklers. The Company has reached a final settlement of the Omega(TM)
litigation with the Commission as well as a definitive settlement agreement with
the plaintiffs in the Hart and Santa Clara class actions. Although the court has
granted preliminary approval to the settlement, settlement is contingent upon
receiving final approval from the court.
In accordance with Statement of Financial Accounting Standards No.
5, "Accounting for Contingencies" and based on current information, the Company
revised its estimate of the probable future cost of settling these matters and
recorded a $38 million ($26.6 million net of tax) charge in third quarter of
fiscal 1998 to reflect the total estimated additional future cost. The Company
believes that this additional charge along with previous reserves for the
Omega(TM) head replacement efforts should cover the total estimated future costs
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of the settlements. The Agreements with the Commission and Class Action
litigants generally provide for replacement of the Omega(TM) sprinkler heads
with free replacement sprinklers and parts, the establishment of a separate
trust account for payments to the owners of Omega(TM) sprinklers, administration
of the recall program and a notification program related to the Omega(TM)
sprinkler product recall.
In addition, the Company has discontinued the manufacturing and sale
of Omega(TM) sprinklers. The Omega(TM) product line represented less than 3% of
the Company's total sales in fiscal year 1997.
In an effort to recover a portion of the cost of the Omega(TM)
settlement, the Company filed suit on August 19, 1998, against twelve product
liability insurance carriers with which the Company had coverage over the last
15 years. No insurance or third party recoveries have been considered in the
Company's accrual analysis and the amount of such recoveries, if any, is
uncertain at this time.
In the fourth quarter of fiscal 1997, a charge of $13.2 million ($9
million net of tax) was recorded to cover the estimated future costs associated
with the expansion of a voluntary program which was initiated by the Company to
encourage the testing and possible replacement of certain Omega(TM) fire
sprinklers. A similar Omega(TM) charge was recorded in fiscal 1996 of $3.8
million ($2.4 million net of tax). These amounts were based on estimates of the
number of Omega(TM) sprinklers, the action plan the Company believed was
necessary to remediate these sprinklers and various other assumptions
In August 1997, a class action lawsuit was filed against the Company
in the State of California on behalf of a class of building owners who have
Omega(TM) sprinkler heads installed in their buildings. In December 1997, a
similar lawsuit was filed in California on behalf of the County of Santa Clara,
seeking to represent a class of public entities and commercial building owners
who have installed Omega(TM) sprinkler heads. Since the filing of these class
actions, the Company has been named as a defendant in five additional class
actions raising virtually identical allegations, captioned Rebecca Adams v.
Central Sprinkler Co. (filed February 11, 1998 in the Superior Court of
California for the County of San Bernadino), James T. Perona v. Central
Sprinkler Corp. (filed March 13, 1998, in the Superior Court of California for
the County of Los Angeles), South Royal Corp. v. Central Sprinkler Corp. (filed
March 27, 1998, in the United States District Court for the Southern District of
Florida), Roy F. Smith v. Central Sprinkler Corp. (filed March 20, 1998 in the
United States District Court for the Eastern District of Pennsylvania) and
Sangiacomo v. Central Sprinkler Corp. (filed April 3, 1998 in the United States
District Court for the Eastern District of Pennsylvania). The complaints do not
specify a dollar amount the plaintiffs are seeking. The Company has moved to
dismiss each of the above actions that it has been served with process. Earlier
in 1998, the court dismissed the South Royal complaint for failure to state a
claim. Plaintiff thereafter voluntarily dismissed its actions. As previously
mentioned, the Company has entered into an agreement to settle the Hart and
Santa Clara matters on a class-wide basis. The court granted preliminary
approval to the settlement on October 27, 1998 and has scheduled a final
approval hearing for February 19, 1999. Motions to dismiss remain pending in the
other actions which have been essentially inactive since the date of the
preliminary approval order in the Hart and Santa Clara matters.
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The Company believes that the remaining balance from the third quarter
fiscal 1998 charge totaling $35.1 million ($12 million of which is included in
accrued expenses) as of October 31, 1998 will be sufficient to cover the total
estimated additional costs of the Omega(TM) sprinkler matters. The third quarter
fiscal 1998 charge was based on estimates of the number of Omega(TM) sprinklers
to be located, the number of parties who will elect not to participate in the
settlements, estimated legal expenses and various other assumptions and on
information available at the time. It is possible that additional litigation may
ensue. In the event additional information becomes available in the future which
changes management's estimates, additional provisions may be necessary.
The Company, in the normal course of business, is party to
various other claims and lawsuits with regard to its products and other matters.
Management believes that the ultimate resolution of these other matters will not
have a material impact on the Company's financial position, results of
operations or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders of the
Company, through the solicitation of proxies or otherwise, during the fourth
quarter of fiscal 1998.
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PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters.
The Company's Common Stock is traded on the NASDAQ National
Market, NASDAQ symbol - CNSP. The following table sets forth, for the fiscal
years indicated, the range of high and low price quotations.
Fiscal 1998:
High Low
---- ---
First Quarter................................ $20 $17
Second Quarter............................... 20 1/2 9 15/16
Third Quarter................................ 11 1/2 5 1/2
Fourth Quarter............................... 12 15/16 6 1/16
Fiscal 1997:
High Low
---- ---
First Quarter................................ $28 3/4 $17 1/4
Second Quarter............................... 28 1/2 17 3/4
Third Quarter................................ 28 1/4 17 1/2
Fourth Quarter............................... 22 16 1/2
As of December 31, 1998, there were approximately 1 thousand
holders of record of Common Stock of the Company. The closing price of such
stock on the NASDAQ National Market on December 31, 1998 was $9.6875.
The Company has not paid dividends on Common Stock since its
inception in 1984. The Company intends to continue its policy of retaining
earnings to finance future growth.
Item 6. Selected Financial Data.
The following summary sets forth selected financial data with
respect to the Company for the last five fiscal years. The selected financial
data has been derived from the consolidated financial statements of the Company.
This data should be read in conjunction with other financial
information of the Company, including the consolidated financial statements of
the Company and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein.
- 15 -
<PAGE>
SUMMARY OF SELECTED FINANCIAL DATA
(Amounts in thousands, except per share)
The following fiscal year information should be read in conjunction with the
accompanying consolidated financial statements appearing elsewhere in this
report.
<TABLE>
<CAPTION>
(1) Interest Diluted Net
Operating Expense Net Income (Loss)
Net Gross Income (Income), Income Per Common
CONSOLIDATED OPERATIONS Sales Profit (Loss) Net (Loss) Share
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year Ended October 31, 1998 $224,930 $60,001 $(27,288)(2) $5,161 $(22,604)(2) $(6.89)(2)
Year Ended October 31, 1997 221,990 66,280(3) 745 (2) 4,322 (2,542)(2) (.78)(2)
Year Ended October 31, 1996 187,220 55,975(3) 8,999 (2) 2,939 3,763 (2) 1.13 (2)
Year Ended October 31, 1995 158,849 51,684 15,305 1,902 8,458 2.50
Year Ended October 31, 1994 116,249 35,237 6,428 678 4,018 (4) .80 (4)
- ------------------------------------------------------------------------------------------------------------
Long-
CONSOLIDATED FINANCIAL Working Current Total Term Total Shareholders'
POSITION Capital Ratio Assets Debt Debt Equity
- ----------------------------------------------------------------------------------------------
As of October 31, 1998 $77,427 2.7:1 $177,104 $76,807 $81,168 $30,767
As of October 31, 1997 84,990 2.8:1 188,027 79,918 85,175 52,898
As of October 31, 1996 35,522 1.5:1 150,918 24,674 62,914 54,392
As of October 31, 1995 47,292 2.2:1 117,360 27,516 45,391 49,550
As of October 31, 1994 53,168 3.0:1 99,061 19,391 30,955 51,101
- ----------------------------------------------------------------------------------------------
</TABLE>
SELECTED FINANCIAL DATA FOOTNOTES
(1) Operating income (loss) represents income before income taxes and
interest expense (income), net.
(2) After an unusual third quarter Omega (TM) charge of $38,015 ($26,610 net
of tax or $8.10 per share) in fiscal 1998 and unusual fourth quarter
Omega (TM) charges of $13,200 ($8,976 net of tax or $2.74 per share) in
fiscal 1997 and $3,750 ($2,362 net of tax or $.72 per share) in fiscal
1996 (See Footnote No. 14 of the Notes to Consolidated Financial
Statements contained herein).
(3) Reflects reclassification of unusual Omega (TM) charges of $13,200 in
fiscal 1997 and $3,750 in fiscal 1996 from cost of sales to a separate
classification effecting operating income.
(4) After favorable cumulative effect of $238 ($.05 per share) due to
accounting change for income taxes.
- 16 -
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
The following table shows, for the years indicated, the
percentage relationships to net sales of the items included in the Consolidated
Statements of Operations and the percentage changes in the dollar amounts of
such items from year-to-year.
<TABLE>
<CAPTION>
Percentage of Net Sales Percentage Increase
Year Ended October 31, (Decrease)
----------------------- -------------------
Year 1998 Year 1997
1998 1997 1996 Over 1997 Over 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 1.3% 18.6%
Cost of sales 73.3 70.1* 70.1* 5.9 18.6
----- ----- -----
Gross profit 26.7 29.9* 29.9* (9.5) 18.4
----- ----- -----
Operating expenses:
Selling, general and
administrative 19.1 20.3 20.2 (4.7) 19.1
Research and development 2.8 3.3 2.9 (12.9) 34.8
----- ----- -----
21.9 23.6 23.1 (5.8) 21.1
----- ----- -----
Unusual Omega(TM) charge 16.9 6.0* 2.0* N/M N/M
----- ----- -----
Operating income (loss) (12.1) .3 4.8 N/M (91.7)
----- ----- -----
Interest expense (income):
Interest expense 2.6 2.2 1.8 19.6 44.0
Interest income (.3) (.3) (.2) 21.0 23.7
----- ----- -----
2.3 1.9 1.6 19.4 47.1
----- ----- -----
Income (loss) before
income taxes (14.4) (1.6) 3.2 N/M N/M
Income tax provision
(benefit) (4.4) (.5) 1.2 N/M N/M
----- ----- -----
Net income (loss) (10.0) (1.1) 2.0 N/M N/M
===== ===== =====
</TABLE>
- ----------
* Reflects reclassification of unusual Omega(TM) charges of $13.2 million in
fiscal 1997 and $3.75 million in fiscal 1996 from cost of sales to a separate
classification effecting operating income.
N/M indicates not meaningful.
- 17 -
<PAGE>
The following table summarizes the impact of the unusual Omega(TM) charges
on the reported operating income (loss), net income (loss) and diluted net
income (loss) per common share for the respective reporting periods. Amounts in
thousands, except per Share.
<TABLE>
<CAPTION>
Year Ended October 31,
-----------------------------------------------------
1998 1997 1996
-------- ---------- --------
<S> <C> <C> <C>
Operating income before
unusual Omega(TM) charge $ 10,727 $ 13,945 $12,749
Unusual Omega(TM) charge (38,015) (13,200) (3,750)
-------- -------- -------
Operating income (loss) $(27,288) $ 745 $ 8,999
======== ======== =======
Net income before unusual
Omega(TM) charge $ 4,006 $ 6,434 $ 6,125
Unusual Omega(TM) charge (net
of tax) (26,610) (8,976) (2,362)
-------- -------- -------
Net income (loss) $(22,604) $ (2,542) $ 3,763
======== ======== =======
Diluted net income per
common share before
unusual Omega(TM)charge $ 1.21 $ 1.96 $ 1.85
Unusual Omega(TM)charge
(after tax) (8.10) (2.74) (.72)
-------- -------- -------
Diluted net income (loss)
per common share $ (6.89) $ ( .78) $ 1.13
======== ======== =======
</TABLE>
Fiscal 1998 sales growth represented the sixth straight year of record net
sales. Net sales for fiscal 1998 increased to $224.9 million, $2.9 million or
1.3% from fiscal 1997 net sales of $222.0 million. The sales increase is due to
unit sales increases in many fire sprinkler system products and new fire
sprinkler and fittings products offset by price competition on virtually all of
its product lines, partially resulting from the publicity surrounding litigation
and governmental investigations
- 18 -
<PAGE>
into the company's Omega(TM) sprinkler products, and the discontinuance of the
Omega(TM) sprinklers. Worldwide demand for the Company's products is driven by
the new construction market and the retrofit of existing buildings. The Glass
Bulb fire sprinkler models continue to lead the Company's sprinkler unit sales
gains. The Company experienced sales gains in CPVC pipe and fittings, grooved
fittings, and steel pipe in fiscal year 1998 as compared to the prior year.
Sales increases were realized in most U.S. markets. International sales
decreased for the fiscal year compared to the same prior year period. The
Company continues to experience very competitive conditions worldwide in the
sprinkler market through price competition that have continued to depress sales
prices and overall sales. The decision to discontinue the sales of the Omega(TM)
sprinkler heads is not expected to have a material adverse impact on future
sales results. The Company announced sales price increases on most of its
products in the first quarter of fiscal 1999 in an effort to improve gross
profit.
Fiscal 1997 net sales increased to $222.0 million, $34.8 million or 18.6%
from fiscal 1996 net sales of $187.2 million. The sales increases are the result
of strong market demand for fire sprinkler products, a continued strong market
share held by the Company in such market, unit sales increases across most fire
sprinkler system products, and new fire sprinkler and fittings products. The new
construction market and the retrofit of existing buildings drive the worldwide
market demand for the Company's fire sprinklers and related products. The
Company's programs in developing and expanding production and additional
marketing of products continue to increase sales. The Glass Bulb and OptimaTM
fire sprinkler models, CPVC pipe and fittings and grooved fittings and couplings
led the Company's sales gains. Sales increases were realized throughout the U.S.
and in international markets. In fiscal 1997, domestic sales increased 19.3% and
sales outside the U.S. increased 13.6% from fiscal 1996. The Company continues
to experience increased competitive conditions worldwide in the sprinkler market
primarily through stiff price competition, which continues to depress sales
prices. The Company announced a September 1, 1997 sales price increase on most
of its sprinkler and valve products in an effort to improve the Company's gross
profit.
Cost of sales for fiscal 1998 increased to $164.9 million, an increase of
$9.2 million or 5.9% compared to the prior year. As a percent of net sales, cost
of sales in fiscal 1998 increased to 73.3% compared to 70.1% in the prior fiscal
year. This resulted in a gross profit margin percentage for fiscal 1998 of 26.7%
compared to 29.9% in fiscal 1997. In terms of dollars of expense, cost of sales
increased primarily due to higher sales volume, increased costs for raw
material, labor and overhead, and higher product warranty claims. The decline in
the gross profit margin percentage is due primarily to lower sales prices, less
- 19 -
<PAGE>
favorable sales mix, higher warranty claims and unit volume production declines
in certain products due to the Company's inventory reduction program. The
Company also added more production equipment, including automated equipment, to
accommodate the demand for certain products and increase efficiencies in the
future.
Cost of sales for fiscal 1997 increased to $155.7 million, an increase of
$24.5 million or 18.6%. The net increase in cost of sales is due primarily to
increased cost of manufacturing related to higher sales volume and increased
costs for raw material, labor, and overhead. The Company added more production
equipment and enlarged its production space later in the year to accommodate the
increasing product demand. The rapid growth led to higher than expected costs to
manufacture some products. The Company's cost of sales in fiscal 1997 and fiscal
1996 were 70.1% of net sales. This resulted in a gross profit margin percentage
of 29.9%.
Selling, general and administrative expenses were $42.9 million in fiscal
1998, a decrease of $2.1 million or 4.7% from fiscal 1997. These expenses were
19.1% of net sales in fiscal 1998 as compared to 20.3% in fiscal 1997. The
selling, general and administrative expense decrease was due to the Company's
cost reduction programs initiated early in fiscal 1998, but primarily realized
in the third and fourth fiscal quarters of 1998. General and administrative
expenses increased in fiscal 1998 compared to fiscal 1997 primarily due to legal
and consulting fees. Selling and distribution expenses decreased as a result of
reductions in personnel, travel, freight expense, and other cost reductions.
Selling, general and administrative expenses were $45.0 million in fiscal
1997, an increase of $7.2 million or 19.1% from fiscal 1996. These expenses were
20.3% of net sales in fiscal 1997 as compared to 20.2% of fiscal 1996 net sales.
The selling, general and administrative expense increase was due primarily to
increased selling and distribution expenses resulting from the increased sales
volume and the expansion of distribution operations to better serve existing and
new customers in the U.S. and internationally with expanding product lines. The
Company also opened a new sales location in China late in fiscal 1996. The
Company continues to develop an improved distribution requirements planning
system to increase distribution efficiencies and reduce costs. The increase in
selling, general and administrative expenses was also due to a higher number of
administrative personnel to support the Company's growth.
Research and development expenses decreased to $6.4 million in fiscal 1998,
a decrease of $947 thousand or 12.9% from fiscal 1997. Research and development
expenses were 2.8% of net sales in fiscal 1998 as compared to 3.3% of net sales
of fiscal 1997.
- 20 -
<PAGE>
Research and development expenses rose sharply early in the fiscal year in
connection with the development and final approvals of a new line of Early
Suppression Fast Response fire sprinklers. The overall decline was due to cost
reduction programs implemented in fiscal 1998 that were realized in the last
half of the year principally through lower outside expenses. Research and
development expenses are anticipated to increase in fiscal 1999 as the Company
increases its efforts over fiscal 1998 to bring new and improved products to the
market. The Company's research and development investment resulted in new and
improved products coming to market during fiscal 1998.
Research and development expenses increased to $7.4 million in fiscal 1997,
an increase of $1.9 million or 34.8% from fiscal 1996. Research and development
expenses were 3.3% of fiscal 1997 net sales as compared to 2.9% of fiscal 1996
net sales. The increase in research and development expenses is due primarily to
higher outside expenses and additional Company facilities for expanded new
product development and testing. The Company's research and development
investment continues to result in new, improved and innovative products and
product lines and continues to be a driving factor in the Company's growth and
leadership position.
The Company recorded an unusual Omega(TM) charge of $38 million in the
third quarter of fiscal 1998 and the fourth quarter of fiscal years 1997 of
$13.2 million and 1996 of $3.8 million. Reference is made to the Liquidity and
Capital Resources section and Footnote 14 of the Notes To Consolidated Financial
Statements relating to the fiscal 1998 additional charge for settlement of the
litigation and the product recall related to the Company's Omega(TM) sprinklers.
Net interest expense in fiscal 1998 was $5.2 million, 2.3% of net sales, as
compared to $4.3 million, 1.9% of net sales, in fiscal 1997. Interest expense
was $5.8 million in fiscal 1998 as compared to $4.9 million in fiscal 1997. The
higher interest expense was due to higher effective borrowing rates. Total debt
was $81.2 million at October 31, 1998, as compared to $85.2 million at October
31, 1997. Interest income was $675 thousand in fiscal 1998 as compared to $558
thousand in fiscal 1997. A lower average investment balance in the second half
of fiscal 1998 offset a higher average investment balance in the first half of
fiscal 1998.
Net interest expense in fiscal 1997 was $4.3 million, 1.9% of net sales, as
compared to $2.9 million, 1.6% of net sales, in fiscal 1996. Interest expense
was $4.9 million in fiscal 1997 compared to $3.4 million in fiscal 1996. In
fiscal 1996, the Company capitalized $290 thousand of interest costs related to
the grooved fittings manufacturing facility expansion and construction. The
higher interest expense was due to the overall
- 21 -
<PAGE>
increase in debt. Total debt was $85.2 million at October 31, 1997 as compared
to $62.9 million at October 31, 1996. The additional debt was required to
finance the increased growth in the Company's business, principally in
manufacturing capital expenditures and increased accounts receivable and
inventories. Interest income was $558 thousand in fiscal 1997 as compared to
$451 thousand in fiscal 1996. A higher average investment balance in fiscal 1997
was partially offset by lower interest income rates.
The Company's effective income tax rate for fiscal 1998 was a benefit of
30.3% compared to a benefit of 28.9% in the comparable period of 1997. The
change in the overall effective income tax rate is primarily a result of the
income tax rate used to record the tax benefit of the unusual Omega(TM) charge
in the third quarter of fiscal 1998 and the impact of the nondeductible expenses
on the lower level of income.
The Company's effective income tax rate for fiscal 1997 was a benefit of
28.9% as compared to a provision of 37.9% in fiscal 1996. The decrease in the
overall effective income tax rate is the result of a decrease in the effective
state income tax rate due to the net loss for the year and an increase in
anticipated federal income tax credits. Such anticipated federal income tax
credits were a significantly larger percentage of pretax amounts due to the
reduced pretax balance.
The Company's sales are affected by seasonal factors and the weather as
well as the level of new construction activity, remodeling and retrofitting of
older properties in the commercial, industrial, residential and institutional
real estate markets. The Company's sales tend to increase the most when there is
a high level of new construction activity in all such real estate markets. In
addition, as a result of relatively higher levels of new construction during the
warmer spring and summer months, the demand for sprinkler system components
tends to be greater during the summer and fall than during other seasons.
Liquidity and Capital Resources
The Company's primary sources of long-term and short-term liquidity are its
current financial resources, projected cash from operations and borrowing
capacity. The Company believes that these sources will be sufficient to fund the
programs necessary for future operations, growth and expansion, and the
Omega(TM) settlements. The Company's combined cash, cash equivalents and
short-term investments were $18.8 million at October 31, 1998 as compared to
$20.9 million at October 31, 1997. The decrease in cash, cash equivalents and
short-term investments is the result of fluctuations in operations, funds used
for or provided by investing and financing activities and
- 22 -
<PAGE>
cash used to fund the Omega(TM) settlements. As of October 31, 1998, most of the
short-term investments had been converted to cash deposits in order to increase
liquidity. As of October 31, 1998, the Company has $14.3 million of available
borrowing capacity, based on the borrowing base formulas, including subjective
elements, as defined in the agreements, under a new Revolving Credit Facility
and a line of credit. Under the terms of the new Revolving Credit Facility, the
Company must maintain minimum balances of net borrowing availability. Should the
net balance of borrowing availability fall below such level, the bank may
require the Company to apply its lockbox to its loan balances. The outstanding
borrowings under the Revolving Credit Facility have been classified as a
long-term liability since the Agreement does not expire until March 30, 2001 and
the Company expects to maintain compliance with all covenants and minimum
balances as required.
On September 18, 1998, the Company entered into a new Loan and Security
Agreement with its existing bank as part of a debt refinancing and debt
consolidation. As part of the refinancing, the Company received gross loan
proceeds of approximately $62.1 million and repaid outstanding debt including
the previous Revolver Credit Agreement, several term notes and mortgage notes.
See Footnote 7 of the Notes to Consolidated Financial Statements relating to the
refinancing.
Cash provided by operating activities in fiscal 1998 was $3.6 million as
compared to $1.2 million in fiscal 1997. Net income (loss) plus noncash items
generated $17.4 million of cash in fiscal 1998 as compared to $15.6 million in
fiscal 1997. The change in fiscal 1998 as compared to fiscal 1997 was due
primarily to an increase in depreciation. Net cash used for working capital
purposes was $13.8 million in 1998 as compared to $14.4 million in 1997
primarily as a result of cash used to fund the Omega(TM) programs and partially
offset by decreases in accounts receivable and inventories. The lower inventory
balance at October 31, 1998, as compared to October 31, 1997, was a result of
the Company's inventory reduction program partially offset by additional
production and stocking in inventory of new and expanded product lines.
Anticipated future increases in sales volume will require the use of operating
cash flow.
Cash provided by investing activities was $12.6 million in fiscal 1998 as
compared to cash used in investing activities of $20.0 million in fiscal 1997.
The primary source of cash for fiscal year 1998 was the net sales of investments
as compared to net purchases in fiscal years 1997 and 1996. The primary use of
cash was for the acquisition of property, plant and equipment during these
periods. The capital expenditures were primarily to expand manufacturing
capabilities for fire sprinklers and associated components, grooved fittings
product lines and CPVC fittings product lines.
Cash used for financing activities in fiscal 1998 was $4.0 million as
compared to cash provided by financing activities of $22.5 million in fiscal
1997. The primary source of cash was from the new Loan and Security Agreement
("Agreement") comprised principally of a revolving credit facility and term
note. Proceeds of the Agreement were used to repay the previous Revolver Credit
Agreement borrowings, several term notes and
- 23 -
<PAGE>
mortgage notes. Repayments of short-term and long-term borrowings exceeded
proceeds from new debt agreements. In fiscal 1997, the primary sources of cash
were from a long-term Revolving Credit Agreement and secured term loan.
The Company purchases property, plant and equipment from time to time as
required to maintain and expand its offices, manufacturing and research
facilities and distribution centers. The Company has expanded and improved its
operations over the years with such purchases and the Company intends to
continue this policy in the future. The Company has commitments in the ordinary
course of business for such expansions of facilities and equipment and for
research and other contracts.
The Company believes its cash and cash equivalents along with the
Company's future earnings and borrowing capacity is expected to provide adequate
liquidity to meet the Company's obligations, to fund future growth and expansion
and fund the Omega(TM) settlements.
New Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130").
SFAS No. 130 established standards for the reporting and display of
comprehensive income in financial statements. Comprehensive income is the change
in net assets during a period from transactions generated from non-owner
sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners. The Company
will adopt SFAS No. 130 in fiscal 1999 and believes that the adoption will not
have a material impact on the Company's financial statements.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS No. 131"). SFAS No. 131 requires that business
segment financial information be reported in the financial statements utilizing
the management approach. The management approach is the manner in which
management organized the segments within the enterprise for making operating
decisions and assessing performance. The Company will adopt SFAS No. 131 in
fiscal 1999 and believes that this adoption will not have a material impact on
the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No.133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 is effective for fiscal
years beginning
- 24 -
<PAGE>
after June 15, 1999. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including derivative instruments embedded in other
contracts, and for derivatives used for hedging activities. SFAS No. 133
requires that all derivatives be recognized either as an asset or liability, and
measures them at fair value. Management believes that the adoption of SFAS No.
133 will not have a material impact on the Company's financial statements.
Commitments and Contingencies
The Company and approximately thirty other local businesses were notified
by the Environmental Protection Agency ("EPA") in August 1991 that they may be a
potentially responsible party with respect to a groundwater contamination
problem in the vicinity of the Company's primary manufacturing plant in
Lansdale, Pennsylvania. The Company entered into an Administrative Order of
Consent for Remedial Investigation/Feasibility Study ("AOC") effective May 19,
1995 with the EPA. Pursuant to the AOC, in 1996 the Company performed certain
tests on the Company's property to determine whether any land owned by the
Company could be a source of any of the contamination at the site. Based upon
such tests management believes that the Company's operations did not contribute
to this contamination problem and the Company has no liability to clean-up this
site. Should the EPA mandate the Company's participation in clean-up efforts it
is estimated that such costs could aggregate $2.7 million. The Company has not
accrued for such clean-up costs.
The Company has commitments and contingencies with respect to settlements,
lawsuits and an administrative lawsuit related to the Company's Omega(TM)
sprinklers as discussed in Item 3, "Legal Proceedings."
- 25 -
<PAGE>
The Company, in the normal course of business, is party to various other
claims and lawsuits with regard to its products and other matters. Management
believes that the ultimate resolution of these other matters will not have a
material impact on the Company's financial position, results of operations or
liquidity.
- 26 -
<PAGE>
Year 2000
At midnight on December 31, 1999, all computer systems that use two digits
to represent the year are at risk of malfunction or failure. Many systems will
continue to run, but may interpret any data in the year '00 to be prior to any
date in the year '99. Businesses and systems that use a four-digit format to
report and process dates later than December 31, 1999 are often denoted as "Year
2000 compliant". While many systems have no date comparison functions and
operate in a date-independent mode, they may have a date function. If full
system operation and correct display of dates subsequent to January 1, 2000 are
possible, these systems may be denoted as "Year 2000 operationally ready". Many
systems and subsystems using two digit dates will operate smoothly until the end
of their technological or economic life without regard to the actual date. These
systems are unaffected by whether it is 2000 or 1900, make no "real-time" date
comparisons and have no date to display features. At the other extreme are
systems that will cease functioning or malfunction when an unacceptable date is
perceived (which in some cases could be during 1999).
The Company is committed to the operation of our business without
interruption. The Company has been and continues to be in the process of
evaluating and modifying both its information technology and non-information
technology infrastructures for the Year 2000 compliance. The Company's primary
operating systems and software are Year 2000 compliant. In the normal course of
business, the Company has upgraded certain systems and software and these
upgrades are Year 2000 compliant. The Company has also modified certain systems
to be Year 2000 compliant. It is anticipated that the full assessment of all
potential issues will be completed in the third fiscal quarter of 1999 and the
issues tested and resolved, through modification or replacement, by the end of
the fourth fiscal quarter of 1999. The Company does not expect that the cost to
modify or replace infrastructure affected by the Year 2000 issue will be
material to its financial condition or results of operations. The Company does
not anticipate any material disruption in its operations as a result of any
failure by the Company to be in compliance. The Company is in the preliminary
stages of assessing the Year 2000 compliance status of its suppliers and vendors
and the potential impact on the Company's operations should they not achieve
Year 2000 compliance. In the event that any of the Company's significant
suppliers or customers do not successfully and timely achieve Year 2000
compliance, the Company's business or operations could be adversely affected.
Throughout the assessment, the Company will be developing contingency plans.
- 27 -
<PAGE>
There can be no assurances that the Company will not experience serious
unanticipated negative consequences and/or material costs caused by undetected
errors or defects in technology used in its products or internal systems which
are comprised predominantly of third party software and hardware, or by the
inability of third parties to adequately disclose and correct their Year 2000
issues. While the Company presently believes that the ultimate outcome of its
efforts to be Year 2000 ready will not have a material effect on the Company's
current financial position, liquidity, or operations, there can be no assurances
that unanticipated increased costs could have a material effect on the results
of operations. Readers should be cautioned that forward-looking statements
contained in the Year 2000 disclosure should be read in conjunction with the
Company's disclosure regarding forward-looking statements.
Forward Looking Statements
This document contains certain forward-looking statements that are subject
to risks and uncertainties. Forward-looking statements include certain
information relating to the Company's product recall and litigation regarding
its Omega(TM) sprinklers (including the adequacy of the charge recorded to cover
the recall and lawsuits relating to the Omega(TM) sprinklers), general business
strategy, the growth expected in the construction market, the potential market
and uses for the Company's sprinklers and other products, expansion plans, cost
structure, the effects of competition on the structure of the markets in which
the Company competes, operating performance and liquidity, matters related to
the Year 2000 issues, market risk, foreign currency fluctuations, litigation
matters and the adequacy of the charge recorded to cover such matters, as well
as information contained elsewhere in this document where statements are
preceded by, followed by or include the words "believes," "expects,"
"estimates," "anticipates" or similar expressions. For such statements, the
Company claims the protection of the
- 28 -
<PAGE>
safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. Actual events or results may differ materially
from those discussed in this document and other documents filed by the Company
with the Securities and Exchange Commission.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity
The Company's interest rate exposure relates primarily to long-term debt
obligations. All debt obligations and the interest rate swap are entered into
for purposes other than trading. A significant portion of the Company's interest
expense is based upon variable interest rates of its banks prime rate or
Eurodollar rate, as discussed in Footnote 7 of the Notes to Consolidated
Financial Statements.
The table below provides fiscal year information about the Company's debt
obligations and interest rate swap agreement. All of the Company's debt
obligations have been classified as variable rate. The table presents principal
cash flows and related weighted average interest rates by expected maturity
dates. For the interest rate swap, the table presents the notional amounts and
weighted average interest rates by contractual maturity date. Notional amounts
are used to calculate the contractual payments to be made under the contract.
Dollar amounts are in thousands.
- --------------------------------------------------------------------------------
Expected Variable Rate Average Average
Maturity Long-Term Interest Interest Pay
Date Debt Rate Rate Swap Rate
-------- ------------- -------- --------- --------
1999 $ 4,064 6.59% $ 550 .875%
2000 4,618 6.54 550 .875
2001 57,003 6.11 550 .875
2002 1,368 4.54 550 .875
2003 1,345 4.49 550 .875
Thereafter 12,473 4.43 7,150 .875
------- ------
Total $80,871 6.13% $9,900 .875%
======= ======
Fair Value $80,871 $ (560)
======= ======
- --------------------------------------------------------------------------------
Exchange Rate Sensitivity
The Company conducts business on a global basis in several major
international currencies. As such, it is exposed to adverse or beneficial
movements in foreign currency exchange rates. Fluctuations in foreign currency
exchange rates have not had, and are not anticipated to have, a material impact
on the Company's current financial condition, liquidity, or operations.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements of the Company for the years ended
October 31, 1998, 1997, and 1996, together with the report thereon of Arthur
Andersen LLP dated December 18, 1998, are set forth on pages F-1 through F-17
hereof. The supplementary financial data for the Company is set forth on page
F-18 hereof.
The remainder of the financial information required by this report is set
forth on page S-1 which follows the consolidated financial statements and
supplementary financial data set forth on pages F-1 through F-18 hereof. Such
information is listed in Item 14(a)(2) hereof.
Item 9. Disagreements on Accounting and Financial Disclosure.
There have been no disagreements on any matter of accounting principles or
practices or financial statement disclosure between the Company and its
independent public accountants within the past two fiscal years.
- 29 -
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The names and ages of the Registrant's executive officers and
key employees, their positions with the Company and with Central Sprinkler, its
primary operating subsidiary, and their principal occupations during the past
five years are as follows:
Position(s) with the Company, and
where indicated, with Central
Name Age Sprinkler
- --------------------- ---- --------------------------------------------
E. Talbot Briddell 56 Chairman, Chief Executive Officer and
Director
George G. Meyer 49 President, Secretary, Treasurer and Director
Stephen J. Meyer 47 Senior Executive Vice President of Central
Sprinkler and Director
James R. Buchanan 49 Executive Vice President, Sales of Central
Sprinkler
Albert T. Sabol 46 Executive Vice President, Finance and Chief
Financial Officer of the Company and Central
Sprinkler
James E. Golinveaux 35 Senior Vice President, Engineering of Central
Sprinkler
Anthony A. DeGregorio 39 Vice President, SprinkCAD of Central
Sprinkler
Michael J. Graham 53 Vice President, International Operations of
Central Sprinkler
Carmine L. Schiavone 32 Vice President, Piping Products of Central
Sprinkler
Leonard E. Schiavone 32 Vice President, Piping Products of Central
Sprinkler
E. TALBOT BRIDDELL - Mr. Briddell has been the Chairman of the
Company since January 1999 and Chief Executive Officer and a director of the
Company since July 1998. Mr. Briddell is President of Phoenix Management
Services, Inc., a private consulting firm, since 1985.
GEORGE G. MEYER - Mr. Meyer has been President of the Company
since November 1997. He has been the Secretary and Treasurer of the Company
since 1985, and a director of the Company and President and a director of
Central Sprinkler since 1984. He was Executive Vice President of the Company
from 1985 to 1987.
STEPHEN J. MEYER - Mr. Meyer has been Senior Executive Vice
President of Central Sprinkler since November 1997. He was a director of the
Company and Executive Vice President of Central Sprinkler since 1986. He has
been a director of Central Sprinkler since 1983.
- 30 -
<PAGE>
JAMES R. BUCHANAN - Mr. Buchanan has been Executive Vice
President, Sales of Central Sprinkler since 1996. He was Vice President, Sales
of Central Sprinkler since 1984.
ALBERT T. SABOL - Mr. Sabol has been Executive Vice President,
Finance and Chief Financial Officer of the Company and Central Sprinkler since
November 1997. He was Executive Vice President, Finance and Administration of
the Company and Central Sprinkler since 1996. He was Vice President, Finance and
Chief Financial Officer of the Company and Central Sprinkler since 1986.
JAMES E. GOLINVEAUX - Mr. Golinveaux has been Senior Vice
President, Engineering of Central Sprinkler since November 1998. He has been
Senior Vice President, Manufacturing and Engineering of Central Sprinkler since
November 1997. He was Senior Vice President, Engineering of Central Sprinkler
since 1996. He was Vice President, Technical Service and Engineering of Central
Sprinkler since 1993 and Vice President, Technical Service of Central Sprinkler
since 1992. He was Director of Technical Service from 1991 to 1992. From 1986 to
1991 he was the Design Manager for a large fire protection installation
contractor.
ANTHONY A. DEGREGORIO - Mr. DeGregorio has been Vice President,
SprinkCAD of Central Sprinkler since 1993 and was manager of SprinkCAD sales and
service from 1990 to 1993. From 1986 to 1990 he was General Manager of a
computer aided design services company.
MICHAEL J. GRAHAM - Mr. Graham has been Vice President,
International Operations of Central Sprinkler since 1995 and Managing Director
of Spraysafe Automatic Sprinkler Limited (U.K.) since 1990.
CARMINE L. SCHIAVONE - Mr. Schiavone has been Vice President of
Piping Products of Central Sprinkler since 1996 and was Director of Piping
Products from 1995 to 1996 and Manager of Piping Products from 1993 to 1995. He
was Manager of Customer Service from 1989 to 1993.
LEONARD E. SCHIAVONE - Mr. Schiavone has been Vice President of
Piping Products of Central Sprinkler since 1996 and was Director of Piping
Products from 1995 to 1996. He was a Marketing Manager from 1989 to 1995.
George G. and Stephen J. Meyer are brothers.
The remainder of the information called for by this Item is incorporated
herein by reference to Registrant's definitive Proxy Statement for its 1999
Annual Meeting of Shareholders which Registrant intends to file with the
Commission not later than 120 days after the end of the fiscal year covered by
this Form 10-K.
- 31 -
<PAGE>
Item 11. Executive Compensation.
The information called for by this Item is incorporated herein by
reference to Registrant's definitive Proxy Statement for its 1999 Annual Meeting
of Shareholders which Registrant intends to file with the Commission not later
than 120 days after the end of the fiscal year covered by this Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information called for by this Item is incorporated herein by
reference to Registrant's definitive Proxy Statement for its 1999 Annual Meeting
of Shareholders which Registrant intends to file with the Commission not later
than 120 days after the end of the fiscal year covered by this Form 10-K.
Item 13. Certain Relationships and Related Transactions.
The information called for by this Item is incorporated herein by
reference to Registrant's definitive Proxy Statement for its 1999 Annual Meeting
of Shareholders which Registrant intends to file with the Commission not later
than 120 days after the end of the fiscal year covered by this Form 10-K.
- 32 -
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
(1) The financial statements and supplemental
financial data required by Item 8 of this report
are filed below:
FINANCIAL STATEMENTS:
Page(s)
-------
Report of Independent Public Accountants................. F-1
Consolidated Balance Sheets as of October 31, 1998 and
1997................................................... F-2-3
Consolidated Statements of Operations for the years ended
October 31, 1998, 1997 and 1996........................ F-4
Consolidated Statements of Cash Flows for the years
ended October 31, 1998, 1997 and 1996.................. F-5-6
Consolidated Statements of Shareholders' Equity for the
years ended October 31, 1998, 1997 and 1996............ F-7
Notes to Consolidated Financial Statements............... F-8-17
Supplementary Financial Data (unaudited):
Page
----
Quarterly Financial Data................................. F-18
(2) The financial statement schedules required by
Item 8 of this report are listed below:
Page
----
Schedule II - Valuation and Qualifying Accounts.......... S-1
Other Schedules are omitted because of the absence of
conditions under which they are required or because the required information is
given in the financial statements or notes thereto.
- 33 -
<PAGE>
(3) Index of Exhibits
The following is a list of the Exhibits filed as a part of this
report:
Footnote to Exhibits:-
* Indicates this is a management contract which is a compensatory plan
or arrangement which is required to be filed as an exhibit to this
form pursuant to Item 14(c) of this report.
The following Exhibit has previously been filed with the Registrant's
Annual Report on Form 10-K for the year ended October 31, 1990 as Exhibit 3(a)
and is incorporated herein by reference thereto:
3(a) Restated Articles of Incorporation of the Registrant
The following Exhibit has been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1987 as Exhibit 3(b)
and is incorporated herein by reference thereto:
3(b) Restated By-Laws of the Registrant
The following Exhibits 10(a) through 10(b) have been previously filed
with Registrant's Form S-1 Registration Statement No. 2-96850 dated April 3,
1985, to Amendment No. 1 thereto dated May 8, 1985 or to Amendment No. 2 thereto
dated May 17, 1985 as the Exhibit numbers indicated and are incorporated herein
by reference thereto:
10(a) Deferred Compensation Plan (formerly 10(f))*
10(b) Multiemployer Union-Sponsored Pension Plan (formerly 10(i))
The following Exhibits have been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1986 as the Exhibit
numbers indicated and are incorporated herein by reference thereto:
10(c) Form of Indemnification Agreement among Central Sprinkler
Corporation, Central Sprinkler Company, CSC Finance Company and
their Executive Officers and Directors dated September 15, 1986
(formerly 10(t))*
- 34 -
<PAGE>
10(d) 1986 Incentive Stock Option Plan, as amended to date (formerly
10(v))*
The following Exhibit has been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1988 as the Exhibit
number indicated and is incorporated herein by reference thereto:
10(e) Incentive Compensation Plan, as amended to date (formerly
10(k))*
The following Exhibits have been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1990 as the Exhibit
numbers indicated and are incorporated herein by reference thereto:
10(f) Employment Agreement with George G. Meyer dated March 19, 1990
(formerly 10(o))*
10(g) Employment Agreement with Stephen J. Meyer dated March 19, 1990
(formerly 10(p))*
The following Exhibit has been previously filed with Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended April 30, 1992 as
the Exhibit 19 and is incorporated herein by reference thereto:
10(h) 1988 Non-Qualified Stock Option Plan, as amended
- 35 -
<PAGE>
The following Exhibit has been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1993 as the Exhibit
number indicated and is incorporated herein by reference thereto:
10(i) 1993 Non-Employee Director Stock Option Plan (formerly (10(r))
The following Exhibit has been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1994 as the Exhibit
number indicated and is incorporated herein by reference thereto:
10(j) Central Sprinkler 401(k) Profit Sharing Plan and Trust, as
amended to date (formerly 10(s))
The following Exhibits have been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1995 as the Exhibit
numbers indicated and are incorporated herein by reference thereto:
10(k) Amendment of Employment Agreement with George G. Meyer dated
January 5, 1996 (formerly 10(w))*
10(l) Amendment of Employment Agreement with Stephen J. Meyer dated
January 5, 1996 (formerly 10(x))*
- 36 -
<PAGE>
10(m) Loan Agreement between Alabama State Industrial Development
Authority and Central Castings Corporation dated as of
November 1, 1995 (formerly 10(ab))
10(n) Lease Agreement between Calhoun County Economic Development
Council and Central Castings Corporation dated as of November
1, 1995 (formerly 10(ac))
The following Exhibits have been previously filed with the
Registrant's Annual Report on Form 10-K for the year ended October 31, 1996 as
the Exhibit Numbers indicated and are incorporated herein by reference thereto:
10(o) Central Sprinkler Corporation Employee Stock Ownership Plan,
as amended to date (formerly ad))
10(p) Central Sprinkler Corporation 1996 Equity Compensation Plan
(formerly 10(ae))*
10(q) Interest Rate and Currency Exchange Agreement between Central
Castings Corporation and CoreStates Bank, N.A. (formerly 10
(af))
- 37 -
<PAGE>
The following Exhibits have been previously filed with Registrant's
Annual Report on Form 10-K for the year ended October 31, 1997 as the Exhibit
numbers indicated and are incorporated herein by reference thereto:
10(r) Central Castings Corporation 401(K) Profit Sharing Plan
10(s) Central CPVC Company 401(K) Profit Sharing Plan
10(t) Employment Agreement with William J. Meyer dated November 1,
1997
The following Exhibits are filed herewith:
10(u) Loan and Security Agreement between Congress Financial
Corporation and Central Sprinkler Company, Central Castings
Corporation, and Central CPVC Corporation dated September 18,
1998 (pages 57 - 146 in the sequential numbering system).
10(v) Term Promissory Note between the Company and Congress
Financial Corporation dated September 18, 1998.
(pages 147 - 150 in the sequential numbering system).
10(w) Pledge and Security Agreement between the Company and Congress
Financial Corporation dated September 18, 1998.
(pages 151 - 159 in the sequential numbering system).
10(x) Amended and Restated Lease Agreement dated October 1, 1998
between the Industrial Development Board of the City of
Huntsville and Central CPVC Corporation. (pages 160 - 202 in
the sequential numbering system).
10(y) The Industrial Development Board of the City of Huntsville
and First Union National Bank Trust Indenture dated October
31, 1998. (pages 203 - 314 in the sequential numbering
system).
10(z) Irrevocable Direct-Pay Letter of Credit between Central CPVC
Corporation and First Union National Bank. (pages 315 - 329
in the sequential numbering system).
10(aa) United States of America Consumer Product Safety Commission
Consent Agreement (pages 330 - 339 in the sequential numbering
system).
10(ab) United States of America Consumer Product Safety Commission
Order (pages 340 - 347 in the sequential numbering system).
10(ac) Irrevocable Deed of Trust dated November 2, 1998 between
Central Sprinkler Corporation, et al and Mellon Bank N.A.
pursuant to the Consent Agreement (pages 348-361 in the
sequential numbering system).
10(ad) Amended settlement dated October 2, 1998 between Central
Sprinkler Corporation, Central Sprinkler Company with the
plaintiffs Hart and Santa Clara (pages 362-482 in the
sequential numbering system).
21 Subsidiaries of Registrant (page 483 in the sequential
numbering system)
23 Consent of Independent Public Accountants (page 484 in the
sequential numbering system)
(b) No reports on Form 8-K were filed during the quarter ended October 31, 1998.
- 38 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
CENTRAL SPRINKLER CORPORATION
By: /s/E. Talbot Briddell
--------------------------------
E. Talbot Briddell
Chairman and Chief Executive
Officer
Date: January 27, 1999
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 as of the date indicated.
Signature Title Date
- ---------------------- --------------------- ------------------
/s/George G. Meyer President, Treasurer, January 27, 1999
- ---------------------- Secretary and Director
George G. Meyer
/s/Stephen J. Meyer Senior Executive January 27, 1999
- ---------------------- Vice President and
Stephen J. Meyer Director
/s/Albert T. Sabol Executive Vice January 27, 1999
- ---------------------- President Finance
Albert T. Sabol (Principal Financial
and Accounting Officer)
/s/Winston J. Churchill Director January 27, 1999
- -----------------------
Winston J. Churchill
/s/Barbara M. Henagan Director January 27, 1999
- -----------------------
Barbara M. Henagan
/s/Thomas J. Sharbaugh Director January 27, 1999
- -----------------------
Thomas J. Sharbaugh
/s/Timothy J. Wagg Director January 27, 1999
- ---------------------
Timothy J. Wagg
- 39 -
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To Central Sprinkler Corporation:
We have audited the accompanying consolidated balance sheets of Central
Sprinkler Corporation (a Pennsylvania corporation) and subsidiaries as of
October 31, 1998 and 1997, and the related consolidated statements of
operations, cash flows and shareholders' equity for the years ended October 31,
1998, 1997 and 1996. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on the financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Central Sprinkler Corporation
and subsidiaries as of October 31, 1998 and 1997, and the results of their
operations and their cash flows for the years ended October 31, 1998, 1997 and
1996, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. The schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
Philadelphia, Pa., /s/ Arthur Andersen LLP
December 18, 1998
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share)
<TABLE>
<CAPTION>
October 31,
-----------------------------------
ASSETS 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 18,801 $ 6,568
Short-term investments - 14,288
Accounts receivable, less allowance for doubtful receivables
of $6,688 in 1998 and $5,949 in 1997, respectively 45,315 48,048
Inventories 43,319 50,450
Deferred income taxes 11,117 8,227
Prepaid expenses and other assets 4,968 3,414
-------- --------
Total current assets 123,520 130,995
-------- --------
Property, Plant and Equipment:
Land 811 811
Buildings and improvements 14,837 14,464
Machinery and equipment 56,710 55,567
Furniture and fixtures 2,626 2,570
-------- --------
74,984 73,412
Less - Accumulated depreciation (29,989) (25,480)
-------- --------
44,995 47,932
-------- --------
Goodwill, less accumulated amortization of $3,765 in 1998
and $3,514 in 1997, respectively 2,257 2,508
-------- --------
Other Assets 6,332 6,592
-------- --------
$177,104 $188,027
======== ========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
<PAGE>
<TABLE>
<CAPTION>
October 31,
-------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Current Liabilities:
<S> <C> <C>
Short-term borrowings $ 297 $ 2,403
Current portion of long-term debt 4,064 2,854
Accounts payable 21,353 27,626
Accrued expenses 20,379 13,122
-------- --------
Total current liabilities 46,093 46,005
-------- --------
Long-Term Debt 76,807 79,918
-------- --------
Long-Term Omega(TM)Liabilities 23,141 8,700
-------- --------
Other Noncurrent Liabilities 296 310
-------- --------
Deferred Income Taxes - 196
-------- --------
Commitments and Contingent Liabilities (Note 14)
Shareholders' Equity:
Common stock, $.01 par value; shares authorized - 15,000;
issued - 5,568 in 1998 and 1997 56 56
Additional paid-in capital 31,179 31,059
Retained earnings 21,556 44,160
Cumulative translation adjustments 145 184
Deferred cost-Employee Stock Ownership Plan ("ESOP") (5,260) (5,652)
-------- --------
47,676 69,807
Less - Common stock in treasury, at cost - 1,722 shares
in 1998 and 1997 (16,909) (16,909)
-------- --------
Total shareholders' equity 30,767 52,898
-------- --------
$177,104 $188,027
======== ========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share)
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $224,930 $221,990 $ 187,220
Cost of Sales 164,929 155,710 131,245
-------- -------- ---------
Gross profit 60,001 66,280 55,975
-------- -------- ---------
Operating Expenses:
Selling, general and administrative 42,870 44,984 37,771
Research and development 6,404 7,351 5,455
-------- -------- ---------
49,274 52,335 43,226
-------- -------- ---------
Unusual Omega(TM)charge 38,015 13,200 3,750
-------- -------- ---------
Operating income (loss) (27,288) 745 8,999
-------- -------- ---------
Interest Expense (Income):
Interest expense 5,836 4,880 3,390
Interest (income) (675) (558) (451)
-------- -------- ---------
5,161 4,322 2,939
-------- -------- ---------
Income (loss) before income taxes (32,449) (3,577) 6,060
Income Tax Provision (Benefit) (9,845) (1,035) 2,297
-------- -------- ---------
Net Income (Loss) $(22,604) $ (2,542) $ 3,763
======== ======== =========
Net Income (Loss) per Common Share
Basic $ (6.89) $ (.78) $ 1.19
======== ======== =========
Diluted $ (6.89) $ (.78) $ 1.13
======== ======== =========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $(22,604) $(2,542) $ 3,763
Noncash items included in net income (loss):
Depreciation and amortization 8,502 6,924 4,731
Deferred income taxes (7,297) (2,711) (1,878)
Deferred costs 498 713 818
Loss of disposition of assets 306 - -
Unusual Omega(TM)charge 38,015 13,200 3,750
Decrease (increase) in -
Accounts receivable, net 2,733 (9,530) (6,832)
Inventories 7,131 (7,036) (7,459)
Prepaid expenses and other assets (1,050) (2,804) 40
Increase (decrease) in -
Accounts payable (6,273) 7,633 7,269
Accrued expenses and other noncurrent liabilities (16,317) (2,624) (26)
-------- ------- -------
Cash provided by operating activities 3,644 1,223 4,176
-------- ------- -------
Investing activities:
Acquisition of property, plant and equipment (5,620) (13,246) (17,813)
Sale of short-term investments 29,210 5,450 5,716
Purchase of short-term investments (14,922) (7,272) (8,103)
Repurchase of subsidiary bond issue (7,500) - -
Sale of subsidiary bond issue 7,500 - -
Other long-term assets 3,967 (4,929 (772)
-------- ------- -------
Cash provided by (used in) investing activities 12,635 (19,997) (20,972)
-------- ------- -------
Financing activities:
Short-term (repayments) borrowings, net (2,106) (31,987) 9,328
Proceeds from long-term debt 70,825 57,575 12,018
Repayments of long-term debt (72,726) (3,327) (3,823)
Other - net (39) 197 132
-------- ------- -------
Cash (used in) provided by financing activities (4,046) 22,458 17,655
-------- ------- -------
Increase in cash and cash equivalents 12,233 3,684 859
Cash and cash equivalents at beginning of year 6,568 2,884 2,025
-------- ------- -------
Cash and cash equivalents at end of year $ 18,801 $ 6,568 $ 2,884
======== ======= =======
</TABLE>
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in thousands)
<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest expense $ 5,964 $ 4,946 $ 3,466
======= ======== =======
Income taxes $ 478 $ 4,431 $ 3,943
======= ======== =======
Interest income $ (821) $ (554) $ (485)
======= ======== =======
Supplemental schedule of non-cash investing and financing activities:
Refinancing of short-term
borrowings with long-term debt $ 7,500 $ - $ -
======= ======== =======
</TABLE>
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands)
<TABLE>
<CAPTION>
Unrealized
Common Stock Additional Cumulative Deferred Investment Treasury
---------------- Paid-in Retained Translation Cost- Holding Stock,
Shares Amount Capital Earnings Adjustments ESOP Gains, Net Common
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1995 5,472 $55 $29,118 $42,939 $(109) $(6,360) $ 10 $(16,103)
Unrealized investment
holding losses, net - - - - - - (10) -
Exercise of stock options 2 - 40 - - - - -
Annual ESOP costs - - 605 - - 342 - -
Translation adjustments - - - - 102 - - -
Net income - - - - 3,763 - - -
----- --- ------- ------- ----- ------- ---- --------
Balance, October 31, 1996 5,474 55 29,763 46,702 (7) (6,018) - (16,103)
Exercise of stock options 94 1 811 - - - - (806)
Annual ESOP costs - - 485 - - 366 - -
Translation adjustments - - - - 191 - - -
Net loss - - (2,542) - - - - -
----- --- ------- ------- ----- ------- ---- --------
Balance, October 31, 1997 5,568 56 31,059 44,160 184 (5,652) - (16,909)
Annual ESOP costs - - 120 - - 392 - -
Translation adjustments - - - - (39) - - -
Net loss - - - (22,604) - - - -
----- --- ------- ------- ----- ------- ---- --------
Balance, October 31, 1998 5,568 $56 $31,179 $21,556 $ 145 $(5,260) $ - $(16,909)
===== === ======= ======= ===== ======= ==== ========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
<PAGE>
Central Sprinkler Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share)
1. Summary of Significant Accounting Policies:
The Company - The Company's operations are conducted in one business
segment as a manufacturer and distributor of components used in automatic fire
sprinkler systems. These fire sprinkler system components are used in
commercial, industrial, residential and institutional properties and are sold to
over 3 thousand customers, most of which are sprinkler installation contractors.
Principles of Consolidation - The consolidated financial statements
include the accounts of Central Sprinkler Corporation and its subsidiaries (the
"Company"). All significant intercompany transactions and accounts have been
eliminated.
Cash Equivalents - The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents for the purpose of determining cash flows.
Short-Term Investments - The Company accounts for short-term
investments in accordance with Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
No. 115"). The Company's short-term investments have been categorized as
available for sale and as a result are stated at fair value. Unrealized holding
gains and losses are included as a separate component of shareholders' equity
until realized. All of the Company's investment holdings have been classified in
the consolidated balance sheet as current assets.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out) or market.
Property, Plant and Equipment - Property, plant and equipment are
stated at cost. Depreciation and amortization are being recorded on a
straight-line basis over the estimated lives of the assets which range from 3 to
20 years. The Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("SFAS No. 121") effective November 1, 1996. SFAS No.
121 did not have a material impact on the Company's financial position or
results of operations.
Goodwill - Goodwill represents the excess of the purchase cost of net
assets acquired over their fair market value and is amortized primarily on a
straight-line basis over 25 years. The Company considers goodwill to be fully
realizable through future operations.
<PAGE>
Fair Value of Financial Instruments - The Company's financial
instruments consist primarily of cash and cash equivalents, short-term
investments, accounts receivable, accounts payable, and debt instruments. The
book values of cash and cash equivalents, short-term investments, accounts
receivable, and accounts payable are considered to be representative of their
respective fair values. Based on the terms of the Company's debt instruments
that are outstanding as of October 31, 1998 the carrying values are considered
to approximate their respective fair values. See Note 7 for the terms and
carrying values of the Company's various debt instruments.
Foreign Currency Translation - Assets and liabilities of a foreign
subsidiary are translated into U.S. dollars at the rate of exchange prevailing
at the end of the year. Income statement accounts are translated at the average
exchange rate prevailing during the year. Translation adjustments resulting from
this process are recorded directly in shareholders' equity.
Research and Development Costs - Costs of research, new product
development and product redesign are expensed as incurred.
Income Taxes - The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). SFAS No. 109 requires the liability method of accounting for deferred
income taxes. Deferred tax liabilities and assets are recognized for the tax
effects of the difference between the financial reporting and tax bases of
assets and liabilities. Deferred tax assets and liabilities at the end of each
period are determined using the tax rate expected to be in effect when taxes are
actually paid or recovered.
Net Income (Loss) Per Common Share - Net income (loss) per common share
is computed under Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" ("SFAS No. 128") . In accordance with SFAS No. 128, basic net income
(loss) per share is computed using the weighted average number of shares of
common stock outstanding. Diluted net income (loss) per common share is computed
using the weighted average number of shares of common stock and common stock
equivalents outstanding (dilutive stock options) unless the inclusion of common
stock equivalents would have an anti-dilutive impact.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the fiscal year. Actual amounts could differ from those estimates.
<PAGE>
Reclassifications - Certain reclassifications of previously reported
balances have been made to conform with the current year classification of such
balances.
New Accounting Pronouncements - The Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 established standards for
the reporting and display of comprehensive income in financial statements.
Comprehensive income is the change in net assets during a period from
transactions generated from non-owner sources. It includes all changes in equity
during a period except those resulting from investments by owners and
distributions to owners. The Company will adopt SFAS No. 130 in fiscal 1999 and
believes that the adoption will not have a material impact on the Company's
financial statements.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS No. 131"). SFAS No. 131 requires that business
segment financial information be reported in the financial statements utilizing
the management approach. The management approach is the manner in which
management organized the segments within the enterprise for making operating
decisions and assessing performance. The Company will adopt SFAS No. 131 in
fiscal 1999 and believes that this adoption will not have a material impact on
the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 is effective
for fiscal years beginning after June 15, 1999. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for derivatives used for
hedging activities. SFAS No. 133 requires that all derivatives be recognized
either as an asset or liability, and measures them at fair value. Management
believes that the adoption of SFAS No. 133 will not have a material impact on
the Company's financial statements.
<PAGE>
2. Net Income (Loss) Per Common Share:
In the first quarter of fiscal 1998, the Company adopted SFAS No. 128,
"Earnings Per Share". In accordance with SFAS No. 128, the Company's prior years
reported net income (loss) per share amounts were restated to comply with SFAS
No. 128. Basic net income (loss) per share is computed using the weighted
average number of shares of common stock outstanding. Diluted net income (loss)
per share is computed using the weighted average number of shares of common
stock and common stock equivalents outstanding (dilutive stock options) unless
the inclusion of common stock equivalents would have an anti-dilutive impact. In
accordance with Statement of Position No. 93-6, "Employers' Accounting for
Employee Stock Ownership Plans" ("SOP 93-6"), unreleased shares of the Company's
stock in the ESOP are excluded from the average number of common shares
outstanding when computing basic and diluted net income (loss) per common share.
The weighted average common and common equivalent shares outstanding for
purposes of calculating net income (loss) per common share are computed as
follows -
Year ended October 31,
----------------------------
1998 1997 1996
- -------------------------------------------------------------------
Net income (loss) used for
basic and diluted net
income (loss) per
common share $(22,604) $(2,542) $3,763
======= ====== =====
Weighted average number
of common shares
outstanding 3,845 3,843 3,793
Adjustment to exclude
average unreleased
common shares in ESOP (564) (604) (640)
------- ------ -----
Weighted average common
shares outstanding for
basic net income (loss)
per common share 3,281 3,239 3,153
Dilutive effect of common
stock options outstanding - - 177
------- ------ -----
Weighted average common
and common equivalent
shares outstanding for
diluted net income (loss)
per common share 3,281 3,239 3,330
======= ====== =====
- -------------------------------------------------------------------
<PAGE>
3. Foreign Operations:
The Company owns Spraysafe Automatic Sprinklers Limited ("Spraysafe"),
a Company in the United Kingdom. Spraysafe manufactures sprinkler heads and
distributes these and other products in Europe and other foreign countries.
Significant financial information about Spraysafe's operations consist
of the following-
Year Ended October 31,
--------------------------------
1998 1997 1996
- -------------------------------------------------------------------
Sales $15,099 $17,254 $16,807
Operating income 996 1,264 1,390
Net income 445 495 789
Total assets 10,406 12,382 10,803
Total liabilities 5,221 7,747 6,799
- -------------------------------------------------------------------
Foreign and export net sales for the Company are comprised of the
following -
Year Ended October 31,
--------------------------------
1998 1997 1996
- -------------------------------------------------------------------
Pacific and Far East $ 9,583 $10,485 $10,127
Europe 6,265 6,426 7,038
Canada 5,098 6,151 4,847
Other 4,663 3,519 1,379
------- ------- -------
$25,609 $26,581 $23,391
======= ======= =======
- -------------------------------------------------------------------
4. Short-Term Investments:
The following is a summary of the estimated fair value of available for
sale securities by balance sheet classification -
October 31,
-------------------------
1998 1997
- -------------------------------------------------------------------
Cash Equivalents:
U.S. Money Market Funds
and Time Deposits $ 17,721 $ 4,978
======== =======
Short-Term Investments:
Tax-Exempt Securities $ - $14,288
======== =======
<PAGE>
Gross unrealized holding gains and losses for the years ended
October 31, 1998, 1997 and 1996 were not material. The gross proceeds from sales
and maturities of investments were $29,210, $5,450, and $5,716 for the years
ended October 31, 1998, 1997 and 1996, respectively. Gross realized gains and
losses for the years ended October 31, 1998, 1997 and 1996 were not material.
For the purpose of determining gross realized gains and losses, the cost of
securities sold is based upon specific identification.
Short-term investments as of October 31, 1997 are generally
comprised of variable rate securities that provide for optional or early
redemption within twelve months and the contractual maturities are generally
greater than twelve months.
5. Inventories:
Inventories consist of the following-
October 31,
-------------------------
1998 1997
- -------------------------------------------------------------------
Raw materials and work in process $15,605 $16,053
Finished goods 27,714 34,397
------- -------
$43,319 $50,450
======= =======
- -------------------------------------------------------------------
6. Shareholders' Equity:
Redeemable Preferred Stock - The Company has authorized 2,000 shares of
Redeemable Preferred Stock, $.01 par value. At October 31, 1998, 1997 and 1996,
there were no shares issued and outstanding.
Treasury Stock - Treasury stock increased by 42 shares in fiscal 1997
through the surrendering to the Company of such shares as payment for the
exercise of stock options. There were no repurchases in fiscal 1998 or 1996. All
shares are being held in the treasury for possible future issuance.
Stock Options - The Company has several stock option plans ("option
plans") under which shares of common stock may be granted. The option plans
provided for the grant of 500 nonqualified options under a plan adopted in 1988
and amended in fiscal 1991 and 800 nonqualified stock options under a plan
adopted in 1996. Under a plan adopted in 1993, the Company issued 60
nonqualified options under a non-employee director stock option plan. Options
have been granted to officers, other key employees and non-employee directors at
exercise prices not less than 100% of the fair market value of the Company's
common stock on the date of the grant. The options become exercisable after the
date of the grant and expire ten years from the date of grant.
<PAGE>
The following table presents data related to the option plans-
Weighted
Stock Option Average
Options Price Price
- ------------------------------------------------------------------
October 31, 1995 468 $8.60-$15.60 $11.86
Granted 112 29.95 29.95
Exercised (2) 13.00 13.00
----
October 31, 1996 578 8.60-29.95 15.34
Granted 459 24.05-50.00 39.80
Cancelled (5) 8.60 8.60
Exercised (94) 8.60 8.60
-----
October 31, 1997 938 10.52-50.00 27.95
Granted 210 7.81-50.00 16.12
Cancelled (32) 13.80-29.95 22.32
-----
October 31, 1998 1,116 $7.81-$50.00 $25.88
=====
Exercisable Options:
October 31, 1996 502 $8.60-$29.95 $13.18
=====
October 31, 1997 856 $8.60-$50.00 $27.99
=====
October 31, 1998 884 $10.52-$50.00 $27.93
=====
- -----------------------------------------------------------------
At October 31, 1998, 189 stock options were available for grant under
the 1996 plan.
Information with respect to the options outstanding under the option
plans are summarized as follows-
Range of Exercise Prices
------------------------------------
$7.81-$13.80 $15-$30 $30-$50
- -------------------------------------------------------------------
October 31, 1998:
Options outstanding 514 197 405
Weighted average
remaining life 4.0 7.2 7.6
Weighted average
exercise prices $11.49 $27.75 $43.14
Options exercisable 364 154 366
Weighted average
exercise prices $12.66 $27.88 $43.11
- -------------------------------------------------------------------
<PAGE>
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and the related interpretations in
accounting for its stock option plans. The Company has adopted the disclosure
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"). Accordingly, no compensation
cost has been recognized for the stock option plans. Had compensation cost for
the Company's stock option plans been determined based on the fair value of the
options at the grant date, as prescribed by SFAS No. 123, the Company's net
income (loss) and net income (loss) per share would have been as follows -
October 31,
----------------------------------------
1998 1997 1996
----------------------------------------
Net income (loss)-
as reported $(22,604) $(2,542) $3,763
Net income (loss)-
pro forma (23,538) (7,568) 3,458
Net income (loss)
per share-as reported:
Basic (6.89) (.78) 1.19
Diluted (6.89) (.78) 1.13
Net income (loss)
per share-pro forma:
Basic (7.32) (2.37) 1.10
Diluted (7.32) (2.37) 1.04
- -------------------------------------------------------------------
The weighted average fair value of each stock option granted during the
fiscal years ended October 31, 1998, 1997 and 1996 was $3.42, $15.81 and $18.09,
respectively. As of October 31, 1998, the weighted average remaining contractual
life of each stock option outstanding was 6.2 years. The weighted average
remaining contractual life of each stock option granted during the years ended
October 31, 1998, 1997 and 1996 was 9.5, 9.1 and 9.0 years, respectively. The
fair value of each grant is estimated on the date of grant using the
Black-Sholes option pricing model with the following weighted average
assumptions for fiscal 1998, 1997 and 1996: no expected dividend yield; expected
volatility-50%; risk-free interest rate of 4.5% for 1998 grants and 6.0% for
1997 and 1996 and an expected life of 3.7, 8.8, and 7.0 years, respectively. As
the result of additional option grants that may be made in future years, the pro
forma disclosures may not be representative of pro forma effects of reported net
income (loss) for future years.
<PAGE>
7. Debt:
The Company's long-term debt consists of the following-
October 31,
--------------------------
1998 1997
- -------------------------------------------------------------------
Revolver Credit Facilities $49,518 $50,000
Term Loan 12,338 7,500
Industrial Revenue Bonds 9,900 10,450
Industrial Development Revenue Bonds 7,500 -
Foreign Term Loan 853 980
Foreign Notes 762 -
Term Loan - 6,500
Term Loan - 6,417
Mortgage Loans - 925
------- -------
80,871 82,772
Less-Current portion (4,064) (2,854)
------- -------
$76,807 $79,918
======= =======
- -------------------------------------------------------------------
The Company entered into a Loan and Security Agreement ("Agreement")
with its bank in September of 1998, as part of a debt refinancing and debt
consolidation. As part of the refinancing, the Company received gross loan
proceeds of $62,100 and repaid outstanding debt including the previous Revolver
Credit Agreement, several term notes and mortgage notes with a total outstanding
balance of $62,100 as of the date of the refinancing. These repaid debt
instruments were canceled as part of the refinancing. The borrowing commitment
and availability in the Agreement, including term equipment notes, revolving
credit facilities and letters of credit, are subject to borrowing base formulas
as defined in the Agreement. The maximum borrowing availability under the
revolving credit facility portion is $77,600 less the outstanding portion of any
term notes issued under the agreement. At October 31, 1998, $49,518 was
outstanding under the revolving credit facility and $12,338 was outstanding
under a Term Loan.
<PAGE>
The borrowing base as defined in the Agreement is based on the
appraised value of certain pledged property, plant and equipment, a percentage
of eligible accounts receivable and inventories and the amount of pledged cash
and short term investments. The Agreement expires on March 30, 2001, subject to
renewal, and outstanding borrowings under the revolving credit facility will
bear interest at the lower of the Eurodollar rate plus 1.75% or the bank's prime
rate. The interest rate on the revolving credit facility was 6.97% at October
31, 1998. The interest rate on the Term Loan is variable and was 8.25% at
October 31, 1998 with interest and principal payable monthly. Monthly principal
payments for the Term Loan are $263. The Agreement requires the Company to
maintain a minimum adjusted tangible net worth and comply with other
affirmative, negative and subjective covenants. As of October 31, 1998, the
Company is in compliance with these loan covenants. Approximately $11,700 of the
Revolver was unused and available for use at October 31, 1998, based on the
borrowing base formula. Under the terms of the new Revolving Credit Facility,
the Company must maintain minimum balances of net borrowing availability. Should
the net balance of borrowing availability fall below such level, the bank may
require the Company to apply its lockbox receipts to its loan balances. The
Company also has a capital expenditure facility of $18,000 to finance future
capital expenditures. At October 31, 1998, there was no borrowing under this
facility. The outstanding borrowings under the Revolving Credit Facility have
been classified as a long-term liability since the Agreement does not expire
until March 30, 2001 and the Company expects to maintain compliance with all
covenants and minimum balances as required.
The Company's Industrial Revenue Bonds consist of original principal
amount of $8,000 State of Alabama Industrial Development Authority Adjustable
Convertible Taxable Industrial Revenue Bonds and original principal amount of
$3,000 Calhoun County (Alabama) Economic Development Council Adjustable
Convertible Taxable Industrial Revenue Bonds ("IRB's") which were issued in
November 1995. The IRB's have a 20 year term and are payable in annual
installments of $550 and bear interest at a variable rate which was 6.125% at
October 31, 1998. The IRB's are collateralized by a letter of credit and are
subject to early redemption under certain circumstances. In January 1996, the
Company entered into an interest rate swap agreement which fixes the interest
rate on the IRB's in order to reduce the impact of changes in interest rates.
The interest rate is fixed at 6.13% for the remainder of the 20 year term.
Interest expense is recorded monthly at the fixed rate plus related fees. The
difference between the variable rate paid to IRB bondholders and the fixed rate
costs are settled monthly between the Company and a bank which is party to the
swap agreement. As of October 31, 1998, the swap agreement has a notional
principal balance of $9,900 and the swap agreement matures at the time the
related IRB's mature. The swap agreement is with a large national bank and the
Company does not anticipate nonperformance by the counterparty.
The Company obtained a $7,500 Term Loan on May 30, 1997. The Term Loan
maturity was the earlier of May 31, 2000 or the conversion of the Term Loan into
an Industrial Revenue Bond. In December 1997, the Term Loan was refinanced
through the issuance of First Mortgage Industrial Development Revenue Bonds
Series 1997, principal amount $7,500 issued by the Industrial Development Board
of the City of Huntsville, Alabama ("IDB's"). The IDB's are collateralized by a
letter of credit. The IDB's have a 15 year term and are payable in quarterly
installments of $141 beginning in January 2000 and bear interest at a variable
rate which was 3.4% at October 31, 1998. In April 1998, the Company repurchased
these IDB's which were issued by one of the Company's subsidiaries. In October
1998, the Company remarketed these IDB's to an outside party.
In fiscal 1996, Spraysafe refinanced a five-year unsecured term loan
obtained in 1995 with a seven-year term loan in the amount of $1,065. This loan
is secured by machinery and equipment and is payable through 2003 in monthly
installments of $10 and bears interest at a variable rate which was 8.125% at
October 31, 1998. The loan proceeds were used primarily for machinery and
equipment and the expansion of Spraysafe's manufacturing facility. Spraysafe has
short-term borrowings in the form of a demand loan which is payable in British
pounds in the amount of $297 at October 31, 1998. This loan bears interest at a
variable interest rate which was 8.375% and 8.25% at October 31, 1998 and 1997,
respectively. Approximately $2,600 of a Spraysafe line of credit was unused and
available for use at October 31, 1998, based on the borrowing base formula.
<PAGE>
Annual principal payments required under long-term debt obligations are
as follows-
- -------------------------------------------------------------------------------
Fiscal Year
-----------
1999 $ 4,064
2000 4,618
2001 57,003
2002 1,368
2003 1,345
Thereafter 12,473
-------
$80,871
=======
- -------------------------------------------------------------------------------
8. Capitalized Interest:
The interest cost incurred by the Company for fiscal year 1998, 1997
and 1996 amounted to $5,836, $4,880, and $3,680, respectively. No interest was
capitalized in fiscal 1998 or 1997. The Company capitalized $290 of interest
cost in fiscal year 1996 in connection with the expansion of the foundry and
manufacturing facility for piping system components.
9. Income Taxes:
The following table summarizes the source of income (loss) before
income taxes and information concerning the income tax provision (benefit)-
Year Ended October 31,
------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------
Income (loss) before income taxes-
Domestic $(33,090) $(4,372) $4,876
Foreign 641 795 1,184
-------- ------- ------
Total $(32,449) $(3,577) $6,060
======== ======= ======
Income tax provision (benefit):
Current-
Federal $ (2,744) $ 1,287 $3,040
State - 89 740
Foreign 196 300 395
-------- ------- ------
Total (2,548) 1,676 4,175
-------- ------- ------
Deferred-
Federal (7,232) (2,622) (1,386)
State (65) (89) (492)
-------- ------- ------
Total (7,297) (2,711) (1,878)
-------- ------- ------
Total tax provision
(benefit) $ (9,845) $(1,035) $2,297
======== ======= ======
- ---------------------------------------------------------------------------
<PAGE>
Income tax provision (benefit) differs from the amount currently
payable or receivable because certain revenues and expenses are reported in the
statement of operations in periods which differ from those in which they are
subject to taxation. The primary differences in timing between the statement of
operations and taxable income involve certain accrued expenses and reserves not
currently deductible for tax purposes, tax regulations which limit deductions
for bad debt expense, the uniform cost capitalization rules and different
methods used in computing tax and book depreciation. Such differences are
recorded as deferred income taxes in the accompanying balance sheets under the
liability method.
The components of the deferred income tax assets and liabilities,
measured under SFAS No. 109 at the beginning and end of the fiscal year, are
listed below. Based on management's assessment, it is more likely than not that
all of the net deferred tax assets will be realized through future taxable
income. As a result, there is no valuation reserve for deferred tax assets.
10/31/98 11/1/97
- -------------------------------------------------------------------
Deferred Tax Assets-
Accounts receivable $ 2,856 $ 2,654
Inventories 3,011 2,950
ESOP 463 429
Omega(TM)costs 10,526 3,721
Tax credit carryforwards 825 -
Other non-deductible liabilities 919 2,260
------- -------
Deferred tax assets 18,600 12,014
------- -------
Deferred Tax Liabilities-
Depreciation (2,687) (2,570)
Other (1,089) (1,413)
------- -------
Deferred tax liabilities (3,776) (3,983)
------- -------
Net Deferred Tax Asset $14,824 $ 8,031
======= =======
- -------------------------------------------------------------------
<PAGE>
The effective tax rate is reconciled to the statutory U.S. Federal
income tax rate as follows-
Year Ended October 31,
--------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------
U.S. Federal
statutory rate (34.0)% (34.0)% 34.0%
Amortization of
Goodwill 0.2 (2.2) 1.3
State income taxes,
net of U.S.
Federal benefit - - 3.3
Income tax credits utilized - 10.5 (1.3)
Tax-exempt interest (0.3) 4.9 (2.3)
Market value adjustment of
ESOP shares - (4.4) 3.1
Other 3.8 (3.7) (.2)
---- ---- ----
(30.3)% (28.9%) 37.9%
==== ==== ====
- -----------------------------------------------------------------------------
10. Related-Party Transactions:
The Company has financial consulting agreements with companies
affiliated with certain of its directors/ shareholders. The Company expensed
$420 in the year ended October 31, 1998 for management services fees to one firm
for services primarily as an executive officer and director of the Company.
The Company leases an aircraft from a business in which a director and
executive officer of the Company is the sole proprietor. For the years ended
October 31, 1998, 1997, and 1996, the Company recorded lease expense of $343,
$439, and $395, respectively. Pursuant to notice requirements, the lease was
cancelled subsequent to year-end.
The Company expensed $463, $361, and $346 in the years ended October
31, 1998, 1997, and 1996, respectively, for legal fees to a firm having a member
who is also a director of the Company. In addition, the Company charged $1,917
against the Omega(TM) liability for legal fees incurred by this firm relating to
Omega(TM) actions during the year ended October 31, 1998.
11. Leases:
The Company has operating leases for its warehousing facilities and
certain transportation and office equipment. The total rental expense for the
years ended October 31, 1998, 1997 and 1996 was $2,168, $1,949, and $1,325
respectively. The future minimum rental payments required under operating leases
that have initial or remaining lease terms in excess of one year as of October
31, 1998, are as follows-
- -----------------------------------------------------------------------
Fiscal Year
-----------
1999 $ 1,783
2000 1,098
2001 853
2002 351
2003 109
- -----------------------------------------------------------------------
<PAGE>
12. Incentive Compensation Plans:
The Company has an Incentive Compensation Plan which provides awards to
officers and other employees of the Company. Amounts credited to the incentive
compensation fund were 8% of monthly operating income, as defined in the Plan,
if monthly operating income met specified levels. Another plan provides two
executive officers with a bonus based on annual net income in excess of the 1985
base income level at a combined rate of 1 1/2% of the increase. There were no
payments due under the plan in 1998.
The total amounts charged to expense for all such plans were $215,
$1,088 and $1,013 for the years ended October 31, 1998, 1997 and 1996,
respectively.
13. Employee Benefit Plans:
Certain of the Company's manufacturing employees are covered by a
union-sponsored, collectively bargained, Multiemployer Pension Plan. The Company
contributed and charged to expense $367, $359 and $277 for the years ended
October 31, 1998, 1997 and 1996, respectively. These contributions are
determined in accordance with the provisions of negotiated labor contracts and
generally are based on the number of hours worked. At October 31, 1998, the
Company had no liability for unfunded vested benefits of this plan. The Company
sponsors 401(K) Profit Sharing Plans which cover certain employees not covered
by collective bargaining agreements and maintains Deferred Compensation Plans
which provide retirement benefits for certain officers. The expense under these
plans was $365, $275 and $222 for the years ended October 31, 1998, 1997 and
1996, respectively.
The Company has an Employee Stock Ownership Plan ("ESOP") which covers
certain employees not covered by collective bargaining agreements. At October
31, 1998, the ESOP holds 769 shares of the Company's common stock. On April 28,
1993, the ESOP purchased 750 shares of the Company's common stock in a leveraged
transaction at a market value of $9.70 per share for a total cost of $7,275. The
total cost of the plan for this transaction is being amortized over 15 years.
The unamortized cost is reported as Deferred Cost-ESOP in the equity section of
the accompanying balance sheets. The ESOP issued a note payable to the Company
which will be repaid over 15 years with interest at a variable rate. This note
will be repaid from cash contributed to the plan by the Company. The stock will
be committed to be released to the eligible employees over 15 years based upon
the annual principal and interest payments made by the ESOP on the note payable
to the Company. As required under SOP 93-6, compensation expense is recorded for
shares committed to be released to employees based on the fair market value of
those shares in the period in which they are committed to be released. The
difference between cost and fair market value of committed to be released common
shares, which was $120, $485 and $605 for the years ended October 31, 1998,
1997, and 1996, respectively, is recorded in additional paid-in capital.
The ESOP shares are summarized as follows -
October 31,
-------------------------
1998 1997
- ------------------------------------------------------------------
Committed to be released shares 226 194
Unreleased shares 543 583
------ -------
Total ESOP shares 769 777
====== =======
Fair value of unreleased share $5,091 $10,861
====== =======
- ------------------------------------------------------------------
The ESOP expense for the years ended October 31, 1998, 1997 and 1996
was $512, $851, and $947, respectively.
<PAGE>
14. Commitments and Contingent Liabilities:
Unusual Omega(TM) Charge
The Company has been involved in seven class action lawsuits as well
as an administrative lawsuit filed on March 4, 1998, by the United States
Consumer Product Safety Commission ("Commission") related to the Company's
Omega(TM) sprinklers. The Company has reached a final settlement of the
Omega(TM) litigation with the Commission as well as a definitive settlement
agreement with the plaintiffs in the Hart and Santa Clara class actions.
Although the court has granted preliminary approval to the settlement,
settlement is contingent upon receiving final approval from the court.
In accordance with Statement of Financial Accounting Standards No. 5,
"Accounting for Contingencies" and based on current information, the Company
revised its estimate of the probable future cost of settling these matters and
recorded a $38,015 ($26,610 net of tax) charge in third quarter of fiscal 1998
to reflect the total estimated additional future cost. The Company believes this
additional charge along with previous reserves for the Omega(TM) head
replacement efforts should cover the total estimated future costs of the
settlements. The Agreements with the Commission and Class Action litigants
generally provide for replacement of the Omega(TM) sprinkler heads with free
replacement sprinklers and parts, the establishment of a separate trust account
for payments to the owners of Omega(TM) sprinklers, administration of the recall
program and a notification program related to the Omega(TM) sprinkler product
recall.
In addition, the Company has discontinued the manufacturing and sale
of Omega(TM) sprinklers. The Omega(TM) product line represented less than 3% of
the Company's total sales in fiscal year 1997.
In an effort to recover a portion of the cost of the Omega(TM)
settlement, the company filed suit on August 19, 1998, against twelve product
liability insurance carriers with which the Company had coverage over the last
15 years. No insurance or third party recoveries have been considered in the
Company's accrual analysis and the amount of such recoveries, if any, is
uncertain at this time.
In the fourth quarter of fiscal 1997, a charge of $13,200 ($8,976 net
of tax) was recorded to cover the estimated future costs associated with the
expansion of a voluntary program which was initiated by the Company to encourage
the testing and possible replacement of certain Omega(TM) fire sprinklers. A
similar Omega(TM) charge was recorded in fiscal 1996 of $3,750 ($2,362 net of
tax). These amounts were based on estimates of the number of Omega(TM)
sprinklers, the action plan the Company believed was necessary to remediate
these sprinklers and various other assumptions.
In August 1997, a class action lawsuit was filed against the Company
in the State of California on behalf of a class of building owners who have
Omega(TM) sprinkler heads installed in their buildings. In December 1997, a
similar lawsuit was filed in California on behalf of the County of Santa Clara,
seeking to represent a class of public entities and commercial building owners
who have installed Omega(TM) sprinkler heads. Since the filing of these class
actions, the Company has been named as a defendant in five additional class
actions raising virtually identical allegations, captioned Rebecca Adams v.
Central Sprinkler Co. (filed February 11, 1998 in the Superior Court of
California for the County of San Bernadino), James T. Perona v. Central
Sprinkler Corp. (filed March 13, 1998, in the Superior Court of California for
the County of Los Angeles), South Royal Corp. v. Central Sprinkler Corp. (filed
March 27, 1998, in the United States District Court for the Southern District of
Florida), Roy F. Smith v. Central Sprinkler Corp. (filed March 20, 1998 in the
United States District Court for the Eastern District of Pennsylvania) and
Sangiacomo v. Central Sprinkler Corp. (filed April 3, 1998 in the United States
District Court for the Eastern District of Pennsylvania). The complaints do not
specify a dollar amount the plaintiffs are seeking. The Company has moved to
dismiss each of the above actions it has been served with process. Earlier in
1998, the court dismissed the South Royal complaint for failure to state a
claim. Plaintiff thereafter voluntarily dismissed its actions. As previously
mentioned, the Company has entered into an agreement to settle the Hart and
Santa Clara matters on a class-wide basis. The court granted preliminary
approval to the settlement on October 27, 1998 and has scheduled a final
approval hearing for February 19, 1999. Motions to dismiss remain pending in the
other actions which have been essentially inactive since the date of the
preliminary approval order in the Hart and Santa Clara matters.
<PAGE>
As previously disclosed by the Company in its Annual Report to
shareholders on Form10-K for the fiscal years ended October 31, 1997 and 1996,
and each of its quarterly reports on Form 10-Q during fiscal year 1998 and 1997
and the third fiscal quarter of 1996, the Commission has been investigating
problems regarding the Company's Omega(TM) sprinkler heads since 1996. On March
4, 1998, the Commission filed the administrative complaint against the Company
and one of its subsidiaries. A report on Form 8-K was filed by the Company with
the Securities and Exchange Commission on March 6, 1998, which provided certain
information relating to the administrative action that was commenced by the
Commission against the Company and the Company's press release dated March 4,
1998, included the Company's response to the administrative action.
On June 23, 1998, the Company filed a Report on Form 8-K with the
Securities and Exchange Commission in which the Company reported that in
connection with settlement meetings with the Commission, the Company believed
that the amount previously accrued for the Omega(TM) sprinkler issues most
likely would have to be increased to cover the costs the Company may incur to
resolve the Commission's action and other lawsuits concerning the Omega(TM)
sprinklers.
The Company believes that the remaining balance from the third quarter
fiscal 1998 charge totaling $35,141 ($12,000 of which is included in accrued
expenses) as of October 31, 1998 will be sufficient to cover the total estimated
additional costs of the Omega(TM) sprinkler matters. The third quarter fiscal
1998 charge was based on estimates of the number of Omega(TM) sprinklers to be
located, the number of parties who will elect not to participate in the
settlements, estimated legal expenses and various other assumptions and on
information available at that time. It is possible that additional litigation
may ensue. In the event additional information becomes available in the future
which changes management's estimates, additional provisions may be necessary.
Agreements and Contracts
The Company is a party to patent licensing agreements to manufacture
and sell certain types of sprinkler devices. Under the terms of the agreements,
the Company is required to pay a royalty on net commissioned sales (as defined
in the agreements) of the licensed product during the terms of the patents. The
expense under these agreements was $60, $76 and $323 for the years ended October
31, 1998, 1997 and 1996, respectively.
The Company has employment contracts with certain officers under which
their employment could not be terminated without five years prior notice. In
addition, the Company has entered into an employment agreement with an
employee/director for consulting services under which the monthly consulting fee
of $30 is payable for the ten-year term unless the agreement is terminated by
the Company for cause, as defined. The Company also has various purchase
commitments for materials, supplies, machinery and equipment incident to the
ordinary conduct of business. Such commitments are not at prices in excess of
current market.
<PAGE>
Environmental Matters
The Company and approximately thirty other local businesses were
notified by the Environmental Protection Agency ("EPA") in August 1991 that they
may be a potentially responsible party with respect to a groundwater
contamination problem in the vicinity of the Company's primary manufacturing
plant in Lansdale, Pennsylvania. The Company entered into Administrative Order
of Consent for Remedial Investigation/Feasibility Study ("AOC") effective May
19, 1995 with the EPA. Pursuant to the AOC, in 1996 the Company performed
certain tests on the Company's property to determine whether any land owned by
the Company could be a source of any of the contamination at the site. Based
upon such tests management believes that the Company's operations did not
contribute to this contamination problem and the Company has no liability to
clean-up this site. Should the EPA mandate the Company's participation in
clean-up efforts it is estimated that such costs could aggregate $2,700.
The Company has not accrued for such clean-up costs.
Other
The Company, in the normal course of business, is party to various
other claims and lawsuits with regard to its products and other matters.
Management believes that the ultimate resolution of these other matters will not
have a material impact on the Company's financial position, results of
operations or liquidity.
<PAGE>
- ------------------------------------------------------------------------------
SUPPLEMENTARY FINANCIAL DATA
Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
(Amounts in thousands, except per share)
----------------------------------------------------------
First Second Third Fourth
----------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Net sales $53,452 $56,821 $57,168 $57,489
Gross profit 15,222 15,520 14,882* 14,377
Net income 366 867 (25,127)* 1,290
Net income (loss) per common share:
Basic .11 .27 (7.65)* .39
Diluted .11 .26 (7.65)* .39
1997
Net sales $48,180 $53,873 $58,918 $61,019
Gross profit 15,085 17,152 15,978 18,065***
Net income (loss) 1,299 2,158 868 (6,867)**
Net income (loss) per common share:
Basic .41 .66 .27 (2.11)**
Diluted .39 .64 .26 (2.11)**
1996
Net sales $40,750 $44,801 $49,491 $52,178
Gross profit 12,281 13,281 14,251 16,162***
Net income 1,041 1,265 1,304 153**
Net income per common share:
Basic .33 .40 .41 .05**
Diluted .31 .38 .39 .05**
</TABLE>
* After unusual Omega (TM) third quarter charge of $38,015 ($26,610 net of
tax or $8.10 per share) in fiscal 1998.
** After unusual Omega (TM) fourth quarter charge of $13,200 ($8,976 net of
tax or $2.74 per share) in fiscal 1997 and $3,750 ($2,362 net of tax or
$.72 per share) in fiscal 1996.
*** Reflects reclassification of unusual Omega(TM) charges of $13,200 in fiscal
1997 and $3,750 in fiscal 1996 from cost of sales to a separate
classification affecting operating income.
Note: The total of the individual quarterly net income (loss) per share amounts
may not equal the net income (loss) per share amount for the year due to
rounding or changes in the number of shares outstanding during the year.
<PAGE>
SCHEDULE II
CENTRAL SPRINKLER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
RESERVE FOR DOUBTFUL RECEIVABLES
Balance Charges Balance
Beginning to End of
Year Ended of Period Expense Recoveries Writeoffs Period
- ---------------- --------- ------- ---------- --------- ------
October 31, 1998 $5,949 $1,048 $135 $444 $6,688
====== ====== ==== ==== ======
October 31, 1997 $4,622 $1,701 $133 $507 $5,949
====== ====== ==== ==== ======
October 31, 1996 $3,813 $1,330 $ 90 $611 $4,622
====== ====== ==== ==== ======
RESERVE FOR OMEGA TM LIABILITIES
Balance Charges Balance
Beginning to End of
Year Ended of Period Expense Payments Period
- ---------------- --------- ------- --------- ------
October 31, 1998 $13,492 $38,015 $16,366 $35,141
======= ======= ======= =======
October 31, 1997 $ 2,632 $13,200 $ 2,340 $13,492
======= ======= ======= =======
October 31, 1996 $ - $ 3,750 $ 1,118 $ 2,632
======= ======= ======= =======
<PAGE>
IRREVOCABLE DEED OF TRUST
-------------------------
Made this 2nd day of November, 1998.
CENTRAL SPRINKLER CORP., a Pennsylvania corporation, with offices at
451 North Cannon Avenue, Lansdale, Pa., 19446, and CENTRAL SPRINKLER CO., a
Pennsylvania corporation with offices at 451 North Cannon Avenue, Lansdale, Pa.,
19446 (hereinafter collectively and individually referred to as "CENTRAL") as
Settlors, and MELLON BANK N.A., a national banking association authorized and
engaged in the trust business in the Commonwealth of Pennsylvania, as the
Trustee, hereby agree as follows:
FIRST: BACKGROUND
(A) CENTRAL and the Staff of the United States Consumer Product Safety
Commission ("Staff") have entered into a Consent Agreement dated October 2,
1998, and filed at CPSC Docket No. 98-2 (hereinafter called the "Consent
Agreement"), to resolve the matters set forth in the Administrative Complaint
filed on March 3, 1998 by the United States Consumer Product Safety Commission
(hereinafter called the "Commission")
(B) By Order dated October 13, 1998 (hereinafter called the "Order"), the
Commission accepted said Consent Agreement and imposed certain conditions and
obligations on CENTRAL.
(C) On October 2, 1998, Central and plaintiffs representing a nationwide
class of owners/operators of buildings containing Omega sprinklers entered into
a parallel Settlement Agreement resolving the claims of the settlement class
members against CENTRAL arising out of alleged defects in the Omega sprinklers,
in the litigation styled Hart v. Central Sprinkler Corp., et al.
<PAGE>
Case No. BC17627, Los Angeles County, California Superior Court, ("Class Action
Settlement Agreement"). Such Class Action Settlement Agreement is subject to an
approval process as defined by law. Said approval process has not been
completed.
(D) The Consent Agreement, the Order and the Class Action Settlement
Agreement provide, inter alia for the creation of a trust, the Income and
principal of which are required to be used for the purposes of providing
reimbursement to owners of Omega sprinklers toward labor costs of removing and
replacing those sprinklers, as set forth in said Consent Agreement, the Order
and the Class Action Settlement Agreement.
(E) In the event of any inconsistency between any term, provision or the
intent of the final Class Action Settlement Agreement and/or any order relating
thereto, on the one hand, and any term, provision or the intent of the Consent
Agreement and/or the Order, on the other hand, the Consent Agreement and/or the
Order shall control for all purposes under this Trust.
SECOND: CREATION OF THE TRUST. CENTRAL hereby transfers and delivers to
the Trustee the property lined on Schedule "A" attached hereto and CENTRAL shall
make future contributions hereto in accordance with Appendix C of the Order.
The Trustee shall hold said property as provided in the Consent Agreement, the
Order and the Class Action Settlement Agreement, as a trust estate, and shall
invest and reinvest the same and shall distribute the net income (hereinafter
called "Income") and principal as set forth in the following provisions:
2
<PAGE>
(A) During the term of this Trust, the Trustee shall distribute Income,
and to the extent that Income is exhausted, principal, to those persons entitled
thereto pursuant to the terms and conditions of the Consent Agreement, the Order
and the Class Action Settlement Agreement, as certified, in writing, to the
Trustee by CENTRAL's Board of Directors or the designee of CENTRAL's Board of
Directors. The Trustee shall be entitled to rely upon the written certification
of CENTRAL as to the persons entitled to distributions of the Income and
principal of this Trust as being in full accord with the Consent Agreement, the
Order and the Class Action Settlement Agreement.
(B) Promptly upon receiving such written certification of CENTRAL as to
the persons entitled to distributions of the Income and principal of this Trust,
the Trustee shall forward a copy thereof by overnight delivery to the Staff.
Unless the Trustee actually receives the Staff's objections to such written
certification of CENTRAL within fourteen (14) calendar days of the Trustee's
having dispatched the same to the Staff, the Trustee shall promptly make
distribution of Income and/or principal in accordance with said written
certification of CENTRAL, without any further liability on the part of the
Trustee as to the proper persons to receive such distributions. In the event
that the Trustee receives objections by the Staff to CENTRAL's written
certification within said fourteen (14) day period, the Trustee shall not make
any distribution pursuant to said written certification from CENTRAL until the
Trustee receives instructions relative to the same by way of a final,
non-appealable decision of the Commission.
3
<PAGE>
THIRD: TRUST POWERS AND ADMINISTRATIVE PROVISIONS
(A) The Trustee shall have the following powers in addition to, and not as
a modification of, all common law and statutory powers, all of which shall be
exercised in a fiduciary capacity:
(1) To hold and retain any of the property coming into the Trustee's
possession hereunder. The Trustee shall not be obligated or permitted to accept
any asset other than cash.
(2) To invest in currency, bonds, notes, real estate, mortgages and
other "Legal investments" as set forth in Section 7302 of the Probate, Estates
and Fiduciaries Code (20 Pa. CSA Section 7302, et seq.) except that the Trustee
shall not be authorized to invest in stocks as defined in Section 7310 of the
said Pennsylvania Probate, Estates and Fiduciaries Code (20 Pa. CSA Section
7310) or real estate as defined in Section 7311 of the said Pennsylvania
Probate, Estates and Fiduciaries Code (20 Pa. CSA Section 7311). In no event
shall the Trustee be authorized or required to make any investment in any
securities issued by either of the Settlors or any subsidiary of the Settlors.
(3) To sell, at public or private sale, and to otherwise transfer or
assign any property at any time included in the Trust, upon such terms and
conditions as the Trustee shall deem wise.
(4) To cause any security or other property of the Trust to be issued,
held or registered in the name of a nominee or in such form that title will pass
by delivery.
<PAGE>
(5) To exercise any conversion privilege or subscription right of
owners of any security in the Trust
(6) To carry, at the expense of the Trust, insurance of such kinds and
in such amounts necessary and appropriate to protect the Trust from any casualty
or liability.
(7) To defend litigation with respect to the Trust or any Trust
property at the expense of the Trust. To the extent that such litigation is
brought against the Trust as a result of any action on the part of the Trustee,
the Trustee shall reimburse the Trust for all expenses incurred by the Trust in
the defense of such litigation. Nothing set forth herein is intended to affect
any liability that the Trustee may or may not have to the Trust arising out of
the Trustee's actions or the Trustee's failure to act.
(8) To allocate receipts and disbursements between principal or
income.
(9) With the consent of the Staff, to employ and confer with Schneider
Downs and Company, C.P.A.'s, or such other organization selected by the Trustee,
for the provision of clerical services in the preparation and distribution of
proceeds checks to the intended beneficiaries of this Trust, and to pay the
reasonable value of such services to Schneider Downs and Company, C.P.A.'s, or
such other organization selected by the Trustee to perform such clerical
services, in accordance with the fee schedule marked Exhibit "A" , attached
hereto and made a part hereof.
(10) To create reserves out of income, as the Trustee deems advisable,
for the prompt payment of taxes and other obligations and to restore to Income
the unused portion of such reserves.
<PAGE>
(11) To resign by giving written notice of the Trustee's resignation
to the Staff. Such resignation shall be effective on the date that the Trust
assets are transferred to the successor trustee. Upon the tender of such
resignation, it shall be the obligation and privilege of the Staff to select a
successor trustee or trustees to serve hereunder. In case of the merger or
consolidation of the Trustee, the resultant company shall become successor
Trustee hereunder after notice to the Staff and CENTRAL.
(B) At any time, the Staff shall have the right to remove the Trustee
for cause or for no cause at all. Such removal shall be effective upon the
Trustee having received written notice of its termination. Upon issuing notice
of removal to the Trustee, the Staff shall have the obligation and privilege to
select a successor Trustee or Trustees to serve hereunder. Nothing set forth
herein shall impair the right of the Trustee to make claims to the successor
trustee (with copy to the Staff) for all fees the Trustee reasonably feels to be
due to it as having been earned up to the date of termination. Further, the
successor trustee shall immediately reimburse the Trustee for all expenses for
which it is obligated to Schneider Downs and Company CPA's, or to the other
organization chosen by the Trustee to perform the clerical services referenced
above, up and to the effective date of the Trustee's termination as Trustee
hereunder.
(C) The Trustee shall be exempt from giving any bond or other security
in any jurisdiction.
(D) The Trustee shall be entitled to receive any compensation for
its services hereunder in accordance with the schedule attached hereto as
Exhibit "B." Such compensation shall be
<PAGE>
charged wholly against Income. To the extent that the Income is insufficient to
pay the compensation due to the Trustee, the Trustee is authorized, in the
Trustee's sole discretion, to invade principal to satisfy the Trust's fee
obligations to the Trustee. In no event shall CENTRAL be responsible for paying
my compensation to the Trustee.
FOURTH: SPENDTHRIFT CLAUSE. The right of any beneficiary hereunder shall not
be subject to assignment, alienation, pledge, attachment or claims of creditors
until after payment has actually been made by the Trustee as herein provided.
FIFTH: TERM. This Trust shall terminate as provided in the Consent Agreement
and the Order. Upon termination of this Trust, all Income and principal then
remaining in the Trust Estate shall be distributed in accordance with the final
distribution plan created pursuant to Appendix C of the Order. The Trustee shall
have no discretion in the distribution of Income or principal from the Trust
but, rather, shall act only as set forth in Article SECOND (A) and (B) of this
Trust.
SIXTH: IRREVOCABILITY.
(A) CENTRAL acknowledges that it understands the nature of an
irrevocable trust and specifically renounces all rights of amendment or
revocation with respect to this Deed of Trust.
(B) CENTRAL may only add cash hereto.
7
<PAGE>
SEVENTH: GOVERNING LAW. This Agreement has been delivered to and accepted by
the Trustee in the Commonwealth of Pennsylvania and shall be governed in all
respects by the laws of said Commonwealth, without regard to its conflicts of
laws provisions.
EIGHTH: REPORTS.
(A) The Trustee shall furnish to CENTRAL and to the Staff monthly
statements of Income, principal, investments and disbursements.
(B) The Trustee shall timely file or shall deliver to CENTRAL such
documents and other information as CENTRAL may reasonably require in order to
permit it to timely file such income tax and other returns and statements as are
reasonably required for CENTRAL to comply with applicable provisions of the
Internal Revenue Code and of any applicable federal or state tax law or
regulation promulgated thereunder.
NINTH SEVERABILITY. In any provision of this Trust is held to be illegal,
invalid or unenforceable, under present or future laws effective during the term
of this Trust, such provision shall be fully severable. Such determination
shall in no way limit or affect the enforceability and operative effect of any
and all other provisions of this Trust unless the severance of such illegal,
invalid or unenforceable provision would, in the sole and absolute discretion of
the Staff, cause the purposes of this Trust to fail. In the event that the Staff
so determines that the severance of an illegal, invalid or unenforceable
provision would operate to cause the purposes of this Trust to fail, the Staff,
in its sole
<PAGE>
discretion, shall devise an alternative means by which the funds payable under
Appendix C of the Order will be distributed to the Trust beneficiaries.
TENTH: NOTICES. Any notices or communications required or permitted hereunder
shall be in writing and delivered by telex or telecopy pursuant to the
instructions listed below, or mailed by registered or certified mail,
return receipt requested, postage prepaid, addressed as follows, or to
such other address or addresses as may hereafter be furnished by the parties
listed below to each other in compliance with the terms hereof:
To the Trustee: Mellon Bank, N.A.
ATTN: Mr. Erich C. Smith
One Mellon Bank Center, Suite 3810
Pittsburgh, PA 15258-0001
Telephone: (412) 234-5033
Fax: (412) 234-0112
To CENTRAL: Central Sprinkler Corp.
ATTN: Mr. E. Talbot Briddell
451 North Cannon Avenue
Lansdale, PA 19446
Telephone: (215) 362-0700
Fax: (215) 365-5385
With copy to: Morgan, Lewis & Bockius, LLP
ATTN: J. Gordon Cooney, Jr., Esquire
2000 One Logaqn Square
Philadelphia, PA 19103-6993
Telephone: (215) 963-5000
Fax: (215) 963-5299
9
<PAGE>
To the Commission: U.S. Consumer Product Safety Commission
ATTN. Eric L Stone, Esquire
Office Of Compliance/Legal Division
Washington, DC 20207-0001
Telephone: (301) 504-0626 Ext. 1350
Fax: (301) 504-0359
All such notices and communications shall be effective when delivered at the
designated addresses or when the telex/telecopy communications received at the
designated addresses are confirmed by the recipient by return telex or telecopy
in conformity with the provisions hereof.
ELEVENTH: ENTIRE AGREEMENT. The entire agreement of the parties relating to
the subject matter of this Trust is contained herein, and this Trust supersedes
any prior oral or written agreements between CENTRAL and the Trustee concerning
the subject matter hereof. No failure to exercise or delay in exercising any
right, power or privilege hereunder shall operate as a waiver hereof, nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any further exercise thereof, nor shall single or partial exercise of
any right, power or privilege hereunder preclude any further exercise thereof or
of any other right, power or privilege.
TWELFTH: HEADINGS. The headings used in this Trust as inserted for
convenience only and neither constitute a portion of this Trust nor in any
manner affect the construction of the provisions of this Trust.
10
<PAGE>
THIRTEENTH: COUNTERPARTS. This Trust may be executed in any number of
counterparts, each of which shall constitute an original, but such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Trust the day and
year first above written.
ATTEST: CENTRAL SPRINKLER CORP.
By By XXXXXXXXXXXXXXXXX
---------------------------- ---------------------------
Title Title Chief Executive Officer
------------------------- ------------------------
ATTEST: CENTRAL SPRINKLER CORP.
By By Richard P. O'Leary
---------------------------- ----------------------------
Title Title Chief Operating Officer
------------------------- ------------------------
ATTEST: TRUSTEE:
MELlON BANK, N.A.
By By XXXXXXXXXXXXXXXXXXX
---------------------------- ----------------------------
Title Trust Officer Title Vice President
------------------------- -------------------------
11
<PAGE>
EXHIBIT "A"
The fee schedule for the clerical services for the preparation and distribution
of the proceeds checks by Schneider Downs & Co., Inc., is as follows:
* $60 per hour for the initial two-years, and
* $65 per hour for the following two years.
Any related out-of-pocket costs shall be in addition to the above hourly rates.
If any other organization is chosen to perform these clerical services, this
schedule may be renegotiated as necessary.
<PAGE>
EXHIBIT "B"
The Trustee shall be entitled to receive annual compensation for its services in
accordance with its schedule in effect when the services are performed.
Currently the fee schedule for fixed-income accounts is as follows but the
Trustee reserves the right to change this schedule at any time.
Annual asset-based fee is determined by the following market value schedule:
o 0.65% of market value on the first $2 million,
o 0.55% of market value an the next $3 million, and
o 0.45% of market value on the balance.
Minimum annual fee: $13,000.
<PAGE>
SCHEDULE A
TO
IRREVOCABLE DEED OF TRUST
(Initial Property to be Transferred into the Trust by CENTRAL)
$2,200,000 (Two Million, Two Hundred Thousand Dollars), the initial
contribution by CENTRAL to the Trust pursuant to Appendix C, Paragraph la, of
the United States Consumer Product Safety Commission Order dated October 13,
1998.
ACCEPTED AND APPROVED: ACCEPTED AND APPROVED:
XXXXXXXXXXXX XXXXXXXXXXXXXXX
- --------------------------- -----------------------------
Central Sprinkler Co. and Mellon Bank, N.A., Trustee
Central Sprinkler Corp.
<PAGE>
EXHIBIT 10(ad)
UNITED STATES OF AMERICA
CONSUMER PRODUCT SAFETY COMMISSION
- ---------------------------
In the Matter of
CENTRAL SPRINKLER CORP.,
and CPSC DOCKET NO. 98-2
CENTRAL SPRINKLER CO.,
Respondents
- ---------------------------
CONSENT AGREEMENT
This Consent Agreement is made by and between the staff of the Consumer
Product Safety Commission and Respondents, Central Sprinkler Corp. and Central
Sprinkler Co., to settle the above-captioned administrative action. The parties
agree as follows:
Parties
1. The "staff" is the staff of the United States Consumer Product
Safety Commission ("CPSC" or "the Commission"), an independent regulatory agency
of the United States, established by Congress pursuant to Section 4 of the
Consumer Product Safety Act ("CPSA"), 15 U.S.C. Section 2053.
2. Respondents Central Sprinkler Corporation and Central Sprinkler
Company (hereinafter collectively "Central") are corporations organized and
existing under the laws of
Accepted and Approved: Accepted and Approved:
- --------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
<PAGE>
the Commonwealth of Pennsylvania, with their principal place of business at 451
North Cannon Ave., Lansdale, PA 19446.
Subject Matter
3. From 1982 to July, 1998, Central manufactured and sold and/or
distributed between 9 and 10 million "Omega" brand automatic fire sprinklers. On
March 3, 1998, the staff of the Consumer Product Safety Commission filed an
Administrative Complaint ("Complaint") against Central, seeking recall and
replacement of Central's Omega fire sprinklers pursuant to 15 U.S.C. Section
2064. The Complaint alleges that Central's Omega sprinklers are defective and
will not function in certain fire situations, creating a substantial risk of
bodily injury and/or death.
4. To date, the staff has received reports that from 1990 to the
present, Omega sprinklers did not function in 20 fires.
5. Central has filed an answer to the Complaint in which it avers, inter
alia, that its Omega sprinklers are not defective within the meaning of 15
U.S.C. Section 2064.
6. The staff also contends that Central obtained information which
reasonably supported the conclusion that Omega sprinklers contained a defect or
defects that could create a substantial risk of injury to the public but failed
to report such information in a timely manner pursuant to 15 U.S.C. Section
2064(b). Central denies any wrongdoing under 15 U.S.C. Section 2064(b).
Agreement of the Parties
Accepted and Approved: Accepted and Approved:
- --------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
2
<PAGE>
7. It is the express purpose of the parties in entering into this
Agreement to protect the public safety by carrying out the recall and
replacement of Omega sprinklers.
8. The parties intend for this Consent Agreement and the attached Order
(hereinafter "Order" or "the Order"), which is hereby incorporated by reference,
to resolve all allegations and requests for relief set forth in the
Administrative Complaint in this proceeding and to bar the initiation or
referral by the CPSC of any administrative, civil, or criminal claims within the
CPSC's jurisdiction arising from the conduct of Central, its officers, directors
and/or employees regarding Omega sprinklers. This resolution shall not apply to
any actions arising from non-compliance with or disputes pertaining to this
Agreement or the Order.
9. For purposes of this settlement only, Central admits that "Omega"
fire sprinklers are "consumer products" under Section 3 of the CPSA, 15 U.S.C.
Section 2052, subject to the jurisdiction of the Consumer Product Safety
Commission.
10. For purposes of this settlement only, Central agrees not to contest
the allegations in the Complaint that "Omega" fire sprinklers contain a "defect
which creates a substantial product hazard," as those terms are defined in
Section 15(a) of the CPSA, 15 U.S.C Section 2064(a). Central has agreed not to
contest these allegations in order to avoid the expense, inconvenience and risks
associated with further litigation, and the parties recognize that this
resolution and this Consent Agreement may not be used or introduced as evidence
of defect or hazard against Central in other litigation not involving the
Commission or its staff. Entry of the Order will neither impair nor assist the
bringing of any other action.
Accepted and Approved: Accepted and Approved:
- --------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
3
<PAGE>
11. As Part of the amounts referenced in 1.a and 1.b of Appendix C of
the Order, Central shall deposit, without any adjudication or admission of fact
of law, $1.3 million into the Trust established in Appendix C of the Order, in
settlement of the staff's contention that Central failed to report to the
Commission problems with the Omega pursuant to 15 U.S.C. Section 2064(b).
Central has agreed to do so solely to avoid the inconvenience and burden of
litigation of this issue.
12. Upon acceptance by the Consumer Product Safety Commission of this
Consent Agreement, and entry of the Order, Central knowingly, voluntarily and
completely waives and relinquishes any past, present and/or future right or
rights in this matter: (1) to an administrative or judicial hearing and to all
further procedural steps, including findings of fact, conclusions of law and/or
further determination of whether Omega sprinklers contain a defect which creates
a substantial product hazard within the meaning of Section 15 of the CPSA; (2)
to seek judicial review or otherwise contest the validity of this Consent
Agreement and/or Order as issued and entered, and (3) to seek judicial review of
this or any past orders, findings and/or determinations of the Commission or the
Presiding Officer in this matter, except as set forth in the provisions
regarding review in Paragraph 28 of this Agreement.
13. Central agrees to fulfill all requirements of the Order.
14. Central agrees to immediately cease and desist manufacturing,
selling, distributing, marketing, exporting, importing, and/or attempting to
distribute or sell any
Accepted and Approved: Accepted and Approved:
- --------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
4
<PAGE>
Omega sprinkler, whether by itself or through its subsidiaries. affiliates,
Central-owned distribution centers, or any other persons or entities over whom
Central has control, whether in the United States or any other foreign state,
country, or territory.
15. Central shall request that Underwriters Laboratories, Inc. withdraw
its listing of approval for all Omega sprinklers.
16. Central shall provide the staff with thirty days written notice of
any transfer of property rights it holds in the following U.S. Patents:
4,465,141; 4,491,182; 4,508,175; 4,553,602; 5,094,298; 4,619,327; 3,734,191,
3,802,510; 3,877,527, 3,911,940; 3,991,829, and 4,359,098.
17. A violation of this Consent Agreement or the Order is a prohibited
act within the meaning of Section 19 of the CPSA, 15 U.S.C. Section 2068.
18. The Commission or Central may disclose terms of this Consent
Agreement and Order to the public.
19. This Consent Agreement shall take effect upon its final acceptance
by the Consumer Product Safety Commission.
20. This Consent Agreement and Order shall be binding upon the parties
hereto and their successors, assigns, and receivers. If, prior to the
termination of this Consent Agreement and Order, Central merges with any other
corporation or sells, assigns, or otherwise transfers substantially all of its
assets, Central shall provide reasonable prior notice to the surviving
corporation or, in the case of an asset sale, assignment, or transfer, the
Accepted and Approved: Accepted and Approved:
- --------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
5
<PAGE>
purchaser, transferee, or assignee of substantially all of Central's assets, of
this Consent Agreement and Order, and of its binding effect upon said surviving
corporation, purchaser, assignee, or transferee. The existence of this Consent
Agreement and Order and their binding effect shall be noted in any agreement
between Central and such surviving corporation, purchaser, transferee, or
assignee. It shall be a condition of any such merger, sale, assignment, or
transfer that the surviving corporation or, in the case of an asset sale, the
purchaser, assignee; or transferee, execute a document agreeing to be bound by
the provisions of this Consent Agreement and Order and to submit to the
jurisdiction of the Commission for purposes of enforcement of this Consent
Agreement and Order. In the event of any merger or sale, transfer, or assignment
of substantially all of Central's assets, notice shall be provided to the staff
no later than 15 days prior to any such merger or asset sale, transfer, or
assignment.
21. This Consent Agreement and Order have been negotiated by the
parties. Central is not relying on the advice of the staff, nor anyone
associated with the staff, as to legal, tax, or other consequences of any kind
arising out of this Consent Agreement and Order, and Central specifically
assumes the risk of all such legal, tax and other consequences.
22. For all purposes, this Consent Agreement and Order shall constitute
an enforceable judgment obtained in an action or proceeding by a governmental
unit to enforce its police or regulatory power. Central acknowledges and agrees
that this Agreement and Order are pursuant to the Commission's police or
regulatory power to remedy the risk
Accepted and Approved: Accepted and Approved:
- --------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
6
<PAGE>
created by and protect the public from a substantial product hazard which the
Commission believes is presented by Omega sprinklers, and that the Agreement and
Order are not subject to an automatic stay if Central becomes the subject of a
bankruptcy proceeding.
23. If all of the Replacement Sprinklers are not listed or approved by
Underwriters' Laboratories Inc. ("UL") and all of the exclusively
non-residential Replacement Sprinklers are not listed or approved by Factory
Mutual Research Corporation ("FMRC") by November 1, 1998, or if the listing or
approval of any of the Replacement Sprinklers by UL or FMRC is withdrawn,
discontinued or modified at any time, for any reason whatsoever, the Commission,
at its sole discretion and upon reasonable notice to Central, may void, suspend,
or rescind all or any part of this Consent Agreement and Order.
24. The Commission at its sole discretion and upon reasonable notice
to Central, may void, suspend, or rescind all or any part of this Consent
Agreement and Order if Central has made material misrepresentations regarding
its current financial condition, manufacturing and shipping costs for
Replacement Sprinklers and Replacement Parts, the number of Omega sprinklers
remaining to be remediated (approximately 8.4 million), and/or the projected
costs of administering the recall and replacement program in this Agreement and
Order, and the staff has relied on those misrepresentations in entering into
this Agreement. Appendix D of the Order lists those documents containing
representations deemed material by the parties.
Accepted and Approved: Accepted and Approved:
- --------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
7
<PAGE>
25. Beginning 3 months after the effective date of the Commission's
Order, and for every 3 months thereafter until the expiration or final
determination of the Claims as defined in Paragraph 1.c, of Appendix C of the
Order, Central shall provide to the staff a full report on the progress and
status of the Claims as defined in Paragraph 1.c of Appendix C of the Order, and
the progress and status of the remediation program set forth in this Agreement
and Order, including but not limited to the payments made to the Trust as
defined in Appendix C of the Order, and the expenses paid and/or incurred for
notice and administration of the remediation program set forth in this Agreement
and Order. Central shall provide, with these reports, the daily timesheets, with
descriptions of all work performed, of each Central employee involved in
administration of the remediation program, for the time period since the last
report date. At any time, upon reasonable written notice, the Commission may
require Central to submit to an independent or Commission review and/or audit of
the remediation program set forth in this Consent Agreement and Order, and/or
any Claims as defined in Paragraph 1.c of Appendix C. Central shall provide the
staff with a copy of every audit report of its financial condition within 5
business days of the date the report is prepared.
26. If, after the effective date hereof, any provision of this Consent
Agreement and Order is held to be illegal, invalid, or unenforceable under
present or future laws effective during the terms of this Consent Agreement and
Order, such provision shall be fully severable. The rest of the Agreement and
Order shall remain in full effect, unless the
Accepted and Approved: Accepted and Approved:
- --------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
8
<PAGE>
Commission determines that severing the provision materially impacts the
remediation program set forth in this Agreement and Order.
27. Central acknowledges that this Consent Agreement and Order have
been negotiated between unrelated, sophisticated and knowledgeable parties
acting in their own self-interest and represented by counsel, and the provisions
of this Consent Agreement and Order shall not be interpreted or construed
against any person or entity because that person or entity or any of its
attorneys or representatives drafter or participated in drafting this Consent
Agreement.
28. The provisions of this Consent Agreement and Order shall be
interpreted in a reasonable manner to effect its purpose to remedy the alleged
hazard that Omegas pose. In the event of a dispute between the parties arising
under this Consent Agreement and Order, the parties agree to submit the issue
for determination by the Commission. Except as stated to the contrary in
Paragraph 7 through 10 of Appendix C of the Order, Central shall have the right
to seek judicial review of the Commission decision, such review to be based upon
the record of any such Commission proceeding and according to law.
29. The existence of a dispute shall not excuse, toll, or suspend any
obligation or deadline imposed upon Central under this Consent Agreement and
Order.
30. This Consent Agreement and Order shall not be waived, changed,
amended, modified, or otherwise altered, except in writing by the party or
parties against
Accepted and Approved: Accepted and Approved:
- --------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
9
<PAGE>
whom such amendment, modification, alteration, or waiver is sought to be
enforced, and approved by the Commission.
Dated: October 1, 1998
/s/ Eric xxxxxxxxxx /s/ J. Gordon Cooney, Jr.
- --------------------------------------- -------------------------------------
Deborah S. Orlove, Esq. J. Gordon Cooney, Jr., Esq.
Eric H. Singer, Esq. Emily J. Lawrence, Esq.
Howard N. Tarnoff, Esq. MORGAN, LEWIS & BOCKIUS LLP
Complaint Counsel 2000 One Logan Square
U.S. Consumer Product Safety Commission Philadelphia, PA 19103
Office of Compliance (215) 963-5000
4330 East West Highway
Bethesda, MD 20814
(301) 504-0626
Of Counsel Michael F. Healy, Esq.
Eric L. Stone MORGAN, LEWIS & BOCKIUS LLP
Director, Legal Division 1800 M Street, NW
Alan H. Schoem Washington, DC 20036-5869
Assistant Executive Director (202) 467-7000
Office of Compliance
John C. Fenningham, Esq.
Complaint Counsel CORR, STEVENS & FENNINGHAM
Five Neshaminy Interplex, Suite 315
Trevose, PA 19053
(215) 639-4070
Counsel for Respondents
/s/ E. Talbot Briddell
-------------------------------------
E. Talbot Briddell
CEO, Central Sprinkler Corp. and
Central Sprinkler Co.
Accepted and Approved: Accepted and Approved:
- --------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
10
<PAGE>
APPENDIX
A
<PAGE>
Appendix A
Central Sprinkler Omega Notification Plan
Central's Efforts to Generate Editorial Coverage of Program - ongoing efforts
by Buchanan and Associates
Local Print Advertising (Newspapers)
o Proposed notice is set out in Exhibit I
o Eighty-seven 3-column x 7.5" ads will appear in 79 newspapers in each of the
68 targeted counties (Exhibit 2). The newspaper coverage will include the
Arizona Republic, Los Angeles Times, (2 x), San Francisco Chronicle, Denver
Post, Washington Post, Atlanta Journal, Chicago Tribune (2x), New York Times,
Philadelphia Inquirer (2x), and Dallas Morning News, as well as other papers
noted in Exhibit 3. The notices will appear in the front section of the
national news by November 1, 1998.
o Repeat notice - Central to place at least one ad in one local/regionalized
paper in each of the 68 targeted counties on or around May 1, 1999. Such
notice to only include information about the recall. This notice must be
approved by CPSC staff.
Trade Publication Advertising
Paid Ads Using Exhibit I to be purchased for the following publications for the
next available issue within 8 business days of CPSC press announcement
o Buildings Magazine
o Building Operating Management
1
<PAGE>
o Commercial Property News
o National Real Estate Investor
o Journal of Property Management
o Facilities Design and Management
o Fire Protection Contractor (FPC)
o Sprinkler Age
o NFPA Journal
National Print Advertising
(Using Exhibit 1 and purchased for publication within 8 business days of CPSC
press announcement)
o 2/5th page ad in Parade Magazine
o Digest size ad in USA Weekend
o Full-page ad in Reader's Digest
o Full page ad in seven local editions of TV Guide
2
<PAGE>
Direct Notice Communications
o First class letter with appropriate outer signal words as attached hereto
including the following documents in the following order: letter to consumers
(Exhibit 4), Proof of Claim, Waiver and Release of Claims, Request for
Exclusion, Verification Forms, product identification information, and long
form class action notice. This notice will be mailed to the identified
consumers set forth below within 8 business days of CPSC announcement (where
applicable).
o All individuals who filed claims against Central Sprinkler for Omega
Series Sprinklers.
o All individuals who called the toll free Central Sprinkler Omega
information line regarding Omega Series Sprinklers.
o All individuals who call the 1-800 automated telephone number or write
requesting the Class Notice or Recall as a result of seeing the published
notice.
o Within 30 days of CPSC press announcement, subject to availability of mailing
lists, mailing of first class letter, with appropriate outer signal words
substantially in the form set out in the attached letter to AHJs (Exhibit 4)
including Proof of Claim, Waiver and Release of Claims Form, Request for
Exclusion, Verification Forms product identification information, and long
term class notice to:
o Authorities having jurisdiction in counties with sprinkler laws,
regulations or ordinances.
o Within 30 days of CPSC press announcement, subject to availability of mailing
lists, mailing of first class letter, with appropriate outer signal words, in
the form substantially set out in consumer letter and Proof of Claim, Waiver
and Release of Claims, Verification Forms and product identification
information to:
o Organizations identified through purchased mailing lists for:
3
<PAGE>
Hospitals
Nursing and Convalescent Homes
Hotels & Motels
School Districts
Colleges & Universities
Approximately 14,334 U.S. members of the Building Owners and Managers
Association (BOMA).
o Within 30 days of CPSC press announcement, subject to availability of mailing
lists, mailing of first class letter, with appropriate outer signal words,
substantially in the form set out in the attached letter to AHJs, with
product identification information to:
Insurance-Homeowners
Insurance-Property & Casualty
Authorities Having Jurisdiction known to Central Sprinkler in counties
without sprinkler laws, regulations or ordinances
Distributors, Contractors, and End-users known to Central Sprinkler
Member of American Fire Sprinkler Association, National Fire Sprinkler
Association, and Home Inspectors Associations
o Within 30 days of CPSC press announcement, subject to availability of mailing
lists, mailing of first class letter, with appropriate outer signal words,
substantially in the form set out in the attached letter to AHJs, including
Proof of Claim, Waiver and Release of Claims and Verification Forms, long
form class notice and product identification information to the executive
directors of:
National Association of Homebuilders
Home Fire Sprinkler Coalition
Fire Marshals Association of North America
Fire Sprinkler Education Foundation, Inc.
International Association of Fire Chiefs
National Fire Protection Association
Operation Life Safety
4
<PAGE>
Consumer Federation of America
Consumer Information Center
Consumer Union of United States
National Consumer League
o Written letter by first class mail to members of the American Waterworks
Association in 68 targeted counties to provide notice of the corrective
action either as part of water bills or consumer newsletters. CPSC to approve
language for letter.
Computer Posting
o A public service announcement will be posted on appropriate legal, consumer,
fire safety and related bulletin boards on Usenet News groups (Exhibit 5) and
major online services (i.e., America Online, etc.) directed to professionals
and consumers. In addition to any other contact information, the online PSA
will include a link to the Central Omega program website.
o The notices of Recall and Settlement, Proof of Claim, Verification and
Waiver and Release of Claims forms will be posted on the Omega website to
provide access to the notice and other pertinent information. The website
will be listed with major search engines.
o In addition, hyperlinks may be established with other websites, including
CPSC's, related to fire safety, legal and construction-related issues to
allow access to the class action and recall notice.
Telephone Support
1-800 REQUEST-LINE
All print advertising will direct the reader to call a 1-800 telephone number,
to write to an address or to go to the website in order to receive the Notice of
recall and settlement and related forms.
5
<PAGE>
A 1-800 896-5685 interactive telephone number will be utilized. A pre-recorded
message will welcome callers to the line. Callers will be directed through a
series of steps that will allow the system to capture their names, mailing
addresses and phone numbers.
Names and addresses will be downloaded and transcribed within 48 hours.
Consumers will be mailed class action notice/recall package within 8 business
days of consumer call until November 15, 1998 and thereafter within 5 business
days.
1-800 OMEGA INFORMATION LINE
The Notice of recall and settlement will include Central Sprinkler's toll-free
Omega information line. If potential Class Members have questions after
reviewing the Notice of recall and settlement, they will be able to speak with a
Central customer service representative. All customer service representatives
will be trained by Central Sprinkler. A question and answer document
incorporating a list of commonly asked questions is being drafted in advance so
that customer service representatives will be prepared with scripted answers.
The script will be updated periodically to include new information and answers
to added questions. Central intends to dedicate 20 customer service
representatives staggered throughout the operational period for the first 6
weeks from the date of the Notice of recall and settlement. The Omega
information line will operate from 7:00 a.m. until 9:00 p.m. Monday through
Friday for the first six weeks. Staffing for the Omega information line
thereafter will be assessed after week 6.
Accepted and Approved: Accepted and Approved:
/s/ /s/
- -------------------------- ---------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
6
<PAGE>
EXHIBIT 1
- --------------------------------------------------------------------------------
IMPORTANT SAFETY RECALL
AND CLASS ACTION SETTLEMENT
- --------------------------------------------------------------------------------
FOR HOME OWNERS/BUILDING OWNERS WITH OMEGA BRAND
FIRE SPRINKLERS MANUFACTURED BY CENTRAL SPRINKLER CO.
- --------------------------------------------------------------------------------
<PAGE>
Central Sprinkler Company ("Central") and the United States Consumer Product
Safety Commission are announcing a settlement involving the recall and
replacement of approximately 6.4 million Omega brand fire sprinklers
manufactured since 1982 by Central. Plaintiffs in two suits representing a
nationwide class have preliminarily settled their suits and are also announcing
the suitability of a remedy. Omega fire sprinklers are installed in homes,
offices, hospitals, schools and other buildings around the country.
OMEGA FIRE SPRINKLERS COULD LIKELY FAIL IN A FIRE, WHICH COULD RESULT IN BODILY
INJURY OR DEATH.
IDENTIFYING SPRINKLERS
Numerous models of the Omega fire sprinklers are involved. On most models,
consumers will be able to see one to three flat round metal disks attached one
above the other with a small space between each disk. However, because it may be
difficult to determine whether Omegas are installed, consumers are encouraged to
call the toll free number below for product identification or contact their
architect, builder, sprinkler contractor, plumber, homeowners' association or
property manager to determine if Omegas are installed in their residence or
facility.
Building owners and consumers are urged to take immediate action and call the
Omega information line to learn more about the recall, how to identify Omega
sprinklers, obtain a Proof of Claim form, and obtain further information about
the settlement, including how to participate in the settlement and how the
settlement may affect their legal rights.
SPRINKLER REPLACEMENTS
For consumers to get replacement sprinklers and any reimbursement towards
installation costs, they must submit the Proof of Claim and Release Forms to
Central postmarked by August 1, 1999. Consumers submitting Proof of Claim and
Release Forms postmarked after August 1, 1999 but before November 1, 2001 all
qualify to receive replacement sprinklers (though not reimbursement).
Until free replacement sprinklers are provided, consumers need to protect
themselves against fire, have working smoke detectors and have adequate escape
plans.
CLASS ACTION
If you are an owner or operator of a building that is or was equipped with Omega
fire sprinklers, your legal rights may be affected by the proposed class action
settlement which, if approved by the court, will result in the release of
certain claims.
Complete information about your rights as a class member, the settlement
approval process, how to exclude yourself from the settlement class, how to
object or comment on the settlement, and how to make a claim for replacement
sprinklers and costs, including important dates and deadlines, is available in
the Full Notice of Settlement.
- --------------------------------------------------------------------------------
FOR FURTHER INFORMATION AND A COPY OF THE RECALL
AND FULL NOTICE OF CLASS ACTION SETTLEMENT,
CALL: 1-800-896-5685
OR WRITE: P.O. BOX 1555; FAIRMONT, MN 55021-1555
OR VISIT: http://www. xxxxxx.com/xxxx
PLEASE DO NOT CONTACT THE COURT.
DATED: March XX, 19xx COMMISSIONER BRUCE E. MITCHELL
The lawsuit and settlement are under consideration in
Hail v. Carter Sprinkler Corp. No. SCI, 78727 (Cal. Super Ct).
It is pending before
Commissioner Bruce E. Mitchell in the Los Angeles County Superior Court.
- --------------------------------------------------------------------------------
<PAGE>
CENTRAL SPRINKLER NOTICE PLAN
NEWSPAPERS ADVERTISING IN 68 TARGETED COUNTIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
STATE CITY NEWSPAPER CIRCULATION INSERTIONS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AZ Phoenix Arizona Republic, Gazette 581,337 1
- --------------------------------------------------------------------------------------------------------------
CA Los Angeles Times 1,400,397 2
- --------------------------------------------------------------------------------------------------------------
CA San Francisco Chronicle, Examiner 639,719 1
- --------------------------------------------------------------------------------------------------------------
CA San Diego Union-Tribune 452,980 1
- --------------------------------------------------------------------------------------------------------------
CA Orange County Register 416,071 1
- --------------------------------------------------------------------------------------------------------------
CA Sacramento Bee 350,345 1
- --------------------------------------------------------------------------------------------------------------
CA San Jose Mercury News 347,275 1
- --------------------------------------------------------------------------------------------------------------
CA Los Angeles/Torrance Daily Breeze 218,427 1
- --------------------------------------------------------------------------------------------------------------
CA Los Angeles Daily News 218,427 1
- --------------------------------------------------------------------------------------------------------------
CA Oakland Alameda-Oakland Metro Group 194,240 1
- --------------------------------------------------------------------------------------------------------------
CA Freemont-Newark Argus - 1
- --------------------------------------------------------------------------------------------------------------
CA Haywood Review - 1
- --------------------------------------------------------------------------------------------------------------
CA Plessanton Tri-Valley Herald - 1
- --------------------------------------------------------------------------------------------------------------
CA San Maleo County Times - 1
- --------------------------------------------------------------------------------------------------------------
CA Fresno Bee 188,793 1
- --------------------------------------------------------------------------------------------------------------
CA Riverside Press-Enterprise 173,533 1
- --------------------------------------------------------------------------------------------------------------
CA Los Angeles Press-Telegram 128,106 1
- --------------------------------------------------------------------------------------------------------------
CA Walnut Creek Contra Costa Times Combo 106,140 1
- --------------------------------------------------------------------------------------------------------------
CA Antooh Ledger/Dispatch - 1
- --------------------------------------------------------------------------------------------------------------
CA Plessanton Valley Times - 1
- --------------------------------------------------------------------------------------------------------------
CA Richmond West County Times - 1
- --------------------------------------------------------------------------------------------------------------
CA Ventura County Star 103,069 1
- --------------------------------------------------------------------------------------------------------------
CA Santa Rosa Press Democrat 102,745 1
- --------------------------------------------------------------------------------------------------------------
CA San Bernadino County Sun 94,288 1
- --------------------------------------------------------------------------------------------------------------
CA Ontario-Inland Valley Bulletin 83,388 1
- --------------------------------------------------------------------------------------------------------------
CA Stockton Record 82,144 1
- --------------------------------------------------------------------------------------------------------------
CA Santa Barbara News-Press 51,421 1
- --------------------------------------------------------------------------------------------------------------
CA Palm Springs The Desert Sun 50,725 1
- --------------------------------------------------------------------------------------------------------------
CA Marin County Independent Journal 42,772 1
- --------------------------------------------------------------------------------------------------------------
CA Redding Record Searchlight 39,667 1
- --------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
STATE CITY NEWSPAPER CIRCULATION INSERTIONS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CA Monterey County Herald 39,238 2
- ----------------------------------------------------------------------------------------------------------------
CA San Luis Oblapo Telegram - Tribune 33,722 1
- ----------------------------------------------------------------------------------------------------------------
CA Santa Cruz County Sentinel 29,829 1
- ----------------------------------------------------------------------------------------------------------------
CA Salnas Californian 21,096 2
- ----------------------------------------------------------------------------------------------------------------
CA Vallejo Times-Herald 20,477 1
- ----------------------------------------------------------------------------------------------------------------
CA Napa Napa Valley Register 19,639 1
- ----------------------------------------------------------------------------------------------------------------
CO Denver Post 456,237 1
- ----------------------------------------------------------------------------------------------------------------
CO Denver Rocky Mountain News 422,601 1
- ----------------------------------------------------------------------------------------------------------------
CO Fort Collins Coloradoan 35,165 1
- ----------------------------------------------------------------------------------------------------------------
DC Washington Post 1,129,519 1
- ----------------------------------------------------------------------------------------------------------------
DE Wilmington News Journal 150,287 1
- ----------------------------------------------------------------------------------------------------------------
FL Orlando Sentinel 388,722 1
- ----------------------------------------------------------------------------------------------------------------
FL Tampa Tribune 350,539 1
- ----------------------------------------------------------------------------------------------------------------
FL West Palm Beach Post 224,211 1
- ----------------------------------------------------------------------------------------------------------------
FL Fort Myers News-Press 103,367 1
- ----------------------------------------------------------------------------------------------------------------
FL Naples News 62,183 1
- ----------------------------------------------------------------------------------------------------------------
FL Bradenton Herald 49,545 1
- ----------------------------------------------------------------------------------------------------------------
GA Atlanta Journal-Constitution 701,982 1
- ----------------------------------------------------------------------------------------------------------------
GA Savannah News & Press 77,070 1
- ----------------------------------------------------------------------------------------------------------------
GA Lawrenceville Gwinnett Daily Post 12,799 1
- ----------------------------------------------------------------------------------------------------------------
HI Honolulu Advertiser & Star-Bulletin 193,318 1
- ----------------------------------------------------------------------------------------------------------------
IL Chicago Tribune 1,074,814 2
- ----------------------------------------------------------------------------------------------------------------
IL Chicago Sun-Times 466,116 2
- ----------------------------------------------------------------------------------------------------------------
IL Chicago Daily Herald 153,081 2
- ----------------------------------------------------------------------------------------------------------------
IL Chicago Southtown 65,167 2
- ----------------------------------------------------------------------------------------------------------------
MD Baltimore Sun 471,637 1
- ----------------------------------------------------------------------------------------------------------------
MD Annapolis Capital 83,507 1
- ----------------------------------------------------------------------------------------------------------------
NJ Newton New Jersey Herald 35,714 1
- ----------------------------------------------------------------------------------------------------------------
NY New York City Times 1,644,128 1
- ----------------------------------------------------------------------------------------------------------------
NY White Plains Gannett Suburban Newspapers 185,843 1
- ----------------------------------------------------------------------------------------------------------------
NY Poughkeepsie Journal 58,126 1
- ----------------------------------------------------------------------------------------------------------------
OH Cleveland Plain Dealer 513,045 1
- ----------------------------------------------------------------------------------------------------------------
OH Columbus Dispatch 383,829 1
- ----------------------------------------------------------------------------------------------------------------
OH Delaware Gazette 8,038 1
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
STATE CITY NEWSPAPER CIRCULATION INSERTIONS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PA Philadelphia Inquirer 901,891 2
- ----------------------------------------------------------------------------------------------------------------
PA Pittsburgh Post Gazette 424,431 1
- ----------------------------------------------------------------------------------------------------------------
PA Philadelphia Greater Philadelphia Newspapers 173,421 1
- ----------------------------------------------------------------------------------------------------------------
PA York Dispatch Record News 92,682 1
- ----------------------------------------------------------------------------------------------------------------
PA Wilkse-Barre Times Leader 67,763 1
- ----------------------------------------------------------------------------------------------------------------
PA Chester Delaware County Times 50,127 1
- ----------------------------------------------------------------------------------------------------------------
PA West Chester Local News 32,920 1
- ----------------------------------------------------------------------------------------------------------------
PA Wilkse-Barre Citizens' Voice 29,476 1
- ----------------------------------------------------------------------------------------------------------------
TX Dallas Morning News 800,308 1
- ----------------------------------------------------------------------------------------------------------------
UT Salt Lake City Tribune & Deseret News 230,259 1
- ----------------------------------------------------------------------------------------------------------------
VA Virginia Beach Virginian-Pilot 235,480 1
- ----------------------------------------------------------------------------------------------------------------
WA Seattle Times/Post-Intelligencer 502,134 1
- ----------------------------------------------------------------------------------------------------------------
WA Bellevue Eastside Journal 48,284 1
- ----------------------------------------------------------------------------------------------------------------
WA Port Angeles Peninsula News 27,464 1
- ----------------------------------------------------------------------------------------------------------------
WI Madison Capital Times 161,562 1
================================================================================================================
TOTALS 79 Newspapers 19,488,570 87
</TABLE>
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<PAGE>
Central Sprinkler
Reach and Frequency by County
State County Reach Freq.
- --------------------------------------------------------------------
WA Clallam 99.9% 2.7
- --------------------------------------------------------------------
CA Shasta 99.7% 2.4
- --------------------------------------------------------------------
GA Gwinnett 99.7% 2.3
- --------------------------------------------------------------------
CA Marin 99.3% 3.0
- --------------------------------------------------------------------
CO Adams 99.3% 3.0
- --------------------------------------------------------------------
FL Seminole 99.2% 2.3
- --------------------------------------------------------------------
WI Dane 99.2% 2.1
- --------------------------------------------------------------------
CA Sonorna 99.1% 2.5
- --------------------------------------------------------------------
FL Hillsbourgh 99.1% 2.1
- --------------------------------------------------------------------
CA Fresno 99.1% 2.1
- --------------------------------------------------------------------
PA Montgomery 98.9% 3.0
- --------------------------------------------------------------------
CA Yolo 98.9% 1.9
- --------------------------------------------------------------------
TX Dallas 98.8% 2.1
- --------------------------------------------------------------------
CA Orange 98.7% 2.9
- --------------------------------------------------------------------
MD Baltimore 98.4% 2.1
- --------------------------------------------------------------------
CO Larimer 98.3% 2.8
- --------------------------------------------------------------------
WA King 98.3% 2.2
- --------------------------------------------------------------------
PA York 98.3% 2.1
- --------------------------------------------------------------------
CA Sacramento 98.3% 2.1
- --------------------------------------------------------------------
FL Orange 98.2% 2.0
- --------------------------------------------------------------------
HI Honolulu 98.0% 2.0
- --------------------------------------------------------------------
CA Ventura 97.9% 2.8
- --------------------------------------------------------------------
AZ Maricopa 97.4% 2.0
- --------------------------------------------------------------------
CA Riverside 97.3% 2.6
- --------------------------------------------------------------------
MD Howard 97.3% 2.2
- --------------------------------------------------------------------
MD Montgomery 97.2% 1.9
- --------------------------------------------------------------------
CA Napa 97.1% 2.6
- --------------------------------------------------------------------
VA Fairfax 97.1% 1.9
- --------------------------------------------------------------------
UT Salt Lake 96.9% 2.0
- --------------------------------------------------------------------
MD Prince George's 96.9% 2.0
- --------------------------------------------------------------------
GA Cobb 98.8% 2.1
- --------------------------------------------------------------------
IL Du Page 96.7% 3.1
- --------------------------------------------------------------------
OH Delaware 96.7% 1.7
- --------------------------------------------------------------------
PA Bucks 96.5% 2.8
- --------------------------------------------------------------------
FL Manatee 95.2% 2.3
- --------------------------------------------------------------------
GA Chatham 96.2% 1.9
- --------------------------------------------------------------------
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Page 1
<PAGE>
State County Reach Freq.
- --------------------------------------------------------------------
CA Contra Costra 96.1% 2.4
- --------------------------------------------------------------------
VA Virginia Beach 95.9% 1.9
- --------------------------------------------------------------------
CA Santa Clara 95.8% 1.9
- --------------------------------------------------------------------
PA Delaware 95.8% 2.7
- --------------------------------------------------------------------
CO Boulder 95.2% 2.4
- --------------------------------------------------------------------
PA Chester 95.1% 2.8
- --------------------------------------------------------------------
FL Lee 94.8% 1.7
- --------------------------------------------------------------------
CA San Luis Obispo 94.7% 2.2
- --------------------------------------------------------------------
MD Anne Arundel 94.6% 2.4
- --------------------------------------------------------------------
DE New Castle 94.5% 1.9
- --------------------------------------------------------------------
CA San Diego 94.4% 2.0
- --------------------------------------------------------------------
CA San Mateo 94.1% 2.0
- --------------------------------------------------------------------
FL Palm Beach 94.1% 1.9
- --------------------------------------------------------------------
CA San Francisco 93.9% 1.8
- --------------------------------------------------------------------
IL Lake 93.4% 2.9
- --------------------------------------------------------------------
FL Colliar 93.3% 1.7
- --------------------------------------------------------------------
NY Dutchess 93.3% 1.6
- --------------------------------------------------------------------
NJ Sussex 93.0% 2.4
- --------------------------------------------------------------------
CA Santa Barbara 93.0% 2.3
- --------------------------------------------------------------------
CA San Joaquin* 92.9% 2.2
- --------------------------------------------------------------------
CA Santa Cruz* 92.4% 2.4
- --------------------------------------------------------------------
PA Allegheny 92.1% 1.8
- --------------------------------------------------------------------
CA Alameda* 91.9% 2.4
- --------------------------------------------------------------------
CA San Bernardino* 91.4% 2.8
- --------------------------------------------------------------------
NY Westchester* 91.0% 2.0
- --------------------------------------------------------------------
CA Solano* 90.7% 2.4
- --------------------------------------------------------------------
PA Luzerne 90.6% 2.2
- --------------------------------------------------------------------
CA Los Angeles* 90.3% 2.4
- --------------------------------------------------------------------
OH Cuyahoga* 90.1% 1.3
- --------------------------------------------------------------------
CA Monterey* 89.9% 2.5
- --------------------------------------------------------------------
PA Philadelphia* 89.7% 2.3
- --------------------------------------------------------------------
IL Cook* 89.6% 2.7
- --------------------------------------------------------------------
*Includes Reach from TV Guide Local Edition
Kinsella Communications, Ltd.
Page 2
<PAGE>
EXHIBIT 4
(Final Versions of Consumer Letter and
AHJ Letter to be Provided by CPSS)
<PAGE>
IMPORTANT SAFETY INFORMATION
RECALL OF CENTRAL SPRINKLER'S OMEGA BRAND FIRE SPRINKLERS
To Consumer/Homeowner:
The Consumer Product Safety Commission (CPSC) and Central Sprinkler
recently announced the recall of all Omega fire sprinklers. According to the
CPSC, these sprinklers are defective and could likely fail in a fire, which
could result in bodily injury or death.
Please read the entire attached packet of information carefully. It is
very important for you to determine if Omega sprinklers are installed in your
home or building. The notice contains product information regarding the recall
with the CPSC, as well as the preliminary settlement Central has reached with
several private class action lawsuits. Please refer to the product information
sheets which explain how to identify Omega sprinklers. Because sprinklers can be
difficult to identify, we urge you to check with your architect, builder,
sprinkler contractor, plumber, homeowners, association or property manager.
This recall is available to all owners of Omega fire sprinklers. To
participate in the recall you must complete the enclosed Proof of Claim Form and
Waiver and Release of Claims Form as soon as possible and return them to Central
Sprinkler at the address indicated in the Proof of Claim Form. Central Sprinkler
will mail you a free replacement sprinkler for every Omega sprinkler owned.
In order to receive replacement sprinklers and to qualify for
reimbursement toward installation costs, you must complete the Proof of Claim
Form and the accompanying Waiver and Release of Claim Form and return them to
Central Sprinkler, postmarked by August 1, 1999. Although it is important to
provide complete information, please submit your Proof of Claim Form postmarked
by August 1, 1999, even if you can not provide complete responses to all the
questions. In order to receive reimbursement toward installation costs, you
must complete and return the Verification Form within 365 days after you receive
your replacement sprinklers. Those owners filing a Proof of Claim and Waiver and
of Release of Claims Forms postmarked after August 1, 1999 but before November
1, 2001, still qualify to receive replacement sprinklers (though not
reimbursement). The recall terms may also provide benefits to those who have
already replaced Omegas between May 1, 1996 and the effective date of the
Commission's Order.
Please read all of this information carefully, as it explains your
legal rights and obligations. If you have any questions about how to complete
the forms or how to identify an Omega sprinkler, please call the Omega Hotline
at 1-800-896-5685.
Do not delay! Take action today. Until you receive your free
replacement sprinklers, you should have a well-defined and rehearsed escape
plan, an alternate plan and working smoke detectors on every floor of your home,
especially near bedrooms.
<PAGE>
IMPORTANT SAFETY INFORMATION
RECALL OF CENTRAL SPRINKLER'S OMEGA BRAND FIRE SPRINKLERS
October x, 1998
Dear Authority Having Jurisdiction:
I am writing to share with you urgent news regarding Omega fire
sprinklers that may well be installed in your area. If you are not already, you
must become aware of and familiarize yourself with this situation, the new steps
being taken to correct it, and the vital role you play by your action in
protecting consumer safety.
In cooperation with the United States Consumer Product Safety
Commission (CPSC), Central Sprinkler is recalling approximately 8.4 million
Omega series sprinklers now in service. According to the CPSC, these sprinklers
are defective, and could likely fail in a fire.
The recall is comprehensive and fundamentally different from our prior
remediation and notice efforts over the past three years. We are recalling all
Omega sprinklers in service, including Omegas containing an EPDM o-ring made
before June, 1996 and Omegas that contain a silicone o-ring made after June
1996. The recall encompasses Omegas from all dates of manufacture that are
installed in all piping systems -- not simply steel, but polybutylene, CPVC, and
copper, including those Omegas made after 1991. The recall involves no removal
and testing of Omega field samples, upon which remediation was previously
conditioned. The recall is not site-specific. It is total. As part of the
recall, Central will provide to all Omega owners -- free of charge -- an
approved Quick Response GB sprinkler as a replacement. The company has also
established a special Trust to help building owners and homeowners defray the
costs associated with replacing the sprinklers. The recall terms may also
provide benefits to those who have already replaced Omegas between May 1, 1996
and the effective date of the Commission's Order.
The first order of business is to help identify locations containing
Omega sprinklers and to help owners and residents of sprinklered properties
determine whether they have Omegas. The attached Notice includes product
identification to help you and property and homeowners in your area determine
whether they have Omega sprinklers on their premises, and if they do, which
model they have. As you may know, on all models of Omega sprinklers, you will
see a heat collector assembly, comprised of one to three flat metal disks or
fins and inside of which sit a plunger and fusible link. On some Omega models,
the word "Central" or the letters "CSC" may be visible on the deflector shield.
<PAGE>
Building and homeowners who have Omegas installed in their buildings should call
1-800-896-5685 as soon as possible to request a Proof of Claim Form and Waiver
and Release of Claims Form, which must be completed in order to receive free
replacement sprinklers. In order to receive any reimbursement for replacement
costs, owners must submit a completed Proof of Claim Form and a Waiver and
Release of Claims Form to Central Sprinkler by August 1, 1999. Details on
completing the forms are included in the enclosed Notice packet. Please feel
free to distribute copies of this letter to owners of Omegas in your
jurisdiction. Those owners filing a Proof of Claim and Waiver and Release of
Claims Form postmarked after August 1, 1999 but before November 1, 2001, still
qualify to receive replacement sprinklers (though not reimbursement).
We are utilizing advertising, direct mail notices and news stories to
inform consumers about the recall. However, in identifying buildings and
residences that contain Omegas there is no substitute for personal intervention
from fire protection leaders such as yourself. Along with the CPSC, we encourage
you to help us spread the word about this recall to protect the public health
and safety.
Please keep these two phone numbers handy when you and your
constituents need further assistance:
- - Call the Omega Information Line - 1-800-896-5685 to learn more about how to
identify an Omega sprinkler and to obtain a Proof of Claim Form. This is the
first number consumers should call to initiate the replacement effort.
- - If you have any questions about the recall and replacement effort that are not
answered by the Omega Information or the Notice packet, you may call Central
Sprinkler's Omega Hotline at 1-800-xxx-xxxx.
On behalf of all of us who are committed to fire prevention and
protection, we thank for your support in this effort.
<PAGE>
IMPORTANT SAFETY INFORMATION
RECALL OF CENTRAL SPRINKLER'S OMEGA BRAND FIRE SPRINKLERS
October x, 1998
Dear Authority Having Jurisdiction:
I am writing to share with you urgent news regarding Omega fire
sprinklers that may well be installed in your area. If you are not already, you
must become aware of and familiarize yourself with this situation, the new steps
being taken to correct it, and the vital role you play by your action in
protecting consumer safety.
In cooperation with the United States Consumer Product Safety
Commission (CPSC), Central Sprinkler is recalling approximately 8.4 million
Omega series sprinklers now in service. According to the CPSC, these sprinklers
are defective, and could likely fail in a fire.
The recall is comprehensive and fundamentally different from our prior
remediation and notice efforts over the past three years. We are recalling all
Omega sprinklers in service, including Omegas containing an EPDM o-ring made
before June, 1996 and Omegas that contain a silicone o-ring made after June
1996. The recall encompasses Omegas from all dates of manufacture that are
installed in all piping systems -- not simply steel, but polybutylene, CPVC, and
copper, including those Omegas made after 1991. The recall involves no removal
and testing of Omega field samples, upon which remediation was previously
conditioned. The recall is not site-specific. It is total. As part of the
recall, Central will provide to all Omega owners -- free of charge -- an
approved Quick Response GB sprinkler as a replacement. The company has also
established a special Trust to help building owners and homeowners defray the
costs associated with replacing the sprinklers. The recall terms may also
provide benefits to those who have ' already replaced Omegas between May 1, 1996
and the effective date of the Commission's Order.
The first order of business is to help identify locations containing
Omega sprinklers and to help owners and residents of sprinklered properties
determine whether they have Omegas. The attached Notice includes product
identification to help you and property and homeowners in your area determine
whether they have Omega sprinklers on their premises, and if they do, which
model they have. As you may know, on all models of Omega sprinklers, you will
see a heat collector assembly, comprised of one to three flat metal disks or
fins and inside of which sit a plunger and fusible link. on some Omega models,
the word "Central" or the letters "CSC" may be visible on the deflector shield.
<PAGE>
Building and homeowners who have Omegas installed in their buildings should call
1-800-896-5685 as soon as possible to request a Proof of Claim Form and Waiver
and Release of Claims Form, which must be completed in order to receive free
replacement sprinklers. In order to receive any reimbursement for replacement
costs, owners must submit a completed Proof of Claim Form and a Waiver and
Release of Claims Form to Central Sprinkler by August 1, 1999. Please feel free
to distribute copies of this letter to owners of Omegas in your jurisdiction.
Those owners filing a Proof of Claim and Waiver and Release of Claims Form
postmarked after August 1, 1999 but before November 1, 2001, still qualify to
receive replacement sprinklers (though not reimbursement).
We are utilizing advertising, direct mail notices and news stories to
inform consumers about the recall. However, in identifying buildings and
residences that contain Omegas there is no substitute for personal intervention
from fire protection leaders such as yourself. Along with the CPSC, we encourage
you to help us spread the word about this recall to protect the public health
and safety.
Please keep these two phone numbers handy when you and your
constituents need further assistance:
- - Call the Omega Information Line - 1-800-896-5685 to learn more about how to
identify an Omega sprinkler and to obtain a Proof of Claim Form. This is the
first number consumers should call to initiate the replacement effort.
- - If you have any questions about the recall and replacement effort that are not
answered by the Omega Information or the Notice packet, you may call Central
Sprinkler's Omega Hotline at 1-800-xxx-xxxx.
On behalf of all of us who are committed to fire prevention and
protection, we thank for your support in this effort.
<PAGE>
EXHIBIT 5
<PAGE>
Newsgroups for Central Sprinkler Class Notice
<TABLE>
<S> <C>
acc.shell.usa-today.law alt.real-estate.commercial.tx-northwest
acc.shell.usa-today.real alt.real-estate.commercial.tx-southeast
alt.architecture alt.real-estate.commercial.tx-southwest
alt.architecture.alternative ca.news
alt.architecture.int-design clari.biz
alt.building.announcements clari.biz.industry.construction
alt.building.architecture clari.biz.industry.construction.cbd.acquisitions
alt.building.construction clari.biz.industry.construction.cbd.architecturing
alt.building.consu1ting-specialty clari.biz.industry.construction.maintenance
alt.building.contractors clari.biz.industry.construction.misc
alt.building.distributor-dealer clari.biz.industry.construction.supplies
alt.building.education clari.biz.industry.real_cst+const
alt.building.engineering clari.biz.industry.real_cst+cons_releases
alt.building.environment clari.living.consume
alt.building.finance clari.local.california.sfbay.fire
alt.building.gov-issues clari.news.usa.law
alt.building.health-safety clari.usa.law.misc
alt.building.interior-design courts.usa
alt.building.law courts.usa.state
alt.building.manufacturing misc.consumer.house
alt.building.planning-preservation misc.consumers
alt.building.realestate misc.consumers.house
alt.building.research misc.consumers.house.homeowner-assn
alt.building.union-assn-society misc.invest.real-estate
alt.business misc.legal
alt.business.home misc.legal.moderated
alt.business.misc nj.housing
alt.construction nj.market.housing
alt.consumers nyc.market.housing
alt.consumers.experiences phl.housing
alt.current-events realtynet.commercial
alt.current-events.usa realtynet.east
alt.firefighters realtynet.general
alt.home.repair realtynet.government
alt.invest.real-estate realtynet.invest
alt.lawyers realtynet.lending
alt.real-estate.commercial.az realtynet.mid
alt.real-estate.commercial.ca-central realtynet.qa
alt.real-estate.commercial.ca-north realtynet.residential
alt.real-estate.commercial.ca-south realtynet.south
alt.real-estate.commercial.fl-central realtynet.west
alt.real-estate.commercial.fl-north relcom.commerce.construction
alt.real-estate.commercial.fl-south relcom.consumers
alt.real-estate.commercial.ga sdnet.housing
alt.real-estate.commercial.md sdnet.real-estate
alt.real-estate.commercial.nj sdnet.real-estate.agents
alt.real-estate.commercial.ny sealttle.forsale.housing
alt.real-estate.commercial.oh us.legal
alt.real-estate.commercial.pa usa-today.law
alt.real-estate.commerical.tx-northeast
</TABLE>
<PAGE>
APPENDIX
B
<PAGE>
APPENDIX B
COMMERCIAL OMEGA REPLACEMENTS
LISTING &
OMEGA MODEL REPLACEMENT PART NO. APPROVAL
- ----------- ----------- -------- ---------
3/8" C-1 & C1A 7/16" GB-QR Pendent 155 (Degrees) BR 1669 UL (1)
155 (Degrees) CH 1670
155 (Degrees) BB 1671
155 (Degrees) OW 1672
155 (Degrees) WH 1673
155 (Degrees) BK 1674
200 (Degrees) BR 1681
200 (Degrees) CH 1682
200 (Degrees) BB 1683
200 (Degrees) OW 1684
200 (Degrees) WH 1685
200 (Degrees) BK 1686
1/2" C-1 & C-1A 1/2" GB-GR Pendent 155 (Degrees) BR 1862 UL & FM
155 (Degrees) CH 1863
155 (Degrees) BB 1864
155 (Degrees) OW 1865
155 (Degrees) WH 1866
155 (Degrees) BK 1867
200 (Degrees) BR 1922
200 (Degrees) CH 1923
200 (Degrees) BB 1924
200 (Degrees) OW 1925
200 (Degrees) WH 1926
200 (Degrees) BK 1927
EC20 & EC-20A 1/2" GB EC Pendent 155 (Degrees) BR 2730 UL (2)
155 (Degrees) CH 2731
155 (Degrees) BB 2732
155 (Degrees) OW 2735
155 (Degrees) WH 2733
1
<PAGE>
APPENDIX B
COMMERCIAL OMEGA REPLACEMENTS
LISTING &
OMEGA MODEL REPLACEMENT PART NO. APPROVAL
- ----------- ----------- -------- ---------
AC 1/2" GB-QR Pendent 155 (Degrees) BR 1862 UL & FM
155 (Degrees) CH 1863
155 (Degrees) BB 1864
155 (Degrees) OW 1865
155 (Degrees) WH 1866
155 (Degrees) BK 1867
HEC-12 1/2" GB-QR S/W 155 (Degrees) BR 1904 UL & FM
155 (Degrees) CH 1905
155 (Degrees) BB 1906
155 (Degrees) OW 1907
155 (Degrees) WH 1908
155 (Degrees) BK 1909
200 (Degrees) BR 1934
200 (Degrees) CH 1935
200 (Degrees) BB 1936
200 (Degrees) OW 1937
200 (Degrees) WH 1938
200 (Degrees) BK 1939
HEC-12EC 1/2" GB EC S/W 155 (Degrees) BR 2720 UL (2)(3)
155 (Degrees) CH 2721
155 (Degrees) BB 2722
155 (Degrees) OW 2725
155 (Degrees) WH 2723
155 (Degrees) BK 2724
M PENDENT 1/2" GB-QR Pendent 155 (Degrees) BR 1862 UL & FM
155 (Degrees) CH 1863
155 (Degrees) BB 1864
155 (Degrees) OW 1865
155 (Degrees) WH 1866
155 (Degrees) BK 1867
200 (Degrees) BR 1922
200 (Degrees) CH 1923
200 (Degrees) BB 1924
200 (Degrees) OW 1925
200 (Degrees) WH 1926
200 (Degrees) BK 1927
2
<PAGE>
APPENDIX B
COMMERCIAL OMEGA REPLACEMENTS
LISTING &
OMEGA MODEL REPLACEMENT PART NO. APPROVAL
- ----------- ----------- -------- ---------
M UPRIGHT 1/2" GM-QR Upright 155 (Degrees) BR 1850 UL & FM
155 (Degrees) CH 1851
155 (Degrees) BB 1852
155 (Degrees) OW 1853
155 (Degrees) WH 1854
155 (Degrees) BK 1855
200 (Degrees) BR 1946
200 (Degrees) CH 1947
200 (Degrees) BB 1948
200 (Degrees) OW 1949
200 (Degrees) WH 1950
200 (Degrees) BK 1951
M SIDEWALL 1/2" GB-QR S/W 155 (Degrees) BR 1904 UL & FM
155 (Degrees) CH 1905
155 (Degrees) BB 1906
155 (Degrees) OW 1907
155 (Degrees) WH 1908
155 (Degrees) BK 1909
M-EC SIDEWALL 1/2" GB-EC S/W 155 (Degrees) BR 2720 UL (2)
155 (Degrees) CH 2721
155 (Degrees) BB 2722
155 (Degrees) OW 2725
l55 (Degrees) WH 2723
155 (Degrees) BK 2724
HEC-20 1/2" GB-EC S/W 155 (Degrees) BR 2720 UL (4)
155 (Degrees) CH 2721
155 (Degrees) BB 2722
155 (Degrees) OW 2725
155 (Degrees) WH 2723
155 (Degrees) BK 2724
FC FLUSH 1/2" GB4-FR 155 (Degrees) 776 UL (5)
3
<PAGE>
APPENDIX B
COMMERCIAL OMEGA REPLACEMENTS
LISTING &
OMEGA MODEL REPLACEMENT PART NO. APPROVAL
- ----------- ----------- -------- ---------
FC PENDENT 1/2" GB-QR Pendent 155 (Degrees) BR 1862 UL & FM
155 (Degrees) CH 1863
155 (Degrees) BB 1864
155 (Degrees) OW 1865
155 (Degrees) WH 1866
155 (Degrees) BK 1867
PROHIBITOR NO REPLACEMENT (6)
NOTES:
(1) Currently FM does not have an approved standard for 7/16" orifice heads.
Because of very low demand, Central does not offer a 3/8" GBQR.
(2) The GBEC sprinkler is currently being tested at FM
(3) FM minimum pressure requirements for Extended Coverage do not allow Approval
of a direct replacement for a UL Listed head in all applications.
(4) FM does not approve mounting heights below 12"
(5) For those owners that choose to do so, Central will offer the Model GB4-FR
even though it does not have the on-off capacity. The GB4-FR sprinkler is
currently being tested at FM.
(6) For those owners that choose to do so, Central will offer the Model GBQR,
however it is not designed for institutional installation.
4
<PAGE>
APPENDIX B
RESIDENTIAL OMEGA REPLACEMENTS
LISTING &
OMEGA MODEL REPLACEMENT PART NO. APPROVAL
- ----------- ----------- -------- ---------
1/2" C-1 & C-1A LF Pendent 155 (Degrees) BR 2703 UL (5)
155 (Degrees) CH 2704
155 (Degrees) BB 2705
155 (Degrees) OW 2706
155 (Degrees) WH 2709
155 (Degrees) BK 2707
EC-20 & EC-20A LF Pendent 155 (Degrees) BR 2703 UL (5)
155 (Degrees) CH 2704
155 (Degrees) BB 2705
155 (Degrees) OW 2706
155 (Degrees) WH 2709
155 (Degrees) BK 2707
HEC-12 RES &
HEC-12 LF S/W 155 (Degrees) BR 1724 UL (5)
155 (Degrees) CH 1725
155 (Degrees) BB 1726
155 (Degrees) OW 1729
155 (Degrees) WH 1727
155 (Degrees) BK 1728
R-1, R-1A & R-1M LF Pendent 155 (Degrees) BR 2703 UL (5)
155 (Degrees) CH 2704
155 (Degrees) BB 2705
155 (Degrees) OW 2706
155 (Degrees) WH 2709
155 (Degrees) BK 2707
NOTES.
(5) FM Residential density requirements do not allow Approval of a direct
replacement for a UL Listed Residential head.
5
<PAGE>
APPENDIX
C
<PAGE>
APPENDIX C
Obligations of Central:
1. In order to defray the cost to owners of Omega fire sprinklers of removing
and replacing those sprinklers, Central Sprinkler Corporation and Central
Sprinkler Company (collectively, "Central") shall deposit $8,800,000 into an
interest-bearing irrevocable trust account for the benefit of Omega owners
who participate in the remediation program as outlined in the Consent
Agreement and Order (the "Trust"). Central shall have no interest, whether
legal, equitable or otherwise, in the funds in the Trust, and no amounts in
the Trust shall ever be paid to, for the benefit of, or revert back to
Central. The Trust shall be created solely for the purpose of providing
Omega owners with a contribution towards the costs of removal and
replacement of their Omega sprinklers ("Replacement Contribution"). All
expenses of the Trust, including but not limited to compensation and
indemnification of the Trustee, will be paid from the corpus of the Trust.
The funds shall be deposited into the Trust as follows:
a. Central shall deposit $2,200,000 into the Trust within one day of the
date of entry of the Commission's Order.
b. Central shall deposit an additional $2,200,000 into the Trust on the
first, second, and third anniversaries of the Effective Date of the
Commission's Order.
c. Central shall also deposit into the Trust a portion of all proceeds,
including punitive and treble damages, from claims and lawsuits against
its insurers or other third parties relating to Omega sprinklers,
regardless of whether such proceeds are paid directly to Central, its
attorneys, agents and/or other representatives (the "Proceeds").
(Central's claims and lawsuits against its insurers or other third
parties relating to Omega sprinklers are hereinafter referred to as the
"Claims.") The Proceeds shall not include any amounts received by Central
in reimbursement or compensation for actions filed or claims made against
it by persons and/or entities who sustained property damage, personal
injury or death as a result of the premature activation of Omega
sprinkler(s), or the inactivation of Omega sprinkler(s) in a fire. The
Proceeds shall be distributed as follows:
i. Central shall retain for itself Proceeds equal to the amount it spends
in reasonable costs and attorneys' fees to defend itself against
civil lawsuits
<PAGE>
filed against it by persons, non-governmental entities, or
governmental entities in their proprietary capacity as building owners
or operators, relating to Omega sprinklers, but not claiming personal
injury, property damage and/or death as a result of the premature
activation of Omega sprinkler(s) or the inactivation of Omega
sprinkler(s) in a fire.
ii. Central shall deposit into the Trust 50% of the Proceeds in excess of
the amount stated in Paragraph i above, up to the amount of Central's
contributions to the Trust pursuant to Paragraphs 1.a, 1.b, and 2 of
this Appendix.
iii. Central shall deposit into the Trust 70% of all Proceeds in excess
of the amounts stated in Paragraphs i and ii above.
All interest from the Trust shall be placed into the Trust for distribution
to Omega owners with other amounts in the Trust. The Trust agreement shall
be in a form approved by the staff. The Trust shall remain in effect until
the expiration or final determination of all Claims, and the final
distribution of all funds in the Trust.
2. By November 30, 2001, Central shall make an additional deposit into the
Trust based on the total number of Replacement Sprinklers needed to fulfill
the Proofs of Claim submitted pursuant to Paragraphs 5 and 6 below. In
calculating the total number of sprinklers, Central shall include not only
Replacement Sprinklers, but also Omega sprinklers for which Central must
make payment pursuant to Paragraph 12 of the Consent Order. Specifically,
Central shall make this additional deposit as follows:
- --------------------------------------------------------------------------------
Total Number of Sprinklers Included Central's Additional Deposit
in Proofs of Claim Submitted into the Trust
by November 1, 2001
- --------------------------------------------------------------------------------
less than or equal to 1 million sprinklers $15.00 million
- --------------------------------------------------------------------------------
greater than 1 million sprinklers, but less $13.00 million
than or equal to 1.5 million sprinklers
- --------------------------------------------------------------------------------
greater than 1.5 million sprinklers, but less $11.00 million
than or equal to 2 million sprinklers
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
greater than 2 million sprinklers, but less $9.00 million
than or equal to 2.5 million sprinklers
- --------------------------------------------------------------------------------
greater than 2.5 million sprinklers, but less $7.00 million
than or equal to 3 million sprinklers
- --------------------------------------------------------------------------------
greater than 3 million sprinklers, but less $4.75 million
than or equal to 3.5 million sprinklers
- --------------------------------------------------------------------------------
greater than 3.5 million sprinklers, but less $2.75 million
than or equal to 4 million sprinklers
- --------------------------------------------------------------------------------
greater than 4 million sprinklers, but less $1.25 million
than or equal to 4.5 million sprinklers
- --------------------------------------------------------------------------------
greater than 4.5 million sprinklers, but less $0.50 million
than or equal to 4.75 million sprinklers
- --------------------------------------------------------------------------------
greater than 4.75 million sprinklers $0.00 million
- --------------------------------------------------------------------------------
3. On November 30, 2002, Central shall make an additional contribution to the
Trust in an amount equal to the difference between $37.3 million and the sum
of the following expenses, incurred between the date the parties sign the
Consent Agreement and November 1, 2002, provided that such expenses total
less than $37.3 million:
a. Manufacturing and supplying Replacement Sprinklers and Replacement Parts
to owners of Omega sprinklers;
b. Paying $5.00 per Omega sprinkler to Omega owners who do not want or
cannot use Central's Replacement Sprinklers pursuant to Paragraph 12 of
the Order;
c. Making contributions to the Trust pursuant to Paragraphs 1 and 2 of this
Appendix;
d. An amount equal to (i) the actual cost of providing notice to the public
of this settlement and the settlement of the class action styled Hart v.
Central Sprinkler Corp., et al., Case No. BC176727, pending in California
Superior Court, Los Angeles County, or (ii) $1.6 million, whichever is
less;
3
<PAGE>
e. An amount equal to (i) the actual cost of administering the remediation
program under this Consent Agreement and Order, or (ii) $3.0 million,
whichever is less; and
f. An amount equal to the costs of defending any actions by, and paying any
judgments or settlements obtained by, parties who do not participate in
and/or choose to exclude themselves from the remediation program under
this Consent Agreement and Order and/or the class action settlement
referenced in Paragraph 3.d of this Appendix, including a reasonable
amount to address litigation by such persons that is pending as of
November 1, 2002, less Proceeds received on account of such claims or
suits. The amount reserved to address such pending litigation must be
approved by the staff, but shall not exceed 20% of the amount spent by
Central on all such litigation between the effective date of this Order
and November 1, 2002.
4. Beginning 3 months after the Effective Date of the Commission's Order, and
for every 3 months thereafter until the expiration of 48 months or until the
expiration or final determination of the Claims, whichever is later, Central
shall provide the Commission staff with progress reports, in a format
approved by the Commission staff, regarding (a) the number of persons who
have contacted Central to make a claim; (b) the number of Proofs of Claim
that have been submitted and the number of sprinklers represented in those
Proofs of Claim; and (c) the status of the Claims described in Paragraph 1.c
above. This report shall also include current bank statements for the
Trust. At the request of the Commission staff, Central shall provide to the
staff the names of all persons who have contacted Central to make a claim
and/or who have submitted a Proof of Claim.
Obligations of Omega Owners:
5. Omega owners who submit to Central a Proof of Claim form and a Waiver and
Release of Claims form postmarked by August 1, 1999, substantially in the
forms attached to this Appendix, will receive free Replacement Sprinklers
and Parts, as well as an initial and any supplemental Replacement
Contributions from the Trust.
To receive payment from the Trust, owners of Omega sprinklers must also
submit to Central a Verification, substantially in the form attached to this
Appendix, within 365 days after receiving Replacement Sprinklers and Parts.
The Verification shall state under penalty of perjury the number of Omega
sprinklers that the owner actually has replaced in the owner's building(s).
The Verification also shall be accompanied by a
4
<PAGE>
work order, bill, receipt, or other documentation from the person or Company
replacing the sprinklers, establishing the number of Omega sprinklers that
have been replaced. Failure to timely submit a Verification and supporting
documentation will disqualify an Omega owner from receiving any payment from
the Trust, unless the delay in submitting the Verification is caused by an
act or omission on the part of Central.
6. Omega owners who submit to Central a Proof of Claim form and a Waiver and
Release of Claim form postmarked after August 1, 1999, but no later than
November 1, 2001, substantially in the form attached to this Appendix, will
receive free Replacement Sprinklers and Parts, but will not be eligible to
receive contributions from the Trust, unless their delay in submitting a
Proof of Claim form and/or Waiver and Release of Claims form is caused by an
act or omission on the part of Central. Omega owners whose delay in
submitting a Proof of Claim form and/or Waiver and Release form is caused
by an act or omission on the part of Central will be entitled to
distributions from the Trust, as if their Proof of Claim form and/or Waiver
and Release of Claims form had been timely submitted.
Distribution Plans
7. By October 15, 1999, Central shall provide the Commission staff with a
proposed plan of distribution ("Initial Distribution Plan") of the Trust to
all Omega owners who meet the requirements specified in Paragraph 5 above.
The Distribution Plan shall be consistent with Paragraphs 1 and 2 (and 3, if
applicable) of this Appendix, and shall be designed to compensate Omega
owners for replacement labor costs and to motivate participation in this
remediation program. The Distribution Plan shall include: (a) the total
funds to be distributed; (b) the timetable by which the funds will be
distributed; and, (c) the apportionment of the Trust funds among the
eligible Omega owners. The Distribution Plan must be approved by the
Commission staff. In no event, and under no circumstances, may any amounts
in the Trust be paid or revert back to Central. If the Commission staff does
not approve the Distribution Plan, the staff shall notify Central within 45
days of receiving the Distribution Plan and shall submit to Central its
proposed plan of distribution. If the parties cannot agree to a plan of
distribution, the parties will submit competing plans to the Commission for
resolution. The Commission's decision shall be final and binding upon the
parties and cannot be appealed.
8. By December 31, 2001, Central shall prepare a First Supplemental
Distribution Plan with respect to all remaining amounts in the Trust. The
First Supplemental Distribution Plan shall be subject to the same
requirements and procedures as the Initial Distribution
5
<PAGE>
Plan specified in Paragraph 7 above. To the extent that any or all of an
Omega owner's claim for distributions from the Trust is forfeited because
of the owner's failure to submit the Release and/or Verification required by
Paragraph 5 above, the full amount of such forfeiture shall be apportioned
among owners who have complied with all requirements specified in Paragraph
5 above.
9. By November 30, 2002, Central shall prepare a Second Supplemental
Distribution Plan with respect to all remaining amounts in the Trust. The
Second Supplemental Distribution Plan shall be subject to the same
requirements and procedures as the Initial Distribution Plan specified in
Paragraph 7 above. To the extent that any or all of an Omega owner's claim
for distributions from the Trust is forfeited because of the owner's failure
to submit the Release and/or Verification required by Paragraph 5 above, the
full amount of such forfeiture shall be apportioned among owners who have
complied with all requirements specified in Paragraph 5 above.
10. Within 30 days after the expiration or final determination of the Claims,
Central shall provide to the Commission staff a proposed supplemental plan
of distribution ("Proceeds Distribution Plan") for distribution of the
Proceeds to all Omega owners who meet the requirements specified in
Paragraph 5 above. The Proceeds Distribution Plan shall be subject to the
same requirements and procedures as the Initial Distribution Plan specified
in Paragraph 7 above.
Accepted and Approved: Accepted and Approved:
/s/ XXXXXXXXXXX /s/ XXXXXXXXXXXXXX
----------------------------- ----------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co. and
Central Sprinkler Corporation
6
Kinsella Communications, Ltd.
Page 1
<PAGE>
Exhibit 3
CENTRAL SPRINKLER COMPANY
OMEGA SPRINKLER
PROOF OF CLAIM FORM
Omega ID #________________(Internal Use Only)
In order to make a claim for Replacement Sprinklers and Replacement
Parts and a payment from the Trust, you must complete this Proof of Claim Form,
sign the attached Waiver and Release of Claims Form, and submit both documents
plus the required photographs by August 1, 1999. You can still make a claim for
Replacement Sprinklers and Replacement Parts after August 1, 1999 as long as
you submit these forms prior to November 1, 2001, but in that event, you will
not be eligible for a payment from the Trust.
If you have already had your Omega Sprinklers replaced, you may be eligible for
a payment from the Trust. You must complete this Proof of Claim Form and the
attached Waiver and Release of Claims Form, and submit both documents before
August 1, 1999.
If you have more than one building in which Omega Sprinklers have been
installed, make copies of this form before filling it in.
A. CLAIMANT INFORMATION
1. Name of Claimant:____________________________________________________________
2. Claimant's mailing address:__________________________________________________
Street
_____________________________________________________________________________
City State Zip Code
3. Name of contact person:______________________________________________________
4. Telephone: ( )____________________
5. Fax: ( )__________________________
6. If you have already replaced your Omega Sprinklers, check here ____.
If so, attach pertinent documentation regarding the replacement of the
sprinklers.
<PAGE>
Exhibit 3
B. BUILDING AND OMEGA SPRINKLER INFORMATION
Please complete this section for each building in which Omega sprinklers
have been installed. Please copy this form and complete for each additional
building.
1. Name of building:_______________________________________________________
2. Building street address:________________________________________________
Street
________________________________________________________________________
City State Zip Code
3. Name of contact person:_________________________________________________
4. Telephone: ( )____________________
5. Fax: ( )__________________________
6. E-Mail Address:_________________________________________________________
7. Shipping address for replacement sprinklers:____________________________
**PLEASE NOTE: WE CANNOT SHIP TO Name of Addressee
A POST OFFICE BOX
______________________________
Attention
______________________________
Street
______________________________________
City State Zip Code
8. Nature of building __Private Home __Apartment Bldg. __Condo
__Retail __Hotel __School
__Restaurant __Nursing Home __Hospital
__Jail/Prison __Office Bldg. __Warehouse
__Group Home __Mental Health Ctr.
__Other please explain:___________________________
C. IDENTIFICATION OF OMEGA SPRINKLERS
In order for Central to provide the correct number and model of
Replacement Sprinklers, it is vital that you provide accurate information
regarding the Omega sprinklers in your building. This Notice Packet contains
pictures and other identifying information that will help you determine if you
have on Omega sprinkler, and if so, help identify the model. Please refer to
that section when completing this Proof of Claim Form. If you need assistance
identifying your Omega Sprinklers, call Central at 1-800-XXX-XXXX, or contact
your sprinkler contractor, builder, architect, or local fire marshal.
<PAGE>
Exhibit 3
Central has manufactured the following models of Omega sprinkler:
C-1 (Pendent) Protector-M (Horizontal Sidewall QR)
C-lA (Pendent) Protector-M (Horizontal Sidewall QREC)
EC-20 (Pendent) HEC-12 (Sidewall)
EC-20A (Pendent) HEC-12Res (Sidewall)
R-1 (Pendent) HEC-12EC (Sidewall)
R-lA (Pendent) HEC-20 (Sidewall)
R-1M (Pendent) HEC-12 PRO (Prohibitor Sidewall)
Flow Control - FC (Pendent) HEC-12 PRO (Prohibitor QR Sidewall)
Flow Control - FC (Flush Pendent) C-lA PRO (Prohibitor Pendent)
Protector-M (Upright) C-1A PRO QR (Prohibitor QR Pendent)
Protector-M (Pendent) AC (Concealed Pendent)
Protector-M (Horizontal Sidewall)
Please complete the information requested in the table below, setting
forth the particular Omega model, quantity of such model, and other information
regarding the sprinklers in your building. In addition, you are required to
provide a photograph of each different Omega model. Note that this request does
not require you to photograph each sprinkler, but only each different model
installed in your building. Please make every effort to ensure clarity for
proper identification.
Most Omegas contain three small circular heat-collecting disks.
<TABLE>
<CAPTION>
=========================================================================================================================
Temperature
Omega Rating Escutcheon Finish
Sprinkler Position (160, 145, 200 degrees) Sprinkler Finish (brass, chrome, white)
Model or Type Quantity (as listed on deflector) (brass, chrome, white) **
*** *
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
=========================================================================================================================
</TABLE>
* The Deflector is the circular disk with notches, resembling a snowflake, saw
blade, flower or gear and is depicted in the Pamphlet next to the photograph
of Omega sprinklers.
** The Escutcheon is the decorative ring surrounding the sprinkler that is
flush to the wall or ceiling.
*** For Model M Omega Sprinklers only, you must pick one of the following styles
(Sidewall, Pendent or Upright).
a. For owners of C-1 or C-1A, quick-response pendent sprinklers only, please
identify the orifice size ( 1/2" or 3/8") for each sprinkler. The orifice
size is the measurement of the inside diameter of the water flow opening,
not the threads on the sprinkler.
<PAGE>
Exhibit 3
=======================================================
Sprinkler Model Quantity
- -------------------------------------------------------
C-1 1/2"
- -------------------------------------------------------
C-1 3/8"
- -------------------------------------------------------
C-lA 1/2"
- -------------------------------------------------------
C-IA 3/8"
=======================================================
b. For owners of HEC-20 sprinklers, please indicate how many inches below the
ceiling the top of each sprinkler is installed.
================================================================
Quantity of HEC-20 Sprinklers Distance from Ceiling
- ----------------------------------------------------------------
- ----------------------------------------------------------------
- ----------------------------------------------------------------
- ----------------------------------------------------------------
================================================================
D. ADDITIONAL INFORMATION
Please answer the following questions to the best of your ability. The
information may be used to prioritize your claims. If you cannot answer
these questions, you nevertheless will receive Replacement Sprinklers and a
payment from the Trust (if you submit this Proof of Claim and accompanying
Waiver and Release of Claims postmarked by August 1, 1999), but the date on
which you receive Replacement Sprinklers and the amount of payment may be
affected.
1. Year of Omega sprinkler system installation (1982 to Present):_______
2. Number of floors or stories:_________________________________________
3. Ceiling height: __15' and under __15-30' __over 30'
4. Material (Ceiling or Wall Type) in which
sprinklers have been installed
(e.g., suspended ceiling, plaster, drywall, etc.):___________________
5. Does the sprinkler system
contain antifreeze? __Yes __No
6. Is security clearance required
to complete installation? __Yes __No
7. Does the building have
access restrictions? __Yes __No
<PAGE>
Exhibit 3
8. Sprinkler system piping:
(If combination system, please
check all types of piping in
the system) __Steel __CPVC __Copper __Polybutylene
9. System Hydraulic calculation is per:
(This information may be
necessary for Central to
determine the appropriate
Replacement Sprinklers) __NFPA 13 __NFPA 13R __NFPA 13D
10. Sprinkler system static water pressure:______________________________
(The pressure gauge may be found where the
local water supply main meets your building's
fire-protection system piping, typically in the
garage or basement of a home. The gauge
will read in "PSI," or pounds per square inch).
11. Additional comments:_________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
IF YOU HAVE ANY QUESTIONS REGARDING THIS FORM,
CALL CENTRAL SPRINKLER AT 1-800-XXX-XXXX
OR
CALL YOUR LOCAL FIRE AUTHORITY OR AUTHORIZED
SPRINKLER INSTALLATION CONTRACTOR
Central Sprinkler will rely on the accuracy of this response in
providing Replacement Sprinklers and otherwise processing your claim. It is
therefore vital that you complete this Proof of Claim carefully and accurately.
Failure to do so could result in your receiving Replacement Sprinklers that are
not appropriate for your building, for which Central Sprinkler has no liability.
Providing false information also could subject you to prosecution or other legal
proceedings.
<PAGE>
Exhibit 3
E. VERIFICATION
I hereby declare under penalty of perjury under the laws of the United
States that the information in Sections A, B and C of this Form is true and
correct, and that the remaining information is true and correct to the best of
my knowledge, information and belief
______________________________________
Signature
______________________________________
Print Name Here
Executed on this __ day of ______________, _____
REMINDER
Please remember to include a photograph of each Omega model installed in your
building and a signed Waiver and Release of Claims form.
<PAGE>
WAIVER AND RELEASE OF CLAIMS
----------------------------
In exchange for Central's (1) providing a Glass Bulb sprinkler
containing a Belleville-Type Washer Seal to replace each Omega sprinkler owned
by the undersigned ("Replacement Sprinkler"); (2) providing a replacement
escutcheon, extension and any and all fittings, fixtures and/or appurtenances
necessary for the proper replacement of each Omega with a Replacement Sprinkler
("Replacement Parts"), or (3) providing $5.00 for each Omega sprinkler in lieu
of (1) and (2) above; and (4) creating and making required contributions to a
Trust Fund in which the undersigned has agreed as follows:
1. The undersigned, on behalf of him or herself, and any person
claiming through him or her as his or her heir, administrator, devisee,
predecessor, successor, representative of any kind, shareholder, partner,
director, owner, affiliate, subrogee, assignee or insurer (the "Releasing
Party") shall be deemed to and does hereby release and forever discharge Central
Sprinkler Co. and Central Sprinkler Corp., including its predecessors,
successors, subsidiaries, affiliates and any and all of their past, present and
future officers, directors, stockholders, partners, agents, servants,
successors, subrogees and assigns and their respective insurers and persons or
entities in the chain of distribution of Omega sprinklers ("Releasees"), of and
from any and all claims of any type or description that relate to or arise from
the purchase, installation, presence or use of Omega sprinklers, including but
not limited to any claims for actual, incidental, consequential or punitive
damages relating to the inspection and replacement of Omega sprinklers other
than the obligations resulting from or created by this Remediation Program, that
such Releasing Parties have or may have whether known or unknown that arise from
the Actions (the "Released
<PAGE>
Claims"). However, no release is being given by a Releasing Party for
compensatory damages arising from fire damage, property damage, personal injury
or wrongful death associated with the failure or alleged failure of an Omega
sprinkler to perform as intended, designed or expected in a fire or premature
activation of an Omega sprinkler. Release is being given for punitive damages
for such claims.
2. The Releasing Parties, and each of them, expressly waive the
provisions of Section 1542 of the California Code of Civil Procedure (and all
other like provisions of law), which provides:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the release,
which if unknown to him must have materially affected his settlement with the
debtor.
Unknown claims for compensatory damages arising from fire damage, property
damage, personal injury or wrongful death associated with the failure of an
Omega sprinkler to perform as intended, designed or expected in a fire or
premature activation of an Omega sprinkler are not released hereby. Release is
being given for punitive damages for such claims.
3. The parties intend that the Releasees obtain in this Settlement
satisfaction and protection from any liability arising from the claims described
herein and from any claims for contribution or indemnity asserted by any person
arising from such claims. The parties further intend to obviate the necessity
and expense to the Releasees of appearing and defending any action commenced by
the Releasing Party asserting claims relating to the purchase and installation
of Omega-series fire sprinklers against any other person.
-2-
<PAGE>
4. The undersigned agrees to take the following steps to bar, discharge
and release any liability on the part of the Releasees to any other person for
contribution and/or indemnity arising from the claims that are the subject
of this Release.
The Releasing Party shall reduce any judgment he, she or it obtains
against any person by the amount, percentage or share of such judgment
attributable to Central, so as to bar, discharge and release under
applicable law any claims for contribution and/or indemnity against
Central arising from or related to the claims that are the subject of
this Release. In the event that any Releasing Party obtains a judgment
(including pursuant to a settlement agreement) against one or more
persons and any of those persons obtains a judgment against Central, in
whole or in part for contribution or indemnity, then such Releasing
Party will be required to reduce or remit any judgment or portion
thereof obtained by those persons by the amount of the judgment against
Central.
________________________________________
[Print Name of Individual or Name
of Entity if Corporation, Partnership or
other Form of Entity]
By:_____________________________________
(Name of individual signing]
Title:__________________________________
Date:___________________________________
-3-
<PAGE>
CENTRAL SPRINKLER COMPANY
OMEGA REMEDIATION PROGRAM
VERIFICATION FORM
Omega ID Number_____________ (Office Use Only)
Property Name___________________________________________________________________
Property Street Address_________________________________________________________
City______________________________State_______________________Zip_______________
Name of Claimant________________________________________________________________
Sprinkler Contractor Performing Work____________________________________________
Please Complete The Following:
- ------------------------------
1. Number of Omega sprinkler heads replaced________________
2. Date Omega sprinklers were replaced_____________________
I hereby declare that: to the best of my knowledge, the Omega fire
sprinkler heads in this system have been replaced in accordance with the codes
and ordinances of the Local Authority Having Jurisdiction and further declare
under the penalty of perjury under the laws of the United States that, to the
best of my knowledge, all information on this form is true and correct to the
best of my knowledge.
Attach work orders, bills receipts or other documentation establishing the
number of Omega sprinklers that you have replaced.
__________________________________________________
Print Name of Claimant/Building Owner
____________________________________
Signature and Title
_____________________________
Date
________________________________
Tax ID or Social Security Number
<PAGE>
APPENDIX
D
<PAGE>
APPENDIX D
----------
LIST OF DOCUMENTS CONTAINING MATERIAL REPRESENTATIONS
-----------------------------------------------------
1. Letter dated June 3, 1999 (with attachments), from Albert T. Sabol,
Central Sprinkler Corporation, to Eric L. Stone, CPSC.
a) Central's Annual Reports for fiscal 1995-1997
b) Central's Form 10-K's for fiscal 1995-1997
c) Central's Form 10-Q's for each quarter of fiscal 1995-1997 and for
the quarter ending January 31, 1998
2. Package on June 17, 1998 (consisting of Central's 10-Q for April 30,
1998), from Albert T. Sabol to James T. Conversano. U.S. Department
of Justice.
3. Letter dated June 22, 1998 (with attachments consisting of copies of
Central's slide presentation materials presented to the staff on June 17,
1998), from Michael A. Bloom, Morgan, Lewis & Bockius, L.L.P., to Eric L.
Stone, CPSC.
a) Central Summary of Projected Omega Expense and Available Cash Flow
b) Central Analysis of Omega Costs for Class Action Settlement (2 years)
as of April 30, 1998
c) Central Estimated Total Available Cash over Two Years
d) Central Analysis of Quarterly Cash Flow, Class Action Settlement
Agreement (Cumulative % of Heads to be Located of 40%, 50%, and 60%)
e) Central Analysis of Omega Costs, CPSC Proposal, Heads with Silicone
Rings not Remediated, as of April 30, 1998
f) Central Analysis of Quarterly Cash Flow, Heads with Silicone Rings not
Remediated (Cumulative % of Heads to be Located of 40%)
g) Central Analysis of Omega Costs, CPSC Proposal, Heads with Silicone
Rings not Remediated, as of April 30, 1998
h) Central Analysis of Quarterly Cash Flow-CPSC Program, Heads with
Silicone Rings not Remediated (Cumulative % of Heads to be Located
of 40%)
<PAGE>
h) Central Financial Covenant Compliance and Z-Score Analysis (7/28/98)
i) Central Outstanding Debt and Interest Expense Analysis (7/28/98)
j) Central Projected Statement of Cash Flow (7/28/98)
1) Central Settlement Cost Summary (7/28/98)
m) Central Glass Bulb Replacement Cost Analysis (7/28/98)
n) Central Customer Service and Administrative Costs (7/28/98)
o) Central Omega Reserve Analysis (7/28/98)
6. Package on July 28, 1998 (consisting of Central Sprinkler Corporation's
Slide Presentation for the staff of the CPSC on July 28, 1998), from E.
Talbot Briddell to Eric L. Stone.
7. Facsimile dated July 31, 1998 (with attachment), from Michael E. Jacoby,
Phoenix Management Services, Inc., to Howard N. Tarnoff, CPSC, and James
T. Conversano.
a) Central Revised Budget Forecasts
b) Central Consolidated Six Month Actual and Six Month Budget, Fiscal
Year 1998
8. Package dated July 31, 1998 (with attachments regarding Central's loan
covenants), from Michael E. Jacoby to Howard N. Tarnoff and James T.
Conversano.
a) Credit Agreement dated October 28, 1997, among Central, et al, and
The Lenders Identified Herein and CoreStates Bank, N.A.
b) Waiver Letter dated June 11, 1998, from Francis J. Coldren, First
Union National Bank, to Central Sprink1er Corporation
c) Modification to Credit Agreement dated January 31, 1998, among
Central, et al, and The Lenders Identified Herein and CoreStates Bank
N.A.
9. Facsimile dated August 3, 1998 (with attachments), from Michael E.
Jacoby to Howard N. Tarnoff.
a) Central Projected Income Statement (8/3/98)
b) Central Projected Income Statement Ratios (8/3/98)
3
<PAGE>
c) Central Income Statement Assumptions (8/3/98)
d) Central Projected Balance Sheet Assets (8/3/98)
e) Central Projected Balance Sheet Liabilities and Equity (8/3/98)
f) Central Balance Sheet Assumptions (8/3/98)
g) Central Financial Covenant Compliance and Z-Score Analysis (8/3/98)
h) Central Deferred Tax Rollforward (8/3/98)
i) Central Outstanding Debt and Interest Expense Analysis (8/3/98)
j) Central Projected Statement of Cash Flow (8/3/98)
10. Letter dated August 6, 1998 (with attachments), from Kathleen M. Sanzo
to Deborah S. Orlove, CPSC. This letter was sent in response to Deborah
S. Orlove's letter dated July 30, 1998, to J. Gordon Cooney, Jr.,
regarding the Omega Remediation Program and Belleville Seal Glass Bulb
Sprinklers.
11. Letter dated August 24, 1998 (with attachments), from E. Talbot Briddell
to Howard N. Tarnoff.
a) Central Outstanding Debt and Interest Expense Analysis (8/20/98)
b) Central Estimated Liquidation Analysis, April 30, 1998 Assets
(8/20/98)
c) Report dated January 9, 1998 by Brown Brothers Harriman & Company and
Cushman & Wakefield of Georgia, Inc., regarding Complete Appraisal of
Real Property of Central CPVC Facility
d) Report dated April 27, 1998 by MB Valuation Services, Inc., regarding
Appraisal of Equipment located at Central CPVC Facility
12. Facsimile dated September 1, 1998 (with attachments), from E. Talbot
Briddell to Eric L. Stone and Deborah S. Orlove.
a) Automation of Glass Bulb Line in Support of Omega Replacement Program
b) Central NPV Analysis, Automation of Glass Bulb Line
13. Facsimile dated September 14, 1998 (with attachment), from Kathleen M.
Sanzo to Deborah S. Orlove.
a) Central Customer Service and Administrative Costs (9/12/98)
4
<PAGE>
14. Letter dated September 17, 1998 (with Exhibits), from Michael E. Jacoby
to Howard N. Tarnoff.
a) Central Customer Service and Administrative Personnel Projected
Fiscal 1999 Head Count and Salary (9/17/98)
b) Central Customer Service and Administrative Personnel Projected Head
Count (9/17/98)
15. Letter dated September 18, 1998 (with attachments), from E. Talbot
Briddell to Howard N. Tarnoff.
a) Appendix A - Glass Bulb Replacement Cost Analysis
b) Central Projected Fiscal 1998 Income Statement - 9 Months Actual and
3 Months Budget (9/14/98)
c) Central Projected Income Statement (9/14/98)
d) Central Projected Income Statement Ratios (9/14/98)
e) Central Income Statement Assumptions (9/14/98)
f) Central Projected Balance Sheet Assets (9/14/98)
g) Central Projected Balance Sheet Liabilities and Equity (9/14/98)
h) Central Balance Sheet Assumptions (9/14/98)
i) Central Deferred Tax Rollforward (9/14/98)
j) Central Outstanding Debt Analysis (9/14/98)
k) Central Interest Expense Analysis (9/14/98)
l) Central Projected Statement of Cash Flow (9/14/98)
m) Central Settlement Cost Summary (9/14/98)
n) Central Sensitivity Analysis of Settlement Costs Based on number of
Replacement Units (9/14/98)
o) Central Omega Reserve Analysis (9/14/98)
p) Central Per unit Glass Bulb Replacement Cost Analysis (9/14/98)
q) Central Customer Service and Administrative Costs (9/14/98)
r) Central Omega Inventory Analysis (9/14/98)
s) Central Reconciliation with Prior Financial Package (9/14/98)
t) Central's Draft Form 10-Q for July 31, 1998.
Accepted and Approved: Accepted and Approved:
/s/ XXXXXXXXXX /s/ XXXXXXXXXX
- ------------------------- ---------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
5
<PAGE>
APPENDIX
E
<PAGE>
APPENDIX E
LIST OF REPORTABLE FMRC AND UL TEST STANDARD RESULTS
UL 199 and FMRC Approval Standard (Class 2000 Series)
1. Strength of Heat Responsive Element (UL and FM)
2. Hyrostatic Strenght Test (UL and FM)
3. Water Hammer (UL and FM)
4. Operating Temp (UL and FM)
5. Vacuum Test (UL and FM)
6. Rough Use and Abuse (UL and FM)
7. Hang-Up (FM)
8. Thermal Shock (FM)
9. Moist Air (FM)
10. Corrosion (FM)
Salt
Stress Cracking
Co2 - So2
H2S
Vibration
11. Minimum Operation Pressure (FM)
12. Sensitivity (RTI)
13. Sensitivity (FM)
14. Fire Standard Crib (FM)
<PAGE>
15. Operation - Cold Soldering (UL)
16. Impact Resistance Test (UL)
17. 10-Day Corrosion (UL)
18. 30 Day Corrosion (UL)
19. 90 Day Moist Air (UL)
20. Stress Corrosion Cracking - Brass Parts (UL)
21. Stress Corrosion Cracking - Stainless Steel (UL)
22. Operational Tests on Gaskets/O-Ring Seals (UL)
23. Elastomeric Parts Fire (350 lb) Crib (UL)
UL 1626
24. Strength of Heat Responsive Element
25. Hydrostatic Strength
26. Water Hammer
27. Operating Temperature (Bath)
28. Operation - Lodgment
29. Operation - Cold Soldering
30. Fire Test
31. Corrosion Exposure Test
32. Moist Air Test
2
<PAGE>
33. Stress Corrosion Cracking - Brass
34. Stress Corrosion Cracking - Steel
35. Elastomeric Parts
36. Rough Use
37. Sensitivity
38. Vacuum
Accepted and Approved: Accepted and Approved:
/s/ XXXXXXXXXX /s/ XXXXXXXXXX
- ------------------------- ---------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
3
<PAGE>
EXHIBIT 10(u)
LOAN AND SECURITY AGREEMENT
by and among
CONGRESS FINANCIAL CORPORATION
as Lender
and
CENTRAL SPRINKLER COMPANY
CENTRAL CASTINGS CORPORATION
CENTRAL CPVC CORPORATION
as Borrowers
and
CENTRAL SPRINKLER CORPORATION
CENTRAL SPRINKLER EXPORT CORPORATION
as Guarantors
Dated: September 18, 1998
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TABLE OF CONTENTS
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SECTION 1. DEFINITIONS.....................................................................................1
SECTION 2. CREDIT FACILITIES
2.1 Revolving Loans................................................................................20
2.2 Letter of Credit Accommodations; Supplemental Letter
of Credit Accommodations....................................................................22
2.3 Term Loan......................................................................................27
2.4 Equipment Purchase Term Loans..................................................................27
2.5 Availability Reserves..........................................................................29
2.6 Joint and Several Liability....................................................................29
SECTION 3. INTEREST AND FEES
3.1 Interest.......................................................................................30
3.2 Closing Fee....................................................................................32
3.3 Servicing Fee..................................................................................32
3.4 Unused Line Fee................................................................................32
3.5 Changes in Laws and Increased Costs of Loans...................................................32
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of
Credit Accommodations and Supplemental Letter of
Credit Accommodations.......................................................................33
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations..............................................................................36
SECTION 5. GRANT OF SECURITY INTEREST.....................................................................37
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrowers' Loan Accounts.......................................................................38
6.2 Statements.....................................................................................39
6.3 Collection of Accounts.........................................................................39
6.4 Payments.......................................................................................41
6.5 Authorization to Make Loans....................................................................41
6.6 Appointment of Agent for Requesting Loans, Letter of
Credit Accommodations, Supplemental Letter of Credit
Accommodation and Receipt of Loans and Statements...........................................42
6.7 Use of Proceeds................................................................................42
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SECTION 7. COLLATERAL REPORTING AND COVENANTS............................................................43
7.1 Collateral Reporting...........................................................................43
7.2 Accounts Covenants.............................................................................44
7.3 Inventory Covenants............................................................................46
7.4 Equipment Covenants............................................................................47
7.5 Power of Attorney..............................................................................47
7.6 Right to Cure..................................................................................48
7.7 Access to Premises.............................................................................48
SECTION 8. REPRESENTATIONS AND WARRANTIES................................................................49
8.1 Corporate Existence, Power and Authority; Subsidiaries.........................................49
8.2 Financial Statements; No Material Adverse Change...............................................49
8.3 Chief Executive Office; Collateral Locations...................................................50
8.4 Priority of Liens; Title to Properties.........................................................50
8.5 Tax Returns....................................................................................50
8.6 Litigation.....................................................................................50
8.7 Compliance with Other Agreements and Applicable Laws...........................................51
8.8 Bank Accounts..................................................................................51
8.9 Environmental Compliance.......................................................................51
8.10 Employee Benefits..............................................................................52
8.11 Interrelated Businesses........................................................................53
8.12 Accuracy and Completeness of Information.......................................................53
8.13 Survival of Warranties; Cumulative.............................................................53
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS.............................................................53
9.1 Maintenance of Existence.......................................................................53
9.2 New Collateral Locations.......................................................................54
9.3 Compliance with Laws, Regulations, Etc. .......................................................54
9.4 Payment of Taxes and Claims....................................................................55
9.5 Insurance......................................................................................56
9.6 Financial Statements and Other Information.....................................................57
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc........................................59
9.8 Encumbrances...................................................................................60
9.9 Indebtedness...................................................................................62
9.10 Loans, Investments, Guarantees, Etc............................................................67
9.11 Dividends and Redemptions......................................................................69
9.12 Transactions with Affiliates...................................................................69
9.13 Additional Bank Accounts.......................................................................71
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9.14 Compliance with ERISA..........................................................................71
9.15 Adjusted Tangible Net Worth....................................................................72
9.16 Remarketing of Huntsville Bonds................................................................72
9.17 Costs and Expenses.............................................................................72
9.18 After Acquired Real Property...................................................................73
9.19 Further Assurances.............................................................................73
SECTION 10. EVENTS OF DEFAULT AND REMEDIES.................................................................74
10.1 Events of Default..............................................................................74
10.2 Remedies.......................................................................................76
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW.................................................................77
11.1 Confession of Judgment.........................................................................77
11.2 Governing Law; Choice of Forum; Service of Process;
Jury Trial Waiver...........................................................................78
11.3 Waiver of Notices..............................................................................79
11.4 Amendments and Waivers.........................................................................79
11.5 Waiver of Counterclaims........................................................................80
11.6 Indemnification................................................................................80
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS...............................................................80
12.1 Term...........................................................................................80
12.2 Notices........................................................................................82
12.3 Partial Invalidity.............................................................................82
12.4 Successors.....................................................................................83
12.5 Participant's Security Interest................................................................83
12.6 Entire Agreement...............................................................................83
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INDEX TO
EXHIBITS AND SCHEDULES
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Exhibit A Information Certificates for each of Central,
Castings, CPVC, CSC and CS Export
Exhibit B Borrowing Base Certificate
Exhibit C Form of Equipment Purchase Loan Note
Schedule 1.42 Existing Letters of Credit
Schedule 1.44 First Union Letter of Credit Documents
Schedule 1.64 Description of Omega Litigation
Schedule 1.67 Permitted Holders
Schedule 8.4 Existing Liens
Schedule 8.8 Bank Accounts
Schedule 8.9 Environmental Matters
Schedule 9.8(f) Description of First Union Collateral for Letters of Credit
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Existing Loans, Advances and Guarantees
(i)
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LOAN AND SECURITY AGREEMENT
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This Loan and Security Agreement, dated as of September 18, 1998, is
entered into by and among Congress Financial Corporation, a Delaware corporation
("Lender"), Central Sprinkler Company, a Pennsylvania corporation ("Central"),
Central Castings Corporation, an Alabama corporation ("Castings") and Central
CPVC Corporation, an Alabama corporation ("CPVC", and together with Central and
Castings, each individually, a "Borrower" and collectively, "Borrowers") and
Central Sprinkler Corporation, a Pennsylvania corporation ("CSC"), and Central
Sprinkler Export Corporation, a Barbados corporation ("CS Export", and together
with CSC, each individually a "Guarantor" and collectively, "Guarantors").
W I T N E S S E T H:
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WHEREAS, Borrowers and Guarantors have requested that Lender enter into
certain financing arrangements with Borrowers pursuant to which Lender may make
loans and provide other financial accommodations to Borrowers; and
WHEREAS, Lender is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS
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All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code shall have the meanings given therein unless
otherwise defined in this Agreement. All references to the plural herein shall
also mean the singular and to the singular shall also mean the plural unless the
context otherwise requires. All references to Borrowers pursuant to the
definitions set forth in the recitals hereto, unless the context otherwise
requires, shall mean each and all of them and their respective successors and
assigns, individually and collectively, jointly and severally. All references to
Guarantors pursuant to the definitions set forth in the recitals hereto, unless
the context otherwise requires, shall mean each and all of them and their
respective successors and assigns, individually and collectively, jointly and
severally. All references to Lender pursuant to the definitions set forth in the
recitals hereto, or to any other person herein, shall include their respective
successors and assigns. The words "hereof", "herein", "hereunder", "this
Agreement" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not any particular provision of this Agreement
and as this Agreement now exists or may hereafter be amended, modified,
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supplemented, extended, renewed, restated or replaced. The word "including" when
used in this Agreement shall mean "including, without limitation". An Event of
Default shall exist or continue or be continuing until such Event of Default is
waived in accordance with Section 11.3 hereof or is cured in a manner
satisfactory to Lender. Any accounting term used herein unless otherwise defined
in this Agreement shall have the meanings customarily given to such term in
accordance with GAAP. For purposes of this Agreement, the following terms shall
have the respective meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of each
Borrower to payment for goods sold or leased or for services rendered, which are
not evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each
Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded
upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent)
determined by dividing (a) the Eurodollar Rate for such Interest Period by (b) a
percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes
hereof, "Reserve Percentage" shall mean the reserve percentage, expressed as a
decimal, prescribed by any United States or foreign banking authority for
determining the reserve requirement which is or would be applicable to deposits
of United States dollars in a non-United States or an international banking
office of Reference Bank used to fund a Eurodollar Rate Loan or any Eurodollar
Rate Loan made with the proceeds of such deposit, whether or not the Reference
Bank actually holds or has made any such deposits or loans. The Adjusted
Eurodollar Rate shall be adjusted on and as of the effective day of any change
in the Reserve Percentage.
1.3 "Adjusted Tangible Net Worth" shall mean as to any Person, at any
time, in accordance with GAAP (except as otherwise specifically set forth
below), on a consolidated basis for such Person and its Subsidiaries (if any),
the amount equal to the difference between: (a) the aggregate net book value of
all assets of such Person and its Subsidiaries (excluding the value of patents,
trademarks, copyrights, licenses, goodwill and other intangible assets),
calculating the book value of inventory for this purpose on a first-in-first-out
basis, after deducting from such book values all appropriate reserves in
accordance with GAAP (including all reserves for doubtful receivables,
obsolescence, depreciation and amortization) and (b) the aggregate amount of the
indebtedness and other liabilities of such Person and its Subsidiaries
(including tax and other proper accruals).
1.4 "Alabama State Bond Agreements" shall mean collectively, the
following (as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced): (a) the Trust Indenture,
dated as of November 1, 1995, between the State of Alabama Industrial
Development Authority and the Alabama State Bond Trustee; (b) the Loan
Agreement, dated as of November 1, 1995, between the State of Alabama Industrial
Development Authority and Castings; (c) the Central Castings Corporation
$8,000,000 Registered Promissory Note, dated November 21, 1995, issued by
Castings payable to the State of Alabama Industrial Development Authority; (d)
the Tender Agent Agreement, dated as of November 1, 1995, by and among Castings,
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the Alabama State Board Trustee and The Chase Manhattan Bank (formerly known as
Chemical Bank) as Tender Agent under the Trust Indenture referred to above; and
(e) all agreements, documents and instruments at any time executed and/or
delivered by any Borrower or Guarantor in connection with any of the foregoing.
1.5 "Alabama State Bond Letter of Credit" shall mean Letter of Credit
No. 40019564, dated November 21, 1995, issued by First Union National Bank (as
successor by merger to First Fidelity Bank, National Association) for the
account of Castings payable to the Alabama State Bond Trustee in the amount of
up to $8,150,000, as adjusted from time to time in accordance with the terms
thereof, as the same now exists or may hereafter be amended, modified,
supplemented, extended, received, restated or replaced.
1.6 "Alabama State Bonds" shall mean, collectively, the Adjustable
Convertible Taxable Industrial Revenue Bonds (Central Castings Corporation
Project) Series 1995 issued by the State of Alabama Industrial Development
Authority in the original principal amount of $8,000,000, as the same now exist
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced.
1.7 "Alabama State Bond Trustee" shall mean The Chase Manhattan Bank, a
New York banking corporation (formerly known as Chemical Bank) in its capacity
as trustee for the holders of the Alabama State Bonds and any successor,
replacement or additional trustee, and their respective successors and assigns.
1.8 "Availability Reserves" shall mean, as of any date of
determination, such amounts as Lender may from time to time, establish and
revise in good faith reducing the amount of Revolving Loans and Letter of Credit
Accommodations that would otherwise be available to Borrowers under the lending
formula(s) provided for herein: (a) to reflect events, conditions, contingencies
or risks that, as determined by Lender in good faith, do or may affect either
(i) the Collateral or any other property which is security for the Obligations
or its value, or (ii) the security interests and other rights in the Collateral
of Lender (including the enforceability, perfection and priority thereof), or
(iii) the assets, business or prospects of any Borrower or Guarantor; (b) to
reflect Lender's good faith belief that any collateral report or financial
information furnished by or on behalf of any Borrower or Obligor to Lender is or
may have been incomplete, inaccurate or misleading in any material respect; (c)
in respect of any state of facts which Lender determines in good faith
constitutes an Event of Default or may, with notice or passage of time or both,
constitute an Event of Default; (d) to reflect outstanding Letter of Credit
Accommodations as provided in Section 2.2 hereof; (e) to reflect variances in
the physical counts of Inventory conducted by Lender from time to time from the
amounts of Inventory reflected in the books and records of Borrowers; (f) to
reflect indebtedness of Borrowers in connection with the Alabama State Bond
Agreements in excess of the amount of the Alabama State Bond Letter of Credit
and in connection with the Calhoun County Bond Agreements in excess of the
amount of the Calhoun County Bond Letter of Credit; (g) to reflect that dilution
with respect to the Accounts for any period (based on the ratio of (i) the
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aggregate amount of reduction in Accounts other than as a result of payments in
cash to (ii) the aggregate amount of total sales) is greater than five (5%)
percent and (h) the Special Availability Reserve. To the extent Lender may
revise the lending formula set forth in Section 2.1 hereof or establish new
criteria or revise existing criteria for Eligible Accounts or Eligible Inventory
so as to address any circumstance, condition, event or contingency in a manner
satisfactory to Lender, Lender shall not establish an Availability Reserve for
the same purpose. The amount of any Availability Reserve established by Lender
shall have a reasonable relationship to the event, condition or other matter
which is the basis for such reserve as determined by Lender in good faith.
1.9 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.10 "Borrowing Base Certificate" shall mean a certificate
substantially in the form of Exhibit B hereto, as such form may from time to
time be modified by Lender, which is duly completed (including all schedules
thereto) and executed by the chief financial officer or other appropriate
financial officer of Borrowers acceptable to Lender and delivered to Lender.
1.11 "Business Day" or "business day" shall mean any day other than a
Saturday, Sunday, or other day on which commercial banks are authorized or
required to close under the laws of the State of New York or the Commonwealth of
Pennsylvania, and a day on which the Reference Bank and Lender are open for the
transaction of business, except that if a determination of a Business Day shall
relate to any Eurodollar Rate Loans, the term Business Day shall also exclude
any day on which banks are closed for dealings in dollar deposits in the London
interbank market or other applicable Eurodollar Rate market.
1.12 "Calhoun County Bond Agreements" shall mean collectively, the
following (as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced): (a) the Trust Indenture,
dated as of November 1, 1995, between the Calhoun County Economic Development
Council and the Calhoun County Bond Trustee, (b) the Lease Agreement, dated as
of November 1, 1995, between the Calhoun County Economic Development Council and
Castings and (c) all agreements, documents and instruments at any time executed
and/or delivered by any Borrower or Guarantor in connection with any of the
foregoing.
1.13 "Calhoun County Bond Letter of Credit" shall mean Letter of Credit
No. 40019894, dated November 21, 1995, issued by First Union National Bank (as
successor by merger to First Fidelity Bank, National Association) for the
account of Castings payable to the Calhoun County Bond Trustee as beneficiary in
the amount of up to $3,056,250, as adjusted from time to time in accordance with
the terms thereof, as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.14 "Calhoun County Bonds" shall mean, collectively, the Adjustable
Convertible Taxable Industrial Revenue Bonds (Central Castings Corporation
Project) Series 1995 issued by the Calhoun County Economic Development Council
in the original principal amount of $3,000,000, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
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1.15 "Calhoun County Bond Trustee" shall mean The Chase Manhattan Bank,
a New York banking corporation (formerly known as Chemical Bank) in its capacity
as trustee for the holders of the Calhoun County Bonds and any successor,
replacement or additional trustee, and their respective successors and assigns.
1.16 "Capital Stock" shall mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated)
of such Person's capital stock or any membership interest at any time
outstanding, and any and all rights, warrants or options exchangeable for or
convertible into such capital stock or membership interest (but excluding any
debt security that is exchangeable for or convertible into such capital stock).
1.17 "Cash Equivalents" shall mean any of the following: (a) any
investment in direct obligations of the United States of America or any agency
thereof or obligations guaranteed by the United States of America or any agency
thereof; (b) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within one hundred eighty (180) days of the date
of acquisition thereof issued by a bank or trust company which is organized
under the laws of the United States of America, any state thereof or any foreign
country recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $50,000,000 (or
the foreign currency equivalent thereof) and has outstanding debt which is rated
"A" (or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Exchange Act; (c) repurchase obligations with a term of not more than thirty
(30) days for underlying securities of the types described in clause (a) above
entered into with a bank meeting the qualifications described in clause (b)
above; (d) investments in commercial paper maturing not more than ninety (90)
aw Hill Companies, Inc.; (e) investments in securities with
maturities of six (6) months or less from the date of acquisition issued or
fully guaranteed by any State of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A" by
Standard & Poor's Ratings Group, a division of The McGraw Hill Companies, Inc.
or "A" by Moody's Investor Service, Inc.; and (f) investments in money market
funds and mutual funds which invest substantially all of their assets in
securities of the types described in clauses (a) through (e) above.
1.18 "Change of Control" shall mean the occurrence of any of the
following: (a) all or substantially all of any Borrower's or Guarantor's assets
are sold, in one or in a series of transactions to any "person" or "group" (as
such terms are used in Sections 14(d)(2) and 13(d)(3), respectively, of the
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Exchange Act) other than to a Permitted Holder; (b) an event or series of events
(whether a stock purchase, amalgamation, merger, consolidation or other business
combination or otherwise) by which any person or group (other than a Permitted
Holder) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) directly or indirectly of fifty (50%) percent or more of the
combined voting power of the then outstanding securities of any Borrower or
Guarantor ordinarily (and apart from rights accruing under certain
circumstances) having the right to vote in election of directors or (c) after
the date of this Agreement, the replacement of a majority of the Board of
Directors of any Borrower or Guarantor over a two (2) year period commencing
from the date of this Agreement from the directors who constituted the Board of
Directors at the beginning of such period other than directors whose nominations
for election by the stockholders of such Borrower or Guarantor was approved by
such Board of Directors.
1.19 "Code" shall mean the Internal Revenue Code of 1986, as the same
now exists or may from time to time hereafter be amended, modified, recodified
or supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.20 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.21 "Collateral Access Agreement" shall mean an agreement in writing,
in form and substance satisfactory to Lender, from any lessor of premises to any
Borrower or Guarantor, or any other person to whom any Inventory is consigned or
who has custody, control or possession of any Inventory or Equipment or is
otherwise the owner or operator of any premises on which any Inventory or
Equipment is located pursuant to which such lessor, consignee or other person,
inter, alia, acknowledges the first priority security interest of Lender in such
Inventory or Equipment, agrees to waive any and all claims such lessor,
consignee or other person may, at any time, have against such Inventory or
Equipment, whether for processing, storage or otherwise, and agrees to permit
Lender access to, and the right to remain on, the premises of such lessor,
consignee or other person so as to exercise Lender's rights and remedies and
otherwise deal with the Collateral.
1.22 "Consolidated Net Income" shall mean, with respect to any Person
for any period, the aggregate of the net income (loss) of such Person and its
Subsidiaries, on a consolidated basis, for such period (excluding to the extent
included therein any extraordinary and/or unusual and non-recurring gains other
than any such gains to the extent of cash or other immediately available funds
received by such Person and its Subsidiaries) after deducting all charges which
should be deducted before arriving at the net income (loss) for such period and,
without duplication, after deducting the Provision for Taxes for such period,
all as determined in accordance with GAAP; provided, that, (a) the net income of
any Person that is not a wholly-owned Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the amount
of dividends or distributions paid or payable to such Person or a wholly-owned
Subsidiary of such Person; (b) except to the extent included pursuant to the
foregoing clause, the net income of any Person accrued prior to the date it
becomes a wholly-owned Subsidiary of such Person or is merged into or
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consolidated with such Person or any of its wholly-owned Subsidiaries or that
Person's assets are acquired by such Person or by its wholly-owned Subsidiaries
shall be excluded; and (c) the net income (if positive) of any wholly-owned
Subsidiary to the extent that the declaration or payment of dividends or similar
distributions by such wholly-owned Subsidiary to such Person or to any other
wholly-owned Subsidiary of such Person is not at the time permitted by operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such wholly-owned
Subsidiary shall be excluded. For the purposes of this definition, (i) net
income excludes any gain (or loss) together with any related Provision for Taxes
for such gain (or loss) realized upon the sale or other disposition of any
assets that are not sold in the ordinary course of business (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or of any
Capital Stock of such Person or a Subsidiary of such Person, other than any such
gains with respect thereto the extent of cash or other immediately available
funds received by such Person and its Subsidiaries and any net income realized
or loss incurred as a result of changes in accounting principles or the
application thereof to such Person, and (ii) the term "Provision for Taxes"
shall mean an amount equal to all taxes imposed on or measured by net income,
whether Federal, State, Provincial, county or local, and whether foreign or
domestic, that are paid or payable by any Person in respect of any period in
accordance with GAAP.
1.23 "CPSC Action" shall mean the action brought against CSC and
Central by the staff of the Consumer Product Safety Commission (the "CPSC")
pursuant to the Administrative Complaint filed by the CPSC against CSC and
Central on March 3, 1998 seeking the recall and replacement of the Omega TM fire
sprinkler products manufactured and sold by Central pursuant to 15 U.S.C.
ss.2064, referred to as In the Matter of Central Sprinkler Corp. and Central
Sprinkler Co., Respondents, CPSC Docket No. 98-2.
1.24 "CSC Finance" shall mean CSC Finance Company, a Delaware
corporation, and its successors and assigns.
1.25 "CSC Investment" shall mean CSC Investment Company, a Delaware
corporation, as its successors and assigns.
1.26 "Eligible Accounts" shall mean, as to each Borrower, the Accounts
created by such Borrower which are and continue to be acceptable to Lender based
on the criteria set forth below. In general, an Account shall be an Eligible
Account if:
(a) such Account arises from the actual and bona fide sale and
delivery of goods by such Borrower or rendition of services by such Borrower in
the ordinary course of its business which transactions are completed in
accordance with the terms and provisions contained in any documents related
thereto;
(b) such Account is not unpaid after the earlier of sixty (60)
days after the original due date for them or one hundred twenty (120) days after
the date of the original invoice for them;
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(c) such Account complies with the terms and conditions contained
in Section 7.2(c) of this Agreement;
(d) such Account does not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the account debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with respect
to such Account is located in the United States of America or Canada (provided,
that, at any time promptly upon Lender's request, Borrowers shall execute and
deliver, or cause to be executed and delivered, such other agreements, documents
and instruments as may be required by Lender to perfect the security interests
of Lender in those Accounts of an account debtor with its chief executive office
or principal place of business in Canada in accordance with the applicable laws
of the Province of Canada in which such chief executive office or principal
place of business is located and take or cause to be taken such other and
further actions as Lender may request to enable Lender as secured party with
respect thereto to collect such Accounts under the applicable Federal or
Provincial laws of Canada) or, at Lender's option, if the chief executive office
and principal place of business of the account debtor with respect to such
Accounts is located other than in the United States of America or Canada, then
if either: (i) the account debtor has delivered to such Borrower an irrevocable
letter of credit issued or confirmed by a bank satisfactory to Lender,
sufficient to cover such Account, in form and substance satisfactory to Lender
and, if required by Lender and payable only in the United States of America and
in United States dollars, the original of such letter of credit has been
delivered to Lender or Lender's agent and the issuer thereof notified of the
assignment of the proceeds of such letter of credit to Lender, or (ii) such
Account is subject to credit insurance payable to Borrower and/or Lender prior
to an Event of Default and solely to Lender after an Event of Default and issued
by an insurer and on terms and in an amount acceptable to Lender, or (iii) such
Account is otherwise acceptable in all respects to Lender (subject to such
lending formula with respect thereto as Lender may determine);
(f) such Accounts does not consist of progress billings, bill and
hold invoices or retainage invoices, except as to bill and hold invoices, if
Lender shall have received an agreement in writing from the account debtor, in
form and substance satisfactory to Lender, confirming the unconditional
obligation of the account debtor to take the goods related thereto and pay such
invoice;
(g) the account debtor with respect to such Account has not
asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Account (but the portion of the Accounts of such account debtor in excess of the
amount at any time and from time to time owed by such Borrower to such account
debtor or claimed owed by such account debtor may be deemed Eligible Accounts);
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(h) there are no facts, events or occurrences which have impaired
the validity, enforceability or collectability of such Account or reduced the
amount payable or delay payment thereunder;
(i) such Account is subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and was not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
(j) neither the account debtor nor any officer or employee of the
account debtor with respect to such Account is an officer, employee or agent of
or affiliated with any Borrower or Guarantor directly or indirectly by virtue of
family membership, ownership, control, management or otherwise;
(k) the account debtor with respect to such Accounts is not any
foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended or any similar
State or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
(l) there are no proceedings or actions that are pending, or to
the best of the knowledge of Borrowers, threatened, against the account debtor
with respect to such Accounts which have resulted in or have a reasonable
likelihood of resulting in any material adverse change in any such account
debtor's financial condition;
(m) all Accounts of a single account debtor or its affiliates do
not constitute more than ten (10%) percent of all otherwise Eligible Accounts of
Borrowers (but the portion of the Accounts of such account debtor not in excess
of such percentages may be deemed Eligible Accounts);
(n) such Account is not owed by an account debtor who has
Accounts unpaid after the earlier of sixty (60) days after the original due date
for them or one hundred twenty (120) days after the date of the original invoice
for them, which constitute more than fifty (50%) percent of the total Accounts
of such account debtor;
(o) such Account is owed by account debtors whose total
indebtedness to Borrowers does not exceed the credit limit with respect to such
account debtor used by Borrowers in accordance with the current policies of
Borrowers as in effect on the date hereof and acceptable to Lender (but the
portion of the Accounts of such account debtor not in excess of such credit
limit may be deemed Eligible Accounts); and
(p) such Account is owed by an account debtor deemed creditworthy
at all times by Lender, as determined in good faith by Lender.
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General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith based on an event, condition or other
circumstance arising after the date hereof, or existing on the date hereof to
the extent Lender has no written notice thereof from Borrowers, which adversely
affects or could reasonably be expected to adversely affect the Accounts in the
good faith determination of Lender. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.27 "Eligible Cash Collateral" shall mean the cash or Cash Equivalents
of Central which are: (a) held in account no. 23128002 in the name of Central at
First Union Capital Markets, a Division of Wheat First Securities, Inc. (the
"Collateral Account") or held by Lender subject to a cash collateral pledge
agreement by such Borrower in favor of Lender, in form and substance
satisfactory to Lender; (b) free and clear of any lien, security interest, claim
or other encumbrance or restriction, except in favor of Lender; (c) at all times
on and after September 25, 1998, subject to the first priority, valid and
perfected security interest and pledge in favor of Lender; (d) if held at First
Union Capital Markets, a Division of Wheat First Securities, Inc., on and after
September 25, 1998, subject to an account control agreement by and among First
Union Capital Markets, a Division of Wheat First Securities, Inc., Borrowers and
Lender, in form and substance satisfactory to Lender and duly authorized,
executed and delivered by First Union Capital Markets, a Division of Wheat First
Securities, Inc., and Borrowers; and (e) available to such Borrower without
condition or restriction except those arising pursuant to the pledge in favor of
Lender. Notwithstanding anything to the contrary contained herein, no cash or
Cash Equivalent of Borrowers shall constitute Eligible Cash Collateral on and
after the close of business on September 25, 1998 unless on or before such date
either: (i) Lender shall have received, in form and substance satisfactory to
Lender, both: (A) an account control agreement with respect to the account at
which such cash or Cash Equivalents are held, duly authorized, executed and
delivered by First Union Capital Markets, a Division of Wheat First Securities,
Inc., and Borrowers and (B) a pledge agreement with respect thereto by Borrowers
in favor of Lender, duly authorized, executed and delivered by Borrowers or (ii)
Lender shall have received, in form and substance satisfactory to Lender, both
(A) cash or other immediately available funds constituting the Eligible Cash
Collateral to be held by Lender in its possession and (B) a cash collateral
pledge agreement by Borrowers in favor of Lender with respect to all such funds
received by Lender, duly authorized, executed and delivered by Borrowers.
1.28 "Eligible Equipment" shall mean, as to each Borrower, Equipment
owned by such Borrower, which is in good order, repair, running and marketable
condition, located at such Borrower's premises and acceptable to Lender in all
respects. In general, Eligible Equpment shall not include: (a) Equipment at
premises other than those owned and controlled by such Borrower, except for
Equipment at locations leased by such Borrower if either (i) Lender shall have
received a Collateral Access Agreement from the owner and lessor of such
premises in form and substance satisfactory to Lender, or (ii) if Lender shall
not have received such an agreement, the Lender shall have, at its option either
(A) established an Availability Reserve with respect to amounts due or to become
due to the owner and lessor of such premises pursuant to Section 1.28(e) below
or (b) reduced the amount of the Equipment Purchase Term Loan based on
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such Eligible Equipment by amounts due or to become due to the owner and lessor
of such premises in the good faith determination of Lender by an amount equal to
the Availability Reserves that would have been established under Section 1.28(e)
below; (c) Equipment subject to a security interest or lien in favor of any
person other than Lender except those permitted in this Agreement; (d) Equipment
which is not located in the continental United States of America; (e) Equipment
which is not subject to the first priority, valid and perfected security
interest of Lender; or (f) worn-out, obsolete, damaged or defective Equipment or
Equipment not used or usable in the ordinary course of such Borrower's business
as presently conducted. General criteria for Eligible Equipment may be
established and revised from time to time by Lender in good faith based on an
event, condition or other circumstance arising after the date hereof, or
existing on the date hereof to the extent Lender has no written notice thereof
from Borrowers, which adversely affects or could reasonably be expected to
adversely affect the Equipment in the good faith determination of Lender. Any
Equipment which is not Eligible Equipment shall nevertheless be part of the
Collateral.
1.29 "Eligible Inventory" shall mean, as to each Borrower, the
Inventory consisting of finished goods held for resale in the ordinary course of
the business of such Borrower and raw materials and work-in-process for such
finished goods, in each case, that are acceptable to Lender based on the
criteria set forth below. In general, Eligible Inventory shall not include (a)
components which are not part of finished goods; (b) spare parts for equipment;
(c) packaging and shipping materials; (d) supplies used or consumed in the
business of any Borrower; (e) Inventory at premises other than those owned and
controlled by such Borrower, except for Inventory at locations leased by
Borrowers or held by consignees or vendors of Borrowers if either: (A) Lender
shall have received a Collateral Access Agreement from the owner and lessor of
such premises or the consignee or vendor, as the case may be, in form and
substance satisfactory to Lender or (B) if Lender has not received such an
agreement, as to leased locations, then Lender shall have established an
Availability Reserve in respect of amounts due or to become due to the owner and
lessor of such leased location (without limiting any other rights and remedies
of Lender under this Agreement or under the other Financing Agreements with
respect to the establishment of Availability Reserves or otherwise) and after
giving effect to such Availability Reserves, there is Excess Availability;
provided, that, (i) Borrowers shall use their best efforts to obtain the
Collateral Access Agreement from the owner and lessor with respect to each of
such locations and (ii) the Availability Reserves established pursuant to this
Section shall not exceed at any time the aggregate of amounts payable to such
owners and lessors for the next two (2) months and including amounts, if any,
then outstanding and unpaid owed by any Borrower to such owners and lessors,
provided, that, such limitation on the amount of the Availability Reserves
pursuant to this Section shall only apply so long as: (aa) no Event of Default,
or act, condition or event which with notice or passage of time or both would
constitute an Event of Default shall exist or have occurred and be continuing,
(bb) neither any Borrower or Guarantor nor Lender shall have received notice of
any default or event of default under the lease with respect to such location
and (cc) Lender shall have received evidence, in form and substance satisfactory
to Lender, that no Borrower has granted to the owner and lessor a security
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interest in or lien upon any assets of such Borrower; (f) Inventory subject to a
security interest or lien in favor of any person other than Lender except those
permitted in this Agreement; (g) bill and hold goods; (h) unserviceable,
obsolete or slow moving Inventory; (i) Inventory which is not subject to the
first priority, valid and perfected security interest of Lender; (j) returned,
damaged and/or defective Inventory; (k) Inventory purchased or sold on
consignment; and (l) Inventory consisting of Omega TM fire sprinkler products.
General criteria for Eligible Inventory may be established and revised from time
to time by Lender in good faith based on an event, condition or other
circumstance arising after the date hereof, or existing on the date hereof to
the extent Lender has no written notice thereof from Borrowers, which adversely
affects or could reasonably be expected to adversely affect the Inventory in the
good faith determination of Lender. Any Inventory which is not Eligible
Inventory shall nevertheless be part of the Collateral.
1.30 "Environmental Laws" shall mean all foreign, Federal, State and
local laws (including common law), legislation, rules, codes, licenses, permits
(including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between any Borrower and any
governmental authority, (a) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, (b) relating to the exposure to, or the use, storage,
recycling, treatment, generation, manufacture, processing, distribution,
transportation, handling, labeling, production, release or disposal, or
threatened release, of Hazardous Materials, or (c) relating to all laws with
regard to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Materials. The term "Environmental Laws" includes (i) the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Federal Superfund Amendments and Reauthorization Act, the Federal
Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal
Clean Air Act, the Federal Resource Conservation and Recovery Act of 1976
(including the Hazardous and Solid Waste Amendments thereto), the Federal Solid
Waste Disposal and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water
Act of 1974, and (ii) applicable State counterparts to such laws.
1.31 "Equipment" shall mean all of each Borrower's now owned and
hereafter acquired equipment, machinery, computers and computer hardware and
software (whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.32 "Equipment Purchase Term Loans" shall mean the secured term loans
hereafter made by Lender to any Borrower as provided for in Section 2.4, such
term loans being from time to time referred to herein individually as an
"Equipment Purchase Term Loan".
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1.33 "Equipment Purchase Term Notes" shall mean, collectively, the
Equipment Purchase Term Notes which may at any time hereafter be issued by any
Borrower to Lender pursuant to Section 2.4 hereof to evidence an Equipment
Purchase Term Loan, such notes being from time to time referred to herein
individually as an "Equipment Purchase Term Note".
1.34 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.35 "ERISA Affiliate" shall mean any Person required to be aggregated
with any Borrower or Central or any of their Subsidiaries under Sections 414(b),
414(c), 414(m) or 414(o) of the Code.
1.36 "Eurodollar Rate" shall mean with respect to the Interest Period
for a Eurodollar Rate Loan to a Borrower, the interest rate per annum equal to
the arithmetic average of the rates of interest per annum (rounded upwards, if
necessary, to the next one-sixteenth (1/16) of one (1%) percent) at which
Reference Bank is offered deposits of United States dollars in the London
interbank market (or other Eurodollar Rate market selected by such Borrower or
on its behalf by Central and approved by Lender) on or about 9:00 a.m. (New York
City time) two (2) Business Days prior to the commencement of such Interest
Period in amounts substantially equal to the principal amount of the Eurodollar
Rate Loans requested by and available to such Borrower in accordance with this
Agreement, with a maturity of comparable duration to the Interest Period
selected by such Borrower or on its behalf by Central.
1.37 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.38 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.39 "Excess Availability" shall mean the amount, as determined by
Lender, calculated at any time, equal to:
(a) the lesser of: (i) the amount of the Revolving Loans
available to Borrowers as of such time based on the applicable lending formulas
set forth in Section 2.1 hereof, as determined by Lender, and subject to the
sublimits and Availability Reserves from time to time established hereunder or
(ii) the amount equal to the Revolving Loan Limit, minus
(b) the sum of: (i) the amount of all then outstanding and unpaid
Obligations of Borrowers (but not including for this purpose the then
outstanding principal amount of the Term Loans to Borrowers), plus (ii) the
aggregate amount of all then outstanding and unpaid trade payables and other
obligations of Borrowers which are more than forty-five (45) days past due as of
such time, plus (iii) the amount of checks issued by Borrowers to pay trade
payables, but not yet sent and the book overdraft of such Borrowers.
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1.40 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
the same now exists or may from time to time hereafter be amended, modified,
recodified or supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.
1.41 "Existing Lenders" shall mean, collectively, First Union National
Bank, LaSalle National Bank and National City Bank of Pennsylvania, and First
Union National Bank as agent for such lenders, and their respective successors
and assigns.
1.42 "Existing Letters of Credit" shall mean, collectively, the letters
of credit issued for any Borrower or Guarantor by First Union National Bank (as
successor by merger to CoreStates Bank, N.A.) prior to the date hereof listed on
Schedule 1.42 hereto.
1.43 "Financing Agreements" shall mean, collectively, this Agreement
and all notes, guarantees, security agreements and other agreements, documents
and instruments now or at any time hereafter executed and/or delivered by any
Borrower or Guarantor in connection with this Agreement, as the same now exist
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced.
1.44 "First Union Letter of Credit Documents" shall mean, collectively,
the Letter of Credit and Reimbursement Agreement, dated as of November 1, 1995,
by and between First Union National Bank and Castings relating to the Alabama
State Bonds and the Calhoun County Bonds and the related agreements, documents
and instruments listed on Schedule 1.44 hereto, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.45 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied, provided
that if any change in generally accepted accounting principles after the date
hereof in itself affects the calculation of compliance with the financial
covenant in Section 9.15 hereof, Borrowers may by notice to Lender, or Lender
may, by notice to Central, require that such covenant thereafter be calculated
in accordance with generally accepted accounting principles as in effect, and
applied by Borrowers, immediately before such change in generally accepted
accounting principles occurred. If such notice is given, any calculation by
Borrowers of compliance with covenant in Section 9.15 after such change occurs
shall be accomplished by reconciliations of the difference between the
calculation set forth therein and a calculation made in accordance with
generally accepted accounting principles as in effect from time to time after
such change occurs.
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1.46 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including hydrocarbons (including naturally
occurring or man-made petroleum and hydrocarbons), flammable explosives,
asbestos, urea formaldehyde insulation, radioactive materials, biological
substances, polychlorinated biphenyls, pesticides, herbicides and any other kind
and/or type of pollutants or contaminants (including materials which include
hazardous constituents), sewage, sludge, industrial slag, solvents and/or any
other similar substances, materials, or wastes and including any other
substances, materials or wastes that are or become regulated under any
Environmental Law (including any that are or become classified as hazardous or
toxic under any Environmental Law).
1.47 "Hard Costs" shall mean, with respect to the purchase by a
Borrower of an item of Eligible Equipment, the net cash amount actually paid to
acquire title to such item, net of all incentives, trade-in allowances,
discounts and rebates, and exclusive of freight, delivery charges, installation
costs and charges, software costs, charges and fees, warranty costs, taxes,
insurance and other incidental costs or expenses and all indirect costs or
expenses of any kind.
1.48 "Huntsville Bond Agreements" shall mean shall mean collectively,
the following (as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced): (a) the Mortgage
Indenture, dated as of December 1, 1997, between the Industrial Development
Board of the City of Huntsville, Alabama, CPVC and the Huntsville Bondholder,
(b) the Lease Agreement, dated as of December 1, 1997, between the Industrial
Development Board of the City of Huntsville, Alabama and CPVC, (c) the Guaranty
Agreement, as of December 1, 1997, by CSC, Central, Castings and CPVC in favor
of the Huntsville Bondholder, (d) the Bond Purchase Agreement, as of December 1,
1997, by and among CSC Finance, CPVC, CSC, Central and Castings, and (e) all
agreements, documents and instruments at any time executed and/or delivered by
any Borrower or Guarantor in connection with any of the foregoing.
1.49 "Huntsville Bond Letter of Credit" shall mean a letter of credit
to be issued after the date hereof by First Union National Bank for the account
of CPVC payable to the Huntsville Bondholder or a duly appointed trustee acting
on behalf of the holders of the Huntsville Bonds, as beneficiary on terms and
conditions acceptable to Lender and to First Union National Bank as the issuer
of such letter of credit in the amount not to exceed $7,641,780.82, as the same
may hereafter exist and may thereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
1.50 "Huntsville Bondholder" shall mean CSC Investment (as purchaser of
the Huntsville Bonds from Brown Brothers Harriman & Co. pursuant to the Bond
Purchase Agreement, dated April 21, 1998, by and among Brown Brothers Harriman &
Co., CPVC and CSC Investment) as the direct and beneficial owner and holder of
all of the Huntsville Bonds and any assignee or transferee that hereafter owns
and holds all of the Huntsville Bonds, together with any person who at any time
is acting as trustee or agent on behalf of the owners and holders of the
Huntsville Bonds.
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1.51 "Huntsville Bonds" shall mean, collectively, the Industrial
Development Revenue Bonds (Central CPVC Corporation Project) Series 1997 issued
by the Industrial Development Board of the City of Huntsville, Alabama in the
original principal amount of $7,500,000, as the same now exist or may hereafter
be amended, modified, supplemented, extended, renewed, restated or replaced.
1.52 "Information Certificate" shall mean, collectively, the
Information Certificate with respect to each Borrower and Guarantor constituting
Exhibit A hereto containing material information with respect to each Borrower
and Guarantor, its business and assets provided by or on behalf of Borrowers to
Lender in connection with the preparation of this Agreement and the other
Financing Agreements and the financing arrangements provided for herein.
1.53 "Interest Period" shall mean for any Eurodollar Rate Loan to
Borrowers, a period of approximately one (1), two (2), three (3) or six (6)
months duration as such Borrower may elect, the exact duration to be determined
in accordance with the customary practice in the applicable Eurodollar Rate
market; provided, that, Borrowers may not elect an Interest Period which will
end after the last day of the then-current term of this Agreement.
1.54 "Interest Rate" shall mean, as to Prime Rate Loans, the Prime Rate
per annum and as to Eurodollar Rate Loans, a rate of one and three-quarters (1
3/4%) percent per annum in excess of the Adjusted Eurodollar Rate (in each case
as to Eurodollar Rate Loans to a Borrower based on the Eurodollar Rate
applicable for the Interest Period selected by such Borrower as in effect two
(2) Business Days prior to the commencement of such Interest Period for such
Eurodollar Rate Loans in accordance with the terms hereof, whether such rate is
higher or lower than any rate previously quoted to such Borrower); provided,
that: notwithstanding anything to the contrary contained in this Agreement or in
any of the other Financing Agreements, the Interest Rate, as to Prime Rate Loans
and Eurodollar Rate Loans, shall mean the rate two (2%) percent per annum more
than the otherwise then applicable Interest Rate, at Lender's option, without
notice, for the period from and after the date of the occurrence of any Event of
Default, and for so long as such Event of Default is continuing, and on the
Revolving Loans to Borrowers at any time outstanding in excess of the amounts
available to Borrowers under Section 2 hereof (whether or not such excess(es),
arise or are made with or without Lender's knowledge or consent and whether made
before or after an Event of Default).
1.55 "Inventory" shall mean all of each Borrower's now owned and
hereafter acquired inventory, wherever located, including, without limitation,
all raw materials, work-in-process, and finished inventory of any kind, nature
or description, wherever located.
1.56 "Inventory Loan Limit" shall mean, at any time, the amount equal
to $35,000,000.
1.57 "Letter of Credit Accommodations" shall mean the letters of
credit, merchandise purchase or other guaranties which are from time to time
either (a) issued or opened by Lender for the account of any Borrower or
Guarantor or (b) with respect to which Lender has agreed to indemnify the issuer
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or guaranteed to the issuer the performance by each Borrower of its obligations
to such issuer (including, without limitation, the Existing Letters of Credit),
provided, that, the term "Letter of Credit Accommodations" shall not include the
Supplemental Letter of Credit Accommodations as such term is defined herein.
1.58 "Loans" shall mean the Revolving Loans, the Term Loan, the
Equipment Purchase Term Loans and the Supplemental LC Loans.
1.59 "Material Adverse Effect" shall mean a material adverse effect on
(a) the condition (financial or otherwise), business, assets, profits,
operations or properties of Borrowers (taken as a whole); (b) the legality,
validity or enforceability of this Agreement or any of the other Financing
Agreements; (c) the legality, validity, enforceability, perfection or priority
of the security interests and liens of Lender upon the Collateral or any other
property which is security for the Obligations; (d) the Collateral or any other
property which is security for the Obligations, or the value of the Collateral
or such other property; (e) the ability of Borrowers (taken as a whole) to repay
the Obligations or of any Borrower or Guarantor to perform its obligations under
this Agreement or any of the other Financing Agreements; or (f) the ability of
Lender to enforce the Obligations or realize upon the Collateral or otherwise
with respect to the rights and remedies of Lender under this Agreement or any of
the other Financing Agreements.
1.60 "Maximum Credit" shall mean the amount of $110,000,000.
1.61 "Mortgages" shall mean, individually and collectively, each of the
following (as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced): (a) the Open-End
Mortgage and Security Agreement, dated of even date herewith, by Central in
favor of Lender with respect to the Real Property and related assets of Central
located in Lansdale, Pennsylvania and Newtown, Pennsylvania; and (b) the Fee and
Leasehold Mortgage with Security Agreement and Assignment of Leases and Rents,
dated of even date herewith, by CPVC and the Industrial Development Board of the
City of Huntsville, Alabama in favor of Lender with respect to the Real Property
and related assets of CPVC located in Madison, Alabama.
1.62 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, discounts, claims, credits and allowances of any nature
at any time issued, owing, granted, outstanding, available or claimed with
respect thereto.
1.63 "Obligations" shall mean any and all Revolving Loans, the Term
Loan, the Equipment Purchase Term Loans, the Supplemental LC Loans, the Letter
of Credit Accommodations, the Supplemental Letter of Credit Accommodations, and
all other obligations, liabilities and indebtedness of every kind, nature and
description owing by any or all of Borrowers to Lender and/or its affiliates,
including principal, interest, charges, fees, costs and expenses, however
evidenced, whether as principal, surety, endorser, guarantor or otherwise,
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whether arising under this Agreement or otherwise, whether now existing or
hereafter arising, whether arising before, during or after the initial or any
renewal term of this Agreement or after the commencement of any case with
respect to any Borrower under the United States Bankruptcy Code or any similar
statute (including, without limitation, the payment of interest and other
amounts which would accrue and become due hereunder or under the other Financing
Agreements but for the commencement of such case, whether or not such amounts
are allowed or allowable in whole or in part in such case), whether direct or
indirect (and including obligations to Lender arising indirectly pursuant to the
participation by Lender in the obligations of Borrowers to First Union National
Bank under the First Union Letter of Credit Documents), absolute or contingent,
joint or several, due or not due, primary or secondary, liquidated or
unliquidated, secured or unsecured, and however acquired by Lender.
1.64 "Omega Litigation" shall mean the class action lawsuits against
CSC and its Subsidiaries filed in the State of California regarding the Omega TM
sprinkler heads manufactured and sold by Borrower, as such lawsuits are
described on Schedule 1.64.
1.65 "Participant" shall mean any person which at any time participates
with Lender in respect of the Loans or other Obligations or any portion thereof.
1.66 "Payment Account" shall have the meaning set forth in Section 6.6
hereof.
1.67 "Permitted Holders" shall mean the persons listed on Schedule 1.67
hereto.
1.68 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including, without limitation, any
corporation which elects subchapter S status under the Code), limited liability
company, limited liability partnership, business trust, unincorporated
association, joint stock corporation, trust, joint venture or other entity or
any government or any agency or instrumentality or political subdivision
thereof.
1.69 "Prime Rate" shall mean the rate from time to time publicly
announced by First Union National Bank, or its successors, as its prime rate,
whether or not such announced rate is the best rate available at such bank.
1.70 "Prime Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Prime Rate in accordance with the terms
thereof.
1.71 "Real Property" shall mean all now owned and hereafter acquired
real property of Borrowers, including leasehold interests, together with all
buildings, structures, and other improvements located thereon and all licenses,
easements and appurtenances relating thereto, wherever located, including the
real property and related assets more particularly described in the Mortgages
located in the State of Alabama and the Commonwealth of Pennsylvania.
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1.72 "Records" shall mean all of each Borrower's present and future
books of account of every kind or nature, purchase and sale agreements,
invoices, ledger cards, bills of lading and other shipping evidence, statements,
correspondence, memoranda, credit files and other data relating to the
Collateral or any account debtor, together with the tapes, disks, diskettes and
other data and software storage media and devices, file cabinets or containers
in or on which the foregoing are stored (including any rights of Borrowers with
respect to the foregoing maintained with or by any other person).
1.73 "Reference Bank" shall mean First Union National Bank, or such
other bank as Lender may from time to time designate.
1.74 "Revolving Loan Limit" shall mean the amount equal to $79,600,000
minus the then outstanding principal amount of the Term Loan.
1.75 "Revolving Loans" shall mean the loans now or hereafter made by
Lender to or for the benefit of Borrowers on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
1.76 "Special Availability Reserve" shall mean the Availability Reserve
in the amount equal to $9,578,000 established as of the date hereof reducing the
amount of Revolving Loans and Letter of Credit Accommodations otherwise
available to Borrowers, provided, that, if after the date hereof, but prior to
November 30, 1998, Lender shall receive a revised or supplemental report from MB
Valuation or another appraiser acceptable to Lender, in form and substance
satisfactory to Lender, in connection with the appraisal of the Equipment
delivered by MB Valuation to Lender on or about September 11, 1998 which
increases the amount of the orderly liquidation value of the Equipment owned by
Borrowers included in such appraisal and/or includes the orderly liquidation
value of other Equipment owned by a Borrower (free and clear of any lien,
security interest, lien claim or other encumbrance, except in favor of Lender)
and acceptable to Lender, so that the increase in the amount of the orderly
liquidation value of the Equipment previously included in the appraisal,
together with the orderly liquidation value of such other Equipment, is greater
than $1,900,000, the Special Availability Reserve shall be decreased by the
amount by which such increase and such value exceeds $1,900,000 (provided, that,
no Event of Default shall exist or have occurred and be continuing).
1.77 "Subsidiary" or "subsidiary" shall mean, with respect to any
Person, any corporation, limited or general partnership, trust, association or
other business entity of which an aggregate of at least a majority of the
outstanding Capital Stock or other interests entitled to vote in the election of
the board of directors of such corporation (irrespective of whether, at the
time, Capital Stock of any other class or classes of such corporation shall have
or might have voting power by reason of the happening of any contingency),
managers, trustees or other controlling persons, or an equivalent controlling
interest therein, of such Person is, at the time, directly or indirectly, owned
by such Person and/or one or more subsidiaries of such Person.
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1.78 "Supplemental LC Loans" shall mean the loans hereafter made by
Lender to or for the benefit of Borrowers pursuant to any payments by Lender in
respect of the Supplemental Letter of Credit Accommodations, as provided in
Section 2.2 hereof.
1.79 "Supplemental Letter of Credit Accommodations" shall mean,
collectively, the Calhoun County Bond Letter of Credit, the Alabama State Bond
Letter of Credit and the Huntsville Bond Letter of Credit, to the extent Lender
has agreed in writing to indemnify the issuer or guarantee to the issuer the
performance by the Borrower who is the account party with respect thereto of
such Borrower's obligations to such issuer (or in the case of the Calhoun County
Bond Letter of Credit and the Alabama State Bond Letter of Credit, to the extent
Lender may have agreed to purchase a participation in the obligations of any
Borrower to First Union National Bank as the issuer thereof pursuant to the
Agency and Participation Agreement, dated of even date herewith, between First
Union National Bank as issuer of such letters of credit and Lender).
1.80 "Swap Agreement" shall mean the Master Agreement, dated as of
January 25, 1996, between Castings and First Union National Bank (as successor
by merger to CoreStates Bank, N.A.), and all confirmations with respect to swap
transactions between First Union National Bank and Castings or any other
Borrower pursuant thereto, as the foregoing may now exist or may hereafter be
entered into or amended, modified, supplemented, extended, renewed, restated or
replaced.
1.81 "Term Loan" shall mean the term loan made by Lender to Central as
provided for in Section 2.3 hereof.
1.82 "Term Note" shall mean the Term Promissory Note, dated of even
date herewith, made by Central payable to the order of Lender in the original
principal amount of $12,600,000, as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
1.83 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost computed on a first-in-first-out
basis in accordance with GAAP or (b) market value.
SECTION 2. CREDIT FACILITIES
-----------------
2.1 Revolving Loans.
(a) Subject to and upon the terms and conditions contained herein,
Lender agrees to make Revolving Loans to Borrowers from time to time in amounts
requested by any Borrower or on their behalf by Central up to the amount equal
to the sum of:
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(i) eighty-five (85%) percent of the Net Amount of Eligible
Accounts of Borrowers, plus
(ii) the lesser of: (A) the sum of (1) sixty (60%) percent of
the Value of Eligible Inventory of Borrowers consisting of finished
goods, plus (2) fifty-five (55%) percent of the Value of Eligible
Inventory of Borrowers consisting of raw materials and work-in-process
for such finished goods, or (B) the Inventory Loan Limit, plus
(iii) one hundred (100%) percent of Eligible Cash Collateral,
less
(iv) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not less
than five (5) days prior notice to any Borrower, (i) reduce the lending formula
with respect to Eligible Accounts to the extent that Lender determines in good
faith that the general creditworthiness of account debtors has declined, or (ii)
reduce the lending formula(s) with respect to Eligible Inventory to the extent
that Lender determines that: (A) the number of days of the turnover of the
Inventory for any period has adversely changed or (B) the value of the Eligible
Inventory or any category thereof has decreased or (C) the nature, quality or
mix of the Inventory has deteriorated. In determining whether to reduce the
lending formula(s), Lender may consider events, conditions, contingencies or
risks which are also considered in determining Eligible Accounts, Eligible
Inventory or in establishing Availability Reserves. To the extent Lender shall
have established an Availability Reserve which is sufficient to address any
event, condition or matter in a manner satisfactory to Lender in good faith,
Lender shall not exercise its rights under this Section 2.1(b) to reduce the
lending formulas, to address such event, condition or matter. The amount of any
reduction in the lending formula by Lender pursuant to this Section 2.1(b) shall
have a reasonable relationship to the matter which is the basis for such
reduction.
(c) Except in Lender's discretion, (i) the aggregate amount of the
Revolving Loans based on Eligible Inventory outstanding at any time shall not
exceed the Inventory Loan Limit, (ii) the aggregate amount of the Revolving
Loans based on Eligible Inventory consisting of work-in-process outstanding at
any time shall not exceed $3,000,000, (iii) the aggregate amount of the
Revolving Loans and Letter of Credit Accommodations outstanding at any time
shall not exceed the Revolving Loan Limit, (iv) the aggregate amount of the
Revolving Loans based on Eligible Cash Collateral outstanding at any time shall
not exceed $7,500,000, provided, that, such amount may be increased or decreased
as follows: (A) such amount may be increased effective one (1) Business Day
after each of the following conditions is satisfied: (1) Lender shall have
received a written request for such increase from Central, (2) Lender shall have
received evidence that the amount of cash or Cash Equivalents held in the
Collateral Account (as defined in Section 1.27 hereof) is not less than such
amount, (3) in no event shall such amount be increased to more than $15,000,000,
and (4) such amount may not be increased more than one (1) time in any week, and
(B) such amount may be decreased effective one (1) Business Day after each of
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the following conditions is satisfied: (1) Lender shall have received a written
request for such decrease from Central, (2) as of the date of such decrease and
after giving effect thereto, there shall be Excess Availability, (3) as of the
date of such decrease and after giving effect thereto, no Event of Default shall
exist or have occurred, (4) such amount may not be decreased more than one (1)
time in any week, and (v) the aggregate amount of the Loans, the Letter of
Credit Accommodations and the Supplemental Letter of Credit Accommodations
outstanding at any time shall not exceed the Maximum Credit. In the event that
the outstanding amount of any component of the Loans, or the aggregate amount of
the outstanding Loans, exceeds the amounts available under the lending formulas,
the sublimits for Letter of Credit Accommodations and Supplemental Letter of
Credit Accommodations set forth in Sections 2.2(d) and 2.2(e) hereof, the
Revolving Loan Limit, the sublimits set forth herein, or the Maximum Credit, as
applicable, such event shall not limit, waive or otherwise affect any rights of
Lender in that circumstance or on any future occasions and Borrowers shall, upon
the demand by Lender, which may be made at any time or from time to time, repay
to Lender the entire amount of any such excess(es) for which payment is
demanded.
(d) For purposes only of applying the sublimit on Revolving Loans based
on Eligible Inventory pursuant to Section 2.1(a)(ii)(B) hereof, Lender may treat
the then undrawn amounts of outstanding Letter of Credit Accommodations for the
purpose of purchasing Eligible Inventory as Revolving Loans to the extent Lender
is in effect relying on the Eligible Inventory being purchased with such Letter
of Credit Accommodations. In determining the actual amounts of such Letter of
Credit Accommodations to be so treated for purposes of the sublimit, the
outstanding Revolving Loans and Availability Reserves shall be attributed first
to any components of the lending formulas in Section 2.1(a) hereof that are not
subject to such sublimit, before being attributed to the components of the
lending formulas subject to such sublimit.
2.2 Letter of Credit Accommodations; Supplemental Letter of Credit
Accommodations.
(a) Subject to and upon the terms and conditions contained herein, at
the request of any Borrower or on behalf such Borrower by Central, Lender agrees
to provide or arrange for Letter of Credit Accommodations for the account of
Borrowers containing terms and conditions acceptable to Lender and the issuer
thereof. Any payments made by Lender to any issuer thereof and/or related
parties in connection with the Letter of Credit Accommodations shall constitute
additional Revolving Loans to Borrowers pursuant to this Section 2.
(b) Subject to and upon the terms and conditions contained herein, at
the request of any Borrower or on behalf of such Borrower by Central, Lender
agrees to arrange for the Supplemental Letter of Credit Accommodations for the
account of Borrowers containing terms and conditions acceptable to Lender and
the issuer thereof. Any payments made by Lender to any issuer thereof and/or
related parties in connection with the Supplemental Letter of Credit
Accommodations shall constitute Supplemental LC Loans to Borrowers and shall be
automatically and unconditionally due and payable on the next Business Day after
the date of such Loan, without notice or demand.
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(c) In addition to any charges, fees or expenses charged by any bank or
issuer in connection with the Letter of Credit Accommodations, Borrowers shall
pay to Lender a letter of credit fee at a rate equal to one and one-half (1
1/2%) percent per annum on the daily outstanding balance of the Letter of Credit
Accommodations and the Supplemental Letter of Credit Accommodations for the
immediately preceding month (or part thereof), payable in arrears as of the
first day of each succeeding month, except that Borrowers shall pay to Lender
such letter of credit fee, at Lender's option, upon notice to Central, at a rate
equal to three and one-half (3 1/2%) percent per annum on such daily outstanding
balance for: (i) the period from and after the date of termination or
non-renewal hereof until Lender has received full and final payment of all
Obligations (notwithstanding entry of a judgment against Borrowers) and (ii) the
period from and after the date of the occurrence of an Event of Default for so
long as such Event of Default is continuing as determined by Lender. Such letter
of credit fee shall be calculated on the basis of a three hundred sixty (360)
day year and actual days elapsed and the obligation of Borrowers to pay such fee
shall survive the termination or non-renewal of this Agreement.
(d) No Letter of Credit Accommodations shall be available unless on the
date of the proposed issuance of any Letter of Credit Accommodations, the
Revolving Loans available to the Borrower requesting it (subject to the Maximum
Credit and any Availability Reserves) are equal to or greater than: (i) if the
proposed Letter of Credit Accommodation is for the purpose of purchasing
Eligible Inventory, the sum of (A) the percentage equal to one hundred (100%)
percent minus the applicable percentage set forth in Section 2.1(a)(ii)(A)
hereof multiplied by the Value of the Eligible Inventory being purchased with
such proposed Letter of Credit Accommodation, plus (B) freight, taxes, duty and
other amounts which Lender estimates must be paid in connection with such
Inventory upon arrival and for delivery to one of such Borrower's locations for
Eligible Inventory within the United States of America and (ii) if the proposed
Letter of Credit Accommodation is for any other purpose, an amount equal to one
hundred (100%) percent of the face amount thereof and all other commitments and
obligations made or incurred by Lender with respect thereto. Effective on the
issuance of each Letter of Credit Accommodation, an Availability Reserve shall
be established in the applicable amount set forth in this Section 2.2(d)(i) or
Section 2.2(d)(ii).
(e) In addition to the other conditions precedent to any Loan, Letter
of Credit Accommodation or Supplemental Letter of Credit Accommodation, the
arrangement by Lender for the issuance of the Huntsville Bond Letter of Credit
shall be subject to the satisfaction of each of the following additional
conditions precedent, as determined by Lender:
(i) Lender shall have received, in form and substance
satisfactory to Lender, all releases, terminations and such other documents as
Lender may request to evidence and effectuate the termination of and release by
the Huntsville Bondholder of any interest in and to any assets and properties of
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Borrowers and Guarantors, duly authorized, executed and delivered by it,
including, but not limited to, (A) UCC termination statements for all UCC
financing statements previously filed by it or its predecessors, as secured
party, and Borrowers or Guarantors, as debtor and (B) satisfactions and
discharges of any mortgages, deeds of trust or deeds to secure debt by any
Borrower or Guarantor in favor of the Huntsville Bondholder, in form acceptable
for recording in the appropriate government office;
(ii) Lender shall have received, in form and substance
satisfactory to Lender, the Fee and Leasehold Mortgage with Security Agreement
and Assignment of Leases and Rents by CPVC and the Huntsville Bondholder in
favor of Lender with respect to the Real Property of CPVC in Madison, Alabama,
duly authorized, executed and delivered by CPVC and the Huntsville Bondholder;
(iii) Lender shall have received, in form and substance
satisfactory to Lender, amendments to the Huntsville Bond Agreements providing
for the restructuring of the terms of the Huntsville Bonds to, inter alia,
provide for a trustee to act on behalf of the holders of the Bonds, release all
collateral for the obligations of CPVC and any other Borrower or Guarantor in
connection with the Huntsville Bonds and the Huntsville Bond Agreements and the
issuance of the Huntsville Bond Letter of Credit;
(iv) CPVC or Central shall receive, concurrently with the
issuance of the Huntsville Bond Letter of Credit, not less than $7,500,000 in
cash or other immediately available funds constituting the net proceeds of a
loan by CSC Investment or CSC to CPVC or Central with the proceeds received by
CSC Investment from the remarketing and sale of the Huntsville Bonds to third
parties who are not affiliates of any Borrower or Guarantor;
(v) Lender shall have received environmental audits of the
plant and Real Property of CPVC in Madison, Alabama conducted by an independent
environmental engineering firm acceptable to Lender, and in form, scope and
methodology satisfactory to Lender, confirming (A) such Borrower is in
compliance with all material applicable Environmental Laws and (B) the absence
of any material environmental problems;
(vi) Lender shall have received, in form and substance
satisfactory to Lender, a valid and effective title insurance policy issued by a
company and agent acceptable to Lender (A) insuring the priority, amount and
sufficiency of the Mortgage with respect to the Real Property of CPVC in
Madison, Alabama referred to in clause (iv) above, (B) insuring against matters
that would be disclosed by surveys and (C) containing any legally available
endorsements, assurances or affirmative coverage requested by Lender for
protection of its interests;
(vii) Lender shall have received evidence, in form and
substance satisfactory to Lender, that Lender has a first priority mortgage and
lien upon, and security interest in, the Real Property and Equipment of CPVC
located in Madison, Alabama;
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(viii) Lender shall have received, in form and substance
satisfactory to Lender, a written appraisal of the Real Property of CPVC located
in Madison, Alabama, at the expense of Borrower by an appraiser acceptable to
Lender, addressed to Lender and on which Lender is expressly permitted to rely,
in form, scope and methodology satisfactory to Lender;
(ix) as of the date of the issuance of the Huntsville Bond
Letter of Credit and after giving effect thereto, Excess Availability shall be
not less than $2,500,000; and
(x) each of the conditions set forth above shall have
occurred, and the Huntsville Bond Letter of Credit shall have been issued by, no
later than December 31, 1998.
(f) Except in Lender's discretion, the amount of all outstanding Letter
of Credit Accommodations and all other commitments and obligations made or
incurred by Lender in connection therewith shall not at any time exceed
$5,000,000.
(g) Except in Lender's discretion, (i) the aggregate amount of the
obligations of Lender to the issuer of the Huntsville Bond Letter of Credit and
all other commitments and obligations made or incurred by Lender in connection
therewith and any Supplemental LC Loans arising in connection therewith shall
not exceed the amount of $7,641,780.82, as reduced effective as of January 1,
April 1, July 1 and October 1 of each year commencing on January 1, 2000 by an
amount equal to $140,000 on each such date, (ii) the aggregate amount of the
obligations of Lender to the issuer of the Calhoun County Bond Letter of Credit
and all other commitments and obligations made or incurred by Lender in
connection therewith (whether pursuant to an indemnification, participation or
other arrangement) and any Supplemental LC Loans arising in connection therewith
shall not exceed the amount of $2,753,437.50, as reduced effective as of
November 1 of each year by an amount equal to $150,000 and (iii) the aggregate
amount of the obligations of Lender to the issuer of the Alabama State Bond
Letter of Credit and all other commitments and obligations made or incurred by
Lender in connection therewith (whether pursuant to an indemnification,
participation or other arrangement) and any Supplemental LC Loans arising in
connection therewith shall not exceed the amount of $7,335,000, as reduced
effective as of November 1 of each year by an amount equal to $400,000.
(h) At any time an Event of Default exists or has occurred and is
continuing, upon Lender's request, Borrowers will either furnish cash collateral
to secure the reimbursement obligations to the issuer in connection with any
Letter of Credit Accommodations and the Supplemental Letter of Credit
Accommodations or furnish cash collateral to Lender for the Letter of Credit
Accommodations and the Supplemental Letter of Credit Accommodations.
(i) Each Borrower shall indemnify and hold Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur in connection with any Letter of Credit
Accommodations or any Supplemental Letter of Credit Accommodations and any
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documents, drafts or acceptances relating thereto, including, but not limited
to, any losses, claims, damages, liabilities, costs and expenses due to any
action taken by any issuer or correspondent with respect to any Letter of Credit
Accommodation or any Supplemental Letter of Credit Accommodations other than
losses, claims, damages, liabilities, costs and expenses due to the gross
negligence or willful misconduct of Lender as determined pursuant to a final
non-appealable order of a court of competent jurisdiction. Each Borrower assumes
all risks with respect to the acts or omissions of the drawer under or
beneficiary of any Letter of Credit Accommodation or Supplemental Letter of
Credit Accommodation and for such purposes the drawer or beneficiary shall be
deemed such Borrower's agent. Each Borrower assumes all risks for, and agrees to
pay, all foreign, Federal, State and local taxes, duties and levies relating to
any goods subject to any Letter of Credit Accommodations or any Supplemental
Letter of Credit Accommodations or any documents, drafts or acceptances
thereunder. Each Borrower hereby releases and holds Lender harmless from and
against any acts, waivers, errors, delays or omissions, whether caused by such
Borrower, by any issuer or correspondent or otherwise with respect to or
relating to any Letter of Credit Accommodation or any Supplemental Letter of
Credit Accommodations. The provisions of this Section 2.2(i) shall survive the
payment of Obligations and the termination or non-renewal of this Agreement.
(j) Nothing contained herein shall be deemed or construed to grant
Borrowers any right or authority to pledge the credit of Lender in any manner.
Lender shall have no liability of any kind with respect to any Letter of Credit
Accommodation or Supplemental Letter of Credit Accommodation provided by an
issuer other than Lender unless Lender has duly executed and delivered to such
issuer the application or a guarantee or indemnification in writing with respect
to such Letter of Credit Accommodation or Supplemental Letter of Credit
Accommodation, as the case may be. At any time on or after an Event of Default
or act, condition or event which with notice or passage of time or both would
constitute an Event of Default and for so long as the same is continuing,
Borrowers shall be bound by any interpretation made in good faith by Lender, or
any other issuer or correspondent under or in connection with any Letter of
Credit Accommodation or any documents, drafts or acceptances under any of the
foregoing, notwithstanding that such interpretation may be inconsistent with any
instructions of Borrowers. Lender shall have the sole and exclusive right and
authority to, and Borrowers shall not: (i) at any time an Event of Default
exists or has occurred and is continuing, (A) approve or resolve any questions
of non-compliance of documents, (B) give any instructions as to acceptance or
rejection of any documents or goods or (C) execute any and all applications for
steamship or airway guaranties, indemnities or delivery orders, and (ii) at all
times, (A) grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents, and (B) agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, Letter of Credit
Accommodations, Supplemental Letter of Credit Accommodations, or documents,
drafts or acceptances under any of the foregoing, or any letters of credit
included in the Collateral. Lender may take such actions either in its own name
or in any Borrower's name.
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(k) Any rights, remedies, duties or obligations granted or undertaken
by any Borrower to any issuer or correspondent in any application for any Letter
of Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation or any Supplemental
Letter of Credit Accommodations, shall be deemed to have been granted or
undertaken by such Borrower to Lender. Any duties or obligations undertaken by
Lender to any issuer or correspondent in any application for any Letter of
Credit Accommodation or Supplemental Letter of Credit Accommodations, or any
other agreement by Lender in favor of any issuer or correspondent relating to
any Letter of Credit Accommodation or Supplemental Letter of Credit
Accommodations, shall be deemed to have been undertaken by Borrowers to Lender
and to apply in all respects to Borrowers.
2.3 Term Loan. Subject to the terms and conditions contained herein,
Lender is making the Term Loan to Central in the original principal amount of
$12,600,000. The Term Loan is (a) evidenced by the Term Note duly executed and
delivered by Central to Lender concurrently herewith, (b) to be repaid, together
with interest and other amounts, in accordance with this Agreement, the Term
Note and the other Financing Agreements, and (c) secured by all of the
Collateral.
2.4 Equipment Purchase Term Loans.
(a) Subject to and upon the terms and conditions contained herein,
Lender shall make Equipment Purchase Term Loans to any Borrower, from time to
time, at the request of such Borrower, or Central on behalf of such Borrower, of
up to eighty (80%) percent of the Hard Costs of new Eligible Equipment to be
purchased by such Borrower after the date hereof with the proceeds of such
Equipment Purchase Term Loan. Each Equipment Purchase Term Loan shall be in an
amount not less than $500,000. All of the proceeds of each Equipment Purchase
Term Loan shall be used solely for the payment of the purchase price of the
Eligible Equipment specified in the notice required to be delivered to Lender
pursuant to Section 2.4(d)(i) below.
(b) Except in Lender's discretion, the outstanding aggregate principal
amount of the Equipment Purchase Term Loans shall not exceed, at any time, the
lower of (i) the aggregate amount of the above percentage of the Hard Costs of
all Eligible Equipment purchased by Borrowers pursuant hereto or (ii)
$18,000,000. If at any time the outstanding aggregate principal amount of all
Equipment Purchase Term Loans shall exceed eighty (80%) percent of the Hard
Costs of all Eligible Equipment purchased by Borrower with the proceeds of
Equipment Purchase Term Loans, Borrowers shall remain liable therefor, and
Lender may, at its option, create a reserve against amounts otherwise available
to Borrowers pursuant to the formulas set forth in Section 2.1 of this
Agreement, in an amount equal to the entire amount of such excess(es) or
Borrowers shall, upon the demand by Lender, which may be made at any time and
from time to time, repay to Lender the entire amount of such excess(es).
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(c) Each Equipment Purchase Term Loan shall be (i) evidenced by an
Equipment Purchase Term Note executed and delivered by Borrowers to Lender
concurrently with each Equipment Purchase Term Loan, (ii) repaid, together with
interest and other amounts payable thereunder, in accordance with the provisions
of the applicable Equipment Purchase Term Note, this Agreement and the other
Financing Agreements, and (iii) secured by all of the Collateral.
(d) In addition to the other conditions precedent to any Loan set forth
in this Agreement, the making of each Equipment Purchase Term Loan shall be
subject to the satisfaction of each of the following additional conditions
precedent, as determined by Lender:
(i) Lender shall have received from Borrowers not less than
ten (10) Business Days prior written notice of the proposed Equipment Purchase
Term Loan, which notice shall specify the following: (A) the proposed date and
amount of the Equipment Purchase Term Loan, (B) a list and description of the
Eligible Equipment (by model, make, manufacturer, serial no. and/or such other
identifying information as may be appropriate, as determined by Lender), (C) the
Hard Costs and the total purchase price for the Eligible Equipment to be
purchased with the proceeds of such Equipment Purchase Term Loan (and the terms
of payment of such purchase price), and (D) such other information and documents
as Lender may from time to time require related thereto;
(ii) upon any Borrower acquiring any rights in the Equipment,
Lender shall have a valid and perfected first security interest in and lien upon
the Eligible Equipment to be purchased with the proceeds of the Equipment
Purchase Term Loan and the Eligible Equipment shall be free and clear of all
other liens, security interests, claims or other encumbrances, and Borrowers
shall have delivered to Lender such evidence thereof, as Lender may from time to
time, require;
(iii) the amount of the Equipment Purchase Term Loan shall not
exceed (80%) percent of the Hard Costs of the Eligible Equipment to be purchased
by Borrower with the proceeds of such Equipment Purchase Term Loan;
(iv) Lender shall have received copies, or upon Lender's
request, the originals, of all agreements, documents and instruments relating to
the sale of the Eligible Equipment to any Borrower, including, without
limitation, any purchase orders, invoices, bills of sale or similar documents;
(v) Borrowers shall duly authorize, execute and deliver to
Lender a single original Equipment Purchase Term Note in the form annexed hereto
as Exhibit C, as completed to reflect the date and amount of each such loan and
with the number of monthly installments of principal payable thereunder and the
amount of each such monthly installment completed in accordance with Sections
2.4(e) and 2.4(f) below, as the case may be, which note shall evidence a valid
and legally enforceable indebtedness of Borrowers unconditionally owing to
Lender, without offset, defense or counterclaim of any kind, nature or
description whatsoever; and
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(vi) no Event of Default, or act, condition or event which
with notice or passage of time or both would constitute an Event of Default,
shall exist or have occurred and be continuing.
(e) The principal amount of each Equipment Purchase Term Loan shall be
payable (subject to earlier payment to the extent required hereunder or under
the Equipment Purchase Term Note) in forty-eight (48) equal, consecutive monthly
installments of principal, each in an amount calculated as set forth below,
commencing on the first day of the second month after the date of the making of
such loan, together with interest and other amounts as provided herein and in
the Equipment Purchase Term Note with respect to such loan.
(f) The amount of each monthly installment of principal in respect of
each Equipment Purchase Term Loan (other than the last installment which shall
be in an amount equal to the entire unpaid balance of the Equipment Purchase
Term Note) shall equal: (i) the principal amount of the proposed Equipment
Purchase Term Loan divided by (ii) forty-eight (48).
2.5 Availability Reserves. All Revolving Loans otherwise available to
Borrowers pursuant to the lending formulas and subject to the Maximum Credit and
other applicable limits hereunder shall be subject to Lender's continuing right
as provided herein to establish and revise Availability Reserves.
2.6 Joint and Several Liability. Each Borrower and Guarantor shall be
liable for all amounts due to Lender under this Agreement, regardless of which
Borrower actually receives the Loans or other extensions of credit hereunder or
the amount of such Loans received or the manner in which Lender accounts for
such Loans, Letter of Credit Accommodations, Supplemental Letter of Credit
Accommodations, or other extensions of credit on its books and records. The
Obligations with respect to Loans made to a Borrower, and the Obligations
arising as a result of the joint and several liability of a Borrower hereunder,
with respect to Loans made to the other Borrowers hereunder, shall be separate
and distinct obligations, but all such other Obligations shall be primary
obligations of all Borrowers. The Obligations arising as a result of the joint
and several liability of a Borrower hereunder with respect to Loans, Letter of
Credit Accommodations, Supplemental Letter of Credit Accommodations, or other
extensions of credit made to the other Borrowers hereunder shall, to the fullest
extent permitted by law, be unconditional irrespective of (a) the validity or
enforceability, avoidance or subordination of the Obligations of the other
Borrowers or of any promissory note or other document evidencing all or any part
of the Obligations of the other Borrowers, (b) the absence of any attempt to
collect the Obligations from the other Borrowers, Guarantors or any other
security therefor, or the absence of any other action to enforce the same, (c)
the waiver, consent, extension, forbearance or granting of any indulgence by
Lender with respect to any provisions of any instrument evidencing the
Obligations of the other Borrowers, or any part thereof, or any other agreement
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now or hereafter executed by the other Borrowers and delivered to Lender, (d)
the failure by Lender to take any steps to perfect and maintain its security
interest in, or to preserve its rights and maintain its security or collateral
for the Obligations of the other Borrowers, (e) the election of Lender in any
proceeding instituted under the Bankruptcy Code, of the application of Section
1111(b)(2) of the Bankruptcy Code, (f) any borrowings or grant or a security
interest by the other Borrowers, as debtor-in-possession under Section 364 of
the Bankruptcy Code, (g) the disallowance of all or any portion of the claim(s)
of Lender for the repayment of the Obligations of the other Borrowers under
Section 502 of the Bankruptcy Code, or (h) any other circumstances which might
constitute a legal or equitable discharge or defense of a guarantor or of the
other Borrowers. With respect to the Obligations arising as a result of the
joint and several liability of a Borrower hereunder with respect to Loans,
Letter of Credit Accommodations, Supplemental Letter of Credit Accommodations,
or other extensions of credit made to the other Borrowers hereunder, each
Borrower waives, until the Obligations shall have been paid in full and this
Agreement shall have been terminated, any right to enforce any right of
subrogation or any remedy which Lender now has or may hereafter have against
Borrowers, any endorser or any guarantor of all or any part of the Obligations,
and any benefit of, and any right to participate in, any security or collateral
given to Lender. Upon any Event of Default, Lender may proceed directly and at
once, without notice (except to the extent notice is required hereunder or under
any applicable law), against any Borrower or Guarantor to collect and recover
the full amount, or any portion of the Obligations, without first proceeding
against the other Borrowers or any other Person, or against any security or
collateral for the Obligations. Each Borrower and Guarantor consents and agrees
that Lender shall be under no obligation to marshall any assets in favor of
Borrower(s) or against or in payment of any or all of the Obligations.
SECTION 3. INTEREST AND FEES
-----------------
3.1 Interest.
(a) Borrowers shall pay to Lender interest on the outstanding principal
amount of the Loans at the Interest Rate. All interest accruing hereunder on and
after the date of any Event of Default and while such Event of Default is
continuing or on and after the termination or non-renewal hereof shall be
payable on demand.
(b) Borrowers may, or Central on behalf of Borrowers may, from time to
time request that Prime Rate Loans be converted to Eurodollar Rate Loans or that
any existing Eurodollar Rate Loans continue for an additional Interest Period.
Such request from or on behalf of a Borrower shall specify the amount of the
Prime Rate Loans to be converted to Eurodollar Rate Loans or which Eurodollar
Rate Loans shall be continued as Eurodollar Rate Loans as provided in this
Agreement (subject, in each case, to the limits set forth below) and the
Interest Period to be applicable to such Eurodollar Rate Loans. Subject to the
terms and conditions contained herein, not later than three (3) Business Days
after receipt by Lender of such a request from or on behalf of a Borrower, such
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Prime Rate Loans shall be converted to Eurodollar Rate Loans or such Eurodollar
Rate Loans shall continue, as the case may be; provided, that, (i) no Event of
Default, or act, condition or event which with notice or passage of time or both
would constitute an Event of Default, exists or has occurred and is continuing,
(ii) no party hereto shall have sent any notice of termination or non-renewal of
this Agreement, (iii) such Borrower (or central on behalf of such Borrower)
shall have complied with such customary procedures as are established by Lender
and specified by Lender to such Borrower from time to time for requests by or on
behalf of a Borrower for Eurodollar Rate Loans, (iv) no more than four (4)
Interest Periods may be in effect at any one time, (v) the aggregate amount of
the Eurodollar Rate Loans must be in an amount not less than $5,000,000 or an
integral multiple of $1,000,000 in excess thereof, (vi) the maximum amount of
the Eurodollar Rate Loans at any time requested by or on behalf of a Borrower
shall not exceed the amount equal to (A) the principal amount of the Term Loans
to such Borrower (if any), which it is anticipated will be outstanding as of the
last day of the applicable Interest Period plus (B) ninety (90%) percent of the
lowest principal amount of the Revolving Loans, which it is anticipated will be
outstanding during the applicable Interest Period, in each case as determined by
Lender, but with no obligation of Lender to make such Revolving Loans and (vii)
Lender shall have determined that the Interest Period or Adjusted Eurodollar
Rate is available to Lender through the Reference Bank and can be readily
determined as of the date of the request for such Eurodollar Rate Loan by such
Borrower. Any request by any Borrower, or Central on behalf of any Borrower, to
convert Prime Rate Loans to Eurodollar Rate Loans or to continue any existing
Eurodollar Rate Loans shall be irrevocable until the end of the applicable
Interest Period. Notwithstanding anything to the contrary contained herein,
Lender and the Reference Bank shall not be required to purchase United States
Dollar deposits in the London interbank market or other applicable Eurodollar
Rate market to fund any Eurodollar Rate Loans, but the provisions hereof shall
be deemed to apply as if Lender and the Reference Bank had purchased such
deposits to fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to a
Eurodollar Rate Loan with an Interest Period of approximately one (1) month upon
the last day of the applicable Interest Period, unless Lender has received and
approved a request from any Borrower, or Central on behalf of any Borrower, to
convert such Eurodollar Rate Loan to a Prime Rate Loan at least three (3)
Business Days prior to such last day. Any Eurodollar Rate Loans shall, at
Lender's option, upon notice by Lender to Central, convert to Prime Rate Loans
in the event that this Agreement shall terminate or not be renewed. If at any
time the Eurodollar Rate Loans outstanding to a Borrower exceed the sum of the
then outstanding principal amount of the Term Loans plus the Revolving Loans
then available to such Borrower under Section 2 hereof, then Lender may convert
an amount of Eurodollar Rate Loans to Prime Rate Loans in the smallest amount
that will reduce the outstanding principal amount of Eurodollar Rate Loans to
the nearest integral multiple of $1,000,000 that will eliminate such excess.
Borrowers shall pay to Lender, upon demand by Lender (or Lender may, at its
option, charge any loan account of any Borrower) any amounts required to
compensate Lender, the Reference Bank or any Participant with Lender for any
loss, cost or expense incurred by such person, as a result of the conversion of
Eurodollar Rate Loans to Prime Rate Loans pursuant to any of the foregoing.
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(d) Interest shall be payable by Borrowers to Lender monthly in arrears
not later than the first day of each calendar month and shall be calculated on
the basis of a three hundred sixty (360) day year and actual days elapsed. The
interest rate on non-contingent Obligations (other than Eurodollar Rate Loans)
shall increase or decrease by an amount equal to each increase or decrease in
the Prime Rate effective on the first day of the month after any change in such
Prime Rate is announced based on the Prime Rate in effect on the last day of the
month in which any such change occurs. In no event shall charges constituting
interest payable by Borrowers to Lender exceed the maximum amount or the rate
permitted under any applicable law or regulation, and if any such part or
provision of this Agreement is in contravention of any such law or regulation,
such part or provision shall be deemed amended to conform thereto.
3.2 Closing Fee. Borrowers shall pay to Lender as a closing fee the
amount of $366,300, which shall be fully earned as of the date hereof, of which
$122,100 shall be payable by Borrowers on the date hereof, $122,100 shall be
payable on the date one hundred eighty (180) days after the date hereof and
$122,100 shall be payable on the first anniversary of the date hereof, provided,
that, the entire amount of such fee shall become immediately due and payable,
without notice or demand, at Lender's option, upon the occurrence of an Event or
Default or upon the termination or non-renewal hereof.
3.3 Servicing Fee. Borrowers shall pay to Lender monthly a servicing
fee in an amount equal to $2,500 in respect of Lender's services for each month
(or part thereof) while this Agreement remains in effect and for so long
thereafter as any of the Obligations are outstanding, which fee shall be fully
earned as of and payable in advance on the date hereof and on the first day of
each month hereafter.
3.4 Unused Line Fee. Borrowers shall pay to Lender monthly an unused
line fee at a rate equal to one-quarter (1/4%) percent per annum calculated upon
the amount by which the Revolving Loan Limit exceeds the average daily principal
balance of the outstanding Revolving Loans and Letter of Credit Accommodations
during the immediately preceding month (or part thereof) while this Agreement is
in effect and for so long thereafter as any of the Obligations are outstanding,
which fee shall be payable on the first day of each month in arrears.
3.5 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained herein, all
Eurodollar Rate Loans shall, upon notice by Lender to Borrowers, convert to
Prime Rate Loans in the event that (i) any change in applicable law or
regulation (or the interpretation or administration thereof) shall either (A)
make it unlawful for Lender, the Reference Bank or any Participant to make or
maintain Eurodollar Rate Loans or to comply with the terms hereof in connection
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with the Eurodollar Rate Loans, or (B) shall result in the increase in the costs
to Lender, the Reference Bank or any Participant of making or maintaining any
Eurodollar Rate Loans by an amount deemed by Lender to be material, or (C)
reduce the amounts received or receivable by Lender in respect thereof, by an
amount deemed by Lender to be material or (ii) the cost to Lender, the Reference
Bank or any Participant of making or maintaining any Eurodollar Rate Loans shall
otherwise increase by an amount deemed by Lender to be material. The calculation
of the increase in costs or the reduction of amounts received or receivable
shall not include the effect of any changes to the Reserve Percentage (as such
term is defined in Section 1.2 hereof) to the extent such amount already
includes the effect of such changes pursuant to the calculation of the Adjusted
Eurodollar Rate. Borrowers shall pay to Lender, upon demand by Lender (or Lender
may, at its option, charge any loan account of any Borrower) any amounts
required to compensate Lender, the Reference Bank or any Participant with Lender
for any loss (including loss of anticipated profits), cost or expense incurred
by such person as a result of the foregoing, including, without limitation, any
such loss, cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by such person to make or maintain the
Eurodollar Rate Loans or any portion thereof. A certificate of Lender setting
forth the basis for the determination of such amount necessary to compensate
Lender as aforesaid shall be delivered to Borrowers and shall be conclusive,
absent manifest error.
(b) If any payments or prepayments in respect of the Eurodollar Rate
Loans are received by Lender other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon maturity or otherwise),
including any payments pursuant to the application of collections under Section
6.3 hereof or any other payments made with the proceeds of Collateral, Borrowers
shall pay to Lender upon demand by Lender (or Lender may, at its option, charge
any loan account of any Borrower) any amounts required to compensate Lender, the
Reference Bank or any Participant with Lender for any additional loss (including
loss of anticipated profits), cost or expense incurred by such person as a
result of such prepayment or payment, including, without limitation, any loss,
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such person to make or maintain such
Eurodollar Rate Loans or any portion thereof.
SECTION 4. CONDITIONS PRECEDENT
--------------------
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations and Supplemental Letter of Credit Accommodations. Each of the
following is a condition precedent to Lender making the initial Loans and
arranging for the initial Letter of Credit Accommodations and Supplemental
Letter of Credit Accommodations hereunder:
(a) Lender shall have received, in form and substance satisfactory to
Lender, all releases, terminations and such other documents as Lender may
request to evidence and effectuate the termination by First Union National Bank
(as successor by merger to CoreStates Bank, N.A. and First Fidelity Bank,
National Association) of all of its financing arrangements with Borrowers and
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Guarantors (other than the financing arrangements of First Union National Bank
with respect to the Alabama State Bond Letter of Credit and the Calhoun County
Bond Letter of Credit pursuant to the First Union Letter of Credit Documents)
and the termination and release by it of any interest in and to any assets and
properties of Borrowers and Guarantors (other than the Real Property and
Equipment of Castings located in Anniston, Alabama), duly authorized, executed
and delivered by it, including, but not limited to, (i) UCC termination
statements for all UCC financing statements previously filed by it or its
predecessors, as secured party, and Borrowers or Guarantors, as debtor, and (ii)
satisfactions and discharges of any mortgages, deeds of trust or deeds to secure
debt previously executed and delivered by Borrowers or Guarantors in favor of
First Union National Bank, in form acceptable for recording in the appropriate
governmental office;
(b) Lender shall have received, in form and substance satisfactory to
Lender, all releases, terminations and such other documents as Lender may
request to evidence and effectuate the termination by the Existing Lenders of
their financing arrangements with Borrowers and Guarantors and the termination
and release by the Existing Lenders of any interest in and to any assets and
properties of Borrowers and Guarantors, duly authorized, executed and delivered
by them, including, but not limited to, (i) UCC termination statements for all
UCC financing statements previously filed by them or on their behalf, as secured
party, and Borrowers or Guarantors, as debtor, and (ii) satisfactions and
discharges of any mortgages, deeds of trust or deeds to secure debt previously
executed and delivered by Borrowers or Guarantors in favor of the Existing
Lenders, in form acceptable for recording in the appropriate governmental
office;
(c) Lender shall have received, in form and substance satisfactory to
Lender, the Agency and Participation Agreement between Lender and First Union
National Bank, as acknowledged and agreed to by Borrowers and Guarantors, duly
authorized, executed and delivered by First Union National Bank, Borrowers and
Guarantors;
(d) Lender shall have received, in form and substance satisfactory to
Lender, an amendment to the Mortgage and Security Agreement, dated as of
November 1, 1995, by the Calhoun County Economic Development Council and
Castings in favor of First Union National Bank, as successor by merger to First
Fidelity Bank, National Association;
(e) Lender shall have received a Borrowing Base Certificate setting
forth the Loans available to Borrowers as of the date hereof as completed in a
manner satisfactory to Lender and duly authorized, executed and delivered on
behalf of Borrowers;
(f) all requisite corporate action and proceedings in connection with
this Agreement and the other Financing Agreements shall be satisfactory in form
and substance to Lender, and Lender shall have received all information and
copies of all documents, including, without limitation, records of requisite
corporate action and proceedings which Lender may have requested in connection
therewith, such documents where requested by Lender or its counsel to be
certified by appropriate corporate officers or governmental authorities;
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(g) no Material Adverse Effect shall have occurred since the date of
Lender's latest field examination;
(h) Lender shall have completed a field review of the Records and such
other information with respect to the Collateral as Lender may require to
determine the amount of Revolving Loans available to Borrowers, the results of
which shall be satisfactory to Lender, not more than seven (7) Business Days
prior to the date hereof;
(i) Lender shall have received, in form and substance satisfactory to
Lender, a subordination agreement between CSC Finance and Lender, as
acknowledged by Borrowers and Guarantors, providing for, among other things, the
subordination in right of payment of all indebtedness owed by Borrowers or
Guarantors to CSC Finance to the right of Lender to receive the prior and final
payment and satisfaction in full of all of the Obligations and related matters,
duly authorized, executed and delivered by CSC Finance, Borrowers and
Guarantors;
(j) Lender shall have received, in form and substance satisfactory to
Lender, all consents, waivers, acknowledgments and other agreements from third
persons which Lender may deem necessary or desirable in order to permit, protect
and perfect its security interests in and liens upon the Collateral or to
effectuate the provisions or purposes of this Agreement and the other Financing
Agreements, including, without limitation, Collateral Access Agreements (except
as Lender may otherwise agree in writing) and the estoppel and consent agreement
from the Huntsville Bondholder and the Industrial Development Board of the City
of Huntsville, Alabama with respect to the Mortgage on the Real Property and
related assets of CPVC in Madison, Alabama;
(k) Lender shall have received evidence of insurance and loss payee
endorsements required hereunder and under the other Financing Agreements, in
form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as additional loss payee;
(l) the sum of the amount of the cash and Cash Equivalents of CSC
Finance and CSC Investment which are free and clear of any pledge, lien,
security interest, claim or other encumbrance and are available to CSC Finance
and CSC Investment without condition or restriction plus the amount of the
Excess Availability as determined by Lender, shall be not less than $7,500,000
as of the date hereof, and the amount of the Excess Availability as determined
by Lender shall be not less than $2,500,000 (calculating Excess Availability for
purposes of this Section 4.1(1) to include the cash and Cash Equivalents of
Borrowers in the calculation of Loans available under Section 2.1 whether or not
such cash or Cash Equivalents constitute Eligible Cash Collateral), in each case
after giving effect to the initial Loans made or to be made in connection with
the initial transactions hereunder;
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(m) Lender shall have received evidence, in form and substance
satisfactory to Lender, of the amount of the unrestricted cash and Cash
Equivalents of CSC Investment and CSC Finance (which satisfy the criteria set
forth above) and Borrowers;
(n) Lender shall have received, in form and substance satisfactory to
Lender, a valid and effective title insurance policy issued by a company and
agent acceptable to Lender (i) insuring the priority, amount and sufficiency of
the Mortgages, (ii) insuring against matters that would be disclosed by surveys
as to the parcels of the Real Property on which the mills of Borrowers are
located (except as Lender may otherwise agree in writing) and (iii) containing
any legally available endorsements, assurances or affirmative coverage requested
by Lender for protection of its interests;
(o) the principal operating accounts and cash management services of
Borrowers and Guarantors shall be maintained with First Union National Bank;
(p) Lender shall have received, in form and substance satisfactory to
Lender, such opinion letters of counsel(s) to Borrowers and Guarantors with
respect to the Financing Agreements and such other matters as Lender may
reasonably request;
(q) Lender shall have received, in form and substance satisfactory to
Lender, partial releases and such other documents as Lender may request to
evidence and effectuate the release by the Huntsville Bondholder of any interest
in and to any assets and properties of any Borrower and Guarantor other than the
Real Property and related Equipment of CPVC located in Madison, Alabama; and
(r) the other Financing Agreements and all instruments and documents
hereunder and thereunder shall have been duly executed and delivered to Lender,
in form and substance satisfactory to Lender.
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition precedent to
Lender making Loans and/or providing Letter of Credit Accommodations or
Supplemental Letter of Credit Accommodations to Borrowers, including the initial
Loans and Letter of Credit Accommodations and Supplemental Letter of Credit
Accommodations and any future Loans and Letter of Credit Accommodations or
Supplemental Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in the
other Financing Agreements shall be true and correct in all material respects
with the same effect as though such representations and warranties had been made
on and as of the date of the making of each such Loan or providing each such
Letter of Credit Accommodation or Supplemental Letter of Credit Accommodations
and after giving effect thereto; and
(b) no Event of Default or act, condition or event which, with notice
or passage of time or both, would constitute an Event of Default shall exist or
have occurred and be continuing on and as of the date of the making of such Loan
or providing such Letter of Credit Accommodation or Supplemental Letter of
Credit Accommodations and after giving effect thereto.
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SECTION 5. GRANT OF SECURITY INTEREST
--------------------------
5.1 To secure payment and performance of all Obligations, each Borrower
hereby grants to Lender a continuing security interest in, a lien upon, and a
right of set off against, and hereby assigns to Lender as security, the
following property and interests in property, whether now owned or hereafter
acquired or existing, and wherever located (which property and interests in
property, together with all other collateral security for the Obligations
granted to or otherwise held or acquired by Lender are referred to herein
collectively, as the "Collateral"):
(a) Accounts;
(b) all present and future contract rights, general intangibles
(including, but not limited to, tax and duty refunds, registered and
unregistered patents, trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, choses in
action and other claims and existing and future leasehold interests in
equipment, real estate and fixtures), chattel paper, documents, instruments,
investment property, letters of credit, bankers' acceptances and guaranties;
(c) all present and future monies, securities and other investment
property, credit balances, deposits, deposit accounts and other property of such
Borrower now or hereafter held or received by or in transit to Lender or its
affiliates or at any other depository or other institution from or for the
account of such Borrower, whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all present and future liens,
security interests, rights, remedies, title and interest in, to and in respect
of Accounts and other Collateral, including, without limitation, (i) rights and
remedies under or relating to guaranties, contracts of suretyship, letters of
credit and credit and other insurance related to the Collateral, (ii) rights of
stoppage in transit, replevin, repossession, reclamation and other rights and
remedies of an unpaid vendor, lienor or secured party, (iii) goods described in
invoices, documents, contracts or instruments with respect to, or otherwise
representing or evidencing, Accounts or other Collateral, including, without
limitation, returned, repossessed and reclaimed goods, and (iv) deposits by and
property of account debtors or other persons securing the obligations of account
debtors;
(d) Inventory;
(e) Equipment;
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(f) Real Property;
(g) Records; and
(h) all products and proceeds of the foregoing, in any form, including,
without limitation, insurance proceeds and all claims against third parties for
loss or damage to or destruction of any or all of the foregoing.
5.2 Notwithstanding anything to the contrary set forth in Section 5.1
above, the types or items of Collateral described in such Section shall not
include any rights or interests in any contract, lease, permit, license, charter
or license agreement covering real or personal property, as such, if under the
terms of such contract, lease, permit, license, charter or license agreement, or
applicable law with respect thereto, the valid grant of a security interest or
lien therein to Lender is prohibited and such prohibition has not been or is not
waived or the consent of the other party to such contract, lease, permit,
license, charter or license agreement has not been or is not otherwise obtained
or under applicable law such prohibition cannot be waived; provided, that, the
foregoing exclusion shall in no way be construed (a) to apply to the license of
any trademarks or intellectual property by any Borrower or Guarantor to any
other Borrower or Guarantor or by CSC Finance or CSC Investment to any Borrower
or Guarantor, (b) to apply if any such prohibition is unenforceable under
Section 9-318 of the UCC or other applicable law or (c) so as to limit, impair
or otherwise affect Lender's unconditional continuing security interests in and
liens upon any rights or interests of any Borrower in or to monies due or to
become due under any such contract, lease, permit, license, charter or license
agreement (including any Accounts).
5.3 Notwithstanding anything to the contrary contained in Section 5.1
above, the types or items of Collateral described in such Section shall not
include any Equipment which is, or at the time of any Borrower's acquisition
thereof shall be, subject to a purchase money mortgage or other purchase money
lien or security interest (including capitalized or finance leases) permitted
under Section 9.8 hereof if: (a) the valid grant of a security interest or lien
to Lender in such item of Equipment is prohibited by the terms of the agreement
between Borrower and the holder of such purchase money mortgage or other
purchase money lien or security interest or under applicable law and such
prohibition has not been or is not waived, or the consent of the holder of the
purchase money mortgage or other purchase money lien or security interest has
not been or is not otherwise obtained, or under applicable law such prohibition
cannot be waived and (b) the purchase money mortgage or other purchase money
lien or security interest on such item of Equipment is or shall become valid and
perfected.
SECTION 6. COLLECTION AND ADMINISTRATION
-----------------------------
6.1 Borrowers' Loan Accounts. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans and other
Obligations and the Collateral, (b) all payments made by or on behalf of
Borrowers and (c) all other appropriate debits and credits as provided in this
Agreement, including, without limitation, fees, charges, costs, expenses and
interest. All entries in the loan account(s) shall be made in accordance with
Lender's customary practices as in effect from time to time.
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6.2 Statements. Lender shall render to Central each month a statement
setting forth the balance in the loan account(s) of Borrowers maintained by
Lender for Borrowers pursuant to the provisions of this Agreement, including
principal, interest, fees, costs and expenses. Each such statement shall be
subject to subsequent adjustment by Lender but shall, absent manifest errors or
omissions, be considered correct and deemed accepted by Borrowers and
presumptively binding upon Borrowers as an account stated except to the extent
that Lender receives a written notice from Borrowers of any specific exceptions
of Borrowers thereto within sixty (60) days after the date such statement has
been mailed by Lender. Until such time as Lender shall have rendered to Central
a written statement as provided above, the balance in the loan account(s) of
Borrowers shall be presumptive evidence of the amounts due and owing to Lender
by Borrowers.
6.3 Collection of Accounts.
(a) Each Borrower shall establish and maintain, at its expense, blocked
accounts or lockboxes and related blocked accounts (in either case, "Blocked
Accounts"), as Lender may specify, with such banks as are acceptable to Lender
into which such Borrower shall promptly deposit and direct its account debtors
to directly remit all payments on Accounts and all payments constituting
proceeds of Inventory or other Collateral in the identical form in which such
payments are made, whether by cash, check or other manner. The banks at which
the Blocked Accounts are established shall enter into an agreement, in form and
substance satisfactory to Lender, providing that all items received or deposited
in the Blocked Accounts are the property of Lender, that the depository bank has
no lien upon, or right to setoff against, the Blocked Accounts, the items
received for deposit therein, or the funds from time to time on deposit therein
and that the depository bank will wire, or otherwise transfer, in immediately
available funds, on a daily basis, at such time as Lender shall direct, all
funds received or deposited into the Blocked Accounts to such bank account of
Lender as Lender may from time to time designate for such purpose ("Payment
Account"). Lender shall instruct the depository banks at which the Blocked
Accounts are maintained to transfer the funds on deposit in the Blocked Account
for any Borrower to such operating bank account of such Borrower as such
Borrower may specify in writing to Lender until such time as Lender shall notify
the depository bank otherwise. Lender may notify the depository banks at which
the Blocked Accounts are maintained that the Blocked Account Agreements are
effective and may instruct such banks to transfer all funds received or
deposited into the Blocked Accounts to the Payment Account at any time that
either: (i) an Event of Default, or act, condition or event which with notice or
passage of time or both would constitute an Event of Default, shall exist or
have occurred, or (ii) Borrowers shall have failed to deliver any Borrowing Base
Certificate in accordance with the terms hereof, or (iii) upon Lender's good
faith behalf that any information contained in any Borrowing Base Certificate is
incomplete, inaccurate or misleading, or (iv) the sum of the amount of cash and
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Cash Equivalent of CSC Finance and CSC Investment which are free and clear of
any pledge, lien, security interest, claim or other encumbrance and are
available to CSC Finance and CSC Investment without condition or restriction,
plus the amount of the Excess Availability, shall be less than $4,745,000 for
any three (3) consecutive day period prior to October 31, 1998, and $7,500,000
for any three (3) consecutive day period on and after November 1, 1998 or (v)
the Excess Availability shall be less than $2,500,000. Each Borrower agrees that
all payment made to such Blocked Accounts or other funds received and collected
by Lender, whether on the Accounts or as proceeds of Inventory or other
Collateral or otherwise shall be the property of Lender. In the event that
Lender shall so instruct the depository banks at which the Blocked Accounts are
maintained, if at any time thereafter none of the events or circumstances set
forth in clauses (i), (ii), (iii), (iv) and (v) above shall exist for a period
of ten (10) or more consecutive Business Days, upon the written request of
Central, Lender shall instruct the depository banks to thereafter transfer the
funds on deposit in the Blocked Accounts to such operating bank account of such
Borrower as such Borrower may specify in writing to Lender until such time as
Lender shall notify the depository bank otherwise.
(b) For purposes of calculating the amount of the Revolving Loans
available to Borrowers, to the extent such payments are to be applied to the
Revolving Loans hereunder, such payments will be applied (conditional upon final
collection) to the Obligations on the Business Day of receipt by Lender of
immediately available funds in the Payment Account, provided such payments and
notice thereof are received in accordance with Lender's usual and customary
practices as in effect from time to time and within sufficient time to credit
such Borrower's loan account on such day, and if not, then on the next Business
Day. For purposes of calculating interest on the Obligations, such payments or
other funds received will be applied (conditional upon final collection) to the
Obligations one (1) Business Day following the date of receipt of immediately
available funds by Lender in the Payment Account (the "Collection Period"),
provided such payments and notice thereof are received in accordance with
Lender's usual and customary practices as in effect from time to time and within
sufficient time to credit Borrower's loan account on such day, and if not, then
on the next Business Day. In the event that Lenders shall not receive such
payments or other funds in the Payment Account pursuant to Section 6.3(a) above,
Lender shall be entitled to charge Borrowers an administrative fee equivalent to
the collection day charges Lender would have received for the Collection Period
had it received such payments or other funds.
(c) Borrowers and all of their affiliates, Subsidiaries, shareholders,
directors, employees or agents shall, acting as trustee for Lender, receive, as
the property of Lender, any monies, checks, notes, drafts or any other payment
relating to and/or proceeds of Accounts or other Collateral which come into
their possession or under their control and immediately upon receipt thereof, to
the extent required under this Section 6.3 shall deposit or cause the same to be
deposited in the Blocked Accounts, or remit the same or cause the same to be
remitted, in kind, to Lender. In no event shall the same be commingled with any
Borrower's other funds. Borrowers agree to reimburse Lender on demand for any
amounts owed or paid to any bank at which a Blocked Account is established or
any other bank or person involved in the transfer of funds to or from the
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Blocked Accounts arising out of Lender's payments to or indemnification of such
bank or person. The obligation of Borrowers to reimburse Lender for such amounts
pursuant to this Section 6.3 shall survive the termination or non-renewal of
this Agreement.
6.4 Payments. All Obligations shall be payable to the Lender as
provided in Section 6.3 to such account or place as Lender may designate from
time to time. Lender may apply payments received or collected from Borrowers or
for the account of Borrowers (including, without limitation, the monetary
proceeds of collections or of realization upon any Collateral) to such of the
Obligations, whether or not then due, in such order and manner as Lender
determines. At Lender's option, all principal, interest, fees, costs, expenses
and other charges provided for in this Agreement or the other Financing
Agreements may be charged directly to the loan account(s) of Borrowers.
Borrowers shall make all payments to Lender on the Obligations free and clear
of, and without deduction or withholding for or on account of, any setoff,
counterclaim, defense, duties, taxes, levies, imposts, fees, deductions,
withholding, restrictions or conditions of any kind. If after receipt of any
payment of, or proceeds of Collateral applied to the payment of, any of the
Obligations, Lender is required to surrender or return such payment or proceeds
to any Person for any reason, then the Obligations intended to be satisfied by
such payment or proceeds shall be reinstated and continue and this Agreement
shall continue in full force and effect as if such payment or proceeds had not
been received by Lender. Borrowers shall be liable to pay to Lender, and do
hereby indemnify and hold Lender harmless for, the amount of any payments or
proceeds surrendered or returned. This Section 6.4 shall remain effective
notwithstanding any contrary action which may be taken by Lender in reliance
upon such payment or proceeds. This Section 6.4 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans
and provide the Letter of Credit Accommodations and Supplemental Letter of
Credit Accommodations based upon telephonic or other instructions received from
anyone purporting to be an officer of any Borrower or other authorized person
or, at the discretion of Lender, if such Loans are necessary to satisfy any
Obligations. All requests for Loans, Letter of Credit Accommodations or
Supplemental Letter of Credit Accommodations hereunder shall specify the date on
which the requested advance is to be made or Letter of Credit Accommodations and
Supplemental Letter of Credit Accommodations established (which day shall be a
Business Day) and the amount of the requested Loan. Requests received after
11:00 a.m. New York City time on any day shall be deemed to have been made as of
the opening of business on the immediately following Business Day. All Loans,
Letter of Credit Accommodations and Supplemental Letter of Credit Accommodations
under this Agreement shall be conclusively presumed to have been made to, and at
the request of and for the benefit of, Borrowers when deposited to the credit of
any Borrower or otherwise disbursed or established in accordance with the
instructions of any Borrower or in accordance with the terms and conditions of
this Agreement.
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6.6 Appointment of Agent for Requesting Loans, Letter of Credit
Accommodations, Supplemental Letter of Credit Accommodation and Receipt of Loans
and Statements.
(a) Each Borrower hereby irrevocably appoints and constitutes Central
as its agent to request and receive Loans, Letter of Credit Accommodations and
the Supplemental Letter of Credit Accommodations pursuant to the Agreement and
the other Financing Agreements from Lender in the name or on behalf of each
Borrower. Lender may disburse the Loans to such bank account of a Borrower or
otherwise make such Loans to a Borrower and provide such Letter of Credit
Accommodations or Supplemental Letter of Credit Accommodations to Borrowers as
Central may designate or direct, without notice to any Borrower, Guarantor or
any other person at any time obligated on or in respect of the Obligations.
(b) Central hereby accepts the appointment by each Borrower as the
agent of each Borrower pursuant to Section 6.6(a) hereof. Central shall ensure
that the disbursement of any Loans to any Borrower requested by or paid to
Central or the issuance of any Letter of Credit Accommodations or Supplemental
Letter of Credit Accommodations for any Borrower hereunder shall be paid to or
for the account of such Borrower.
(c) Each Borrower hereby irrevocably appoints and constitutes Central
as its agent to receive statements of account and all other notices from Lender
with respect to the Obligations or otherwise under or in connection with this
Agreement and the other Financing Agreements.
(d) No purported termination of the appointment of Central as agent as
aforesaid shall be effective, except after ten (10) days prior written notice to
Lender.
6.7 Use of Proceeds. Borrowers shall use the initial proceeds of the
Loans provided by Lender to Borrowers hereunder only for: (a) payments to each
of the persons listed in the disbursement direction letter furnished by
Borrowers to Lender on or about the date hereof, and (b) costs, expenses and
fees in connection with the preparation, negotiation, execution and delivery of
this Agreement and the other Financing Agreements. All other Loans made or
Letter of Credit Accommodations and Supplemental Letter of Credit Accommodations
provided by Lender to Borrowers pursuant to the provisions hereof shall be used
by Borrowers only for general operating, working capital and other proper
corporate purposes of Borrowers not otherwise prohibited by the terms hereof.
None of the proceeds will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security or for the purposes of reducing or
retiring any indebtedness which was originally incurred to purchase or carry any
margin security or for any other purpose which might cause any of the Loans to
be considered a "purpose credit" within the meaning of Regulation U of the Board
of Governors of the Federal Reserve System, as amended.
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SECTION 7. COLLATERAL REPORTING AND COVENANTS
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7.1 Collateral Reporting.
(a) Borrowers shall provide Lender with the following documents in a
form satisfactory to Lender:
(i) on a weekly basis or more frequently at Borrowers' option
or as Lender may request, a weekly collateral report setting forth Borrowers'
calculation of the Revolving Loans and Letter of Credit Accommodations available
to Borrowers pursuant to the terms and conditions contained herein as of the
last Business Day of the immediately preceding week as to the Accounts and
Eligible Cash Collateral and as of the last day of the preceding month as to
Inventory, duly completed, together with all schedules required pursuant to the
terms of the weekly collateral report (including a schedule of all Accounts
created, collections received and credit memos issued for each day of the
immediately preceding week) and on a monthly (but in no event later than the
fifth (5th) Business Day of the end of the immediately preceding month) or more
frequently at Borrowers' option or as Lender may request, a Borrowing Base
Certificate setting forth Borrowers' calculation of the Revolving Loans and
Letter of Credit Accommodations available to Borrowers pursuant to the terms and
conditions contained herein as of the last Business Day of the immediately
preceding month based on the detailed aged account receivable trial balance of
Borrowers as to the Accounts and based on the month end perpetual inventory
records of Borrowers as to the Inventory, duly completed and executed by the
chief financial officer of Central or other appropriate financial officer of
Central acceptable to Lender; provided, that, without limiting any other rights
of Lender, upon Lender's request, Borrowers shall provide Lender on a daily
basis with a schedule of Accounts, collections received and credits issued and
on a weekly basis with an inventory report in the event that at any time either:
(A) an Event of Default or act, condition or event which with notice or passage
of time or both would constitute an Event of Default, shall exist or have
occurred, or (B) Borrowers shall have failed to deliver any Borrowing Base
Certificate in accordance with the terms hereof, or (C) upon Lender's good faith
belief, any information contained in any Borrowing Base Certificate is
incomplete, inaccurate or misleading, or (D) the sum of the amount of the cash
and Cash Equivalents of CSC Finance and CSC Investment which are free and clear
of any pledge, lien, security interest, claim or other encumbrance and are
available to CSC Finance and CSC Investment without condition of restriction,
plus the amount of the Excess Availability as determined by Lender, shall be
less than $4,745,000 for any three (3) consecutive day period prior to October
31, 1998 and $7,500,000 for any three (3) consecutive day period on and after
November 1, 1998 or (E) the Excess Availability shall be less than $2,500,000;
(ii) on a monthly basis or more frequently as Lender may
request, (A) perpetual inventory reports, (B) inventory reports by category, (C)
agings of accounts payable, (D) agings of accounts receivable, (E) a list of any
chattel paper or instruments payable to any Borrower or Guarantor received in
the immediately preceding month, (F) evidence of the cash and Cash Equivalents
of Borrowers, CSC Finance and CSC Investment, and (G) a report of named coverage
changes under any international credit insurance policy maintained by Borrowers
from the last day of the immediately preceding month;
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(iii) upon Lender's request, (A) copies of customer statements
and credit memos, remittances advices and reports, and copies of deposit slips
and bank statements, (B) copies of shipping and delivery documents, and (C)
copies of purchase orders, invoices and delivery of documents for Inventory and
Equipment acquired by Borrower;
(iv) such other reports as to the Collateral as Lender shall
request from time to time.
(b) Nothing contained in any Borrowing Base Certificate shall be deemed
to limit, impair or otherwise affect the rights of Lender contained herein and
in the event of any conflict or inconsistency between the calculation of the
Revolving Loans and Letter of Credit Accommodations available to Borrowers as
set forth in any Borrowing Base Certificate and as determined by Lender, the
determination of Lender shall govern and be conclusive and binding upon
Borrowers unless a specific objection is made by Central thereto within thirty
(30) days. Without limiting the foregoing, Borrowers shall furnish to Lender any
information which Lender may reasonably request regarding the determination and
calculation of any of the amounts set forth in the Borrowing Base Certificate.
If any Borrower's records or reports of the Collateral are prepared or
maintained by an accounting service, contractor, shipper or other agent, each
Borrower hereby irrevocably authorizes such service, contractor, shipper or
agent to deliver such records, reports and related documents to Lender and to
follow Lender's instructions with respect to further services at any time that
an Event of Default exists or has occurred.
7.2 Accounts Covenants.
(a) Each Borrower shall notify Lender promptly of: (i) any material
delay in such Borrower's performance of any of its obligations to any account
debtor or the assertion of any claims, offsets, defenses or counterclaims by any
account debtor, or any disputes with account debtors, or any settlement,
adjustment or compromise thereof in any case involving amounts in excess of
$25,000 in respect of any individual sale transaction with any one account
debtor giving rise to an Account, or in excess of $100,000 in the aggregate in
respect of any series of sales transactions with any one account debtor giving
rise to Accounts, (ii) all material adverse information relating to the
financial condition of any material account debtor and (iii) any event or
circumstance which, to such Borrower's knowledge would cause Lender to consider
any then existing Accounts as no longer constituting Eligible Accounts. No
credit, discount, allowance or extension or agreement for any of the foregoing
shall be granted to any account debtor without Lender's consent, except in the
ordinary course of such Borrower's business in accordance with practices and
policies previously disclosed in writing to Lender. So long as no Event of
Default exists or has occurred and is continuing, each Borrower shall settle,
adjust or compromise any claim, offset, counterclaim or dispute with any account
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debtor. At any time that an Event of Default exists or has occurred and is
continuing, Lender shall, at its option, have the exclusive right to settle,
adjust or compromise any claim, offset, counterclaim or dispute with account
debtors or grant any credits, discounts or allowances.
(b) Each Borrower shall promptly report to Lender any return of
Inventory by any one account debtor if the Inventory so returned in such case
has a Value in excess of $100,000 or any returns of Inventory by account debtors
if the Inventory so returned in such cases has a Value in the aggregate in
excess of $500,000. At any time that Inventory is returned, reclaimed or
repossessed, the Account (or portion thereof) which arose from such returned,
reclaimed or repossessed Inventory shall not be deemed an Eligible Account from
the date of such return. In the event any account debtor returns Inventory when
an Event of Default exists or has occurred and is continuing, such Borrower
shall, upon Lender's request, (i) hold the returned Inventory in trust for
Lender, (ii) segregate all returned Inventory from all of its other property,
(iii) dispose of the returned Inventory solely according to Lender's
instructions, and (iv) not issue any credits, discounts or allowances with
respect thereto without Lender's prior written consent.
(c) With respect to each Account: (i) the amounts shown on any invoice
delivered to Lender or schedule thereof delivered to Lender shall be true and
complete, (ii) no payments shall be made thereon except payments immediately
delivered to Lender to the extent required pursuant to the terms of this
Agreement, (iii) no credit, discount, allowance or extension or agreement for
any of the foregoing shall be granted to any account debtor except as reported
to Lender in accordance with this Agreement and except for credits, discounts,
allowances or extensions made or given in the ordinary course of business of
Borrowers in accordance with practices and policies previously disclosed to
Lender, (iv) there shall be no setoffs, deductions, contras, defenses,
counterclaims or disputes existing or asserted with respect thereto except as
reported to Lender in accordance with the terms of this Agreement, (v) none of
the transactions giving rise thereto will violate any applicable State or
Federal laws or regulations, all documentation relating thereto will be legally
sufficient under such laws and regulations and all such documentation will be
legally enforceable in accordance with its terms.
(d) Lender shall have the right at any time or times, in Lender's name
or in the name of a nominee of Lender at any time on or after an Event of
Default and in the name of a nominee of Lender or such other person as is
acceptable to Borrowers and Lender at any time prior to an Event of Default, to
verify the validity, amount or any other matter relating to any Account or other
Collateral, by mail, telephone, facsimile transmission or otherwise.
(e) Each Borrower shall deliver or cause to be delivered to Lender,
with appropriate endorsement and assignment, with full recourse to such
Borrower, all chattel paper and instruments with a face amount in excess of
$75,000, or upon Lender's request, or on and after an Event of Default and for
so long as the same is continuing, any chattel paper and instruments (regardless
of the face amount), which such Borrower now owns or may at any time acquire
immediately upon such Borrower's receipt thereof, except as Lender may otherwise
agree in writing.
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(f) Lender may, at any time or times that an Event of Default exists or
has occurred and is continuing, (i) notify any or all account debtors that the
Accounts have been assigned to Lender and that Lender has a security interest
therein and Lender may direct any or all accounts debtors to make payment of
Accounts directly to Lender, (ii) extend the time of payment of, compromise,
settle or adjust for cash, credit, return of merchandise or otherwise, and upon
any terms or conditions, any and all Accounts or other obligations included in
the Collateral and thereby discharge or release the account debtor or any other
party or parties in any way liable for payment thereof without affecting any of
the Obligations, (iii) demand, collect or enforce payment of any Accounts or
such other obligations, but without any duty to do so, and Lender shall not be
liable for its failure to collect or enforce the payment thereof nor for the
negligence of its agents or attorneys with respect thereto and (iv) take
whatever other action Lender may deem necessary or desirable for the protection
of its interests. At any time that an Event of Default exists or has occurred
and is continuing, at Lender's request, all invoices and statements sent to any
account debtor shall state that the Accounts and such other obligations have
been assigned to Lender and are payable directly and only to Lender and each
Borrower shall deliver to Lender such originals of documents evidencing the sale
and delivery of goods or the performance of services giving rise to any Accounts
as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a) each
Borrower shall at all times maintain inventory records reasonably satisfactory
to Lender, keeping correct and accurate records itemizing and describing the
kind, type, quality and quantity of Inventory, the cost therefor and daily
withdrawals therefrom and additions thereto; (b) each Borrower shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request on or after an Event of Default, and promptly
following such physical inventory shall supply Lender with a report in the form
and with such specificity as may be reasonably satisfactory to Lender concerning
such physical count; (c) each Borrower shall not remove any Inventory from the
locations set forth or permitted herein, without the prior written consent of
Lender, except for sales of Inventory in the ordinary course of such Borrower's
business and except to move Inventory directly from one location set forth or
permitted herein to another such location; (d) upon Lender's request, each
Borrower shall, at its expense, no more than once in any twelve (12) month
period, but at any time or times as Lender may request on or after an Event of
Default exists or has occurred, deliver or cause to be delivered to Lender
written reports or appraisals as to the Inventory in form, scope and methodology
acceptable to Lender and by an appraiser acceptable to Lender, addressed to
Lender and upon which Lender is expressly permitted to rely; (e) each Borrower
shall produce, use, store and maintain the Inventory, with all reasonable care
and caution and in accordance with applicable standards of any insurance and in
conformity with applicable laws (including, but not limited to, the requirements
of the Federal Fair Labor Standards Act of 1938, as amended and all rules,
regulations and orders related thereto); (f) each Borrower assumes all
responsibility and liability arising from or relating to the production, use,
sale or
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other disposition of the Inventory; (g) each Borrower shall not sell Inventory
to any customer on approval, or any other basis which entitles the customer to
return or may obligate such Borrower to repurchase such Inventory except for the
rights of return given to customers of such Borrower in the ordinary course of
the business of such Borrower in accordance with current practices as of the
date hereof; (h) each Borrower shall keep the Inventory in good and marketable
condition; and (i) each Borrower shall not acquire or accept any Inventory on
consignment or approval except to the extent such Inventory is specifically
identified by such Borrower to Lender in any report with respect to Inventory
provided by Borrower to Lender and is not included as Eligible Inventory in any
Borrowing Base Certificate or otherwise.
7.4 Equipment Covenants. With respect to the Equipment: (a) upon
Lender's request, each Borrower shall, at its expense, no more than once in any
twelve (12) month period, but at any time or times as Lender may request on or
after an Event of Default, deliver or cause to be delivered to Lender written
reports or appraisals as to the Equipment and Real Property in form, scope and
methodology acceptable to Lender and by an appraiser acceptable to Lender
addressed to Lender and on which Lender is expressly permitted to rely; (b) each
Borrower shall keep the Equipment in good order, repair, running and marketable
condition (ordinary wear and tear excepted); (c) each Borrower shall use the
Equipment with all reasonable care and caution and in accordance with applicable
standards of any insurance and in conformity with all applicable laws; (d) the
Equipment is and shall be used in Borrowers' businesses and not for personal,
family, household or farming use; (e) each Borrower shall not remove any
Equipment from the locations set forth or permitted herein, except to the extent
necessary to have any Equipment repaired or maintained in the ordinary course of
the business of such Borrower or to move Equipment directly from one location
set forth or permitted herein to another such location and except for the
movement of motor vehicles used by or for the benefit of such Borrower in the
ordinary course of business; (f) the Equipment is now and shall remain personal
property and each Borrower shall not permit any of the Equipment to be or become
a part of or affixed to real property; and (g) each Borrower assumes all
responsibility and liability arising from the use of the Equipment.
7.5 Power of Attorney. Each Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as such Borrower's true
and lawful attorney-in-fact, and authorizes Lender, in such Borrower's or
Lender's name, to: (a) at any time an Event of Default exists or has occurred
(i) demand payment on Accounts or other proceeds of Inventory or other
Collateral, (ii) enforce payment of Accounts by legal proceedings or otherwise,
(iii) exercise all of such Borrower's rights and remedies to collect any Account
or other Collateral, (iv) sell or assign any Account upon such terms, for such
amount and at such time or times as the Lender deems advisable, (v) settle,
adjust, compromise, extend or renew an Account, (vi) discharge and release any
Account, (vii) prepare, file and sign such Borrower's name on any proof of claim
in bankruptcy or other similar document against an account debtor, (viii) notify
the post office authorities to change the address for delivery of such
Borrower's mail to an address designated by Lender, and open and dispose of all
mail addressed to such Borrower, and (ix) do all acts and things which are
necessary, in Lender's determination, to fulfill such Borrower's obligations
under this Agreement and the other Financing Agreements and (b) at any time to
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(i) take control in any manner of any item of payment or proceeds thereof
deposited or received for credit to the Blocked Accounts (subject to Section
6.3(a) hereof) or constituting part of the Collateral or otherwise received by
Lender, (ii) have access to any lockbox or postal box into which any Borrower's
customers remittances are sent and the contents thereof (subject to Section
6.3(a) hereof), (iii) endorse any Borrower's name upon any items of payment or
proceeds thereof deposited or received for credit to the Blocked Accounts
(subject to Section 6.3(a) hereof) or constituting part of the Collateral or
otherwise received by Lender and transfer the same to, or deposit the same in
the account of Lender for application to the Obligations, (iv) endorse such
Borrower's name upon any chattel paper, document, instrument, invoice, or
similar document or agreement relating to any Account or any goods pertaining
thereto or any other Collateral, (v) sign such Borrower's name on any
verification of Accounts and notices thereof to account debtors and (vi) execute
in such Borrower's name and file any UCC financing statements or amendments
thereto. Each Borrower hereby releases Lender and its officers, employees and
designees from any liabilities arising from any act or acts under this power of
attorney and in furtherance thereof, whether of omission or commission, except
as a result of Lender's own gross negligence or wilful misconduct as determined
pursuant to a final non-appealable order of a court of competent jurisdiction.
7.6 Right to Cure. If Lender, in its good faith judgment, deems it
necessary to preserve, protect, insure or maintain the Collateral or the rights
of Lender with respect thereto or the rights and remedies of Lender under this
Agreement and the other Financing Agreements, Lender may, at its option after
not less than three (3) days prior notice to Central, (a) discharge taxes,
liens, security interests or other encumbrances at any time levied on or
existing with respect to the Collateral and (b) pay any amount, incur any
expense or perform any act which, in Lender's good faith judgment, is necessary
or appropriate to preserve, protect, insure or maintain the Collateral and the
rights of Lender with respect thereto, provided, that, such three (3) days prior
notice shall not be required in the event that, under the circumstances at such
time, in the good faith determination of Lender, it is necessary or desirable
for Lender to take any such action earlier in order to preserve or protect any
of the Collateral, its value or the rights and interests of Lender therein.
Lender may add any amounts so expended to the Obligations and charge any
Borrower's account therefor, such amounts to be repayable by Borrowers on
demand. Lender shall be under no obligation to effect such cure, payment or
bonding and shall not, by doing so, be deemed to have assumed any obligation or
liability of Borrowers. Any payment made or other action taken by Lender under
this Section shall be without prejudice to any right to assert an Event of
Default hereunder and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by Lender, at
the cost and expense of Borrowers (subject to Section 9.17 hereof), (a) Lender
or its designee shall have complete access to all premises of Borrowers and
Guarantors during normal business hours and after reasonable notice to Central,
or at any time and without notice to Central if an Event of Default exists or
has occurred and is continuing, for the purposes of inspecting, verifying and
auditing the Collateral and all of such Borrower's or Guarantor's books and
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records, including, without limitation, the Records, and (b) each Borrower and
Guarantor shall promptly furnish to Lender such copies of such books and records
or extracts therefrom as Lender may request, and (c) Lender or its designee may
use during normal business hours such of each Borrower's or Guarantor's
personnel, equipment, supplies and premises as may be reasonably necessary for
the foregoing and if an Event of Default exists or has occurred and is
continuing for the collection of Accounts and realization of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrowers and Guarantors hereby jointly and severally represent and
warrant to Lender the following (which shall survive the execution and delivery
of this Agreement), the truth and accuracy of which are a continuing condition
of the making of Loans and providing Letter of Credit Accommodations and
Supplemental Letter of Credit Accommodations by Lender to Borrowers:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Each
Borrower and Guarantor is a corporation duly organized and in good standing
under the laws of its state of incorporation and is duly qualified as a foreign
corporation and in good standing in all states or other jurisdictions where the
nature and extent of the business transacted by it or the ownership of assets
makes such qualification necessary where the failure to so qualify would have a
Material Adverse Effect. The execution, delivery and performance of this
Agreement, the other Financing Agreements and the transactions contemplated
hereunder and thereunder are all within each Borrower's and Guarantor's
corporate powers, have been duly authorized and are not in contravention of law
or the terms of such Borrower's or Guarantor's certificate of incorporation,
by-laws, or other organizational documentation, or any indenture, agreement or
undertaking to which such Borrower or Guarantor is a party or by which such
Borrower or its property are bound. This Agreement and the other Financing
Agreements constitute legal, valid and binding obligations of Borrowers and
Guarantors enforceable in accordance with their respective terms. Borrowers and
Guarantors do not have any Subsidiaries except as set forth on the Information
Certificate.
8.2 Financial Statements; No Material Adverse Change. All financial
statements relating to Borrowers and Guarantors which have been or may hereafter
be delivered by Borrowers or Guarantors to Lender have been prepared in
accordance with GAAP and fairly present the financial condition and the results
of operation of Borrowers and Guarantors as at the dates and for the periods set
forth therein, (subject, in the case of interim financial statements, to the
absence of footnotes and year-end adjustments). Except as disclosed in any
interim financial statements furnished by Borrowers and Guarantors to Lender
prior to the date of this Agreement (including the financial statements of CSC
as of July 31, 1998 and the September 15, 1998 draft of the Form 10Q of CSC for
the quarter ended July 31, 1998), there has been no material adverse change in
the assets, liabilities, properties and condition, financial or otherwise, of
Borrowers or Guarantors, since the date of the most recent audited financial
statements furnished by Borrowers or Guarantors to Lender prior to the date of
this Agreement.
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8.3 Chief Executive Office; Collateral Locations. The chief executive
office of each Borrower and Guarantor and each Subsidiary of any Borrower or
Guarantor and each Borrower's Records concerning Accounts are located only at
the address set forth below and its only other places of business and the only
other locations of Collateral, if any, are the addresses set forth in the
Information Certificate, subject to the right of each Borrower and Guarantor and
Subsidiary to establish new locations in accordance with Section 9.2 below. The
Information Certificate correctly identifies any of such locations which are not
owned by Borrowers and sets forth the owners and/or operators thereof and to the
best of each Borrower's knowledge, the holders of any mortgages on such
locations.
8.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof. Each Borrower and
Guarantor has good and marketable title to all of its properties and assets
subject to no liens, mortgages, pledges, security interests, encumbrances or
charges of any kind, except those granted to Lender and such others as are
specifically listed on Schedule 8.4 hereto or permitted under Section 9.8
hereof.
8.5 Tax Returns. Each Borrower and Guarantor has filed, or caused to be
filed, in a timely manner, all tax returns (or all extensions with respect
thereto), reports and declarations which are required to be filed by it where
the failure to file would have a Material Adverse Effect. All information in
such tax returns, reports and declarations is complete and accurate in all
material respects. Each Borrower and Guarantor, and each Subsidiary of any
Borrower or Guarantor, has paid or caused to be paid all taxes due and payable
or claimed due and payable in any assessment received by it, except taxes the
validity of which are being contested in good faith by appropriate proceedings
diligently pursued and available to such Borrower, Guarantor or Subsidiary and
with respect to which adequate reserves have been set aside on its books.
Adequate provision has been made for the payment of all accrued and unpaid
Federal, State, county, local, foreign and other taxes whether or not yet due
and payable and whether or not disputed.
8.6 Litigation. Except as set forth on the Information Certificate,
there is no present investigation by any governmental agency pending, or to the
best of each Borrower's and Guarantor's knowledge threatened, against or
affecting Borrowers, Guarantors, their assets or businesses and there is no
action, suit, proceeding or claim by any Person pending, or to the best of each
Borrower's knowledge threatened, against any Borrower or Guarantor or its assets
or goodwill, or against or affecting any transactions contemplated by this
Agreement, which if adversely determined against such Borrower or Guarantor
would have a Material Adverse Effect.
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8.7 Compliance with Other Agreements and Applicable Laws. Each Borrower
and Guarantor is not in default in any respect under, or in violation of any of
the terms of, any agreement, contract, instrument, lease or other commitment to
which it is a party or by which it or any of its assets are bound, where such
default or violation would have a Material Adverse Effect. Each Borrower and
Guarantor is in compliance in all respects with all applicable provisions of
laws, rules, regulations, licenses, permits, approvals and orders of any
foreign, Federal, State or local governmental authority, where the failure to so
comply would have a Material Adverse Effect.
8.8 Bank Accounts. All of the deposit accounts, investment accounts or
other accounts in the name of or used by any Borrower or Guarantor, or any
Subsidiary of any Borrower or Guarantor, maintained at any bank or other
financial institution are set forth on Schedule 8.8 hereto, subject to the right
of Borrowers, Guarantors, or any Subsidiary to establish new accounts in
accordance with Section 9.13 hereof.
8.9 Environmental Compliance.
(a) Except as set forth on Schedule 8.9 hereto, each Borrower and
Guarantor has not generated, used, stored, treated, transported, manufactured,
handled, produced or disposed of any Hazardous Materials, on or off its premises
(whether or not owned by it) in any manner which at any time violates any
applicable Environmental Law or any license, permit, certificate, approval or
similar authorization thereunder, and the operations of each Borrower and
Guarantor comply in all respects with all Environmental Laws and all licenses,
permits, certificates, approvals and similar authorizations thereunder.
(b) Except as set forth on Schedule 8.9 hereto, there has been no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other person nor is any pending, or
to the best of each Borrower's and Guarantor's knowledge threatened, with
respect to any non-compliance with or violation of the requirements of any
Environmental Law by any Borrower or Guarantor nor has there been any release,
spill or discharge, overtly threatened or actual, of any Hazardous Material on
any properties of any Borrower, or to the best of each of Borrower's and
Guarantor's knowledge, releases, spills or discharges from any properties at
which any Borrower or Guarantor has transported, stored or disposed of any
Hazardous Materials which would have a Material Adverse Effect.
(c) Except as set forth on Schedule 8.9 hereto, each Borrower and
Guarantor has no liability (contingent or otherwise) in connection with a
release, spill or discharge, threatened or actual, of any Hazardous Materials or
the generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials.
(d) Each Borrower and Guarantor has all licenses, permits,
certificates, approvals or similar authorizations required to be obtained or
filed in connection with the operations of such Borrower and Guarantor under any
Environmental Law, in each case where the failure to obtain or file any such
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licenses, permits, certificates, approvals or similar authorizations would have
a Material Adverse Effect. All of such licenses, permits, certificates,
approvals or similar authorizations of each Borrower and Guarantor are valid and
in full force and effect.
8.10 Employee Benefits.
(a) Each Borrower and Guarantor has not engaged in any transaction in
connection with which such Borrower and Guarantor or any of its ERISA Affiliates
could be subject to either a civil penalty assessed pursuant to Section 502(i)
of ERISA or a tax imposed by Section 4975 of the Code, including any accumulated
funding deficiency described in Section 8.10(c) hereof and any deficiency with
respect to vested accrued benefits described in Section 8.10(d) hereof.
(b) No liability to the Pension Benefit Guaranty Corporation has been
or is expected by any Borrower or Guarantor to be incurred with respect to any
employee benefit plan of such Borrower or any of its ERISA Affiliates. There has
been no reportable event (within the meaning of Section 4043(b) of ERISA) or any
other event or condition with respect to any employee benefit plan of any
Borrower or Guarantor or any of its ERISA Affiliates which presents a risk of
termination of any such plan by the Pension Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which each Borrower,
Guarantor or any of its ERISA Affiliates is required under Section 302 of ERISA
and Section 412 of the Code to have paid under the terms of each employee
benefit plan as contributions to such plan as of the last day of the most recent
fiscal year of such plan ended prior to the date hereof, and no accumulated
funding deficiency (as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, exists with respect to any employee benefit plan,
including any penalty or tax described in Section 8.10(a) hereof and any
deficiency with respect to vested accrued benefits described in Section 8.10(d)
hereof.
(d) The current value of all vested accrued benefits under all employee
pension benefit plans maintained by each Borrower and Guarantor that are subject
to Title IV of ERISA does not exceed the current value of the assets of such
plans allocable to such vested accrued benefits, including any penalty or tax
described in Section 8.10(a) hereof and any accumulated funding deficiency
described in Section 8.10(d) hereof. The terms "current value" and "accrued
benefit" have the meanings specified in ERISA.
(e) Neither any Borrower nor Guarantor nor any of its ERISA Affiliates
is or has ever been obligated to contribute to any "multiemployer plan" (as such
term is defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of
ERISA except for the multiemployer plan for employees at the sprinkler plant of
Central in Lansdale, Pennsylvania maintained by the International Association of
Machinists.
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8.11 Interrelated Businesses. CSC is the direct and beneficial owner
and holder of all of the issued and outstanding shares of Capital Stock of
Central and CSC Finance. Central is the direct and beneficial owner and holder
of all of the issued and outstanding shares of Capital Stock of CPVC and
Castings. CSC Finance is the direct and beneficial owner and holder of all of
the issued and outstanding shares of Capital Stock of CSC Investment. Borrowers
and Guarantors make up a related organization of various entities constituting a
single economic and business enterprise so that Borrowers and Guarantors share
an identity of interests such that any benefit received by any one of them
benefits the others. Borrowers and Guarantors render services to or for the
benefit of the other Borrowers and Guarantors, make loans and advances and
provide other financial accommodations to or for the benefit of the other
Borrowers and Guarantors (including inter alia, the payment by Borrowers and
Guarantors of creditors of the other Borrowers or Guarantors and guarantees by
Borrowers and Guarantors of indebtedness of the other Borrowers and Guarantors
and provide administrative, marketing, payroll and management services to or for
the benefit of the other Borrowers and Guarantors). Borrowers and Guarantors
have centralized accounting and legal service, common officers and directors and
are identified to creditors as a single economic and business enterprise.
8.12 Accuracy and Completeness of Information. All information
furnished by or on behalf of any Borrower or Guarantor in writing to Lender in
connection with this Agreement or any of the other Financing Agreements or any
transaction contemplated hereby or thereby, including, without limitation, all
information on the Information Certificate is true and correct in all material
respects on the date as of which such information is dated or certified and does
not omit any material fact necessary in order to make such information not
misleading. No event or circumstance has occurred which has had or could
reasonably be expected to have a material adverse affect on the businesses,
assets or prospects of any Borrower or Guarantor, which has not been fully and
accurately disclosed to Lender in writing.
8.13 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
any Borrower or Guarantor shall now or hereafter give, or cause to be given, to
Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
----------------------------------
9.1 Maintenance of Existence. Each Borrower and Guarantor shall at all
times preserve, renew and keep in full, force and effect its corporate existence
and rights and franchises with respect thereto and maintain in full force and
effect all permits, licenses, trademarks, tradenames, approvals, authorizations,
leases and contracts necessary to carry on its business as presently or proposed
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to be conducted. Each Borrower and Guarantor shall give Lender thirty (30) days
prior written notice of any proposed change in its corporate name, which notice
shall set forth the new name and such Borrower or Guarantor shall deliver to
Lender a copy of the amendment to the Certificate of Incorporation of such
Borrower or Guarantor providing for the name change certified by the Secretary
of State of the jurisdiction of incorporation of such Borrower or Guarantor as
soon as it is available.
9.2 New Collateral Locations. Each Borrower and Guarantor may open any
new location within the United States so long as such Borrower or Guarantor (a)
gives Lender thirty (30) days prior written notice of the intended opening of
any such new location; except, that Borrowers and Guarantors shall not be
required to give such prior written notice to Lender of a new location of
Borrowers or Guarantors, provided, that, each of the following conditions is
satisfied: (i) no Event of Default, or act, condition or event which with notice
or passage of time or both would constitute an Event of Default, shall exist or
have occurred, (ii) the total amount of Inventory located at all such new
locations shall not exceed $100,000 in the aggregate (provided, that, if
Borrowers have provided evidence to Lender that such new location is in a
jurisdiction in which the security interest or lien of Lender is perfected, the
amount of Inventory at such location shall not be considered for purposes of
such limit), and (iii) Borrowers and Guarantors shall include such new locations
in the next monthly report of locations to be provided by Borrowers and
Guarantors to Lender in accordance with and to the extent required under Section
9.6 hereof, and (b) executes and delivers, or causes to be executed and
delivered, to Lender such agreements, documents, and instruments as Lender may
deem reasonably necessary or desirable to protect its interests in the
Collateral at such location, including, without limitation, UCC financing
statements.
9.3 Compliance with Laws, Regulations, Etc.
(a) Each Borrower or Guarantor shall, and shall cause any Subsidiary
to, at all times, comply in all respects with all laws, rules, regulations,
licenses, permits, approvals and orders applicable to it and duly observe all
requirements of any Federal, State or local governmental authority, including
ERISA, the Occupational Safety and Health Act of 1970, as amended, the Fair
Labor Standards Act of 1938, as amended, and all statutes, rules, regulations,
orders, permits and stipulations relating to environmental pollution and
employee health and safety, including all of the Environmental Laws, where the
failure to so comply would have a Material Adverse Effect.
(b) Each Borrower or Guarantor shall, and shall cause any Subsidiary
to, establish and maintain, at its expense, a system to assure and monitor its
continued compliance in all material respects with all Environmental Laws in all
of its operations. Each Borrower and Guarantor shall, and shall cause any
Subsidiary to, take appropriate action in a timely manner to respond to any
material non-compliance with any Environmental Laws. Borrowers shall report
within a reasonable time to Lender on such response taken by any Borrower or
Guarantor pursuant to the preceding sentence.
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(c) Each Borrower and Guarantor shall give both oral and written notice
to Lender immediately upon such Borrower's or Guarantor's receipt of any notice
of, or it otherwise obtaining knowledge of, (i) the occurrence of any event
involving the release, spill or discharge, threatened or actual, of any
Hazardous Material where the occurrence of such event would have a Material
Adverse Effect or (ii) any formal investigation, proceeding, complaint, order,
directive, claims, citation or notice from any Person with respect to: (A)
non-compliance with or violation of any Environmental Law by such Borrower or
Guarantor, (B) the release, spill or discharge, threatened or actual, of a
reportable quantity of any Hazardous Material or (C) the generation, use,
storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials not in compliance with all Environmental
Laws where such failure to so comply would have a Material Adverse Effect or (D)
any other environmental, health or safety matter, which affects any Borrower or
Guarantor or its business, operations or assets or any properties at which any
Borrower or Guarantor transported, stored or disposed of any Hazardous Materials
in any way that has or would have a Material Adverse Effect.
(d) Without limiting the generality of the foregoing, whenever Lender
reasonably determines that there is non-compliance, or any condition which
requires any action by or on behalf of any Borrower or Guarantor in order to
avoid any non-compliance with any Environmental Law, each Borrower and Guarantor
shall, at Lender's request and at the expense of such Borrower and Guarantor,
(i) cause an independent environmental engineer acceptable to Lender to conduct
such tests of the site where such non-compliance or alleged non-compliance with
such Environmental Laws has occurred as to such non-compliance and prepare and
deliver to Lender a report as to such non-compliance setting forth the results
of such tests, a proposed plan for responding to any environmental problems
described therein, and an estimate of the costs thereof and (ii) provide to
Lender a supplemental report of such engineer whenever the scope of such
non-compliance, or the response thereto or the estimated costs thereof, shall
change in any material respect.
(e) Each Borrower and Guarantor shall indemnify and hold harmless
Lender, its directors, officers, employees, agents, invitees, representatives,
successors and assigns, from and against any and all losses, claims, damages,
liabilities, costs, and expenses (including reasonable attorneys' fees and legal
expenses) directly or indirectly arising out of or attributable to the use,
generation, manufacture, reproduction, storage, release, threatened release,
spill, discharge, disposal or presence of a Hazardous Material, including the
costs of any required or necessary repair, cleanup or other remedial work with
respect to any property of such Borrower or Guarantor and the preparation and
implementation of any closure, remedial or other required plans.
(f) All indemnifications in this Section 9.3 shall survive the payment
of the Obligations and the termination or non-renewal of this Agreement.
9.4 Payment of Taxes and Claims. Each Borrower and Guarantor shall, and
shall cause any Subsidiary to, duly pay and shall cause any Subsidiary to,
discharge all taxes, assessments, contributions and governmental charges upon or
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against it or its properties or assets, except for taxes the validity of which
are being contested in good faith by appropriate proceedings diligently pursued
and available to such Borrower, Guarantor or Subsidiary and with respect to
which adequate reserves have been set aside on its books. Borrowers and
Guarantors shall be liable for any tax or penalties imposed on Lender as a
result of the financing arrangements provided for herein and each Borrower and
Guarantor agrees to indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand the amount thereof, and until paid
by Borrowers such amount shall be added and deemed part of the Loans; provided,
that, nothing contained herein shall be construed to require Borrowers or
Guarantors to pay any income or franchise taxes attributable to the income of
Lender from any amounts charged or paid hereunder to Lender. The foregoing
indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
9.5 Insurance.
(a) Each Borrower and Guarantor shall, and shall cause any Subsidiary
to, at all times, maintain with financially sound and reputable insurers
insurance with respect to the Collateral against loss or damage and all other
insurance of the kinds and in the amounts customarily insured against or carried
by corporations of established reputation engaged in the same or similar
businesses and similarly situated. Said policies of insurance shall be
satisfactory to Lender as to form, amount and insurer. Each Borrower and
Guarantor shall furnish certificates, policies or endorsements to Lender as
Lender shall require as proof of such insurance, and, if any Borrower or
Guarantor fails to do so, Lender is authorized, but not required, to obtain such
insurance at the expense of Borrowers and Guarantors. All policies shall provide
for at least thirty (30) days prior written notice to Lender of any cancellation
or reduction of coverage (except for cancellation as a result of the failure to
pay premiums, in which case at least such policies shall provide for ten (10)
days prior written notice) and that Lender may act as attorney for Borrowers and
Guarantors in obtaining, and at any time an Event of Default exists or has
occurred and is continuing, adjusting, settling, amending and canceling such
insurance. Each Borrower and Guarantor shall cause Lender to be named as a loss
payee and an additional insured (but without any liability for any premiums)
under such insurance policies and each Borrower and Guarantor shall obtain
non-contributory lender's loss payable endorsements to all insurance policies in
form and substance satisfactory to Lender. Such lender's loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Lender as its interests may appear and further specify that Lender shall be
paid regardless of any act or omission by any Borrower or Guarantor or any of
its affiliates. At its option, Lender may apply any insurance proceeds received
by Lender at any time to the cost of repairs or replacement of Collateral and/or
to payment of the Obligations, whether or not then due, in any order and in such
manner as Lender may determine or hold such proceeds as cash collateral for the
Obligations, except that notwithstanding anything to the contrary contained
herein, if any of the Equipment or any portion of any building, structure or
improvement on the Real Property of a Borrower is lost, physically damaged or
destroyed, upon the written request of Central, Lender shall release the net
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cash proceeds from insurance received by Lender pursuant to this Section 9.5 to
Central as a result of such loss, damage or destruction to the extent necessary
for the repair, refurbishing or replacement of such Equipment or building,
structure or improvement, provided, that, all of the following conditions are
satisfied: (i) no Event of Default or act, condition or event which with notice
or passage of time or both would constitute an Event of Default shall exist or
have occurred and be continuing, (ii) the amount of the insurance proceeds are
sufficient, in Lender's determination, to effect such repair, refurbishing or
replacement in a satisfactory manner, (iii) such proceeds shall be used first to
repair, refurbish or replace the Collateral so lost, damaged or destroyed (free
and clear of any security interests, liens, claims or encumbrances), (iv) the
insurance carrier shall have waived any right of subrogation against Borrower
and Guarantors under its policy, (v) the casualty resulted in a payment of
$250,000 in insurance proceeds or less, (vi) such repair, refurbishing or
replacement shall be commenced as soon as reasonably practicable and shall be
diligently pursued to satisfactory completion, and (vii) the repair,
refurbishing or replacement to which the proceeds are applied shall cause the
Equipment, building, structure or improvement so lost, damaged, destroyed to be
of at least equal value and substantially the same character as prior to such
loss, damage or destruction.
9.6 Financial Statements and Other Information.
(a) Each Borrower and Guarantor shall keep proper books and records in
which true and complete entries shall be made of all dealings or transactions of
or in relation to the Collateral and the businesses of Borrowers, Guarantors and
their Subsidiaries (if any) in accordance with GAAP and Borrowers and Guarantors
shall furnish or cause to be furnished to Lender: (i) within thirty-five (35)
days after the end of each fiscal month (other than a month which is at the end
of a fiscal quarter or fiscal year of CSC, in which case within sixty (60) days
after the end thereof), monthly unaudited consolidated financial statements
(including in each case balance sheets, statements of income and loss and
statements of cash flows), and unaudited consolidating financial statements
(including in each case balance sheets and statements of income and loss), all
in reasonable detail, fairly presenting the financial position and the results
of the operations of Central and its Subsidiaries as of the end of and through
such fiscal month (subject to lack of footnotes and year-end adjustments) and
(ii) within one hundred twenty (120) days after the end of each fiscal year,
audited consolidated financial statements of Central and its Subsidiaries
(including in each case balance sheets, statements of income and loss statements
of cash flows and statements of shareholders' equity) and the unaudited
consolidating financial statements used to prepare such audited financial
statements (including in each case balance sheets and statements of income and
loss), and as to the consolidated financial statements the accompanying notes
thereto, all in reasonable detail, fairly presenting the financial position and
the results of the operations of Central and its Subsidiaries as of the end of
and for such fiscal year, together with the opinion of independent certified
public accountants, which accountants shall be an independent accounting firm
selected by Central and reasonably acceptable to Lender, that such financial
statements have been prepared in accordance with GAAP, and present fairly the
results of operations and financial condition of Central and its Subsidiaries as
of the end of and for the fiscal year then ended.
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(b) Borrowers and Guarantors shall promptly notify Lender in writing of
the details of (i) any loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or any other property which is security for the
Obligations or which would result in any material adverse change in any
Borrower's or Guarantor's business, properties, assets, goodwill or condition,
financial or otherwise and (ii) the occurrence of any Event of Default or act,
condition or event which, with the passage of time or giving of notice or both,
would constitute an Event of Default.
(c) Borrowers and Guarantors shall promptly after the sending or filing
thereof furnish or cause to be furnished to Lender copies of all reports which
any Borrower or Guarantor sends to its stockholders generally and copies of all
reports and registration statements which any Borrower or Guarantor files with
the Securities and Exchange Commission, any national securities exchange or the
National Association of Securities Dealers, Inc.
(d) Borrowers shall promptly notify Lender in writing in the event that
at any time after the delivery of a Borrowing Base Certificate by Borrowers to
Lender but prior to the delivery of the next Borrowing Base Certificate to be
delivered by Borrowers to Lender in accordance with the terms hereof: (i) the
amount of Revolving Loans and Letter of Credit Accommodations available to
Borrower pursuant to the terms and conditions contained herein (calculated
without regard to the then outstanding Revolving Loans and Letter of Credit
Accommodations) is less than eighty (80%) percent of the amount of Revolving
Loans and Letter of Credit Accommodations available to Borrowers pursuant to the
terms and conditions contained herein (calculated without regard to the then
outstanding Revolving Loans and Letter of Credit Accommodations) as set forth in
the most recent Borrowing Base Certificate previously delivered by Borrower to
Lender pursuant to Section 7.1 hereof, (ii) the Revolving Loans made by Lender
to Borrower and/or Letter of Credit Accommodations outstanding at such time
exceed the amount of the Revolving Loans and Letter of Credit Accommodations
then available to Borrower under the terms hereof as a result of any decrease in
the amount of Revolving Loans and Letter of Credit Accommodations then available
and the amount of such excess, or (iii) the sum of the amount of the cash and
Cash Equivalents of CSC Finance and CSC Investment which are free and clear of
any pledge, lien, security interest, claim or other encumbrance and are
available to CSC Finance and CSC Investment without condition or restriction,
plus the amount of the Excess Availability shall be less than $4,745,000 for any
three (3) consecutive day period prior to October 31, 1998 and $7,500,000 for
any three (3) consecutive day period on and after November 1, 1998 or (iv) the
Excess Availability shall be less than $2,500,000.
(e) Borrowers and Guarantors shall furnish or cause to be furnished to
Lender such budgets, forecasts, projections and other information respecting the
Collateral and the businesses of Borrowers and Guarantors as Lender may, from
time to time, reasonably request. Lender is hereby authorized to deliver a copy
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of any financial statement or any other information relating to the businesses
of Borrowers and Guarantors to any court or other government agency or to any
Participant or assignee or prospective Participant or assignee. Each Borrower
and Guarantor hereby irrevocably authorizes and directs all accountants or
auditors to deliver to Lender, at Borrowers' expense, copies of the financial
statements of Borrowers or Guarantors and any management letters prepared by
such accountants or auditors on behalf of Borrowers or Guarantors. Each Borrower
and Guarantor hereby authorizes and directs (and CSC shall cause CSC Investment
and CSC Finance to authorize and direct) any depository bank or other financial
institution at which any cash or Cash Equivalents of Borrowers or Guarantors
constituting Eligible Cash Collateral are maintained (and any cash or Cash
Equivalents of CSC Investment and CSC Finance are maintained) to provide
directly to Lender such information with respect to the accounts in which such
cash or Cash Equivalents are held and with respect to the cash or Cash
Equivalents therein as Lender may request and Borrowers and Guarantors shall
(and CSC shall cause CSC Investment and CSC Finance to) so notify such banks or
other financial institutions promptly upon Lender's request. Any documents,
schedules, invoices or other papers delivered to Lender may be destroyed by
Lender one (1) year after the same are delivered to Lender, except as otherwise
designated by Central to Lender in writing.
(f) Without limiting the rights of Lender under any other provisions of
this Agreement, as soon as available, but in any event not later than ten (10)
days after the end of each calendar month, Borrowers and Guarantors shall
deliver to Lender, in form and substance satisfactory to Lender, in each case
certified by the chief financial officer of Central as true and correct: (i) a
statement confirming the payment of rent and other amounts due to owners and
lessors of Real Property used by Borrowers and Guarantors in the immediately
preceding month, subject to year-end or periodic adjustments, and (ii) the
addresses of all locations of Borrowers and Guarantors opened and existing
locations closed or sold, in each case since the date of the most recent
certificate delivered to Lender containing the information required under this
subsection (ii), or if no such certificate has been delivered, then since the
date hereof, other than locations at which less than $25,000 of Inventory is
located so long as the aggregate amount of Inventory at all of such locations
does not exceed $100,000 and (iii) a report of the outstanding principal amount
of indebtedness incurred by Borrowers or Guarantors permitted under Section
9.9(k), together with such other information with respect thereto as Lender may
request.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Each
Borrower and Guarantor shall not, directly or indirectly, and shall not permit
any Subsidiary to, (a) merge into or with or consolidate with any other Person
or permit any other Person to merge into or with or consolidate with it except,
that, any Borrower or Guarantors may merge with and into or consolidate with any
of other Borrower or Guarantor, provided, that, each of the following conditions
is satisfied as determined by Lender: (i) Lender shall have received not less
than five (5) days prior written notice of the intention of such Borrower or
Guarantor to so merge or consolidate and such information with respect thereto
as Lender may request, (ii) as of the effective date of the merger or
consolidation and after giving effect thereto, no Event of Default or act,
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condition or event which with notice or passage of time or both would constitute
an Event of Default, shall exist or have occurred, (iii) Lender shall have
received true, correct and complete copies of all agreements, documents and
instruments relating to such merger, including, but not limited to, the
certificate or certificates of merger as filed with each appropriate Secretary
of State, (iv) the surviving entity shall immediately upon the effectiveness of
the merger expressly confirm in writing pursuant to an agreement, in form and
substance satisfactory to Lender, its continuing liability in respect of the
Obligations and Financing Agreements and execute and deliver such other
agreements, documents and instruments as Lender may reasonably request in
connection therewith, (v) the surviving entity shall, immediately before and
immediately after giving effect to such transaction or series of transactions
have an Adjusted Tangible Net Worth (including, without limitation, any
indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions) equal to or greater than
the Adjusted Tangible Net Worth of each of the entities involved in such merger
immediately prior to such transaction or series of transactions, and (vi) each
Guarantor shall ratify and confirm that its guarantees of the Obligations shall
apply to the Obligations as assumed by such surviving entity; or (b) sell,
assign, lease, transfer, abandon or otherwise dispose of any Capital Stock or
indebtedness to any other Person or any of its assets to any other Person,
except for (i) sales of Inventory in the ordinary course of business, (ii) the
remarketing of the Huntsville Bonds in accordance with Section 9.16 hereof,
(iii) the disposition of worn-out or obsolete Equipment or Equipment no longer
used in the businesses of Borrower so long as (A) any proceeds are paid to
Lender and (B) such sales do not involve Equipment having an aggregate fair
market value in excess of $500,000 for all such Equipment disposed of in any
fiscal year of Borrower (provided, that, either simultaneously with or prior to
such sale, Borrower may replace such Equipment with other Equipment of equal or
greater utility and value prior to such Equipment becoming worn out or obsolete
or no longer used in the business of Borrower and free from any lien, security
interest or other encumbrance of any other person in which case the sale of such
Equipment shall not be included in the dollar limit provided for in this clause
(B)), (iv) the issuance and sale of Capital Stock of CSC consisting of common
stock pursuant to the existing stock option plans of CSC as in effect on the
date hereof and (v) the issuance and sale of Capital Stock of CSC consisting of
common stock (provided, that, the terms of such issuance and sale shall not
include any restrictions or limitations with respect to any Borrower or
Guarantor) or (c) form or acquire any Subsidiaries; or (d) wind up, liquidate or
dissolve; or (e) agree to do any of the foregoing.
9.8 Encumbrances. Each Borrower and Guarantor shall not, and shall not
permit any Subsidiary to, create, incur, assume or suffer to exist any security
interest, mortgage, pledge, lien, charge or other encumbrance of any nature
whatsoever on any of its assets or properties, including, without limitation,
the Collateral, except:
(a) liens and security interests of Lender;
(b) liens securing the payment of taxes, either not yet overdue or the
validity of which are being contested in good faith by appropriate proceedings
diligently pursued and available to such Borrower or Guarantor and with respect
to which adequate reserves have been set aside on its books;
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(c) non-consensual statutory liens (other than liens securing the
payment of taxes) arising in the ordinary course of such Borrower's or
Guarantor's business to the extent: (i) such liens secure indebtedness which is
not overdue or (ii) such liens secure indebtedness relating to claims or
liabilities which (A) are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or (B) are being contested in good
faith by appropriate proceedings diligently pursued and available to such
Borrower or Guarantor, in each case under clause (i) or (ii) above prior to the
commencement of foreclosure or other similar proceedings and with respect to
which adequate reserves have been set aside on its books;
(d) zoning restrictions, easements, licenses, covenants and other
restrictions affecting the use of real property which do not interfere in any
material respect with the use of such real property or ordinary conduct of the
business of any Borrower or Guarantor as presently conducted thereon or
materially impair the value of the real property which may be subject thereto;
(e) purchase money security interests in Equipment (including capital
leases) and purchase money mortgages on real estate not to exceed $5,000,000 in
the aggregate at any time outstanding so long as such security interests and
mortgages do not apply to any property of Borrowers or Guarantors other than the
Equipment or real estate so acquired, and the indebtedness secured thereby does
not exceed the cost of the Equipment or real estate so acquired, as the case may
be;
(f) the mortgage and lien upon, and security interest in, the Real
Property of Castings located in Anniston, Alabama and the other assets of
Castings (as in effect on the date hereof) described on Schedule 9.8(f) hereof
pursuant to the First Union Letter of Credit Documents (as in effect on the date
hereof) to secure the contingent reimbursement obligations of Castings to First
Union National Bank pursuant to such agreements to the extent permitted under
Section 9.9 hereof;
(g) the pledge or deposit by Central of funds to be held in the Omega
trust account established in connection with any settlement of the CPSC Action
and the Omega Litigation, provided, that, (i) Borrowers shall give written
notice to Lender of the establishment of such account and such information with
respect thereto as Lender may request, and (ii) Lender shall receive monthly
reports of all amounts paid into such account and all other amounts paid in
respect of and in accordance with the terms of any settlement of the CPSC Action
and the Omega Litigation;
(h) the security interests in and liens upon the assets of Borrowers
consisting of Accounts and Inventory arising after the date hereof in favor of
First Union National Bank to secure the indebtedness of Castings to First Union
National Bank arising under the Swap Agreement, as in effect on the date hereof,
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provided, that, (i) Lender shall have received true, correct and complete copies
of all agreements, documents and instruments evidencing or otherwise related to
such indebtedness, as duly authorized, executed and delivered by the parties
thereto, (ii) the security interests and liens on the assets of Borrowers in
favor of First Union National Bank to secure such indebtedness shall be junior
and subordinate to the security interests and liens of Lender on such assets on
terms and conditions acceptable to Lender, and (iii) Lender shall have received,
in form and substance satisfactory to Lender, an intercreditor agreement between
Lender and First Union National Bank, as acknowledged and agreed to by
Borrowers, duly authorized, executed and delivered by First Union National Bank
and Borrowers, providing for, inter alia, the parties' relative rights and
priorities with respect to the assets of Borrowers; and
(i) the security interests and liens set forth on Schedule 8.4 hereto.
9.9 Indebtedness. Each Borrower and Guarantor shall not, and shall not
permit any Subsidiary to, incur, create, assume, become or be liable in any
manner with respect to, or permit to exist, any obligations or indebtedness,
except:
(a) the Obligations;
(b) trade obligations in the ordinary course of business to be paid by
such Borrower or Guarantor in accordance with its customary practices and normal
accruals in the ordinary course of business not yet due and payable, or in
either case as to such trade obligations or normal accruals with respect to
which such Borrower or Guarantor is contesting in good faith the amount or
validity thereof by appropriate proceedings diligently pursued and available to
such Borrower or Guarantor and with respect to which adequate reserves have been
set aside on its books;
(c) purchase money indebtedness (including capital leases) to the
extent not incurred or secured by liens (including capital leases) in violation
of any other provision of this Agreement;
(d) indebtedness of Castings evidenced by or arising under the Lease
Agreement, dated as of November 1, 1995, between the Calhoun County Economic
Development Council, as lessor, and Castings, as lessee, with respect to the
Real Property and certain Equipment of Castings in Anniston, Alabama as in
effect on the date hereof; provided, that:
(i) the aggregate amount required to be paid by Castings
pursuant to such Lease Agreement shall not exceed the currently outstanding
principal amount of the Calhoun County Bonds (plus an amount equal to three (3)
months interests thereon) as of the date hereof which is $2,753,437.50, less the
aggregate amount of all repayments, repurchases or redemptions, whether optional
or mandatory in respect thereof, plus interest thereon at the rate provided for
in the Calhoun County Bonds as in effect on the date hereof,
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(ii) such indebtedness is not secured by any assets or
properties of any Borrower or Guarantor, provided, that, the rights of Castings
to the possession of the Real Property in Anniston, Alabama and certain of the
fixtures and equipment located thereon which are leased by Castings pursuant to
such Lease Agreement are subject to the rights of the Calhoun County Economic
Development Council and the Calhoun County Bond Trustee (as assignee of the
Calhoun County Economic Development Council) to take possession thereof under
the terms of such Lease Agreement in the event the Calhoun County Bond Trustee
does not receive payments in respect of the Calhoun County Bonds under the
Calhoun County Bond Letter of Credit,
(iii) Borrowers and Guarantors shall not, directly or
indirectly, make any payments in respect of such indebtedness, except, that,
Castings may make regularly scheduled payments of rent when due in accordance
with the terms of such Lease Agreement as in effect on the date hereof,
(iv) Borrowers and Guarantors shall not, directly or
indirectly, (A) amend, modify, alter or change any terms of such indebtedness or
any of the Calhoun County Bond Agreements, except that Castings may, after prior
written notice to Lender, amend, modify, alter or change the terms thereof so as
to extend the maturity thereof or defer the timing of any payments in respect
thereof, or to forgive or cancel any portion of such indebtedness other than
pursuant to payments thereof, or to reduce the interest rate or any fees in
connection therewith, or (B) redeem, retire, defease, purchase or otherwise
acquire such indebtedness, or set aside or otherwise deposit or invest any sums
for such purpose, and
(v) Borrowers and Guarantors shall furnish to Lender all
notices, demands or other materials concerning such indebtedness either received
by any Borrower or Guarantor or on its behalf, promptly after receipt thereof,
or sent by any Borrower or Guarantor or on its behalf, concurrently with the
sending thereof, as the case may be;
(e) indebtedness of Castings evidenced by or arising under the Alabama
State Bond Agreements as in effect on the date hereof; provided, that:
(i) the principal amount of such indebtedness (plus the amount
equal to three (3) months interest thereon) shall not exceed $7,335,000, less
the aggregate amount of all repayments, repurchases or redemptions, whether
optional or mandatory in respect thereof, plus interest thereon at the rate
provided for in the Alabama State Bonds as in effect on the date hereof,
(ii) such indebtedness is not secured by any assets or
properties of any Borrower or Guarantor,
(iii) Borrowers and Guarantors shall not, directly or
indirectly, make any payments in respect of such indebtedness, except, that,
Castings may make payments of principal or interest when due in accordance with
the terms of the Alabama State Bond Agreements as in effect on the date hereof,
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(iv) Borrowers and Guarantors shall not, directly or
indirectly, (A) amend, modify, alter or change any terms of such indebtedness or
any of the Alabama State Bond Agreements, except that Castings may, after prior
written notice to Lender, amend, modify, alter or change the terms thereof so as
to extend the maturity thereof or defer the timing of any payments in respect
thereof, or to forgive or cancel any portion of such indebtedness other than
pursuant to payments thereof, or to reduce the interest rate or any fees in
connection therewith, or (B) redeem, retire, defease, purchase or otherwise
acquire such indebtedness, or set aside or otherwise deposit or invest any sums
for such purpose, and
(v) Borrowers and Guarantors shall furnish to Lender all
notices, demands or other materials concerning such indebtedness either received
by any Borrower or Guarantor or on its behalf, promptly after receipt thereof,
or sent by any Borrower or Guarantor or on its behalf, concurrently with the
sending thereof, as the case may be;
(f) indebtedness of CPVC evidenced by or arising under the Lease
Agreement, dated as of December 1, 1997, between the Industrial Development
Board of the City of Huntsville, Alabama, as lessor, and CPVC, as lessee, with
respect to the Real Property and certain Equipment of CPVC in Madison, Alabama
as in effect on the date hereof; provided, that:
(i) the aggregate amount required to be paid by CPVC pursuant
to such Lease Agreement shall not exceed the currently outstanding principal
amount of the Huntsville Bonds as of the date hereof which is $7,500,000, less
the aggregate amount of all repayments, repurchases or redemptions, whether
optional or mandatory in respect thereof, plus interest thereon at the rate
provided for in the Huntsville Bonds as in effect on the date hereof,
(ii) such indebtedness is not secured by any assets or
properties of any Borrower or Guarantor; provided, that, the rights of CPVC to
possession of the Real Property in Madison, Alabama and certain of the fixtures
and equipment located thereon, which are leased by CPVC pursuant to such Lease
Agreement are subject to the rights of the Huntsville Bondholder to take
possession thereof under the terms of such Lease Agreement;
(iii) Borrowers and Guarantors shall not, directly or
indirectly, make any payments in respect of such indebtedness, except, that,
CPVC may make regularly scheduled payments of rent when due in accordance with
the terms such Lease Agreement as in effect on the date hereof,
(iv) Borrowers and Guarantors shall not, directly or
indirectly, (A) amend, modify, alter or change any terms of such indebtedness or
any of the Huntsville Bond Agreements, except that CPVC may, after prior written
notice to Lender, amend, modify, alter or change the terms thereof so as to
extend the maturity thereof or defer the timing of any payments in respect
thereof, or to forgive or cancel any portion of such indebtedness other than
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pursuant to payments thereof, or to reduce the interest rate or any fees in
connection therewith, or (B) redeem, retire, defease, purchase or otherwise
acquire such indebtedness, or set aside or otherwise deposit or invest any sums
for such purpose, and
(v) Borrowers and Guarantors shall furnish to Lender all
notices, demands or other materials concerning such indebtedness either received
by any Borrower or Guarantor or on its behalf, promptly after receipt thereof,
or sent by any Borrower or Guarantor or on its behalf, concurrently with the
sending thereof, as the case may be;
(g) the contingent reimbursement obligations of Castings to First Union
National Bank (as successor by merger to First Fidelity Bank, National
Association) in respect of the Calhoun County Bond Letter of Credit and the
Alabama State Bond Letter of Credit pursuant to the First Union Letter of Credit
Documents (as in effect on the date hereof), provided, that, (i) Borrowers and
Guarantors shall not, directly or indirectly, (A) amend, modify, alter or change
the terms of such indebtedness, the Letters of Credit, the First Union
Reimbursement Agreement or any of the other First Union Letter of Credit
Agreements, except as otherwise required by Lender pursuant to the letter
agreement, dated of even date herewith, by and among Borrowers, Guarantors and
Lender with respect to the execution and delivery by Castings of a mortgage in
favor of Lender with respect to Real Property and Equipment of Castings located
in Anniston, Alabama or (B) redeem, retire, defease, purchase or otherwise
acquire such indebtedness, or set aside or otherwise deposit or invest any sums
for such purpose, and (ii) Borrowers and Guarantors shall furnish to Lender all
notices or demands in connection with such indebtedness, either received by any
Borrower or Guarantor or on its behalf, promptly after the receipt thereof, or
sent by any Borrower or Guarantor or on its behalf, concurrently with the
sending thereof, as the case may be;
(h) unsecured indebtedness of a Borrower to another Borrower or
Guarantor pursuant to intercompany loans permitted under Section 9.10 hereof;
(i) unsecured indebtedness of Central to CSC Finance evidenced by the
Demand Note, dated December 21, 1994, issued by Central payable to CSC Finance,
provided, that,
(i) the principal amount of such indebtedness shall not exceed
$11,750,000, less the aggregate amount of all repayments, repurchases or
redemptions, whether optional or mandatory in respect thereof, plus interest
thereon at the rate provided for in the Demand Note as in effect on the date
hereof,
(ii) such indebtedness of Central is subject and subordinate
in right of payment to the right of Lender to receive the prior final payment
and satisfaction in full of all of the Obligations,
(iii) Central shall not, directly or indirectly, make, or be
required to make, any payments in respect of such indebtedness, except, that,
Central may make payments of principal or interest when due in accordance with
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the terms of the Demand Note as in effect on the date hereof, provided, that,
each of the following conditions is satisfied as determined by Lender: (A) as of
the date of any such payment and after giving effect thereto, the Excess
Availability of Borrowers for each of the immediately preceding thirty (30)
consecutive days shall have been not less than $2,500,000, (B) as of the date of
any such payment and after giving effect thereto, the Excess Availability of
Borrowers shall be not less than $2,500,000, (C) the Consolidated Net Income of
Central in the fiscal quarter ending immediately prior to the date of any such
payment shall be not less than $500,000, (D) as of the date of any such payment
and after giving effect thereto, no Event of Default or act, condition or event
which with notice or passage of time or both would constitute an Event of
Default, shall exist or have occurred and (E) in no event shall the aggregate
amount of all such payments in any fiscal year of Central, together with the
aggregate amount of all payments by Central to CSC Finance in respect of
royalties or otherwise under the Trademark License Agreement between Central and
CSC Finance in such fiscal year, exceed $2,000,000 in the aggregate;
(iv) Borrowers and Guarantors shall not, directly or
indirectly, (A) amend, modify, alter or change any terms of such indebtedness or
any agreement, document or instrument related thereto, except that Central may,
after prior written notice to Lender, amend, modify, alter or change the terms
thereof so as to extend the maturity thereof or defer the timing of any payments
in respect thereof, or to forgive or cancel any portion of such indebtedness
other than pursuant to payments thereof, or (B) redeem, retire, defease,
purchase or otherwise acquire such indebtedness, or set aside or otherwise
deposit or invest any sums for such purpose, and
(v) Borrowers and Guarantors shall furnish to Lender all
notices, demands or other materials concerning such indebtedness either received
by any of them or on its or their behalf, promptly after receipt thereof, or
sent by any of them or on its or their behalf, concurrently with the sending
thereof, as the case may be;
(j) indebtedness of Borrowers under interest rate swap agreements,
interest rate cap agreements, interest rate collar agreements, interest rate
exchange agreements and similar contractual arrangements entered into for the
purpose of protecting a Person against fluctuations in interest rates; provided,
that, (i) such arrangements are with banks or other financial institutions that
have combined capital and surplus and undivided profits of not less than
$100,000,000 and are not for speculative purposes and (ii) such indebtedness
shall be unsecured, except that such indebtedness of Castings to First Union
arising pursuant to the Swap Agreement as in effect on the date hereof may be
secured to the extent permitted under Section 9.8(h) above;
(k) unsecured indebtedness of any Borrower or Guarantor for borrowed
money arising after the date hereof; provided, that, as to each and all of such
indebtedness: (i) such indebtedness shall be included in the next monthly report
to be delivered to Lender pursuant to Section 9.6(f) after the date such
indebtedness is incurred, (ii) upon Lender's request, Lender shall have received
true, correct and complete copies of all agreements, documents and instruments
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evidencing or otherwise related to such indebtedness, as duly authorized,
executed and delivered by the parties thereto, (iii) such indebtedness shall be
incurred by such Borrower or Guarantor at commercially reasonable rates and
terms in a bona fide arms' length transaction, (iv) such indebtedness shall not
at any time include terms and conditions which in any manner adversely affect
Lender or any rights of Lender as determined in good faith by Lender and
confirmed by Lender to Central in writing or which are more restrictive or
burdensome than the terms or conditions of any other indebtedness of such
Borrower or Guarantor as in effect on the date hereof (other than the
Obligations), (v) as of the date such indebtedness is incurred and after giving
effect thereto, no Event of Default or act, condition or event which with notice
or passage of time or both would constitute an Event of Default shall exist or
have occurred, (vi) the aggregate amount of such indebtedness shall not exceed
$6,000,000, (vii) such indebtedness is at all times unsecured, and (viii)
Borrowers and Guarantors shall furnish to Lender all notices or demands in
connection with such indebtedness either received by any Borrower and Guarantor
or on its behalf promptly after the receipt thereof, or sent by any Borrower or
Guarantor or on its behalf, concurrently with the sending thereof, as the case
may be; and
(l) the indebtedness set forth on Schedule 9.9 hereof; provided, that,
(i) Borrowers and Guarantors may only make regularly scheduled payments of
principal and interest in respect of such indebtedness in accordance with the
terms of the agreement or instrument evidencing or giving rise to such
indebtedness as in effect on the date hereof, (ii) Borrowers and Guarantors
shall not, directly or indirectly, (A) amend, modify, alter or change the terms
of such indebtedness or any agreement, document or instrument related thereto as
in effect on the date hereof, or (B) redeem, retire, defease, purchase or
otherwise acquire such indebtedness, or set aside or otherwise deposit or invest
any sums for such purpose, and (iii) Borrowers shall furnish to Lender all
notices or demands in connection with such indebtedness either received by any
Borrower or Guarantor or on its or their behalf, promptly after the receipt
thereof, or sent by any Borrower or Guarantor or on its or their behalf,
concurrently with the sending thereof, as the case may be.
9.10 Loans, Investments, Guarantees, Etc. Each Borrower and Guarantor
shall not, and shall not permit any Subsidiary to, directly or indirectly, make
any loans or advance money or property to any person, or invest in (by capital
contribution, dividend or otherwise) or purchase or repurchase the stock or
indebtedness or all or a substantial part of the assets or property of any
person, or guarantee, assume, endorse, or otherwise become responsible for
(directly or indirectly) the indebtedness, performance, obligations or dividends
of any Person or agree to do any of the foregoing, except:
(a) the endorsement of instruments for collection or deposit in the
ordinary course of business;
(b) investments in Cash Equivalents, provided, that, as to any of the
foregoing, unless waived in writing by Lender, each Borrower and Guarantor shall
take such actions as are deemed necessary by Lender to perfect the security
interest of Lender in such investments;
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(c) loans or capital contributions by a Borrower or Guarantor to
another Borrower after the date hereof; provided, that, as to any such loans or
capital contributions, (i) as of the date of any such loan or capital
contribution and after giving effect thereto, no Event of Default, or act,
condition or event which with notice or passage of time or both would constitute
an Event of Default, shall exist or have occurred and be continuing and (ii) in
the case of loans, the indebtedness of a Borrower arising pursuant to such loans
by another Borrower or Guarantor shall not be evidenced by any promissory note
or other instrument, unless the original of such note is promptly delivered to
Lender upon the issuance thereof, duly indorsed and assigned to Lender by the
Borrower or Guarantor who has made such loan;
(d) loans or advances by a Borrower or Guarantor to any of its
employees, after the date hereof, not to exceed the principal amount of $500,000
in the aggregate at any time outstanding in the ordinary course of such
Borrower's or Guarantor's business for reasonable and necessary work-related
travel and other ordinary business expenses to be incurred by such employees in
connection with their employment with such Borrower or Guarantor; provided,
that, (i) the indebtedness of any such employee to such Borrower or Guarantor
arising pursuant to such loan is not, and shall not be, evidenced by any
promissory note or other instrument, unless the original of such note or
instrument is promptly delivered to Lender upon the issuance thereof, duly
indorsed and assigned by such Borrower or Guarantor to Lender, and (ii) as of
the date of any such loan and after giving effect thereto, no Event of Default
shall exist or have occurred;
(e) the loan by CSC Finance to Central in the amount of $11,750,000
giving rise to the indebtedness permitted under Section 9.9(i) hereof;
(f) the guarantees by CSC and Central in favor of First Union National
Bank of the reimbursement obligations of Castings under the First Union Letter
of Credit Documents permitted under Section 9.9 hereof as set forth in the
Guaranty and Suretyship Agreements, dated as of November 1, 1995, by each of CSC
and Central in favor of First Union National Bank as in effect on the date
hereof, provided, that, as to such guarantees, (i) such Borrower and Guarantor
shall not, directly or indirectly, (A) amend, modify, alter or change the terms
of such guarantees or any agreement, document or instrument related thereto, or
(B) redeem, retire, defease, purchase or otherwise acquire the obligations
arising pursuant to such guarantees, or set aside or otherwise deposit or invest
any sums for such purpose, and (ii) Borrowers and Guarantors shall furnish to
Lender all notices or demands in connection with such loans, advances or
guarantees or other indebtedness subject to such guarantees either received by
any Borrower or Guarantor or on its behalf, promptly after the receipt thereof,
or sent by any Borrower or Guarantor or on its behalf, concurrently with the
sending thereof, as the case may be;
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(g) the guarantees by CSC, Central, Castings and CPVC in favor of
Huntsville Bondholder of the obligations of the Industrial Development Board of
the City of Huntsville, Alabama evidenced by the Huntsville Bonds and the
obligations of CPVC pursuant to the Lease Agreement, dated as of December 1,
1997, between the Industrial Development Board of the City of Huntsville, as
lessor, and CPVC, as lessee, with respect to the Real Property and certain
Equipment of CPVC located in Madison, Alabama as set forth in the Guaranty
Agreement, dated as of December 1, 1997, by CSC, Central, Castings and CPVC in
favor of the Huntsville Bondholder as in effect on the date hereof, provided,
that, as to such guarantees, (i) Borrowers and such Guarantor shall not,
directly or indirectly, (A) amend, modify, alter or change the terms of such
guarantees or any agreement, document or instrument related thereto, or (B)
redeem, retire, defease, purchase or otherwise acquire the obligations arising
pursuant to such guarantees, or set aside or otherwise deposit or invest any
sums for such purpose, and (ii) Borrowers and Guarantors shall furnish to Lender
all notices or demands in connection with such loans, advances or guarantees or
other indebtedness subject to such guarantees either received by any Borrower or
Guarantor or on its behalf, promptly after the receipt thereof, or sent by any
Borrower or Guarantor or on its behalf, concurrently with the sending thereof,
as the case may be; and
(h) the loans, advances and guarantees set forth on Schedule 9.10
hereto; provided, that, as to such loans, advances and guarantees, (i) such
Borrower or Guarantor shall not, directly or indirectly, (A) amend, modify,
alter or change the terms of such loans, advances or guarantees or any
agreement, document or instrument related thereto, or (B) as to such guarantees,
redeem, retire, defease, purchase or otherwise acquire the obligations arising
pursuant to such guarantees, or set aside or otherwise deposit or invest any
sums for such purpose, and (ii) Borrowers and Guarantors shall furnish to Lender
all notices or demands in connection with such loans, advances or guarantees or
other indebtedness subject to such guarantees either received by any Borrower or
Guarantor or on its behalf, promptly after the receipt thereof, or sent by any
Borrower or Guarantor or on its behalf, concurrently with the sending thereof,
as the case may be.
9.11 Dividends and Redemptions. Each Borrower and Guarantor shall not,
and shall not permit any Subsidiary to, directly or indirectly, declare or pay
any dividends on account of any class of Capital Stock of such Borrower,
Guarantor or Subsidiary now or hereafter outstanding, or set aside or otherwise
deposit or invest any sums for such purpose, or redeem, retire, defease,
purchase or otherwise acquire any shares of any class of Capital Stock (or set
aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make any
other distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing, except that any Subsidiary of a
Borrower may declare and pay dividends to such Borrower.
9.12 Transactions with Affiliates. Each Borrower and Guarantor shall
not, and shall not permit any Subsidiary to, directly or indirectly,
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(a) purchase, acquire or lease any property from, or sell, transfer or
lease any property to, any officer, director, agent or other person affiliated
with any Borrower or Guarantor, except (i) in the ordinary course of and
pursuant to the reasonable requirements of such Borrower's or Guarantor's
business and upon fair and reasonable terms no less favorable to such Borrower
or Guarantor than such Borrower or Guarantor would obtain in a comparable arm's
length transaction with an unaffiliated person and (ii) the payments by Central
to CSC Finance of royalties for the licensing of certain trademarks by CSC
Finance to Central and its Subsidiaries, provided, that, Central shall not make
and shall not be required to make any such payments, unless each of following
conditions is satisfied as determined by Lender: (A) as of the date of any such
payment and after giving effect thereto, the Excess Availability of Borrowers
for each of the immediately preceding thirty (30) consecutive days shall have
been not less than $2,500,000, (B) as of the date of any such payment and after
giving effect thereto, the Excess Availability of Borrowers shall be not less
than $2,500,000, (C) as of the date of any such payment and after giving effect
thereto, no Event of Default, or act, condition or event which with notice or
passage of time or both would constitute an Event of Default, shall exist or
have occurred, (D) the Consolidated Net Income of Central in the fiscal quarter
ending immediately prior to the date of any such payment shall be not less than
$500,000, and (E) in no event shall the aggregate amount of all such payments in
any fiscal year of Central, together with the aggregate amount of all payments
by Central to CSC Finance in respect of royalties or otherwise under the
Trademark License Agreement between Central and CSC Finance in such fiscal year,
exceed $2,000,000 in the aggregate;
(b) make any payments of management, consulting or other fees for
management or similar services, any payments of sales commissions or other fees
for marketing goods or services, any payments of taxes under any tax sharing
arrangements or any payments of any indebtedness owing to any other Borrower,
Guarantor, officer, employee, shareholder, director or other person affiliated
with any Borrower or Guarantor except (i) reasonable compensation to officers,
employees and directors for services rendered to Borrowers and Guarantors in the
ordinary course of business, (ii) payments by any Borrower to the other
Borrowers with respect to intercompany loans permitted hereunder, (iii) payments
by Central to CSC Finance in respect of indebtedness of Central to CSC Finance
permitted under Section 9.9(i) hereof, to the extent such payments are permitted
under such Section, (iv) payment of management fees by Borrowers to CSC not to
exceed $500,000 in any fiscal year, provided, that, no payment thereof shall be
made at any time an Event of Default or act, condition or event which with
notice or passage of time or both would constitute an Event of Default shall
exist or have occurred, (v) payments by Borrowers and Guarantors to each other
or to CSC for actual and necessary reasonable out-of-pocket administrative and
operating expenses of CSC for the businesses of Borrowers and Guarantors as
presently conducted in the ordinary course of business, and for actual and
necessary reasonable out-of-pocket legal and accounting, insurance, marketing,
payroll and similar types of services paid for by CSC on behalf of Borrowers in
the ordinary course of their respective businesses or as the same may be
directly attributable to Borrowers; provided, that, (A) CSC shall not conduct
any business except to hold the Capital Stock of Central, CSC Finance and
Spraysafe Automatic Sprinklers Limited and any activities incidental thereto or
to participate in the management of the businesses of Borrowers consistent with
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current practices as of the date hereof and (B) CSC shall not own or hold any
assets or properties, except for the Capital Stock of Central, CSC Finance and
Spraysafe Automatic Sprinklers Limited that it owns and holds as of the date
hereof and other assets necessary to the conduct of its business as described
above, (vi) payments by Borrowers to CSC pursuant to the tax sharing
arrangements among Borrowers and CSC (as in effect on the date hereof);
provided, that, (A) such Borrower is included in the consolidated Federal income
tax return filed by CSC as to which such Borrower is making such payments, (B)
the payments in any year shall not exceed the Federal income tax liability that
such Borrower would have been liable for if such Borrower were not part of such
consolidated federal income tax return filed by CSC, (C) such payments shall be
made by such Borrower no earlier than ten (10) days prior to the date on which
CSC is required to make its payments to the Internal Revenue Service, and (D) in
the event that such Borrower also joins with CSC in filing any combined or
consolidated (or similar) State or local income tax returns, then the making of
payments to CSC shall be allowed in a manner as similar as possible to that
provided herein with respect to Federal income taxes.
9.13 Additional Bank Accounts. Each Borrower and Guarantor shall not,
and shall not permit any Subsidiary to, directly or indirectly, open, establish
or maintain any deposit account, investment account or any other account with
any bank or other financial institution, other than the Blocked Accounts and the
accounts set forth in Schedule 8.8 hereto, except: (a) as to any new or
additional Blocked Accounts and other such new or additional accounts which
contain any Collateral or proceeds thereof, with the prior written consent of
Lender and subject to such conditions thereto as Lender may establish and (b) as
to any accounts used by such Borrower, Guarantor or Subsidiary to make payments
of payroll, taxes or other obligations to third parties, after prior written
notice to Lender and (c) any trust account established at a bank acceptable to
Lender in connection with the settlement of the CPSC Action, after prior written
notice to Lender.
9.14 Compliance with ERISA.
(a) Each Borrower and Guarantor shall not, and shall not permit any
Subsidiary to, with respect to any "employee benefit plans" maintained by such
Borrower or Guarantor or any of its ERISA Affiliates: (i) terminate any of such
employee benefit plans so as to incur any liability to the Pension Benefit
Guaranty Corporation established pursuant to ERISA, (ii) allow or suffer to
exist any prohibited transaction involving any of such employee benefit plans or
any trust created thereunder which would subject such Borrower or Guarantor or
such ERISA Affiliate to a tax or penalty or other liability on prohibited
transactions imposed under Section 4975 of the Code or ERISA, (iii) fail to pay
to any such employee benefit plan any contribution which it is obligated to pay
under Section 302 of ERISA, Section 412 of the Code or the terms of such plan,
(iv) allow or suffer to exist any accumulated funding deficiency, whether or not
waived, with respect to any such employee benefit plan, (v) allow or suffer to
exist any occurrence of a reportable event or any other event or condition which
presents a material risk of termination by the Pension Benefit Guaranty
Corporation of any such employee benefit plan that is a single employer plan,
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which termination could result in any liability to the Pension Benefit Guaranty
Corporation or (vi) incur any withdrawal liability with respect to any
multiemployer pension plan.
(b) As used in this Section 9.14, the terms "employee benefit plans",
"accumulated funding deficiency" and "reportable event" shall have the
respective meanings assigned to them in ERISA, and the term "prohibited
transaction" shall have the meaning assigned to it in Section 4975 of the Code
and ERISA.
9.15 Adjusted Tangible Net Worth. The Adjusted Tangible Net Worth of
CSC and its Subsidiaries shall be not less than the amount set forth below at
all times during the period indicated:
Period Amount
------ ------
(i) From the date hereof through $24,000,000
and including January 31, 1999
(ii) From February 1, 1999 through $26,000,000
and including October 31, 1999
(iii) From November 1, 1999 through $28,000,000
and including April 30, 2000
(iv) From May 1, 2000 through and $30,000,000
including October 31, 2000
(v) From November 1, 2000 and at $32,000,000
all times thereafter
9.16 Remarketing of Huntsville Bonds. CPVC shall enter into a legally
binding written commitment with a person who is not an Affiliate to purchase the
Huntsville Bonds on or before November 15, 1998 and the closing of such purchase
and sale of the Huntsville Bonds shall occur by no later than December 31, 1998,
which commitment and sale shall in each case be on terms and conditions
acceptable to Lender.
9.17 Costs and Expenses. Borrowers and Guarantors shall pay to Lender
on demand all reasonable costs, expenses, filing fees and taxes paid or payable
in connection with the preparation, negotiation, execution, delivery, recording,
administration, collection, liquidation, enforcement and defense of the
Obligations, Lender's rights in the Collateral, this Agreement, the other
Financing Agreements and all other documents related hereto or thereto,
including any amendments, supplements or consents which may hereafter be
contemplated (whether or not executed) or entered into in respect hereof and
thereof, including, but not limited to: (a) all costs and expenses of filing or
recording (including Uniform Commercial Code financing statement filing taxes
and fees, documentary taxes, intangibles taxes and mortgage recording taxes and
fees, if applicable); (b) all title insurance and other insurance premiums,
appraisal fees and search fees; (c) costs and expenses of remitting loan
proceeds, collecting checks and other items of payment, and establishing and
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maintaining the Blocked Accounts, together with Lender's customary charges and
fees with respect thereto; (d) charges, fees or expenses charged by any bank or
issuer in connection with the Letter of Credit Accommodations and the
Supplemental Letter of Credit Accommodations; (e) costs and expenses of
preserving and protecting the Collateral; (f) costs and expenses paid or
incurred in connection with obtaining payment of the Obligations, enforcing the
security interests and liens of Lender, selling or otherwise realizing upon the
Collateral, and otherwise enforcing the provisions of this Agreement and the
other Financing Agreements or defending any claims made or threatened against
Lender arising out of the transactions contemplated hereby and thereby
(including, without limitation, preparations for and consultations concerning
any such matters); (g) all out-of-pocket expenses and costs heretofore and from
time to time hereafter incurred by Lender during the course of periodic field
examinations of the Collateral and the operations of Borrowers and Guarantors,
plus a per diem charge at the rate of $650 per person per day for Lender's
examiners in the field and office, provided, that, the maximum amount payable by
Borrowers in respect of such per diem charge in any calendar year shall not
exceed $25,000, so long as no act, condition or event which with notice or
passage of time or both would constitute an Event of Default shall exist or have
occurred in any such calendar year; and (g) the reasonable fees and
disbursements of counsel (including legal assistants) to Lender and any
Participant in connection with any of the foregoing.
9.18 After Acquired Real Property. If any Borrower hereafter acquires
any Real Property, fixtures or any other property that is of the kind or nature
described in the Mortgages and such Real Property, fixtures or other property at
any one location has a fair market value in an amount equal to or greater than
$500,000 (or if an Event of Default, or act, condition or event which with
notice or passage of time or both would constitute an Event of Default exists,
then regardless of the fair market value of such assets), without limiting any
other rights of Lender, or duties or obligations of such Borrower, upon Lender's
request, such Borrower shall execute and deliver to Lender a mortgage, deed of
trust or deed to secure debt, as Lender may determine, in form and substance
substantially similar to the Mortgages and as to any provisions relating to
specific state laws satisfactory to Lender and in form appropriate for recording
in the real estate records of the jurisdiction in which such Real Property or
other property is located granting to Lender a first priority lien and mortgage
on and security interest in such Real Property, fixtures or other property
(subject only to such liens and encumbrances as such Borrower would otherwise be
permitted to incur hereunder or under the Mortgages or as otherwise consented to
in writing by Lender) and such other agreements, documents and instruments as
Lender may require in connection therewith.
9.19 Further Assurances. At the request of Lender at any time and from
time to time, each Borrower and Guarantor shall, at its expense, duly execute
and deliver, or cause to be duly executed and delivered, such further
agreements, documents and instruments, and do or cause to be done such further
acts as may be reasonably necessary to evidence, perfect, maintain and enforce
the security interests and the priority thereof in the Collateral and to
otherwise effectuate the provisions or purposes of this Agreement or any of the
other Financing Agreements. Lender may at any time and from time to time request
a certificate from an officer of Borrowers representing that all conditions
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precedent to the making of Loans and providing Letter of Credit Accommodations
and Supplemental Letter of Credit Accommodations contained herein are satisfied.
In the event of such request by Lender, Lender may, at its option, cease to make
any further Loans or provide further Letter of Credit Accommodations and
Supplemental Letter of Credit Accommodations until Lender has received such
certificate and, in addition, Lender has determined that such conditions are
satisfied. Where permitted by law, each Borrower and Guarantor hereby authorizes
Lender to execute and file one or more UCC financing statements signed only by
Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
------------------------------
10.1 Events of Default. The occurrence or existence of any one or more
of the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) (i) any Borrower or Guarantor fails to pay any of the Obligations
within three (3) days after the same becomes due and payable or (ii) any
Borrower or Guarantor fails to perform any of the covenants contained in
Sections 9.1, 9.2, 9.3, 9.4, 9.6, 9.13, 9.14, 9.15, or 9.16 of this Agreement
and such failure shall continue for ten (10) days; provided, that, such ten (10)
day period shall not apply in the case of: (A) any failure to observe any such
covenant which is not capable of being cured at all or within such ten (10) day
period or which has been the subject of a prior failure within a six (6) month
period or (B) an intentional breach of any Borrower or Guarantor of any such
covenant or (iii) any Borrower or Guarantor fails to perform any of the terms,
covenants, conditions or provisions contained in this Agreement or any of the
other Financing Agreements other than those described in Sections 10.1(a)(i) and
10.1(a)(ii) above;
(b) any representation, warranty or statement of fact made by any
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(c) any Guarantor revokes, terminates or fails to perform any of the
terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against any
Borrower or Guarantor in excess of $500,000 in any one case or in excess of
$1,000,000 in the aggregate and shall remain undischarged or unvacated for a
period in excess of thirty (30) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against any
Borrower or Guarantor or any of their assets;
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(e) any Borrower or Guarantor dissolves or suspends or discontinues
doing business;
(f) any Borrower or Guarantor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the United States
of America now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction now or hereafter in effect (whether at law or in equity) is
filed against any Borrower or Guarantor or all or any part of its properties and
such petition or application is not dismissed within sixty (60) days after the
date of its filing or any Borrower or Guarantor shall file any answer admitting
or not contesting such petition or application or indicates its consent to,
acquiescence in or approval of, any such action or proceeding or the relief
requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United States
of America now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction now or hereafter in effect (whether at a law or equity) is
filed by any Borrower or Guarantor or for all or any part of its property; or
(i) any default by any Borrower or Guarantor under any agreement,
document or instrument relating to any indebtedness for borrowed money owing to
any person other than Lender, or any capitalized lease obligations, contingent
indebtedness in connection with any guarantee, letter of credit, indemnity or
similar type of instrument in favor of any person other than Lender, in any case
in an amount in excess of $500,000 (including any of the Calhoun County Bond
Agreements, the Alabama State Bond Agreements or the Huntsville Bond
Agreements), which default continues for more than the applicable cure period,
if any, with respect thereto, or any default by any Borrower or Guarantor under
any contract, lease, license or other obligation to any person other than
Lender, which default continues for more than the applicable cure period, if
any, with respect thereto;
(j) any Change of Control;
(k) the indictment or threatened indictment of any Borrower or
Guarantor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings against any Borrower or Guarantor, pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of more than $500,000 of any of the property of such Borrower
or Guarantor (provided, that, the foregoing shall not apply to any forfeiture of
the existing Inventory of Central consisting of Omega TM fire sprinkler
products);
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(l) there shall be a Material Adverse Effect after the date hereof; or
(m) there shall be an event of default under any of the other Financing
Agreements.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrowers or any Guarantors, except as such notice or consent
is expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by any Borrower or
Guarantor of this Agreement or any of the other Financing Agreements. Lender
may, at any time or times, proceed directly against any Borrowers or any
Guarantor to collect the Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of Default
exists or has occurred and is continuing, Lender may, in its discretion and
without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
shall automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require Borrowers, at Borrowers' expense, to
assemble and make available to Lender any part or all of the Collateral at any
place and time designated by Lender, (iv) collect, foreclose, receive,
appropriate, setoff and realize upon any and all Collateral, (v) remove any or
all of the Collateral from any premises on or in which the same may be located
for the purpose of effecting the sale, foreclosure or other disposition thereof
or for any other purpose, (vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including, without limitation,
entering into contracts with respect thereto, public or private sales at any
exchange, broker's board, at any office of Lender or elsewhere) at such prices
or terms as Lender may deem reasonable, for cash, upon credit or for future
delivery, with the Lender having the right to purchase the whole or any part of
the Collateral at any such public sale, all of the foregoing being free from any
right or equity of redemption of Borrowers, which right or equity of redemption
is hereby expressly waived and released by Borrowers and/or (vii) terminate this
Agreement. If any of the Collateral is sold or leased by Lender upon credit
terms or for future delivery, the Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by Lender. If notice of
disposition of Collateral is required by law, five (5) days prior notice by
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Lender to Borrowers and Guarantors designating the time and place of any public
sale or the time after which any private sale or other intended disposition of
Collateral is to be made, shall be deemed to be reasonable notice thereof and
each Borrower waives any other notice. In the event Lender institutes an action
to recover any Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, each Borrower and Guarantor waives the posting of any bond
which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually received
by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Each Borrower and Guarantor shall
remain liable to Lender for the payment of any deficiency with interest at the
highest rate provided for herein and all costs and expenses of collection or
enforcement, including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an Event of
Default, or an act, condition or event which, with notice or passage of time or
both would constitute an Event of Default, Lender may, at its option, without
notice, (i) cease making Loans or arranging for Letter of Credit Accommodations
and Supplemental Letter of Credit Accommodations or reduce the lending formulas
or amounts of Revolving Loans and Letter of Credit Accommodations available to
Borrowers and/or (ii) terminate any provision of this Agreement providing for
any future Loans, Letter of Credit Accommodations or Supplemental Letter of
Credit Accommodations to be made by Lender to Borrowers.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
------------------------------------------------------------
11.1 Confession of Judgment.
(a) Each Borrower and Guarantor, to the extent permitted by law, and
without the further consent of or notice to any Borrower or Guarantor, hereby
irrevocably and unconditionally authorizes the Prothonotary, Clerk of Court, or
any attorney of any court of record in the Commonwealth of Pennsylvania, or any
other jurisdiction, as attorney for such Borrower or Guarantor to appear for
such Borrower or Guarantor in such court and confess judgment against such
Borrower or Guarantor and in favor of Lender, at any time on or after an Event
of Default exists or has occurred, for all or any portion of the Obligations
(including, but not limited to, principal, interest, fees, reasonable costs and
expenses and including attorneys' fees and legal expenses not to exceed five
(5%) percent of the outstanding and unpaid Obligations), for which this
Agreement or a verified copy hereof shall be sufficient warrant. The authority
to enter judgment shall not be exhausted by one exercise hereof, but, to the
extent permitted by law, shall continue from time to time until final payment
and satisfaction in full of all of the Obligations. The foregoing right and
remedy is in addition to and not in lieu of any other right or remedy available
to Lender under this Agreement, the other Financing Agreements, applicable law
or otherwise.
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(b) Each Borrower and Guarantor, being fully aware of its right to
notice and a hearing concerning the validity of any and all claims that may be
asserted against such Borrower or Guarantor by Lender before a judgment can be
entered hereunder or before execution may be levied on such judgment against any
and all property of such Borrower or Guarantor, hereby waives each of these
rights and agrees and consents to judgment being entered by confession in
accordance with the terms hereof and execution being levied on such judgment
against any and all property of such Borrower or Guarantor, in each case without
first giving notice and the opportunity to be heard on the validity of the claim
or claims upon which such judgment is entered.
11.2 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this Agreement and
the other Financing Agreements (other than the Mortgages to the extent provided
therein) and any dispute arising out of the relationship between the parties
hereto, whether in contract, tort, equity or otherwise, shall be governed by the
internal laws of the State of New York (without giving effect to principles of
conflicts of law).
(b) Borrowers, Guarantors and Lender irrevocably consent and submit to
the non-exclusive jurisdiction of the Supreme Court of the State of New York in
New York County and the United States District Court for the Southern District
of New York and waive any objection based on venue or forum non conveniens with
respect to any action instituted therein arising under this Agreement or any of
the other Financing Agreements or in any way connected with or related or
incidental to the dealings of the parties hereto in respect of this Agreement or
any of the other Financing Agreements or the transactions related hereto or
thereto, in each case whether now existing or hereafter arising, and whether in
contract, tort, equity or otherwise, and agree that any dispute with respect to
any such matters shall be heard only in the courts described above (except that
Lender shall have the right to bring any action or proceeding against any
Borrower or Guarantor or its property in the courts of any other jurisdiction
which Lender deems necessary or appropriate in order to realize on the
Collateral or to otherwise enforce its rights against any Borrower or Guarantor
or its property).
(c) Each Borrower and Guarantor hereby waives personal service of any
and all process upon it and consents that all such service of process may be
made by certified mail (return receipt requested) directed to its address set
forth on the signature pages hereof and service so made shall be deemed to be
completed five (5) days after the same shall have been so deposited in the U.S.
mails, or, at Lender's option, by service upon any Borrower or Guarantor in any
other manner provided under the rules of any such courts. Within thirty (30)
days after such service, such Borrower or Guarantor shall appear and respond to
such process, failing which such Borrower shall be deemed in default and
judgment may be entered by Lender against such Borrower or Guarantor for the
amount of the claim and other relief requested.
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(d) BORROWERS, GUARANTORS AND LENDER EACH HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER
THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN
RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE.
BORROWERS, GUARANTORS AND LENDER EACH 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 BORROWERS, GUARANTORS OR LENDER MAY FILE AN ORIGINAL COUNTERPART
OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Borrowers or Guarantors
(whether in tort, contract, equity or otherwise) for losses suffered by
Borrowers or Guarantors in connection with, arising out of, or in any way
related to the transactions or relationships contemplated by this Agreement, or
any act, omission or event occurring in connection herewith, unless it is
determined by a final and non-appealable judgment or court order binding on
Lender, that the losses were the result of acts or omissions constituting gross
negligence or willful misconduct. In any such litigation, Lender shall be
entitled to the benefit of the rebuttable presumption that it acted in good
faith and with the exercise of ordinary care in the performance by it of the
terms of this Agreement.
11.3 Waiver of Notices. Each Borrower or Guarantor hereby expressly
waives demand, presentment, protest and notice of protest and notice of dishonor
with respect to any and all instruments and commercial paper, included in or
evidencing any of the Obligations or the Collateral, and any and all other
demands and notices, of any kind or nature whatsoever with respect to the
Obligations, the Collateral and this Agreement, except such as are expressly
provided for herein. No notice to or demand on any Borrower or Guarantor which
Lender may elect to give shall entitle Borrowers or Guarantor to any other or
further notice or demand in the same, similar or other circumstances.
11.4 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of
Borrowers. Lender shall not, by any act, delay, omission or otherwise be deemed
to have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
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<PAGE>
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise. Any waiver in writing signed by a duly authorized
officer of Lender of an Event of Default arising under this Agreement or any of
the other Financing Agreements shall constitute a waiver of the same Event of
Default under any of the other Financing Agreements.
11.5 Waiver of Counterclaims. Each Borrower and Guarantor waives all
rights to interpose any claims, deductions, setoffs or counterclaims of any
nature (other than compulsory counterclaims) in any action or proceeding with
respect to this Agreement, the Obligations, the Collateral or any matter arising
therefrom or relating hereto or thereto.
11.6 Indemnification. Each Borrower and Guarantor shall indemnify and
hold Lender, and its directors, agents, employees and counsel, harmless from and
against any and all losses, claims, damages, liabilities, costs or expenses
imposed on, incurred by or asserted against any of them in connection with any
litigation, investigation, claim or proceeding commenced or threatened related
to the negotiation, preparation, execution, delivery, enforcement, performance
or administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including, without limitation, amounts paid in settlement, court costs, and the
reasonable fees and expenses of counsel except for any losses, claims, damages,
liabilities, costs or expenses resulting from Lender's gross negligence or
willful misconduct as determined pursuant to a final non-appealable order of a
court of competent jurisdiction. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this Section may be unenforceable
because it violates any law or public policy, Borrowers and Guarantors shall pay
the maximum portion which it is permitted to pay under applicable law to Lender
in satisfaction of indemnified matters under this Section 11.6. The foregoing
indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
--------------------------------
12.1 Term.
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall continue
in full force and effect for a term ending on March 31, 2001 (the "Renewal
Date"), and from year to year thereafter, unless sooner terminated pursuant to
the terms hereof; provided, that, this Agreement and all other Financing
Agreements must be terminated simultaneously. Upon the effective date of
termination or non-renewal of the Financing Agreements, Borrowers shall pay to
Lender, in full, all outstanding and unpaid Obligations and shall furnish cash
collateral to Lender, in such amounts as Lender determines are reasonably
necessary to secure Lender from loss, cost, damage or expense, including
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<PAGE>
reasonable attorneys' fees and legal expenses, in connection with any contingent
Obligations, including issued and outstanding Letter of Credit Accommodations
and Supplemental Letter of Credit Accommodations and checks or other payments
provisionally credited to the Obligations and/or as to which Lender has not yet
received final and indefeasible payment. Such payments in respect of the
Obligations and cash collateral shall be remitted by wire transfer in Federal
funds to such bank account of Lender, may, in its discretion, designate in
writing to Central for such purpose. Interest shall be due until and including
the next business day, if the amounts so paid by Borrowers to the bank account
designated by Lender are received in such bank account later than 1:00 p.m., New
York City time.
(b) No termination of this Agreement or the other Financing Agreements
shall relieve or discharge any Borrower or Guarantor of its respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and the
continuing security interest of Lender in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid. Upon the receipt by Lender of payment in
full in cash or other immediately available funds of all of the Obligations
(which are not contingent) and cash collateral in such amounts and on such terms
as Lender shall deem reasonably acceptable for all contingent Obligations, upon
Central's request and at the expense of Borrowers, except as otherwise required
by applicable law, Lender shall execute and deliver to Central UCC-3 termination
statements and such other release documents with respect to the Collateral as
may be reasonably requested by Central, in form and substance satisfactory to
Lender, to effectuate the termination of the security interests granted by
Borrowers to Lender herein and in the other Financing Agreements.
(c) In the event this Agreement is terminated prior to the end of the
then current term or renewal term of this Agreement for any reason, in view of
the impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrowers agree to pay to Lender upon the effective
date of such termination, an early termination fee in the amount set forth below
if such termination is effective in the period indicated:
Amount Period
------ ------
(i) 2% of the Maximum Credit From the date hereof to and
including March 31, 2000.
(ii) 1% of the Maximum Credit From April 1, 2000 to and
including March 30, 2001.
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and each Borrower and
Guarantor agrees that it is reasonable under the circumstances currently
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<PAGE>
existing. In addition, Lender shall be entitled to such early termination fee
upon the occurrence of any Event of Default described in Sections 10.1(g) and
10.1(h) hereof, even if Lender does not exercise its right to terminate this
Agreement, but elects, at its option, to provide financing to any Borrower or
permit the use of cash collateral under the United States Bankruptcy Code. The
early termination fee provided for in this Section 12.1 shall be deemed included
in the Obligations.
(d) Notwithstanding anything to the contrary contained in Section
12.1(c) above, in the event of the termination of this Agreement by Borrowers
prior to the end of the then current term or renewal term of this Agreement and
the full and final repayment of all of the Obligations and the receipt by Lender
of cash collateral all as provided in Section 12.1(c) with the proceeds of
initial loans and advances by First Union National Bank to Borrowers pursuant to
a revolving credit facility provided by First Union National Bank to Borrowers
to replace the financing arrangements provided for herein, and as to which
Lender shall not be acting on behalf of First Union National Bank, Borrowers
shall not be required to pay the early termination fee provided for above.
(e) Notwithstanding anything to the contrary contained in Section
12.1(c) above, in the event of the termination of this Agreement by Borrowers
prior to the end of the then current term or renewal term of this Agreement and
the full and final repayment of all of the Obligations and the receipt by Lender
of cash collateral all as provided in Section 12.1(a), if such termination and
payments occur within thirty (30) days after the effective date of the sale of
all or substantially all of the assets and properties of Lender to a person who
is not an affiliate of Lender, First Union National Bank or First Union
Corporation and no Event of Default shall exist or have occurred, Borrowers
shall not be required to pay the early termination fee provided for above.
12.2 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrowers
and Guarantors at their chief executive office of Central set forth below or to
such other address as either party may designate by written notice to the other
in accordance with this provision, and (b) deemed to have been given or made: if
delivered in person, immediately upon delivery; if by facsimile transmission,
immediately after sending and upon confirmation of receipt by facsimile
transmission from the addressee; if by nationally recognized overnight courier
service with instructions to deliver the next Business Day, one (1) Business Day
after sending; and if by certified mail, return receipt requested, five (5) days
after mailing.
12.3 Partial Invalidity. If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
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<PAGE>
12.4 Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrowers, Guarantors and their
respective successors and assigns, except that Borrowers and Guarantors may not
assign their rights under this Agreement, the other Financing Agreements and any
other document referred to herein or therein without the prior written consent
of Lender. Lender may, after notice to any Borrower, assign its rights and
delegate its obligations under this Agreement and the other Financing Agreements
and further may assign, or sell participations in, all or any part of the Loans,
the Letter of Credit Accommodations or any other interest herein, in which
event, the assignee or Participant shall have, to the extent of such assignment
or participation, the same rights and benefits as it would have if it were the
Lender hereunder, except as otherwise provided by the terms of such assignment
or participation.
12.5 Participant's Security Interest. If a Participant shall at any
time participate with Lender in the Loans or other Obligations, each Borrower
and Guarantor hereby grants to such Participant and such Participant shall have
and is hereby given, a continuing lien on and security interest in any money,
securities and other property of such Borrower in the custody or possession of
the Participant, including the right of setoff, to the extent of the
Participant's participation in the Obligations, and such Participant shall be
deemed to have the same right of setoff to the extent of its participation in
the Obligations, as it would have if it were a direct lender.
12.6 Entire Agreement. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represent the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written. In the event of any inconsistency between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this
Agreement shall govern.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, Lender, Borrowers and Guarantors have caused these
presents to be duly executed as of the day and year first above written.
LENDER BORROWERS
CONGRESS FINANCIAL CORPORATION CENTRAL SPRINKLER COMPANY
By: /s/ Josephone Naws By: /s/ Albert T. Sobol
------------------------------------ ----------------------------
Title: FVP Title: Executive Vice President
--------------------------------- ------------------------
Address: Chief Executive Office:
- -------- -----------------------
1133 Avenue of the Americas 451 North Cannon Avenue
New York, New York 10036 Lansdale, Pennsylvania 19446
CENTRAL CASTINGS CORPORATION
By: /s/ Albert T. Sobol
----------------------------
Title: Executive Vice President
-------------------------
Chief Executive Office:
-----------------------
2660 Old Gadsden Highway
Anniston, Alabama 36206
CENTRAL CPVC CORPORATION
By: /s/ Albert T. Sobol
----------------------------
Title: Executive Vice President
-------------------------
Chief Executive Office:
-----------------------
245 Swancott Road
Madison, Alabama 35750
[SIGNATURES CONTINUE ON FOLLOWING PAGE]
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<PAGE>
[SIGNATURES CONTINUED FROM PRIOR PAGE]
CENTRAL SPRINKLER CORPORATION
By: /s/ Albert T. Sobol
----------------------------
Title: Executive Vice President
-------------------------
Chief Executive Office:
-----------------------
451 North Cannon Avenue
Lansdale, Pennsylvania 19446
CENTRAL SPRINKLER EXPORT
CORPORATION
By: /s/ Albert T. Sobol
----------------------------
Title: Executive Vice President
-------------------------
Chief Executive Office:
-----------------------
451 North Cannon Avenue
Lansdale, Pennsylvania 19446
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<PAGE>
Exhibit 10(v)
TERM PROMISSORY NOTE
--------------------
$12,600,000 New York, New York
September 18, 1998
FOR VALUE RECEIVED, CENTRAL SPRINKLER COMPANY, a Pennsylvania
corporation (the "Debtor"), hereby unconditionally promises to pay to the order
of CONGRESS FINANCIAL CORPORATION, a Delaware corporation (the "Payee"), at the
offices of Payee at 1133 Avenue of the Americas, New York, New York 10036, or at
such other place as the Payee or any holder hereof may from time to time
designate, the principal sum of TWELVE MILLION SIX HUNDRED THOUSAND DOLLARS
($12,600,000) in lawful money of the United States of America and in immediately
available funds, in forty-eight (48) consecutive monthly installments (or
earlier as hereinafter provided) on the first day of each month commencing
October 1, 1998 of which each installment shall be in the amount of TWO HUNDRED
SIXTY-TWO THOUSAND FIVE HUNDRED DOLLARS ($262,500).
Debtor hereby further promises to pay interest to the order of Payee on
the unpaid principal balance hereof at the Interest Rate. Such interest shall be
paid in like money at said office or place from the date hereof, commencing
October 1, 1998 and on the first day of each month thereafter until the
indebtedness evidenced by this Note is paid in full. Interest payable upon and
after an Event of Default or termination or non-renewal of the Loan Agreement
shall be payable upon demand.
For purposes hereof, (a) the term "Interest Rate" shall mean, as to
Prime Rate Loans, a percentage rate per annum equal to that of the Prime Rate,
and as to Eurodollar Rate Loans, a rate of one and three-quarters (1 3/4%)
percent per annum in excess of the Adjusted Eurodollar Rate; provided, that, at
Payee's option, the Interest Rate shall mean a rate of two (2%) percent per
annum in excess of the Prime Rate as to Prime Rate Loans and a rate of three and
three-quarters (3 3/4%) percent per annum in excess of the Adjusted Eurodollar
Rate as to Eurodollar Rate Loans upon and after an Event of Default and during
the continuation thereof and for so long as the same is continuing or
termination or non-renewal of the Loan Agreement, (b) the term "Prime Rate"
shall mean the rate from time to time publicly announced by First Union National
Bank, or its successors, as its prime rate, whether or not such announced rate
is the best rate available at such bank, (c) the term "Event of Default" shall
mean an Event of Default as such term is defined in the Loan Agreement, and (d)
the term "Loan Agreement" shall mean the Loan and Security Agreement, dated of
even date herewith, by and among Debtor, certain of its affiliates and Payee, as
the same now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced. Unless otherwise defined herein, all
capitalized terms used herein shall have the meaning assigned thereto in the
Loan Agreement.
The Interest Rate applicable to Prime Rate Loans payable hereunder
shall increase or decrease by an amount equal to each increase or decrease,
respectively, in the Prime Rate, effective on the first day of the month after
any change in the Prime Rate is announced. The increase or decrease shall be
based on the Prime Rate in effect on the last day of the month in which any such
change occurs. Interest shall be calculated on the basis of a three hundred
sixty (360) day year and actual days elapsed. In no event shall the interest
charged hereunder exceed the maximum permitted under the laws of the State of
New York or other applicable law.
<PAGE>
This Note is issued pursuant to the terms and provisions of the Loan
Agreement to evidence the Term Loan by Payee to Debtor. This Note is secured by
the Collateral described in the Loan Agreement and all notes, guarantees,
security agreements and other agreements, documents and instrument now or at any
time hereafter executed and/or delivered by Debtor or any other party in
connection therewith (all of the foregoing, together with the Loan Agreement, as
the same now exist or may hereafter be amended, modified, supplemented, renewed,
extended, restated or replaced, being collectively referred to herein as the
"Financing Agreements"), and is entitled to all of the benefits and rights
thereof and of the other Financing Agreements. At the time any payment is due
hereunder, at its option, Payee may charge the amount thereof to any account of
Debtor maintained by Payee.
If any payment of principal or interest is not made within three (3)
days of the date when due hereunder, or if any other Event of Default shall
occur for any reason, or if the Loan Agreement shall be terminated or not
renewed for any reason whatsoever, then and in any such event, in addition to
all rights and remedies of Payee under the Financing Agreements, applicable law
or otherwise, all such rights and remedies being cumulative, not exclusive and
enforceable alternatively, successively and concurrently, Payee may, at its
option, declare any or all of Debtor's obligations, liabilities and indebtedness
owing to Payee under the Loan Agreement and the other Financing Agreements (the
"Obligations"), including, without limitation, all amounts owing under this
Note, to be due and payable, whereupon the then unpaid balance hereof, together
with all interest accrued thereon, shall forthwith become due and payable,
together with interest accruing thereafter at the then applicable Interest Rate
stated above until the indebtedness evidenced by this Note is paid in full, plus
the costs and expenses of collection hereof, including, but not limited to,
attorneys' fees and legal expenses.
Debtor (i) waives diligence, demand, presentment, protest and notice of
any kind, (ii) agrees that it will not be necessary for Payee to first institute
suit in order to enforce payment of this Note and (iii) consents to any one or
more extensions or postponements of time of payment, release, surrender or
substitution of collateral security, or forbearance or other indulgence, without
notice or consent. The pleading of any statute of limitations as a defense to
any demand against Debtor is expressly hereby waived by Debtor. Upon any Event
of Default or termination or non-renewal of the Loan Agreement, Payee shall have
the right, but not the obligation to setoff against this Note all money owed by
Payee to Debtor.
Payee shall not be required to resort to any Collateral for payment,
but may proceed against Debtor and any guarantors or endorsers hereof in such
order and manner as Payee may choose. None of the rights of Payee shall be
waived or diminished by any failure or delay in the exercise thereof.
-2-
<PAGE>
The validity, interpretation and enforcement of this Note and the other
Financing Agreements and any dispute arising in connection herewith or therewith
shall be governed by the internal laws of the State of New York (without giving
effect to principles of conflicts of law).
Debtor irrevocably consents and submits to the non-exclusive
jurisdiction of the Supreme Court of the State of New York in New York County
and the United States District Court for the Southern District of New York and
waives any objection based on venue or forum non conveniens with respect to any
action instituted therein arising under this Note or any of the other Financing
Agreements or in any way connection with or related or incidental to the
dealings of Debtor and Payee in respect of this Note or any of the other
Financing Agreements or the transactions related hereto or thereto, in each case
whether now existing or hereafter arising, and whether in contract, tort, equity
or otherwise, and agrees that any dispute arising out of the relationship
between Debtor and Payee or the conduct of such persons in connection with this
Note or otherwise shall be heard only in the courts described above (except that
Payee shall have the right to bring any action or proceeding against Debtor or
its property in the courts of any other jurisdiction which Payee deems necessary
or appropriate in order to realize on the Collateral or to otherwise enforce its
rights against Debtor or its property).
Debtor hereby waives personal service of any and all process upon it
and consents that all such service of process may be made by certified mail
(return receipt requested) directed to it and service so made shall be deemed to
be completed five (5) days after the same shall have been so deposited in the
U.S. mails, or, at Payee's option, by service upon Debtor in any other manner
provided under the rules of any such courts. Within thirty (30) days after such
service, Debtor shall appear in answer to such process, failing which Debtor
shall be deemed in default and judgment may be entered by Payee against Debtor
for the amount of the claim and other relief requested.
DEBTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS NOTE OR (ii) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS BETWEEN DEBTOR AND PAYEE
IN RESPECT OF THIS NOTE OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. DEBTOR
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY.
The execution and delivery of this Note has been authorized by the
Board of Directors and by any necessary vote or consent of the stockholders of
Debtor. Debtor hereby authorizes Payee to complete this Note in any particulars
according to the terms of the loan evidenced hereby.
-3-
<PAGE>
This Note shall be binding upon the successors and assigns of Debtor
and inure to the benefit of Payee and its successors, endorsees and assigns.
Whenever used herein, the term "Debtor" shall be deemed to include its
successors and assigns and the term "Payee" shall be deemed to include its
successors, endorsees and assigns. If any term or provision of this Note shall
be held invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
CENTRAL SPRINKLER COMPANY
By: /s/ Albert T. Sabol
----------------------------------------
Title: Executive Vice President
-------------------------------------
-4-
<PAGE>
Exhibit 10(w)
PLEDGE AND SECURITY AGREEMENT
-----------------------------
This Pledge and Security Agreement ("Pledge Agreement"), dated
September 18, 1998, is by Central Sprinkler Company, a Pennsylvania corporation
("Pledgor"), with its chief executive office at 451 North Cannon Avenue,
Lansdale, Pennsylvania 19446 to and in favor of Congress Financial Corporation,
a Delaware corporation ("Pledgee"), having an office at 1133 Avenue of the
Americas, New York, New York 10036.
W I T N E S S E T H:
--------------------
WHEREAS, Pledgor is now the direct and beneficial owner of all of the
issued and outstanding shares of capital stock of Central CPVC Corporation, an
Alabama corporation ("CPVC"), Central Castings Corporation, an Alabama
corporation ("Castings", and together with Pledgor and CPVC, each a "Borrower",
and collectively, "Borrowers"), and Central Sprinkler Export Corporation, a
Barbados corporation ("CSE", and together with CPVC and Castings, each
individually an "Issuer", and collectively, "Issuers") as described on Exhibit A
annexed hereto and made a part hereof (the "Pledged Securities"); and
WHEREAS, Pledgee and Borrowers have entered into or are about to enter
into financing arrangements pursuant to which Pledgee may make loans and
advances and provide other financial accommodations to Borrowers as set forth in
the Loan and Security Agreement, dated of even date herewith, by and among
Pledgee, Borrowers, CSE and Central Sprinkler Corporation (as the same now
exists or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced, the "Loan Agreement") and other agreements, documents and
instruments referred to therein or at any time executed and/or delivered in
connection therewith or related thereto, including, but not limited to, this
Pledge Agreement (all of the foregoing, together with the Loan Agreement, as the
same now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced, being collectively referred to herein as the
"Financing Agreements"); and
WHEREAS, in order to induce Pledgee to enter into the Loan Agreement
and the other Financing Agreements and to make loans and advances and provide
other financial accommodations to Borrowers pursuant thereto, Pledgor has agreed
to secure the payment and performance of the Obligations (as hereinafter
defined) to Pledgee and to accomplish same by (i) executing and delivering to
Pledgee this Pledge Agreement, (ii) delivering to Pledgee the Pledged Securities
which are registered in the name of Pledgor, together with appropriate powers
duly executed in blank by Pledgor, and (iii) delivering to Pledgee any and all
other documents which Pledgee deems necessary to protect Pledgee's interests
hereunder;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Pledgor hereby agrees as follows:
<PAGE>
1. GRANT OF SECURITY INTEREST
--------------------------
As collateral security for the prompt performance, observance and
indefeasible payment in full of all of the Obligations (as hereinafter defined),
Pledgor hereby assigns, pledges, hypothecates, transfers and sets over to
Pledgee and grants to Pledgee a security interest in and lien upon (a) the
Pledged Securities, together with all other investment property, cash dividends,
stock dividends, interests, profits, redemptions, warrants, subscription rights,
stock, securities options, substitutions, exchanges and other distributions now
or hereafter distributed by each Issuer or which may hereafter be delivered to
the possession of Pledgor or Pledgee with respect thereto, (b) Pledgor's records
with respect to the foregoing, and (c) the proceeds of all of the foregoing (all
of the foregoing being collectively referred to herein as the "Pledged
Property").
2. OBLIGATIONS SECURED
-------------------
The security interest, lien and other interests granted to Pledgee
pursuant to this Pledge Agreement shall secure the prompt performance and
payment in full of any and all obligations, liabilities and indebtedness of
every kind, nature and description owing by Pledgor to Pledgee and/or its
affiliates, including principal, interest, charges, fees, costs and expenses,
however evidenced, whether as principal, surety, endorser, guarantor or
otherwise, whether arising under this Pledge Agreement, the Loan Agreement or
the other Financing Agreements, whether now existing or hereafter arising,
whether arising before, during or after the initial or any renewal term of the
Loan Agreement or after the commencement of any case with respect to Pledgor
under the United States Bankruptcy Code or any similar statute (including,
without limitation, the payment of interest and other amounts which would accrue
and become due but for the commencement of such case), whether direct or
indirect, absolute or contingent, joint or several, due or not due, primary or
secondary, liquidated or unliquidated, secured or unsecured, and however
acquired by Pledgee (all of the foregoing being collectively referred to herein
as the "Obligations").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
Pledgor hereby represents, warrants and covenants with and to Pledgee
the following (all of such representations, warranties and covenants being
continuing so long as any of the Obligations are outstanding):
(a) The Pledged Securities are duly authorized, validly issued, fully
paid and non-assessable capital stock of each Issuer and constitute Pledgor's
entire interest in each Issuer and are not registered, nor has Pledgor
authorized the registration thereof, in the name of any person or entity other
than Pledgor or Pledgee.
(b) The Pledged Property is directly, legally and beneficially owned by
Pledgor, free and clear of all claims, liens, pledges and encumbrances of any
kind, nature or description, except for the pledge and security interest in
favor of Pledgee and the pledges and security interests permitted under the Loan
Agreement.
-2-
<PAGE>
(c) The Pledged Property is not subject to any restrictions relative to
the transfer thereof and Pledgor has the right to transfer and hypothecate the
Pledged Property free and clear of any liens, encumbrances or restrictions.
(d) The Pledged Property is duly and validly pledged to Pledgee and no
consent or approval of any governmental or regulatory authority or of any
securities exchange or the like, nor any consent or approval of any other third
party, was or is necessary to the validity and enforceability of this Pledge
Agreement.
(e) Pledgor authorizes Pledgee to: (i) store, deposit and safeguard the
Pledged Property, (ii) perform any and all other acts which Pledgee in good
faith deems reasonable and/or necessary for the protection and preservation of
the Pledged Property or its value or Pledgee's security interest therein and
(iii) pay any charges or expenses which Pledgee deems necessary for the
foregoing purpose, but without any obligation to do so. Any obligation of
Pledgee for reasonable care for the Pledged Property in Pledgee's possession
shall be limited to the same degree of care which Pledgee uses for similar
property pledged to Pledgee by other persons.
(f) If Pledgor shall become entitled to receive or acquire, or shall
receive any stock certificate, or option or right with respect to the stock of
any Issuer (including without limitation, any certificate representing a
dividend or a distribution or exchange of or in connection with reclassification
of the Pledged Securities) whether as an addition to, in substitution of, or in
exchange for any of the Pledged Property or otherwise, Pledgor agrees to accept
same as Pledgee's agent, to hold same in trust for Pledgee and to deliver same
forthwith to Pledgee or Pledgee's agent or bailee in the form received, with the
endorsement(s) of Pledgor where necessary and/or appropriate powers and/or
assignments duly executed to be held by Pledgee or Pledgee's agent or bailee
subject to the terms hereof, as further security for the Obligations.
(g) Pledgor shall not, without the prior consent of Pledgee, directly
or indirectly, sell, assign, transfer, or otherwise dispose of, or grant any
option with respect to the Pledged Property, nor shall Pledgor create, incur or
permit any further pledge, hypothecation, encumbrance, lien, mortgage or
security interest with respect to the Pledged Property.
(h) So long as no Event of Default (as hereinafter defined) has
occurred and is continuing, Pledgor shall have the right to vote and exercise
all corporate rights with respect to the Pledged Securities, except as expressly
prohibited herein, and to receive any cash dividends payable in respect of the
Pledged Securities.
(i) Pledgor shall not permit an Issuer, directly or indirectly, to
issue, sell, grant, assign, transfer or otherwise dispose of, any additional
shares of capital stock of such Issuer or any option or warrant with respect to,
-3-
<PAGE>
or other right or security convertible into, any additional shares of capital
stock of such Issuer, now or hereafter authorized, unless all such additional
shares, options, warrants, rights or other such securities are made and shall
remain part of the Pledged Property subject to the pledge and security interest
granted herein.
(j) Pledgor shall pay all charges and assessments of any nature against
the Pledged Property or with respect thereto prior to said charges and/or
assessments being delinquent.
(k) Pledgor shall promptly reimburse Pledgee on demand, together with
interest at the rate then applicable to the Obligations set forth in the Loan
Agreement, for any charges, assessments or expenses paid or incurred by Pledgee
in its discretion for the protection, preservation and maintenance of the
Pledged Property and the enforcement of Pledgee's rights hereunder, including,
without limitation, attorneys' fees and legal expenses incurred by Pledgee in
seeking to protect, collect or enforce its rights in the Pledged Property or
otherwise hereunder.
(l) Pledgee may notify any Issuer or the appropriate transfer agents of
the Pledged Securities to register the security interest and pledge granted
herein and honor the rights of Pledgee with respect thereto.
(m) Pledgor waives: (i) all rights to require Pledgee to proceed
against any other person, entity or collateral or to exercise any remedy, (ii)
the defense of the statute of limitations in any action upon any of the
Obligations, (iii) any right of subrogation or interest in the Obligations or
Pledged Property until all Obligations have been paid in full and (iv) any
rights to notice of any kind or nature whatsoever, unless specifically required
in this Pledge Agreement or non-waivable under any applicable law. Pledgor
agrees that the Pledged Property, other collateral, or any other guarantor or
endorser may be released, substituted or added with respect to the Obligations,
in whole or in part, without releasing or otherwise affecting the liability of
Pledgor, the pledge and security interests granted hereunder, or this Pledge
Agreement. Pledgee is entitled to all of the benefits of a secured party set
forth in Section 9-207 of the New York Uniform Commercial Code.
4. EVENTS OF DEFAULT
-----------------
All Obligations shall become immediately due and payable, without
notice or demand, at the option of Pledgee, upon the occurrence of any Event of
Default, as such term is defined in the Loan Agreement (each an "Event of
Default" hereunder).
5. RIGHTS AND REMEDIES
-------------------
At any time an Event of Default exists or has occurred and is
continuing, in addition to all other rights and remedies of Pledgee, whether
provided under this Pledge Agreement, the Loan Agreement, the other Financing
Agreements, applicable law or otherwise, Pledgee shall have the following rights
and remedies which may be exercised without notice to, or consent by, Pledgor
except as such notice or consent is expressly provided for hereunder:
-4-
<PAGE>
(a) Pledgee, at its option, shall be empowered to exercise its
continuing right to instruct each Issuer (or the appropriate transfer agent of
the Pledged Securities) to register any or all of the Pledged Securities in the
name of Pledgee or in the name of Pledgee's nominee and Pledgee may complete, in
any manner Pledgee may deem expedient, any and all stock powers, assignments or
other documents heretofore or hereafter executed in blank by Pledgor and
delivered to Pledgee. After said instruction, and without further notice,
Pledgee shall have the exclusive right to exercise all voting and corporate
rights with respect to the Pledged Securities and other Pledged Property, and
exercise any and all rights of conversion, redemption, exchange, subscription or
any other rights, privileges, or options pertaining to any shares of the Pledged
Securities or other Pledged Property as if Pledgee were the absolute owner
thereof, including, without limitation, the right to exchange, in its
discretion, any and all of the Pledged Securities and other Pledged Property
upon any merger, consolidation, reorganization, recapitalization or other
readjustment with respect thereto. Upon the exercise of any such rights,
privileges or options by Pledgee, Pledgee shall have the right to deposit and
deliver any and all of the Pledged Securities and other Pledged Property to any
committee, depository, transfer agent, registrar or other designated agency upon
such terms and conditions as Pledgee may determine, all without liability,
except to account for property actually received by Pledgee. However, Pledgee
shall have no duty to exercise any of the aforesaid rights, privileges or
options (all of which are exercisable in the sole discretion of Pledgee) and
shall not be responsible for any failure to do so or delay in doing so.
(b) In addition to all the rights and remedies of a secured party under
the Uniform Commercial Code or other applicable law, Pledgee shall have the
right, at any time and without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon Pledgor or any other person (all
and each of which demands, advertisements and/or notices are hereby expressly
waived to the extent permitted by applicable law), to proceed forthwith to
collect, redeem, recover, receive, appropriate, realize, sell, or otherwise
dispose of and deliver said Pledged Property or any part thereof in one or more
lots at public or private sale or sales at any exchange, broker's board or at
any of Pledgee's offices or elsewhere at such prices and on such terms as
Pledgee may deem best. The foregoing disposition(s) may be for cash or on credit
or for future delivery without assumption of any credit risk, with Pledgee
having the right to purchase all or any part of said Pledged Property so sold at
any such sale or sales, public or private, free of any right or equity of
redemption in Pledgor, which right or equity is hereby expressly waived or
released by Pledgor. The proceeds of any such collection, redemption, recovery,
receipt, appropriation, realization, sale or other disposition, after deducting
all costs and expenses of every kind incurred relative thereto or incidental to
the care, safekeeping or otherwise of any and all Pledged Property or in any way
relating to the rights of Pledgee hereunder, including attorneys' fees and legal
expenses, shall be applied first to the satisfaction of the Obligations (in such
order as Pledgee may elect and whether or not due) and then to the payment of
any other amounts required by applicable law, including Section 9-504(1)(c) of
-5-
<PAGE>
the Uniform Commercial Code, with Pledgor to be and remain liable for any
deficiency. Pledgor shall be liable to Pledgee for the payment on demand of all
such costs and expenses, together with interest at the then applicable rate set
forth in the Loan Agreement, and any attorneys' fees and legal expenses. Pledgor
agrees that ten (10) days prior written notice by Pledgee designating the place
and time of any public sale or of the time after which any private sale or other
intended disposition of any or all of the Pledged Property is to be made, is
reasonable notification of such matters.
(c) Pledgor recognizes that Pledgee may be unable to effect a public
sale of all or part of the Pledged Property by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, as now or hereafter in
effect or in applicable Blue Sky or other state securities law, as now or
hereafter in effect, but may be compelled to resort to one or more private sales
to a restricted group of purchasers who will be obliged to agree, among other
things, to acquire such Pledged Property for their own account for investment
and not with a view to the distribution or resale thereof. If at the time of any
sale of the Pledged Property or any part thereof, the same shall not, for any
reason whatsoever, be effectively registered (if required) under the Securities
Act of 1933 (or other applicable state securities law), as then in effect,
Pledgee in its good faith discretion is authorized to sell such Pledged Property
or such part thereof by private sale in such manner and under such circumstances
as Pledgee or its counsel may deem necessary or advisable in order that such
sale may legally be effected without registration. Pledgor agrees that private
sales so made may be at prices and other terms less favorable to the seller than
if such Pledged Property were sold at public sale, and that Pledgee has no
obligation to delay the sale of any such Pledged Property for the period of time
necessary to permit each Issuer, even if each Issuer would agree, to register
such Pledged Property for public sale under such applicable securities laws.
Pledgor agrees that any private sales made under the foregoing circumstances
shall be deemed to have been in a commercially reasonable manner.
(d) All of the Pledgee's rights and remedies, including, but not
limited to, the foregoing and those otherwise arising under this Pledge
Agreement, the Loan Agreement and the other Financing Agreements, the
instruments comprising the Pledged Property, applicable law or otherwise, shall
be cumulative and not exclusive and shall be enforceable alternatively,
successively or concurrently as Pledgee may deem expedient. No failure or delay
on the part of Pledgee in exercising any of its options, powers or rights or
partial or single exercise thereof, shall constitute a waiver of such option,
power or right.
6. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
---------------------------------
(a) The validity, interpretation and enforcement of this Pledge
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of New York
(without giving effect to principles of conflicts of law).
-6-
<PAGE>
(b) Pledgor irrevocably consents and submits to the non-exclusive
jurisdiction of the Supreme Court of the State of New York in the County of New
York and the United States District Court for the Southern District of New York
and waives any objection based on venue or forum non conveniens with respect to
any action instituted therein arising under this Pledge Agreement or any of the
other Financing Agreements or in any way connected with or related or incidental
to the dealings of the parties hereto in respect of this Pledge Agreement or any
of the other Financing Agreements or the transactions related hereto or thereto,
in each case whether now existing or hereafter arising, and whether in contract,
tort, equity or otherwise, and agrees that any dispute with respect to any such
matters shall be heard only in the courts described above (except that Pledgee
shall have the right to bring any action or proceeding against Pledgor or its
property in the courts of any other jurisdiction which Pledgee deems necessary
or appropriate in order to realize on the Pledged Property or to otherwise
enforce its rights against Pledgor or its property).
(c) Pledgor hereby waives personal service of any and all process upon
it and consents that all such service of process may be made by certified mail
(return receipt requested) directed to its address set forth herein and service
so made shall be deemed to be completed five (5) days after the same shall have
been so deposited in the U.S. mails, or, at Pledgee's option, by service upon
Pledgor in any other manner provided under the rules of any such courts. Within
thirty (30) days after such service, Pledgor shall appear in answer to such
process, failing which Pledgor shall be deemed in default and judgment may be
entered by Pledgee against Pledgor for the amount of the claim and other relief
requested.
(d) PLEDGOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS PLEDGE AGREEMENT OR ANY
OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED
OR INCIDENTAL TO THE DEALINGS OF PLEDGOR AND PLEDGEE IN RESPECT OF THIS PLEDGE
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED
HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. PLEDGOR 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 PLEDGOR OR PLEDGEE MAY FILE AN ORIGINAL
COUNTERPART OF A COPY OF THIS PLEDGE AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
(e) Pledgee shall not have any liability to Pledgor (whether in tort,
contract, equity or otherwise) for losses suffered by Pledgor in connection
with, arising out of, or in any way related to the transactions or relationships
contemplated by this Pledge Agreement, or any act, omission or event occurring
in connection herewith, unless it is determined by a final and non-appealable
judgment or court order binding on Pledgee, that the losses were the result of
acts or omissions constituting gross negligence or willful misconduct. In any
-7-
<PAGE>
such litigation, Pledgee shall be entitled to the benefit of the rebuttable
presumption that it acted in good faith and with the exercise of ordinary care
in the performance by it of the terms of this Pledge Agreement.
7. MISCELLANEOUS
-------------
(a) Pledgor agrees that at any time and from time to time upon the
written request of Pledgee, Pledgor shall execute and deliver such further
documents, including, but not limited to, irrevocable proxies or stock powers,
in form satisfactory to counsel for Pledgee, and will take or cause to be taken
such further acts as Pledgee may request in order to effect the purposes of this
Pledge Agreement and perfect or continue the perfection of the security interest
in the Pledged Property granted to Pledgee hereunder.
(b) Beyond the exercise of reasonable care to assure the safe custody
of the Pledged Property (whether such custody is exercised by Pledgee, or
Pledgee's nominee, agent or bailee) Pledgee or Pledgee's nominee agent or bailee
shall have no duty or liability to protect or preserve any rights pertaining
thereto and shall be relieved of all responsibility for the Pledged Property
upon surrendering it to Pledgor or foreclosure with respect thereto.
(c) All notices, requests and demands to or upon the respective parties
hereto shall be in writing and shall be deemed to have been duly given or made:
if delivered in person, immediately upon delivery; if by telex, telegram or
facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with instructions
to deliver the next business day, one (1) business day after sending; and if by
registered or certified mail, return receipt requested, five (5) days after
mailing. All notices, requests and demands upon the parties are to be given to
the following addresses (or to such other address as any party may designate by
notice in accordance with this Section):
If to Pledgor: Central Sprinkler Company
451 North Cannon Avenue
Lansdale, Pennsylvania 19446
Attention: Chief Financial Officer
If to Pledgee: Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Attention: Mr. Andrew W. Robin
(d) All references to the plural herein shall also mean the singular
and to the singular shall also mean the plural. All references to Pledgor,
Pledgee and Issuers pursuant to the definitions set forth in the recitals
hereto, or to any other person herein, shall include their respective successors
and assigns. The words "hereof," "herein," "hereunder," "this Pledge Agreement"
and words of similar import when used in this Pledge Agreement shall refer to
this Pledge Agreement as a whole and not any particular provision of this Pledge
Agreement and as this Pledge Agreement now exists or may hereafter be amended,
-8-
<PAGE>
modified, supplemented, extended, renewed, restated or replaced. An Event of
Default shall exist or continue or be continuing until such Event of Default is
waived in accordance with Section 7(g) hereof. All references to the term
"Person" or "Persons" herein shall mean any individual, sole proprietorship,
partnership, corporation (including, without limitation, any corporation which
elects subchapter S status under the Internal Revenue Code of 1986, as amended),
limited liability company, limited liability partnership, business trust,
unincorporated association, joint stock company, trust, joint venture or other
entity or any government or any agency, instrumentality or political subdivision
thereof.
(e) This Pledge Agreement, the other Financing Agreements and any other
document referred to herein or therein shall be binding upon Pledgor and its
successors and assigns and inure to the benefit of and be enforceable by Pledgee
and its successors and assigns.
(f) If any provision of this Pledge Agreement is held to be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate this
Pledge Agreement as a whole, but this Pledge Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
(g) Neither this Pledge Agreement nor any provision hereof shall be
amended, modified, waived or discharged orally or by course of conduct, but only
by a written agreement signed by an authorized officer of Pledgee. Pledgee shall
not, by any act, delay, omission or otherwise be deemed to have expressly or
impliedly waived any of its rights, powers and/or remedies unless such waiver
shall be in writing and signed by an authorized officer of Pledgee. Any such
waiver shall be enforceable only to the extent specifically set forth therein. A
waiver by Pledgee of any right, power and/or remedy on any one occasion shall
not be construed as a bar to or waiver of any such right, power and/or remedy
which Pledgee would otherwise have on any future occasion, whether similar in
kind or otherwise.
IN WITNESS WHEREOF, Pledgor has executed this Pledge Agreement as of
the day and year first above written.
CENTRAL SPRINKLER COMPANY
By: /s/ Albert T. Sabol
-----------------------------------
Title: Executive Vice President
--------------------------------
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<PAGE>
Exhibit 10.(x)
---------------------------------
AMENDED AND RESTATED
LEASE AGREEMENT
Dated as of October 1, 1998
-----------------------------------
Between
THE INDUSTRIAL DEVELOPMENT BOARD
OF THE CITY OF HUNTSVILLE
AND
CENTRAL CPVC CORPORATION
Relating to the Issuance of
$7,500,000
The Industrial Development Board of the City of Huntsville
Tax-Exempt Variable Rate Demand/Fixed Rate Refunding Revenue Bonds
(Central CPVC Corporation Project)
Series of 1998
This Instrument was Prepared by:
Joseph W. Mathews, Jr.
Lange, Simpson, Robinson & Somerville LLP
417 North 20th Street, Suite 1700
Birmingham, Alabama 35203
<PAGE>
TABLE OF CONTENTS
-----------------
(This Table of Contents is not a part of the Lease Agreement and is
provided solely for convenience of reference.)
<TABLE>
<CAPTION>
<S> <C>
Page
----
PARTIES .............................................................................................5
PREAMBLES .............................................................................................5
ARTICLE I
- ---------
DEFINITIONS
-----------
Section 1.1 Definitions....................................................................................7
Section 1.2 Use of Words and Phrases......................................................................11
ARTICLE II
- ----------
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 2.1 Representations and Warranties by the Lessor..................................................12
Section 2.2 Representations and Warranties by Lessee......................................................12
ARTICLE III
- -----------
DEMISING CLAUSES AND WARRANTY OF TITLE
--------------------------------------
Section 3.1 Demise of the Project.........................................................................13
Section 3.2 Warranty of Title.............................................................................13
Section 3.3 Quiet Enjoyment and Possession................................................................13
ARTICLE IV
- ----------
COMMENCEMENT AND COMPLETION OF THE PROJECT,
-------------------------------------------
Section 4.1 Agreement to Acquire, Construct and Equip the Project.........................................13
Section 4.2 Agreement to Issue Bonds; Application of Bond Proceeds........................................14
ARTICLE V
- ---------
EFFECTIVE DATE AND DURATION OF THIS LEASE AGREEMENT,
----------------------------------------------------
Section 5.1 Effective Date and Duration of this Lease Agreement...........................................15
Section 5.2 Delivery and Acceptance of Possession.........................................................15
Section 5.3 Rents and Other Amounts Payable...............................................................15
Section 5.4 Prepayment of Rents...........................................................................17
Section 5.5 Indemnity Against Claims......................................................................17
Section 5.6 Obligation of Lessee Unconditional............................................................18
Section 5.7 Public Services Payment.......................................................................18
Section 5.8 Lessee Entitled to Certain Rent Abatements if Bonds Paid Prior to Maturity....................19
Section 5.9 Indemnification with Respect to Certain Tax Changes...........................................19
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Page
----
ARTICLE VI
- ----------
MAINTENANCE, TAXES AND INSURANCE
--------------------------------
Section 6.1 Maintenance and Modification of Project by Lessee.............................................19
Section 6.2 Taxes, Other Governmental Charges and Utility Charges.........................................20
Section 6.3 Insurance Required to be Carried..............................................................21
Section 6.6 Advances by Lessor or Trustee.................................................................22
Section 6.7 Removal of Leased Equipment...................................................................22
ARTICLE VII
- -----------
DAMAGE, DESTRUCTION AND CONDEMNATION
------------------------------------
Section 7.1 Damage and Destruction........................................................................23
Section 7.2 Condemnation or Failure of Title..............................................................23
Section 7.3 Condemnation of Lessee Owned Property.........................................................24
ARTICLE VIII
- ------------
SPECIAL COVENANTS
-----------------
Section 8.1 No Warranty of Condition or Suitability by the Lessor.........................................24
Section 8.2 Inspection of the Project.....................................................................24
Section 8.3 Release of Certain Land.......................................................................24
Section 8.4 Purchase of Additional Machinery, Equipment, Furniture or Fixtures by the Lessor..............25
Section 8.5 Further Assurance and Corrective Instruments..................................................25
Section 8.7 Authorized Lessor Representative..............................................................25
Section 8.8 Authorized Lessee Representative..............................................................25
ARTICLE IX
- ----------
ASSIGNMENT, SUBLEASING, MORTGAGING AND
--------------------------------------
Section 9.1 Assignment and Subleasing.....................................................................28
Section 9.3 Restrictions on Mortgage or Sale of Project by Lessor.........................................28
Section 9.4 Redemption of Bonds...........................................................................29
Section 9.5 Reference to Bonds Ineffective After Bonds Paid...............................................29
ARTICLE X
- ---------
EVENTS OF DEFAULT AND REMEDIES
------------------------------
Section 10.1 Events of Default Defined....................................................................29
Section 10.2 Remedies on Default..........................................................................31
Section 10.3 No Remedy Exclusive..........................................................................31
Section 10.4 Agreement to Pay Attorneys' Fees and Expenses................................................32
Section 10.5 No Additional Waiver Implied by One Waiver...................................................32
Section 10.6 Remedial Rights Assigned to Trustee..........................................................32
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Page
----
ARTICLE XI
- ----------
OPTIONS IN FAVOR OF LESSEE
--------------------------
Section 11.1 Options to Terminate.........................................................................32
Section 11.2 Option to Purchase Project Prior to Payment of the Bonds.....................................33
Section 11.3 Option to Purchase Project After Payment of the Bonds........................................34
Section 11.4 Option to Purchase Unimproved Land...........................................................34
Section 11.5 Conveyance on Exercise of Option to Purchase.................................................35
Section 11.6 Effect of Exercise on Options................................................................36
Section 11.7 Relative Position of Options and Indenture...................................................36
ARTICLE XII
- -----------
MISCELLANEOUS
-------------
Section 12.1 Surrender of Project.........................................................................36
Section 12.2 Notices......................................................................................36
Section 12.3 Binding Effect...............................................................................37
Section 12.4 Severability.................................................................................37
Section 12.5 Amendments, Changes and Modifications........................................................37
Section 12.6 Execution in Counterparts....................................................................37
Section 12.7 Recording and Filing.........................................................................37
Section 12.8 Net Lease....................................................................................38
Section 12.9 Certain Tax Matters..........................................................................38
Section 12.10 Date of this Lease Agreement................................................................38
Section 12.11 Applicable Law..............................................................................38
Section 12.12 No Charge Against Lessor's Credit...........................................................38
Section 12.13 Captions....................................................................................38
TESTIMONIUM ...............................................................................................39
SIGNATURES AND SEALS...................................................................................... 39
ACKNOWLEDGEMENTS.......................................................................................... 41
EXHIBIT "A" ...............................................................................................42
EXHIBIT "B" ...............................................................................................43
</TABLE>
4
<PAGE>
AMENDED AND RESTATED LEASE AGREEMENT, dated as of October 1, 1998,
between The Industrial Development Board of the City of Huntsville (the
"Lessor"), a public corporation duly organized and existing under the
constitution and laws of the State of Alabama, and Central CPVC Corporation (the
"Lessee"), a corporation, organized and existing under the laws of the State of
Alabama.
W I T N E S S E T H:
--------------------
WHEREAS, the Lessor was organized pursuant to the provisions of Act No.
648 adopted at the 1949 Regular Session of the Legislature of the State of
Alabama, approved September 19, 1949, as amended (said Act being codified as
Section 11-54-80, et seq., Code of Alabama, 1975 and hereinafter sometimes
referred to as the "Act"); and,
WHEREAS, the Lessor has made the necessary arrangements with the Lessee
for acquiring real property and equipping thereon a manufacturing facility)(the
said real property, equipment and improvements being hereinafter referred to as
the "Project"), which will be of the character and accomplish the purposes
provided by the Act; and
WHEREAS, the Lessor has duly authorized the issuance of its $7,500,000
The Industrial Development Board of the City of Huntsville Tax-Exempt Variable
Rate Demand/Fixed Rate Refunding Revenue Bonds (Central CPVC Corporation
Project) Series of 1998 (the "Bonds") pursuant to a Trust Indenture made and
entered into as of the 1st day of October, 1998 by and between the Lessor and
First Union National Bank (the "Trustee"); and
WHEREAS, proceeds of the Bonds are being issued to refund the
outstanding principal amount of the Lessor's Industrial Development Revenue
Bonds (Central CPVC Corporation Project) Series 1997 Bonds dated December 1,
1997 (the "Series 1997 Bonds"). The Series 1997 Bonds were issued in the
principal amount of $7,500,000 and are now outstanding in the same amount. The
Series 1997 Bonds were issued to finance the costs of acquiring, constructing
and equipping a certain manufacturing facility (the "Project") that was leased
to the Lessee by the Lessor pursuant to a Lease Agreement dated as of December
1, 1997 (the "1997 Lease"); and
WHEREAS, when the Bonds are issued, the 1997 Bonds will be immediately
paid and retired and the 1997 Lease will be amended and restated. The Lessor
continues to own the Project and will continue to lease the Project to the
Lessee pursuant to this Amended and Restated Lease Agreement; and
WHEREAS, pursuant to this Amended and Restated Lease Agreement the
Lessee will agree to make lease payments to the Lessee at times and in amounts
sufficient to pay debt service on the Bonds and to pay the purchase price of
Bonds tendered for purchase pursuant to the optional or mandatory tender
provisions of the Indenture. Pursuant to the Indenture the Lessor will assign
and pledge to the Trustee all the Lessor's rights under this Amended and
Restated Lease Agreement except for certain rights relating to indemnification,
reimbursement of expenses and receipt of notices and other communications; and
5
<PAGE>
WHEREAS, the Lessee will cause Congress Financial Corporation (together
with its successors and/or assigns, the "Bank") to arrange for First Union
National Bank (together with its successors and/or assigns, the "Letter of
Credit Bank") to issue an irrevocable letter of credit in favor of the Trustee
to provide for payment of debt service on the Bonds and to pay the purchase
price of Bonds tendered for purchase pursuant to the optional or mandatory
tender provisions of the Indenture. The initial letter of credit to be delivered
to the Trustee and any substitute letter of credit delivered pursuant to the
Indenture are referred to as the "Letter of Credit"; and
WHEREAS, the Bank has agreed to guarantee to the Letter of Credit Bank
the performance by the Company of its obligations to the Letter of Credit Bank;
and
WHEREAS, the Bank will arrange for the initial Letter of Credit
pursuant to the Loan and Security Agreement by and among Congress Financial
Corporation, as Lender, and Central Sprinkler Company, Central Castings
Corporation, Central CPVC Corporation, as Borrowers, and Central Sprinkler
Corporation and Central Sprinkler Export Corporation, as Guarantors, dated
September 18, 1998 (together with all amendments, modifications and restatements
thereof, the "Credit Agreement") between the Bank and the Lessee whereby the
Lessee has agreed, among other things, to reimburse the Bank for payments to the
Letter of Credit Bank to reimburse the Letter of Credit Bank for all amounts
drawn pursuant to the initial Letter of Credit; and
WHEREAS, as security for the Lessee's obligations under the Credit
Agreement, the Lessor and Lessee have executed a Fee and Leasehold Mortgage with
Security Agreement and Assignment of Leases and Rents dated September 18, 1998
(together with all amendments, modifications and restatements thereof, the "Bank
Mortgage") in favor of the Bank, whereby the Bank has a mortgage on and security
interest in the Project, the leasehold interest of the Lessee, and certain other
collateral; and
WHEREAS, the Bonds will be further secured by the unconditional
guaranty of payment of principal of and interest on the Bonds by Central CPVC
Corporation, an Alabama corporation; and
WHEREAS, the Bonds are the limited obligations of the Lessor payable
solely out of (a) payments made pursuant to the Lease Agreement and the Bond
Guaranty, and (b) money received from a draw on the Letter of Credit. The
Trustee will not have a mortgage on or security interest in the Project. The
Bank Mortgage is for the sole benefit of the Bank; and
WHEREAS, the Bonds never shall constitute the debt or indebtedness of
the City of Huntsville (the "City") or the State of Alabama (the "State"),
within the meaning of any provision or limitation of the constitution or
statutes of Alabama, and shall not constitute or give rise to a pecuniary
liability of the Lessor, its members or the City or the State or a charge
against its or their general credit or the taxing powers of the City or the
State; and,
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WHEREAS, all things have been done which are necessary to make the
Bonds the valid obligations of the Lessor and to constitute this Indenture a
valid trust indenture for the security of the Bonds;
NOW, THEREFORE, in consideration of the premises and of the covenants
hereinafter set forth, the parties hereto do hereby covenant, agree and bind
themselves as follows, to-wit:
ARTICLE I
---------
DEFINITIONS
-----------
Section 1.1 Definitions. In addition to the words and terms elsewhere
defined in the Indenture or in this Lease Agreement, the following words and
terms, as used in this Lease Agreement, shall have the following meanings unless
the context or use indicates another or different meaning or intent:
"Act" means Act No. 648 enacted at the 1949 Regular Session of the
Legislature of Alabama, as heretofore amended, said Act being codified as
Chapter 54, Article 4 (Section 11-54-80, et seq.), Code of Alabama, 1975.
"Agreement," "Lease Agreement" or "Lease" means this Amended and
Restated Lease Agreement entered into by and between the Lessor and Lessee as of
October 1, 1998, and including any amendments or supplements thereto.
"Authorized Lessee Representative" means the person at the time
designated to act on behalf of the Lessee by written certificate furnished to
the Lessor and the Trustee signed on behalf of the Lessee. Such certificate may
designate an alternate or alternates.
"Authorized Lessor Representative" means the person or persons at the
time designated to act on behalf of the Lessor by written certificate furnished
to the Lessee and the Trustee and signed on behalf of the Lessor by its
Chairman, Vice Chairman, or Secretary.
"Bonds" shall have the same meaning as described in the form of Bonds
set forth in the Indenture.
"Building" means that certain building and all other facilities forming
a part of the Project, and not constituting part of the Leased Equipment, which
are located on the Leased Land, as they may at any time exist.
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"City" means the City of Huntsville, a municipal corporation organized
and existing under the laws of the State.
"Code" means the Internal Revenue Code of 1986, as amended and at the
time in force and effect.
"Completion Date" means May 1, 1998, the date of completion of the
acquisition, construction, equipping and improvement of the Project.
"Construction Period" means the period between the beginning of
construction and the Completion Date.
"County" means Madison County, Alabama.
"Determination of Taxability" means a determination that interest on
the Bonds is subject to federal income taxation for any reason other than the
circumstances described in Section 147(a) of the Code. Such a determination
shall be deemed to have been made upon the occurrence of either of the
following:
(a) the date on which the Lessee or the Trustee shall be
advised by private ruling, technical advice or other written
communication from an authorized official of the Internal Revenue
Service that interest on the Bonds is subject to federal income
taxation;
(b) the date on which the Lessee or the Trustee shall receive
notice in writing from a Registered Owner of the Bonds that the
Registered Owner has been advised by an authorized official of the
Internal Revenue Service that the interest on the Bonds is subject to
federal income taxation; or
(c) the date on which the Trustee receives an opinion of a
nationally recognized bond counsel that interest on the Bonds is
subject to Federal income taxation.
"Event of Taxability" means the occurrence of any event or the
existence of any circumstances (including, without limitation, the fact that any
representation or warranty of the Lessee set forth in this Agreement is untrue
or the breach by the Lessee of any covenants of the Lessee herein set forth)
which has the effect of causing the interest payable on the Bonds to become
includable in the gross income of the holders thereof for federal income
taxation purposes (other than a holder who is a Substantial User of the Project
or a Related Person). The date of an Event of Taxability shall be the effective
date as of which such interest became subject to taxation.
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"Guarantor" means Central CPVC Corporation, an Alabama corporation.
"Guaranty" means that certain guaranty agreement dated as of October 1,
1998, by Central CPVC Corporation, an Alabama corporation.
"Trust Indenture" means the Trust Indenture dated as of October 1,
1998, between the Lessor and the Trustee, pursuant to which the Bonds are
authorized to be issued, the interest of the Lessor in this Agreement, and the
revenues and receipts of the Lessor in respect of the Project, as in this
Agreement provided, are to be pledged and assigned as security for the payment
of principal of and interest on the Bonds, and including any indenture
supplemental thereto.
"Independent Counsel" means an attorney or firm of attorneys duly
admitted to practice law in any state of the United States and not in the full
time employment of either the Lessor or the Lessee.
"Independent Engineer" means an engineer or architect or engineering or
architectural firm registered and qualified to practice the profession of
engineering or architecture under the laws of Alabama and not in the full time
employment of either the Lessor or the Lessee.
"Lease Term" means the duration of the leasehold estate created in this
Agreement as specified in Section 5.1 hereof.
"Leased Equipment" means (i) those items of machinery, equipment and
other tangible personal property financed with proceeds from the sale of the
Bonds, (ii) any item of machinery, equipment or tangible personal property
acquired in substitution for, or as a renewal or replacement of, or a
modification or improvement of any Leased Equipment, pursuant to the provisions
of Sections 6.1, 6.7(a), 7.1 and 7.2 hereof, (iii) any machinery, equipment or
other tangible personal property acquired by the Lessor pursuant to the
provisions of Section 8.4 hereof. "Leased Equipment" shall not include such
machinery, equipment and tangible personal property as may be purchased by the
Lessee from its own funds, or released from this Agreement pursuant to the
provisions of Section 6.7 hereof, or taken by the exercise of the power of
eminent domain as provided in Section 7.2 hereof.
"Leased Land" means the real estate, interests in real estate and other
rights described in Exhibit A hereto and such other real estate, interests in
real estate and other rights hereafter conveyed or granted to the Lessor at the
request of the Lessee, together with all additions thereto and substitutions,
therefor, less any real estate, interests in real estate and other rights as may
be released from this Agreement pursuant to Sections 8.3, 8.6 and 11.4 hereof or
taken by the exercise of the power of eminent domain as provided in Section 7.2
hereof.
"Lessee" means Central CPVC Corporation, and its successors and assigns
as herein permitted.
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"Lessor" means (i) The Industrial Development Board of the City of
Huntsville and its successors and assigns, and, (ii) any corporation resulting
from or surviving any consolidation or merger to which it or its successors may
be a party.
"Local Facilities" means facilities of which the Lessee or a Related
Person thereto is or will be the Principal User and which are located within
twenty-five miles from the corporate limits of the City.
"Net Proceeds", when used with respect to any insurance or condemnation
award, means the gross proceeds from the insurance or condemnation award with
respect to which that term is used, remaining after payment of all expenses
(including attorney's fees and any extraordinary fee of the Trustee) incurred in
the collection of such gross proceeds.
"Permitted Encumbrances" means, as of any particular time, (i)
mechanics' and other liens and liens for ad valorem taxes permitted to exist as
provided in Sections 6.1 and 6.2 hereof, or not then delinquent, (ii) this
Agreement, the Indenture and the Bank Mortgage, (iii) utility, access and other
easements and rights of way, restrictions and exceptions that an Independent
Engineer certifies will not interfere with or impair the operations being
conducted in the Building (or, if no operations are being conducted therein, the
operations for which the Building was designed or last modified) or elsewhere on
the Leased Land, (iv) any mechanics', laborers', materialmen's, suppliers' or
vendors' lien or right or purchase money security interest in respect thereof if
payment is not yet due and payable under the contract in question, (v) those
exceptions under Schedule B Section 2 of the interim title insurance binder
issued with respect to the Leased Land in connection with this transaction by a
title insurance company acceptable to the Trustee, and (vi) such minor defects,
irregularities, encumbrances, easements, rights of way, and clouds on title as
normally exist with respect to properties similar in character to the Project
and as do not materially impair the Project for the purpose for which it was
acquired or is held by the Lessor.
"Principal User" means a "principal user" as that term is used in
Section 144(a)(2)(B) of the Code and the applicable regulations promulgated
thereunder.
"Project" means the Leased Land, the Building and the Leased Equipment,
as they may at any time exist.
"Related Person" means a "related person" as that term is defined in
Section 144(a)(3) of the Code.
"State" means the State of Alabama.
"Substantial User" means a "substantial user" as that term is used in
Section 147(a) of the Code and the applicable regulations promulgated
thereunder.
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"Unimproved" when used with reference to the Leased Land means any part
or parts of the Leased Land upon the surface of which no part of a building or
other structure rests.
Section 1.2 Use of Words and Phrases. "Herein", "hereby", "hereunder",
"hereof", "hereinbefore", "hereinafter" and other equivalent words refer to this
Indenture as a whole and not solely to the particular portion thereof in which
any such word is used. The definitions set forth in Section 1.1 hereof include
both singular and plural. Whenever used herein, any pronoun shall be deemed to
include both singular and plural and to cover all genders. Terms which refer
generally to the payment or the obligation to pay "principal and interest on the
Bonds" shall be deemed to include the payment or the obligation to pay any
applicable redemption premium on any Bonds which are called for redemption prior
to maturity.
Section 1.3. Content of Certificates and Opinions. The Trustee may, but
shall not be obligated to, require that every certificate or opinion provided
for in this Agreement with respect to compliance with any provision hereof shall
include: (1) a statement to the effect that the Person making or giving such
certificate or opinion has read such provision and the definitions herein
relating thereto; (2) a brief statement as to the nature and scope of the
examination or investigation upon which the certificate or opinion is based; (3)
a statement to the effect that in the opinion of such Person, he has made or
caused to be made such examination or investigation as is necessary to enable
him to express an informed opinion with respect to the subject matter referred
to in the instrument to which his signature is affixed; (4) a statement of the
assumptions upon which such certificate or opinion is based, and that such
assumptions are reasonable; and (5) a statement as to whether, in the opinion of
such Person, such provision has been complied with.
Any such certificate or opinion made or given by an officer of the
Lessor or the Lessee may be based, insofar as it relates to legal or accounting
matters, upon a certificate or opinion of or representation by counsel or an
accountant, unless such officer knows, or in the exercise of reasonable care
should have known, that the certificate, opinion or representation with respect
to the matters upon which such certificate or statement may be based, as
aforesaid, is erroneous. Any such certificate or opinion made or given by
counsel or an accountant may be based, insofar as it relates to factual matters
(with respect to which information is in the possession of the Lessor or the
Lessee, as the case may be) upon a certificate or opinion of or representation
by an officer of the Lessor or the Lessee, unless such counsel or accountant
knows, or in the exercise of reasonable care should have known, that the
certificate or opinion or representation with respect to the matters upon which
such certificate or opinion or representation may be based, as aforesaid, is
erroneous. The same officer of the Lessor or the Lessee, or the same counsel or
accountant, as the case may be, need not certify to all of the matters required
to be certified under any provision of this Agreement, but different officers,
counsel or accountants may certify to different matters, respectively.
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ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 2.1 Representations and Warranties by the Lessor. The Lessor
represents and warrants that:
(a) By proper corporate action, the Lessor has duly authorized the
execution and delivery of this Agreement, the Indenture, the Bonds and all other
instruments and documents previously or contemporaneously executed and delivered
by the Lessor in connection with the Bonds. Subject to Section 9.3 hereof, the
Lessor agrees that it will do or cause to be done all things necessary to
preserve and keep in full force and effect its existence.
(b) Notwithstanding anything herein to the contrary, any obligation
that the Lessor may incur pursuant to the terms of this Agreement for the
payment of money shall not be a general debt on its part but shall be payable
solely from proceeds derived from this Agreement, draws on the Letter of Credit,
the sale of the Bonds and the insurance and condemnation awards as herein
provided.
Section 2.2 Representations and Warranties by Lessee. The Lessee
represents and warrants that:
(a) The Lessee is a corporation duly organized, validly existing and
in good standing under the laws of the State of Alabama. Lessee has all
requisite power and authority, corporate and otherwise, to conduct its business
and to own its properties and is duly qualified as a foreign corporation in good
standing in all jurisdictions in which its failure so to qualify could have a
Material Adverse Effect on its financial condition or business.
(b) The Lessee has, by all necessary action, duly authorized the
execution, delivery and performance of this Agreement, and when duly executed
and delivered by the Lessor, this Agreement will constitute a legal, valid and
binding obligation of the Lessee.
(c) The Lessee will comply fully at all times with the Lessee's
Arbitrage and Tax Certificate, and the Lessee will not take any action, or omit
to take any action, which, if taken or omitted, respectively, would violate the
Lessee's Arbitrage and Tax Certificate.
Section 2.3 Continuing Disclosure The Bonds are exempt from the
continuing disclosure requirements of Section (b)(5) of Rule 15c2-12 (the
"Rule") adopted by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended and supplemented, so long as they bear interest
at the Floating Rate (as defined in the Indenture). If the Bonds are converted
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to the Fixed Rate (as defined in the Indenture), the Bonds may become subject to
the continuing disclosure requirements of the Rule. In such event, the Lessee
agrees to enter into a continuing disclosure agreement with the Trustee, in form
satisfactory to Bond Counsel. The Lessee hereby covenants and agrees with the
Bondholders that it will comply with and carry out all of the provisions of such
continuing disclosure agreement, as amended from time to time, applicable to it.
Notwithstanding any other provision of this Agreement, failure of the Lessee to
comply with such continuing disclosure agreement shall not be considered a
default or an event of default under this Agreement and the rights and remedies
provided by this Agreement upon the occurrence of a Default shall not apply to
any such failure, but the continuing disclosure agreement may be enforced only
as provided therein.
ARTICLE III
-----------
DEMISING CLAUSES AND WARRANTY OF TITLE
--------------------------------------
Section 3.1 Demise of the Project. The Lessor demises and leases to the
Lessee, and the Lessee leases from the Lessor, the Leased Land, as more
particularly described in Exhibit A hereto, together with the Building and the
Leased Equipment as more particularly described in Exhibit B hereto, as they may
at any time exist, and all other property which, under the terms hereof, are or
subsequently become a part of the Project, subject only to Permitted
Encumbrances, in accordance with the provisions of this Lease Agreement,
including the payment of rentals and of other amounts as set forth in Section
5.3 hereof.
Section 3.2 Warranty of Title. The Lessor warrants that it has good and
marketable title to the Project, free from all encumbrances other than Permitted
Encumbrances and other than the encumbrances set forth in the granting clauses
of the Indenture, and the Lessor has or will promptly obtain title insurance in
form and amount acceptable to the Trustee with respect to the Leased Land. The
Net Proceeds from such insurance shall be paid to the Trustee and applied in
accordance with Section 7.2 hereof. To the extent such insurance is available to
redeem Bonds pursuant hereto, no claim shall be made and no suit brought
hereunder against the Lessee by the title insurance company or anyone else
claiming on behalf of or by, through or under it.
Section 3.3 Quiet Enjoyment and Possession. The Lessor covenants and
agrees that as long as the Lessee shall not be in default under this Lease
Agreement, the Lessee may peaceably and quietly have, hold and enjoy the
Project, and that the Lessor will, to the extent funds are made available to it
for such purposes, defend the Lessee's enjoyment and possession thereof against
all parties.
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ARTICLE IV
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THE PROJECT, ISSUANCE OF THE BONDS
----------------------------------
Section 4.1 Acquisition, Construction and Equipping of the Project. The
Lessor, acting by and through the Lessee as its agent, has caused the Project to
be acquired, installed, equipped and improved as herein provided, substantially
in accordance with the plans and specifications provided by the Lessee.
Section 4.2 Agreement to Issue Bonds; Application of Bond Proceeds.
(a) The Lessor agrees that it will sell, issue and deliver $7,500,000
aggregate principal amount of Bonds to the initial purchasers thereof and use
the proceeds therefrom, along with an equity contribution from the Lessee, to
payoff the Series 1997 Bonds, the proceeds of which were used to acquire,
construct and equip the Project.
Section 4.3. Substitute Letter of Credit. The Lessee may provide for
the delivery to the Trustee of a Substitute Letter of Credit upon thirty (30)
days prior written notice to the Trustee, the Tender Agent, the Remarketing
Agent and the Lessor. Any Substitute Letter of Credit shall be delivered to the
Trustee on an Interest Payment Date and not later than the thirtieth (30th)
Business Day prior to the expiration of the Letter of Credit it is being issued
to replace. On or before the date of the delivery of any Substitute Letter of
Credit to the Trustee, as a condition to the acceptance of any Substitute Letter
of Credit by the Trustee, the Lessee shall furnish to the Lessor, the Trustee
and the Remarketing Agent: (i) written evidence that the issuer of such
Substitute Letter of Credit is a commercial bank or other financial institution
organized and doing business in the United States or a branch or agency of a
foreign commercial bank located and doing business in the United States and
subject to regulation by state or federal banking regulatory authorities and
that it has been assigned the same or better rating as the Letter of Credit in
effect immediately prior to the substitution of the Substitute Letter of Credit;
(ii) an opinion of nationally recognized bond counsel to the effect that the
delivery of such Substitute Letter of Credit is authorized under this Agreement
and the Indenture and the Act and complies with the terms hereof, and, that the
delivery of such Substitute Letter of Credit does not adversely affect the
exclusion from gross income of the interest on the Bonds for federal income tax
purposes; and (iii) an opinion of Counsel satisfactory to the Trustee, the
Lessor, the Lessee and the Remarketing Agent to the effect that the Substitute
Letter of Credit is a legal, valid and binding obligation of the issuer (or, in
the case of a branch or agency of a foreign commercial bank, the branch or
agency) issuing the same, enforceable in accordance with its terms, that
payments of principal of, and to the extent the Letter of Credit covers same,
any premium on the Bonds, or Purchase Price of or interest on the Bonds from the
proceeds of a drawing on the Substitute Letter of Credit will not constitute
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voidable preferences under the Bankruptcy Code or other applicable laws and
regulations and that it is not necessary to register the Substitute Letter of
Credit under the Securities Act of 1933, as amended, or to qualify an indenture
with respect thereto under the Trust Indenture Act of 1939, as amended. On or
before the delivery of any Substitute Letter of Credit to the Trustee, as an
additional condition to the acceptance of any Substitute Letter of Credit by the
Trustee, the Lessee shall furnish to the Lessor, the Trustee and the Remarketing
Agent written evidence from each Rating Agency that the rating on the Bonds will
not be reduced or withdrawn as a result of the acceptance of the Substitute
Letter of Credit and that the short term unsecured debt of the Bank or
Substitute Bank, as applicable, shall then have been assigned a rating by
Moody's of "P-1" or the equivalent rating assigned by S&P. In the case of a
Substitute Letter of Credit issued by a branch or agency of a foreign commercial
bank there shall also be delivered an opinion of Counsel, satisfactory to the
Trustee, the Lessor, the Lessee and the Remarketing Agent and licensed to
practice law in the jurisdiction in which the head office of such bank is
located, to the effect that the Substitute Letter of Credit is the legal, valid
and binding obligation of such bank enforceable in accordance with its terms.
The Trustee shall accept any such Substitute Letter of Credit only in accordance
with the terms, and upon the satisfaction of the conditions, contained in this
Section 4.3 and any other provisions applicable to acceptance of a Substitute
Letter of Credit under this Agreement and the Indenture.
ARTICLE V
---------
EFFECTIVE DATE AND DURATION OF THIS AGREEMENT, RENTAL PROVISIONS
----------------------------------------------------------------
Effective Date and Duration of this Agreement. This Agreement shall
become effective upon its delivery and subject to the provisions of this Lease
Agreement (including particularly Articles X and XI hereof), shall, unless
terminated by the Lessee pursuant to Section 11.1 hereof, continue until ll:59
o'clock, P.M., on the last day of December, 2013.
Section 5.2 Delivery and Acceptance of Possession. The Lessor shall
deliver to the Lessee sole and exclusive possession of the Project (subject to
the right of the Lessor to enter thereon for inspection purposes and to the
other provisions of Section 8.2 hereof) on the date the Lease Agreement is
executed.
Section 5.3 Rents and Other Amounts Payable.
(a) The Lessee shall pay to the Trustee, on behalf of the
Lessor, the following sums as lease payments hereunder at the following times,
in immediately available funds:
(i) on each Interest Payment Date during the term of this
Agreement, an amount which is sufficient to pay the interest then due
on the Bond.
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(ii) on the maturity date of the Bond, the
principal amount thereof then maturing;
(iii) on the redemption dates established for the Bond to be
redeemed pursuant to Section 4.01 (c) of the Indenture (if any), an
amount equal to the redemption price due on such date.
(b) In any event, the sum of the lease payments payable under this
Section 5.3 shall be insufficient to pay the total amount due with respect to
such principal and redemption price of and interest (including but not limited
to interest and late charges payable pursuant to the Bond on any overdue amount)
on the Bond, as and when due, and the Lessee shall forthwith pay any deficiency
to the Trustee. If at any time the Bond has been fully paid and discharged
within the meaning of the terms hereof, the Lessee shall not be obligated to
make any further payments under this Section.
(c) Payment of Lessor's Fees and Expenses. The Lessee shall pay to, or
upon the order of, the Lessor, upon request of the Lessor, such amounts required
to pay the Lessor's customary administrative fees and to pay or reimburse its
reasonable administrative expenses incurred from time to time in connection with
services or actions of the Board in connection with this Agreement.
(d) No Abatement or Setoff. The Lessee shall pay all lease payments and
all additional sums required hereunder without suspension or abatement of any
nature, notwithstanding that all or any part of the facilities shall have been
wholly or partially destroyed, damaged or injured and shall not have been
repaired, replaced or rebuilt. So long as the Bond remains Outstanding, the
obligation of the Lessee to pay all sums due from the Lessee hereunder shall be
absolute and unconditional for which the Lessee pledges its full faith and
credit and shall not be suspended, abated, reduced, abrogated, waived,
diminished or otherwise modified in any manner or to any extent whatsoever,
regardless of any rights of setoff, recoupment or counterclaim that the Lessee
might otherwise have against the Lessor or any other party or parties and
regardless of any contingency, act of god, event or cause whatsoever and
notwithstanding any circumstances or occurrence that may arise or take place
after the date hereof, including but without limiting the generality of the
foregoing:
(i) any damage to or destruction of any part or all of the
Project Facilities;
(ii) the taking or damaging of any part or all of the Project
facilities, by any public authority or agency in the exercise of the
power of or in the nature of eminent domain or by way of a conveyance
in lieu of such exercise or otherwise;
(iii) any assignment, novation, merger, consolidation, or
transfer of assets, whether with or without the approval of the Lessor;
(iv) any failure of the Lessor to perform or observe any
agreement or covenant, whether express or implied, or any duty,
liability or obligation arising out of or in connection with this
Agreement and the Bond;
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(v) any act or circumstances that may constitute an eviction
or constructive eviction;
(vi) failure of consideration, failure of title or commercial
frustration;
(vii) any change in the tax laws or other laws of the United
States or of any state or other governmental authority; or
(viii) any determination that the Bond or the interest payable
thereon are subject to Federal taxation.
Section 5.4 Prepayment of Rents.
(a) Optional Prepayment. There is expressly reserved to the Lessee the
right, and the Lessee is authorized and permitted, at any time the Lessee may
choose, to prepay all or any part of the rents payable under Section 5.3 hereof,
but only to the extent that the Bonds may be prepaid in accordance with the
provisions of Article IV of the Indenture, and the Lessor agrees that the
Trustee may accept such prepayment of rents when the same are tendered by the
Lessee. All rents so prepaid shall be credited on the rental payments specified
in Section 5.3 hereof in the inverse order of their maturities, unless prior to
the date on which said credit is to be taken, the Lessee requests the Lessor to
use such monies to redeem the Bonds in accordance with the provisions of the
Indenture.
(b) Extraordinary and Mandatory Prepayment. In the event of an
extraordinary or mandatory redemption as provided by Article IV of the
Indenture, the Lessee shall prepay the Basic Rent sufficient to redeem the Bonds
in accordance with the provisions of the Indenture and to pay all expenses of
such redemption and all other obligations as set forth in the Indenture.
Section 5.5 Indemnity Against Claims. The Lessee covenants and agrees
to pay and to indemnify and save the Lessor harmless of, from and against any
and all claims, damages, demands, expenses, liabilities and losses of every
conceivable kind, character and nature whatsoever (including, but not limited
to, claims for loss or damage to any property, or injury to or death of any
person) asserted against the Lessor by or on behalf of any person, firm,
corporation or governmental authority arising out of, resulting from, or in any
way connected with the Project, including but not limited to the condition, use,
possession, conduct or management of, or any work done in or about, the Project,
or from the planning, design, acquisition or improvement of the Project or any
part thereof, or from the lease or sale of any part thereof. The Lessee will
also pay and discharge and will indemnify and hold harmless the Lessor from: (a)
any lien or charge upon payments by the Lessee to the Lessor hereunder, and (b)
any taxes, assessments, impositions and other charges, in respect to the
Project. The Lessee also covenants and agrees to pay and to indemnify and save
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the Lessor harmless of, from and against, all of the Lessor's costs, expenses
(including reasonable counsel fees) and liabilities incurred in any action or
proceeding brought by reason of any such claim or demand. If any such claim is
asserted, or any such lien or charge upon payments, or any taxes, assessments,
impositions or other charges are sought to be imposed, and either the Lessor and
the Trustee has notice or knowledge thereof the Lessor or the Trustee, as the
case may be, will give prompt notice to the Lessee, and the Lessee shall have
the sole right and duty to assume, and will assume the defense thereof on the
Lessee's behalf and on behalf of the Lessor, with full power to litigate,
compromise or settle the same in the Lessee's sole discretion; provided,
however, if the Lessor deems it necessary, the Lessor may obtain its own Counsel
in such action and the Lessee agrees to pay the reasonable fees and expenses of
such counsel.
Notwithstanding the foregoing, nothing set forth in this Section 5.5
shall be construed to indemnify the Lessor for or release the Lessor from any
liability which it would otherwise have had arising from the willful, wrongful
or negligent actions or failures to act on the part of the Lessor, its
employees, agents or representatives acting in their capacities other than as
contemplated by this Lease Agreement.
Section 5.6 Obligation of Lessee Unconditional. The obligation of the
Lessee to make the payments pursuant to this Lease Agreement and to perform and
observe the other agreements on the Lessee's part set forth herein shall be
absolute and unconditional, shall not be subject to any defense or any right of
set-off, counterclaim, recoupment, abatement or otherwise, arising out of any
breach by the Lessor of any obligation to the Lessee, whether hereunder or
otherwise, or out of any indebtedness or liability at any time owing to the
Lessee by the Lessor. The Lessee hereby agrees to pay to the Trustee all of said
payments payable by the Lessee pursuant to Section 5.3 of this Lease Agreement.
Until such time as the principal of and interest on the Bonds shall have been
fully paid or provisions for the payment thereof shall have been made in
accordance with the Indenture, the Lessee: (i) will not suspend or discontinue
any payments pursuant to this Lease Agreement, (ii) will perform and observe all
the Lessee's other agreements set forth in this Lease Agreement, and (iii)
except as provided in Article XI hereof, will not terminate this Lease Agreement
for any cause including, without limiting the generality of the foregoing,
failure of the Lessor to complete the Project, failure of the Lessor's title to
the Project or any part thereof, loss of title to (or the temporary use of) the
Project by virtue of the exercise by others of the power of eminent domain, any
acts or circumstances, that may constitute failure of consideration, destruction
of or damage to the Project, commercial frustration of purpose, any change in
the tax or other laws of the United States of America or of the State of
Alabama, or any political subdivision of either thereof, or any failure of the
Lessor to perform and observe any agreement, whether express or implied, or any
duty, liability or obligation arising out of or connected with this Lease
Agreement.
Nothing set forth in this Section 5.6 shall be construed to release the
Lessor from the performance of any of the agreements on its part herein set
forth. In the event the Lessor shall fail to perform any such agreement on its
part, the Lessee may institute such action against the Lessor as the Lessee may
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deem necessary to compel performance or may pursue such other remedies for
non-performance as may be available to the Lessee so long as such action shall
not violate the agreements on the part of the Lessee set forth in the preceding
paragraph. In no event, however, shall the Lessee be entitled to any diminution
of the amounts payable under Section 5.3 hereof. The Lessee may, however, at the
Lessee's own cost and expense and in the Lessee's own name or in the name of the
Lessor, prosecute or defend any action or proceeding or take any other action
involving third persons which the Lessee deems reasonably necessary in order to
insure the acquisition, construction, installation and equipping of the Project
or to secure or protect the Lessee's right of possession, occupancy and use
hereunder, and in such event, the Lessor hereby agrees to cooperate fully with
the Lessee and to take all action necessary to effect the substitution of the
Lessee for the Lessor in any such action or proceeding if the Lessee shall so
request.
Section 5.7 Ad Valorem Taxes. The Lessee and the Lessor acknowledge
that under present law the Project is not exempt, by reason of this Lease, from
ad valorem taxes. The Project, however, is subject to an abatement of certain
non-educational taxes.
Section 5.8 Lessee Entitled to Certain Rent Abatements if Bonds Paid
Prior to Maturity. If at any time the aggregate monies available in a bond
escrow agreement approved by the Trustee shall be sufficient to retire all of
the Bonds outstanding in accordance with the provisions of the Indenture, and to
pay all fees and charges of the Trustee and paying agents due or to become due
through the date on which the last of the Bonds is retired under circumstances
not resulting in termination of the Lease Term, and if the Lessee is not at the
time otherwise in default hereunder, the Lessee shall be entitled to use and
occupy the Project from the date on which such aggregate monies are in the hands
of the Trustee to and including the last day of December, 2013 without the
payment of the rent specified in Section 5.3 during that interval (but otherwise
on the terms and conditions thereof).
Section 5.9 [Reserved]
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ARTICLE VI
----------
MAINTENANCE, TAXES AND INSURANCE
--------------------------------
Section 6.1 Maintenance and Modification of Project by Lessee. The
Lessee will, at the Lessee's sole expense, during the Lease Term, keep the
Project in as reasonably safe condition as its operations shall permit and in
good repair and in good operating condition, making from time to time all
necessary repairs thereto (including external and structural repairs). The
Lessee may, also at the Lessee's expense, make from time to time any additions,
modifications or improvements to the Project that the Lessee may deem desirable
for the Lessee's business purposes and that do not adversely affect the
structural integrity of the Project or substantially reduce its value. All such
renewals, replacements, additions, modifications and improvements so made by the
Lessee shall become part of the Project. The Lessee may, also at the Lessee's
own expense, locate on the Leased Land any tangible personal property not
purchased by the Lessor with the proceeds from the sale of the Bonds which, in
the Lessee's judgment, is essential to the operation of the Project.
The Lessee will not permit any mechanics', materialmen's or other liens
(except Permitted Encumbrances) to be established or remain against the Project
for labor or materials furnished in connection with the Project or any
additions, modifications, improvements, repairs, renewals or replacements so
made by the Lessee; provided, that if the Lessee shall first notify the Trustee
of the Lessee's intention to do so, the Lessee may in good faith contest any
mechanics', materialmen's or other lien filed or established against the
Project, and in such event, may permit the items so contested to remain
undischarged and unsatisfied during the period of such contest and any appeal
therefrom unless (i) the Lessor or the Trustee and (ii) the Bank shall notify
the Lessee that, in the opinion of Independent Counsel, by non-payment of any
such items, the security afforded pursuant to the terms of the Indenture will be
materially endangered or the Project or any part thereof will be subject to loss
or forfeiture, and in either of such events, the Lessee shall promptly pay and
cause to be satisfied and discharged all such unpaid items or secure such
payment by posting a bond, in form satisfactory to the Lessor and the Trustee,
with the Trustee. The Lessor will cooperate fully with the Lessee in any such
contest.
Section 6.2 Taxes, Other Governmental Charges and Utility Charges. The
parties to this Lease Agreement understand and acknowledge that: (i) under
present law the income and receipts, if any, of the Lessor from the Project are
not subject to either Federal or State income taxation, and (ii) this factor
among others, has induced Lessee to enter into this Lease Agreement.
Nevertheless, the Lessee will pay during the Lease Term, as the same
respectively become due, all taxes and governmental charges of any kind
whatsoever that may at any time be lawfully assessed or levied against or with
respect to the Project or any equipment or other personal property installed or
brought by the Lessee therein or thereon (including, without limiting the
generality of the foregoing, any taxes levied upon or with respect to the income
or profits of the Lessor from the Project which, if not paid, will become a
charge on the Project prior to or on a parity with the lien of the Indenture or
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a charge on the revenues and receipts from the Project prior to or on a parity
with the charge thereon and the pledge or assignment thereof to be created and
made in the Indenture, and including any ad valorem taxes lawfully assessed
thereupon), all utility and other charges incurred in the operation,
maintenance, use, occupancy and upkeep of the Project and all assessments and
charges lawfully made by any governmental body for public improvements that may
be secured by lien on the Project; provided, that with respect to special
assessments or other governmental charges that may lawfully be paid in
installments over a period of years, the Lessee shall be obligated to pay only
such installments as are required to be paid during the Lease Term. The
foregoing provisions of this Section 6.2 shall be effective only so long as any
Bonds remain outstanding or any part of the principal of or the interest on the
Bonds remains unpaid.
The Lessee may, at its expense and in its own name and behalf, or in
the name and behalf of the Lessor, in good faith, contest any such taxes,
assessments and other charges and, in the event of any such contest, may permit
the taxes, assessments or other charges so contested to remain unpaid during the
period of such contest and any appeal therefrom unless (i) the Lessor or the
Trustee and (ii) the Bank shall notify the Lessee that, in the opinion of
Independent Counsel, by non-payment of any such items, the security afforded
pursuant to the terms of the Indenture will be materially endangered or the
Project or any part thereof will be subject to loss or forfeiture, and in either
of such events such taxes, assessments or charges shall be paid forthwith by the
Lessee. The Lessor will cooperate fully with the Lessee in any such contest.
In the event that the Lessee shall fail to pay any of the foregoing
items required by this Section 6.2 to be paid by the Lessee, the Lessor, the
Trustee or the Bank may, but shall be under no obligation to pay the same and
any amounts so advanced therefor by the Lessor or the Trustee shall become an
additional obligation of the Lessee to the one making the advancement, which
amounts, together with interest thereon at a per annum rate equal to one
percentage point in excess of the Base Rate from the date thereof, the Lessee
agrees to pay.
Section 6.3 Insurance Required to be Carried. The Lessee shall carry
such insurance as may be required in the Credit Agreement or, if none is
required therein, then the Lessee shall carry the following insurance:
(a) Insurance to the extent of the full insurable value of the Project
against loss thereto from, or damage by vandalism, fire, and lightning,
with uniform standard form of extended coverage endorsement at the time
in use in the State; and
(b) Insurance against liability for injuries to, or death of any
person, or damage to or loss of property arising out of or in any way
relating to the condition or operation of the Project or any portion
thereof, in the minimum amounts of $1,000,000 for death of or personal
injury to any one person, and $200,000 for property damage in any one
accident.
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Section 6.4 Destruction, Damage and Eminent Domain. If the Project
Facilities shall be wholly or partially destroyed or damaged by fire or other
casualty covered by insurance, or shall be wholly or partially condemned, taken
or injured by any Person, including any Person possessing the right to exercise
the power of or a power in the nature of eminent domain or shall be transferred
to such a Person by way of a conveyance in lieu of the exercise of such a power
by such a Person, the Lessee covenants that it will take all actions and will do
all things which may be necessary to enable recovery to be made upon such
policies of insurance or on account of such taking, condemnation, conveyance,
damage or injury. The Lessee is authorized, in its own name, as trustee of an
express trust, to demand, collect, sue, settle claims, receipt and release
monies which may be due and payable under policies of insurance covering such
damage or destruction or on account of such condemnations, damage or injury. Any
moneys recovered: (i) on policies of insurance required to be maintained
hereunder; or (ii) as a result of any taking, condemnation, conveyance, damage
or injury shall be deposited with the Trustee under the Indenture and shall be
applied in accordance with the provisions of Section 7.1 hereof; provided,
however, that as long as the Letter of Credit Bank is not in default under the
terms of the Letter of Credit, the applicable provisions of the Credit Agreement
shall control the disposition of casualty insurance and condemnation award
proceeds.
Any appraisement or adjustment of loss or damage and any settlement or
payment therefor, shall be agreed upon by the Lessee, the Bank (as long as the
Letter of Credit Bank is not in default under the Letter of Credit) and the
appropriate insurer or condemnor or Person, and shall be evidenced to the Bank
by the certificate and approvals set forth in the Indenture. The Bank may rely
conclusively upon such certificates.
Section 6.5. Notice of Property Loss. After the occurrence of loss or
damage to, or after receipt of notice of condemnation of, the Project
Facilities, the Lessee shall within five (5) Business Days thereof notify the
Trustee and the Bank, in writing, of such damage.
Section 6.6 Advances by Lessor or Trustee. In the event the Lessee
shall fail to maintain the full insurance coverage required by this Agreement or
shall fail to keep the Project in as reasonably safe condition as its operating
conditions will permit, or shall fail to keep the Building in good repair and
good operating condition, the Lessor or the Bank, after first notifying the
Lessee of any such failure on the Lessee's part and after giving the Lessee a
reasonable opportunity to cure such default, may, but shall be under no
obligation to, take out the required policies of insurance and pay the premiums
on the same, or make the required repairs; and all amounts so advanced therefor
by the Lessor or the Bank shall become an additional obligation of the Lessee to
the one making the advancement.
Section 6.7 Removal of Leased Equipment. The Lessor shall not be under
any obligation to renew, repair, or replace any inadequate, obsolete, worn out,
unsuitable, undesirable or unnecessary Leased Equipment. In any instance where
the Lessee, in the Lessee's sole discretion, determines that any items of Leased
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Equipment have become inadequate, obsolete, worn out, unsuitable, undesirable or
unnecessary, the Lessee may, subject to the consent of the Bank, remove such
items of Leased Equipment from the Building and the Leased Land and, on behalf
of the Lessor, sell, trade-in, exchange or otherwise dispose of them, as a whole
or in part, without any responsibility or accountability to the Lessor therefor.
The removal from the Project of any portion of the Leased Equipment
pursuant to the provisions of this Section shall not entitle the Lessee to any
abatement or diminution of the amounts payable under Section 5.3 hereof. The
Lessee will not remove, or permit the removal of any of the Leased Equipment
from the Leased Land except in accordance with the provisions of this Section
6.7.
ARTICLE VII
-----------
DAMAGE, DESTRUCTION AND CONDEMNATION
------------------------------------
Section 7.1 Disposition of Casualty Insurance and Condemnation Award
Proceeds. Subject to the provisions of Section 6.4 hereof, and, if applicable in
accordance with Section 6.4 hereof, the Credit Agreement, and as long as the
Lessee is not in default under the terms of this Agreement, the Lessee may
elect, in its discretion, whether to apply the proceeds of any casualty
insurance coverage and/or condemnation awards to: (i) the repair, reconstruction
or replacement of damaged, destroyed or injured property comprising the Project
Facilities; or (ii) the redemption of Bonds pursuant to the applicable
provisions of the Indenture. Absent timely direction from the Lessee as to the
application of any casualty insurance coverage and/or condemnation awards or if
the Lessee shall be in default under the terms of this Agreement, the proceeds
thereof shall be applied to the extraordinary redemption of the Bonds at par
plus accrued interest through the date of redemption. For purposes of the
preceding sentence, "timely direction" shall mean 30 days after the Lessee has
agreed, in connection with any damage to or condemnation of the Project
Facilities, upon the settlement or payment with respect to any appraisement or
adjustment of loss or damage, as appropriate.
Section 7.2 Condemnation or Failure of Title. Unless the Lessee shall
exercise its option to purchase pursuant to the provisions of Section 11.2
hereof, in the event that title to, or the temporary use of the Project or any
part thereof or the leasehold estate of the Lessee in the Project created by
this Lease Agreement or any part thereof shall be taken under the exercise of
power of eminent domain by any governmental body or by any person, firm or
corporation acting under governmental authority, or in the event of a failure of
title, the Lessee shall be obligated to continue to pay the amounts specified in
Section 5.3 hereof. Subject to any contrary provisions contained in Section 6.4
hereof, and, if applicable in accordance with Section 6.4 hereof, the Credit
Agreement, the Lessor and the Lessee will cause the Net Proceeds received by
them or any of them, from any award made in such eminent domain proceedings, or
from the title insurance policy purchased pursuant to Section 3.2 hereof to be
deposited with the Trustee and to be applied by the Trustee in one or more of
the following ways as shall be directed in writing by the Lessee:
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(a) The restoration of the Building and improvements comprising part of
the Project to substantially the same condition as they exist immediately prior
to the exercise of the said power of eminent domain or failure of title.
(b) Redemption of the Bonds and payment of accrued interest thereon to
the date of redemption.
If the Bonds have been fully paid (or provision for payment thereof has
been made in accordance with the provisions of the Indenture) all such Net
Proceeds shall be paid to the Lessee.
The Lessor shall cooperate fully with the Lessee in the handling and
conduct of any prospective or pending condemnation, or failure of title
proceeding with respect to the Project or any part thereof and will, to the
extent it may lawfully do so, permit the Lessee to litigate in any such
proceeding in the name and behalf of the Lessor. In no event will the Lessor
voluntarily settle, or consent to the settlement of, any prospective or pending
condemnation or title proceeding with respect to the Project or any part thereof
without the prior written consent of the Lessee.
Section 7.3 Condemnation of Lessee Owned Property. The Lessee shall
also be entitled to the Net Proceeds of any condemnation award or portion
thereof made for damages to, or takings of its own property not included in the
Project, provided that any Net Proceeds resulting from damages to, or a taking
of all or any part of the leasehold estate of the Lessee in the Project created
by this Lease Agreement shall be paid and applied in the manner provided in
Section 7.2 hereof.
ARTICLE VIII
------------
SPECIAL COVENANTS
-----------------
Section 8.1 No Warranty of Condition or Suitability by the Lessor. THE
LESSOR MAKES NO WARRANTY, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE
CONDITION OR WORKMANSHIP OF ANY PART OF THE PROJECT, OR THAT THE PROJECT WILL BE
SUITABLE FOR THE LESSEE'S PURPOSES OR NEEDS.
Section 8.2 Inspection of the Project. The Lessor, the Bank, the
Trustee, and their or any of their duly authorized agents shall have the right
at all reasonable times to enter at their own risk upon the site of the Project
and examine and inspect the Project. The Lessor and its duly authorized agents
shall also have such rights of access to the Project as may be reasonably
necessary for the proper maintenance of the Project in the event of failure by
the Lessee to perform the Lessee's obligations under Section 6.1 hereof. Any
inspection of the Project by the Lessor, the Bank, the Trustee, and their or any
of their duly authorized agents, shall be for the benefit of the Lessor, the
Bank and the Trustee, respectively, and no third party shall have the right to
rely on any such inspection.
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Section 8.3 Release of Certain Land. Notwithstanding any other
provision of this Agreement, the parties hereto reserve the right at any time,
and from time to time, but only with the prior written consent of the Bank, to
amend this Agreement for the purpose of effecting the release of and removal
from this Agreement and the leasehold estate created hereby of any part of the
Leased Land with respect to which the Lessor proposes to grant an easement or
convey fee title to a railroad, public utility or public body in order that
railroad, utility services or roads may be provided for the Project, provided
that, if at the time any such amendment is made, any of the Bonds are
outstanding and unpaid there shall be deposited with the Trustee the following:
(a) An executed copy of the said amendment;
(b) A resolution of the Board of Directors of the Lessor (i) stating
that the Lessor is not in default under any of the provisions of the Indenture
or of this Lease Agreement, and the Lessee is not, to the knowledge of the
Lessor, in default under any of the provisions of this Lease Agreement, (ii)
stating an adequate legal description of that portion of the Leased Land to be
released, and (iii) requesting the consent of the Bank to said amendment and the
release of such property from the lien of the Indenture;
(c) A certificate of the Lessee approving such amendment and stating
that the Lessee is not in default under any of the provisions of this Agreement;
(d) A copy of the instrument granting the easement or conveying the
title to a railroad, public utility or public body.
Section 8.4 Purchase of Additional Machinery, Equipment, Furniture or
Fixtures by the Lessor. The Lessor shall purchase additional machinery,
equipment, furniture or fixtures to be used in connection with the Project upon
the request of the Lessee and receipt from the Lessee of money sufficient to pay
for such machinery, equipment, furniture or fixtures, whether such machinery,
equipment, furniture or fixtures is to be purchased under the provisions of
Section 6.1 or 6.7 hereof or otherwise. Such machinery, equipment, furniture or
fixtures shall constitute a part of the Leased Equipment.
Section 8.5 Further Assurance and Corrective Instruments. The Lessor
and the Lessee shall, from time to time, execute, acknowledge and deliver, or
cause to be executed, acknowledged and delivered, such supplements hereto and
such further instruments as may reasonably be required for correcting any
inadequate or incorrect description of the Project hereby leased or intended so
to be, or for carrying out the intention of, or facilitating the performance of
this Lease Agreement.
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Section 8.6 [Reserved]
Section 8.7 Authorized Lessor Representative. Whenever under the
provisions of this Lease Agreement the approval of the Lessor is required or the
Lessor is required to take some action, such approval shall be made or such
action shall be taken by the Authorized Lessor Representative, and the Lessee
and the Trustee shall be authorized to act on any such approval or action;
provided, however, that in any case in which the Bank's consent or approval is
required, the Trustee shall also obtain the Bank's consent or approval before so
acting.
Section 8.8 Authorized Lessee Representative. Whenever under the
provisions of this Lease, the approval of the Lessee is required or the Lessee
is required to take some action, such approval shall be made or such action
taken by the Authorized Lessee Representative, and the Lessor and the Trustee
shall be authorized to act on any such approval or action.
Section 8.9 Additional Covenants. The Lessee shall comply with each of
the covenants on its part set forth in the Credit Agreement, and any other
similar agreement entered into in connection with the issuance of any Substitute
Letter of Credit and any and all modifications, alterations, amendments and
supplements thereto.
Section 8.10 Additional Tax Covenants and Representations. (a) The
Lessee covenants that it will not take any action, or fail to take any action,
if any such action or failure to take action would adversely affect the
exclusion from gross income of the interest on any Bond under Section 103 of the
Code. The Lessee will not directly or indirectly use or permit the use
(including the making of any investment) of any Bond Proceeds or any other funds
of the Lessor or the Lessee, or take or omit to take any action, that would
cause the Bonds to be "arbitrage bonds" within the meaning of Section 148(a) of
the Code.
(b) The Lessee hereby covenants that in connection with complying with
the requirement for payment of the Rebatable Arbitrage to the United States with
respect to the Bonds, all of the gross Bond Proceeds (within the meaning of
Section 148(f) of the Code), other than gross Bond Proceeds on deposit in a bona
fide debt service fund (within the meaning of Section 148(f)(4) of the Code),
were expended on or prior to the Initial Rebate Computation Date.
(c) The Lessee acknowledges that the Lessor shall have the right at any
time and in the sole and absolute discretion of the Lessor to obtain from the
Lessee and the Trustee the information necessary to determine the amount
required to be paid to the United States pursuant to Section 148(f) of the Code.
Additionally, the Lessor may, with reasonable cause, (A) review or cause to be
reviewed any determination of the amount to be paid to the United States made by
or on behalf of the Lessee and (B) make or retain a Rebate Expert to make the
determination of the amount to be paid to the United States. The Lessee hereby
agrees to be bound by any such review or determination, absent manifest error,
to pay the costs of such review, including without limitation the reasonable
fees and expenses of counsel or a Rebate Expert retained by the Lessor, and to
pay any Rebate that might be required as the result of any such review or
determination.
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(d) Notwithstanding any provision of this subsection to the contrary,
the Lessee shall be liable, and shall indemnify and hold the Lessor and the
Trustee harmless against any liability, for payments due to the United States
pursuant to Section 148(f) of the Code. Further, the Lessee specifically agrees
that neither the Lessor nor the Trustee shall be held liable, or in any way
responsible, and the Lessee shall indemnify and hold harmless the Trustee and
Lessor against any liability, for any mistake or error in the filing of the
payment or the determination of the amount due to the United States or for any
consequences resulting from any such mistake or error. The provisions of this
paragraph (vi) shall survive termination of this Agreement.
(e) The Lessee will aid and assist the Lessor in connection with
preparing and submitting to the Internal Revenue Service a Form 8038 (or other
applicable information reporting statement) at the time and in the form required
by the Code.
(f) The Lessee will comply fully at all times with the Lessee's
Arbitrage and Tax Certificate, and the Lessee will not take any action, or omit
to take any action, which, if taken or omitted, respectively, would violate the
Lessee's Arbitrage and Tax Certificate.
(g) The Project was not acquired or placed in service by the Lessee
(determined in accordance with the provisions of Section 103 of the Code and
applicable regulations thereunder) more than one (1) year prior to the date of
issuance of the Bonds.
(h) Subsequent to fifteen (15) days prior to the date the Bonds are
sold, the Lessee or any Related Person (or group of related persons which
includes the Lessee) has not, or will not, as the case may be, guarantied,
arranged, participated in, assisted with, borrowed the proceeds of, or leased
facilities financed by obligations issued pursuant to Section 103 of the Code by
any state or local governmental unit or any constituted authority empowered to
issue obligations by or on behalf of any state or local governmental unit other
than the Lessor. During the period commencing on the date of the sale of the
Bonds and ending fifteen (15) days thereafter, there will be no obligations
issued pursuant to Section 103 which are guarantied by the Lessee or any Related
Person (or group of related persons which includes the Lessee) or which are
issued with the assistance or participation of, or by arrangement with, the
Lessee or any Related Person (or group of related persons which includes the
Lessee) without the written opinion of Bond Counsel to the effect that the
issuance of such obligation will not adversely affect their opinion as to the
exclusion of interest on the Bonds from the gross income of the Purchaser under
Section 103 of the Code. Other than the Lessee or any Related Person (or group
of related persons including the Lessee), no person has (i) guarantied,
arranged, participated in, assisted with the issuance of, or paid any portion of
the cost of the issuance of the Bonds, or (ii) provided any property or any
franchise, trademark or trade name (within the meaning of Code Section 1253)
which is to be used in connection with the Project.
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(i) The information contained in the Lessee's Arbitrage and Tax
Certificate, setting forth the respective cost, economic life, ADR midpoint
life, if any, under Rev. Proc. 87-56, 1987-2 C.B. 674, as supplemented and
amended from time to time, and guideline life, if any, under Rev. Proc. 62-21,
1962-2 C.B. 118, as supplemented and amended from time to time, of each asset
constituting the Project financed with the Bond Proceeds is true, accurate and
complete.
(j) The Project does not share "substantial common facilities", within
the meaning of Section 144(a)(9) of the Code, with any other facility financed
by an outstanding tax-exempt bond.
(k) The Lessee has not taken and will not take any action and knows of
no action that any other person has taken or intends to take, which would cause
interest income on the Bonds to be includable in the gross income of the
recipients thereof under Section 103 of the Code. The Lessee will take and will
cause its officers, employees and agents to take all affirmative actions legally
within its power necessary to ensure that the interest on the Bonds does not
become includable in gross income of the recipient for federal income tax
purposes under the Code (including, without limitation, the calculation of
rebate required to preserve such exclusion).
(l) The Bonds will not be federally guaranteed within the meaning of
Section 149(b) of the Code. For purposes of this representation, no Principal
User of the Project has entered into any leases of the Project to, or any sales
or service contracts with, any federal government agency with the result that
the Bonds are so federally guaranteed within the meaning of Section 149(b) of
the Code.
ARTICLE IX
----------
ASSIGNMENT, SUBLEASING, MORTGAGING AND SELLING; REDEMPTION OF BONDS
-------------------------------------------------------------------
Section 9.1 Assignment and Subleasing. Subject to the consent of the
Bank so long as the Letter of Credit Bank is not in default of its obligations
under the Letter of Credit, this Lease may be assigned or subleased as a whole
or in part, by the Lessee without the necessity of obtaining the consent of
either the Lessor or the Trustee, provided that, however, no such assignment or
further sublease shall cause the Project to no longer constitute a "project"
under the Act, have any effect on the tax exempt status of the interest on the
Bonds or shall relieve the Lessee from primary liability for any of the Lessee's
obligations hereunder, and in the event of any such assignment or sublease, the
Lessee shall continue to remain primarily liable for payment of the amounts
specified in Section 5.3 hereof and for performance and observance of the other
agreements on the Lessee's part herein provided to be performed and observed by
the Lessee to the same extent as though no assignment or sublease had been made.
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Section 9.2 [Reserved]
Section 9.3 Restrictions on Mortgage or Sale of Project by Lessor. The
Lessor agrees that, except for the Bank Mortgage and the assignment of this
Lease Agreement and the rentals hereunder to the Trustee pursuant to the
Indenture, it will not mortgage, sell, assign, transfer or convey its interest
in the Project during the term of this Agreement, except as herein provided. If
the laws of the State of Alabama at the time shall permit such action to be
taken, nothing in this Section 9.3 shall prevent the consolidation of the Lessor
with, or merger of the Lessor into, or transfer of its remaining interest in the
Project or in this Lease Agreement as an entirety to, any public corporation
whose income is not subject to taxation and which has corporate authority to
exercise the Lessor's rights granted hereunder; provided: (i) that no such
action shall be taken without the prior written consent of the Lessee, unless
such action shall be required by law, (ii) that any such action shall be
approved by the governing body of the City of Huntsville, Alabama, and (iii)
that upon any such consolidation, merger or transfer, the due and punctual
payment of the principal of, premium, if any, and interest on the Bonds
according to their tenor, and the due and actual performance and observance of
all the agreements and conditions of this Lease Agreement to be kept and
performed by the Lessor shall be expressly assumed in writing by the corporation
resulting from such consolidation or surviving such merger or to which the
Project shall be transferred in its entirety.
Section 9.4 Redemption of Bonds. If at any time the Lessee shall
deposit with the Trustee monies which, under any terms of the Indenture, are
sufficient to redeem all or part of the principal amount of the Bonds and to pay
any applicable redemption premium plus the fees and expenses of the Trustee in
connection with such redemption, the Lessor, at the request of Lessee, shall
forthwith take all steps necessary under the applicable redemption provisions of
the Indenture to effect redemption of the Bonds requested by the Lessee on a
redemption date selected by the Lessee.
Section 9.5 Reference to Bonds Ineffective After Bonds Paid. Upon
payment in full of the Bonds (or provisions for payment thereof having been made
in accordance with the provisions of the Indenture) and payment of all fees and
charges of the Trustee, and reimbursement to the Letter of Credit Bank of all
sums drawn under the Letter of Credit, together with interest thereon and all
other sums due and payable to the Bank under the Credit Agreement, and the
termination of the Letter of Credit, all references in this Lease Agreement to
the Bonds and the Trustee and the Bank shall be ineffective and neither the
Trustee, the Bank nor the holders of any of the Bonds shall thereafter have any
rights hereunder, saving and excepting those that shall have theretofore vested.
29
<PAGE>
ARTICLE X
---------
EVENTS OF DEFAULT AND REMEDIES
------------------------------
Section 10.1 Events of Default Defined. The following shall be "Events
of Default" under this Lease Agreement and the terms "Event of Default" or
"Default" shall mean, whenever they are used in this Lease Agreement, any one or
more of the following events:
(a) Failure by the Lessee to pay when due the amounts required to be
paid pursuant to Section 5.3 of this Lease Agreement;
(b) Failure by the Lessee to observe and perform any covenant,
condition or agreement on the Lessee's part to be observed or performed, other
than as referred to in paragraph (a) of this Section 10.1, for a period of
thirty (30) days after written notice, specifying such failure and requesting
that it be remedied, is given to the Lessee by the Lessor or the Trustee, unless
the Trustee shall agree in writing to an extension of such time prior to its
expiration; provided, however, if the failure stated in the notice cannot be
corrected within the applicable period, the Trustee will not unreasonably
withhold its consent to an extension of such time if corrective action is
instituted by the Lessee within the applicable period and diligently pursued
until the failure is corrected;
(c) Any material warranty, representation or other statement by or on
behalf of the Lessee in this Lease Agreement or in any certificate or other
document executed by the Lessee furnished in connection with the issuance and
sale of the Bonds, shall prove to be false or misleading in any material
respect;
(d) The occurrence of an "Event of Default" under the Guaranty;
(e) The Lessee shall:
(i) apply for or consent to the appointment of a receiver,
Trustee or liquidator of the Lessee, or of its properties or
assets;
(ii) admit in writing its inability to pay its debts as they
mature;
(iii) make a general assignment for the benefit of creditors;
(iv) be adjudicated a bankrupt or insolvent or;
30
<PAGE>
(v) file a voluntary petition in bankruptcy or take advantage
of any bankruptcy, reorganization, insolvency, readjustment of
debt, dissolution or liquidation law or statute or file an
answer admitting the material allegations of a petition filed
against the Lessee in any proceeding under any such law;
(f) An order, judgment or decree shall be entered, without application,
approval or consent of the Lessee, by any court of competent jurisdiction,
approving a petition seeking or appointing a receiver, Trustee, or liquidator of
the Lessee and such order, judgment or decree shall continue unstayed and in
effect for any period of sixty (60) days;
(g) A default in respect to any other indebtedness of the Lessee to the
Trustee;
(h) The occurrence of any "Event of Default" as set forth in the Bond
Purchase Agreement, and
(i) The Lessor's receipt of written notice from the Bank that the Bank
has declared an Event of Default under the provisions of the Credit Agreement.
A default under this Lease Agreement shall also be a default under any
other indebtedness of the Lessee to the Trustee, and a default under any other
indebtedness of the Lessee to the Trustee shall be a default under this Lease
Agreement. Any acceleration under this Lease Agreement shall also require an
acceleration under any other indebtedness of the Lessee to the Trustee, and any
acceleration under any other indebtedness of the Lessee to the Trustee shall
require an acceleration under this Ageement.
Section 10.2 Remedies on Default. Subject to Section 10.6 hereof,
whenever any event of default referred to in Section 10.1 hereof shall have
happened and be continuing, the Lessor may take any one or more of the following
remedial steps:
(a) By written notice to the Lessee, the Lessor may declare all
installments of rent payable under Section 5.3 hereof for the remainder of the
Lease Term to be immediately due and payable, whereupon the same shall become
immediately due and payable.
(b) The Lessor or the Trustee on its own behalf or on behalf of the
Lessor, may re-enter and take possession of the Project without terminating this
Lease Agreement, and sublease the Project for the account of the Lessee, holding
the Lessee liable for the difference in the rent and other amounts payable by
such sublessee in such subleasing and the rents and other amounts payable by the
Lessee hereunder.
(c) The Lessor or the Trustee on its own behalf or on behalf of the
Lessor may terminate the Lease Term, exclude the Lessee from possession of the
Project and use its best efforts to lease the Project to another party for the
account of the Lessee, holding the Lessee liable for all rent and other payments
due up to the effective date of such leasing and for the difference in the
amounts payable by such new lessee and the amounts payable by the Lessee under
this Lease Agreement.
31
<PAGE>
(d) In the event any of the Bonds shall at the time be outstanding and
unpaid, the Lessor may have access to, and inspect and examine and make copies
of the Lessee's books and records and all of its accounts.
(e) The Lessor may take whatever action at law or in equity may appear
necessary or desirable to collect the rent, then due and thereafter to become
due, or to enforce performance and observance of any obligation, agreement or
covenant of the Lessee under this Lease Agreement.
The Lessee acknowledges and understands that any lease or sublease
agreement entered into by the Lessor or the Trustee pursuant to either of
Subsections (b) or (c) of this Section 10.2 shall, if the Lessor and the Trustee
deem it advisable, grant an option to purchase the Project to the new lessee or
the sublessee on the terms and conditions acceptable to the Lessor and the
Trustee.
Any amounts collected pursuant to action taken under this Section 10.2
shall be paid to the Trustee and applied in accordance with the provisions of
the Indenture.
It is further understood and agreed that the Lessor will follow the
instructions of the Bank or the Trustee in the election or pursuit of any
remedies herein vested in it.
Section 10.3 No Remedy Exclusive. Subject to Section 10.6 hereof, no
remedy herein conferred upon or reserved to the Lessor 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 Lease Agreement, or now or hereafter existing at law or in equity or
statute. No delay or omission to exercise any right or power shall be construed
to be a waiver thereof, but any such right and power may be exercised from time
to time and as often as may be deemed expedient. In order to entitle the Lessor
to exercise any remedy reserved to it in this Article X, it shall not be
necessary to give any notice, other than such notice as may be herein expressly
required. Such rights and remedies of the Lessor hereunder shall also extend to
the Trustee, and the Trustee and the holders of the Bonds, subject to the
provisions of the Indenture, shall be entitled to the benefit of all covenants
and agreements hereof.
Section 10.4 Agreement to Pay Attorneys' Fees and Expenses. In the
event the Lessee should default under any of the provisions of this Lease
Agreement, and the Lessor or the Trustee should employ attorneys or incur other
expenses for the collection of amounts payable hereunder or the enforcement,
performance or observance of any obligation or agreement on the part of the
Lessee herein set forth, the Lessee agrees, on demand therefor, to pay to the
Lessor or the Trustee the reasonable fee of such attorney or attorneys and such
other expenses so incurred by the Lessor or the Trustee.
32
<PAGE>
Section 10.5 No Additional Waiver Implied by One Waiver. In the event
any obligation in this Lease Agreement is breached by either party and
thereafter waived by the other party, such waiver shall be limited to the
particular breach so waived and shall not be deemed to waive any other breach
hereunder.
Section 10.6 Remedial Rights Assigned to Trustee. All rights and
remedies conferred upon or reserved to the Lessor in this Article X shall, upon
the execution and delivery of the Indenture, be deemed to have been assigned to
the Trustee and the Trustee shall have the exclusive right to exercise such
rights and remedies in the same manner and under the limitations and conditions
that the Trustee is entitled to exercise rights and remedies upon the occurrence
of an Event of Default pursuant to Article 10 of the Indenture.
ARTICLE XI
----------
OPTIONS IN FAVOR OF LESSEE
--------------------------
Section 11.1 Options to Terminate. The Lessee shall have the following
options to cancel or terminate the term of this Lease Agreement:
(a) At any time prior to full payment of the Bonds (or provisions for
payment thereof having been made in accordance with the provisions of the
Indenture), the Lessee may terminate the term of this Lease Agreement and
exercise the option to purchase granted in Section 11.2 hereof by paying to the
Trustee for the account of the Lessor an amount of cash which will be sufficient
to pay, retire and redeem all the outstanding Bonds in accordance with the
provisions of the Indenture (including, without limiting the generality of the
foregoing, principal, interest to maturity, or earliest applicable redemption
date, as the case may be, premium, if any, expenses of redemption and Trustee's
fees and expenses), and, in case of redemption, making arrangements satisfactory
to the Trustee for the giving of the required notice of redemption;
(b) At any time after full payment of the Bonds (or provision for
payment thereof having been made in accordance with the provisions of the
Indenture), the Lessee may terminate the term of this Lease Agreement by giving
the Lessor notice in writing of such termination and such termination shall
forthwith become effective.
Section 11.2 Option to Purchase Project Prior to Payment of the Bonds.
The Lessee shall have, and is hereby granted the option to purchase the Project
prior to the full payment of the Bonds (or provision for payment thereof having
been made in accordance with the provisions of the Indenture), if any of the
following shall have occurred:
33
<PAGE>
(a) The Project, or any part thereof, shall have been damaged or
destroyed to such extent that, in the opinion of the Lessee expressed in
writing, (i) it cannot be reasonably restored, within a period of four months,
to the condition thereof immediately preceding such damage or destruction, or
(ii) the Lessee is thereby prevented from carrying on its normal operations at
the Project for a period of four months or (iii) the cost of restoration thereof
would exceed by more than $100,000 the Net Proceeds of insurance carried thereon
pursuant to the requirements of Section 6.4 hereof, plus the amounts for which
the Lessee is self-insured with respect to deductible amounts permitted under
Section 6.5 hereof;
(b) Title to, or the temporary use of the Project, or any part thereof,
or the leasehold estate of the Lessee in the Project created by this Lease
Agreement, or any part thereof, shall have been taken under the exercise of the
power of eminent domain by any governmental authority or person, firm or
corporation acting under governmental authority which results, or is likely to
result in the Lessee thereby being prevented from carrying on its normal
operations therein for a period of four months or more;
(c) As a result of any changes in the Constitution of the State or the
Constitution of the United States of America or of legislative or administrative
action (whether state or federal) or by final decree, judgment or order of any
court or administrative body, whether state or federal, entered after the
contest thereof by the Lessee in good faith, this Lease shall have become void
or unenforceable or impossible of performance in accordance with the intent and
purposes of the parties as expressed in this Lease Agreement, or unreasonable
burdens or excessive liabilities shall have been imposed on the Lessor or the
Lessee including without limitation federal, state or income or other taxes not
being imposed on the date of this agreement;
(d) The Project or a material portion thereof is adjudged by a court of
competent jurisdiction to be a public nuisance and operation of the Project or a
material portion thereof is permanently enjoined, and such decision has become
final or, if appealed, affirmed upon such appeal and the decision upon such
appeal has become final.
To exercise such option, the Lessee shall, within thirty (30) days
following the event authorizing the exercise of such option, give written notice
to the Lessor and to the Trustee and shall specify therein the date of closing
such purchase, which date shall not be less than forty-five (45) nor more than
ninety (90) days from the date such notice is mailed, and in case of a
redemption of the Bonds in accordance with the provisions of the Indenture,
shall make arrangements satisfactory to the Trustee for the giving of the
required notice of redemption for the redemption of the Bonds on the earliest
practicable date either on or following the closing of such purchase. The
purchase price payable by the Lessee in the event of its exercise of the option
granted in this Section shall be the sum of the following:
(i) an amount of money which will be sufficient to pay to the
Trustee the principal of the then outstanding Bonds plus accrued
interest thereon to the redemption date; plus
34
<PAGE>
(ii) an amount of money equal to all the costs and expenses
incurred by the Trustee in connection with such purchase; plus
(iii) an amount payable to the Lessor equal to the sum of
one-tenth of one percent (.1%) of the original principal amount of the
Bonds (i.e., $7,500,000) for each year (or portion of a year) that the
Lease Agreement remains in effect, plus all costs and expenses incurred
by the Lessor relative to the exercise of the option.
In the event of the exercise of the option granted in this section, any
Net Proceeds of insurance or condemnation after the payment of the required
redemption price shall be paid to the Lessee.
Section 11.3 Option to Purchase Project After Payment of the Bonds. The
Lessee shall have, and is hereby granted the option to purchase the Project at
any time during the Lease Term or within forty-five (45) days thereafter,
following full payment of the Bonds (or provision for payment thereof having
been made in accordance with the provisions of the Indenture) or at any time at
which the Lessee shall have the option to terminate this Lease Agreement
pursuant to Section 11.1(a) hereof, by paying to the Lessor a purchase price in
an amount equal to the sum of one-tenth of one percent (.1%) of the original
principal amount of the Bonds (i.e., $7,500,000) for each year (or portion of a
year) that the Lease Agreement remains in effect, plus all costs and expenses
incurred by the Lessor relative to the exercise of the option. To exercise this
option granted in this Section 11.3, the Lessee shall notify the Lessor of the
Lessee's intention so to exercise such option no less than forty-five (45), nor
more than ninety (90) days prior to the proposed date of purchase and shall, on
the date of purchase, pay such purchase price to the Lessor.
Section 11.4 Option to Purchase Unimproved Land. Prior to payment in
full of the Bonds, the Lessee shall have, and is hereby granted, the option to
purchase any Unimproved part of the Leased Land at any time, and from time to
time, at and for a purchase price equal to the fair market value thereof
provided that it furnishes the Lessor with the following:
(a) A notice in writing setting forth (i) an adequate legal
description of that portion of the Leased Land with respect to which
such option is to be exercised, and (ii) a statement that the Lessee
intends to exercise its option to purchase such portion of the Leased
Land on a date stated, which shall not be less than forty-five (45),
nor more than ninety (90) days from the date of such notice, and (iii)
a statement that the use to which such portion of the Leased Land will
be devoted will be in furtherance of the purpose for which the Lessor
was organized;
(b) A certificate of an Independent Engineer acceptable to the
Trustee, dated no more than ninety (90) days prior to the date of the
purchase, stating that, in the opinion of the person signing such
certificate, (i) the portion of the Leased Land with respect to which
the option is exercised is not needed for the operation of the Project
for the purposes hereinabove stated, and (ii) the purchase will not
impair the usefulness of the Building and will not destroy the means of
ingress thereto and egress therefrom;
35
<PAGE>
(c) The written consent of the Trustee and the Bank; and
(d) An amount of money equal to the fair market value of the
real property to be purchased or as agreed.
Upon receipt of the notice, certificate and money required in this
section to be furnished to it by the Lessee, the Lessor will promptly deliver
the same to the Trustee, will cause the Trustee to apply said money as a partial
redemption of the Bonds in accordance with the terms of the Indenture and will
secure from the Trustee a release from the security interest afforded by the
terms of the Indenture of such portion of the Leased Land with respect to which
the Lessee shall have exercised the option granted in this section. In the event
the Lessee shall exercise such option, the Lessee shall not be entitled to any
abatement or diminution of the amounts payable under Section 5.3 hereof.
The Lessee may, at the Lessee's own expense, connect utility and other
similar facilities serving the Project to utility and other similar facilities
serving real property adjacent to or near the Leased Land, or partly on such
adjacent real property and partly on the Leased Land, but only if the Lessee
furnishes the Lessor and the Trustee a certificate by an Independent Engineer
who is acceptable to the Trustee, certifying that such connection of utility or
other similar facilities will not unreasonably interfere with the use of the
Project.
Section 11.5 Conveyance on Exercise of Option to Purchase. At the
closing of the purchase pursuant to the exercise of any option to purchase
granted herein, the Lessor will, upon receipt of the purchase price, deliver to
the Lessee documents conveying to the Lessee good and marketable title to the
property with respect to which such option was exercised, as such property then
exists, subject to the following: (i) those liens and encumbrances, if any, to
which title to said property was subject when conveyed to the Lessor; (ii) those
liens and encumbrances created by the Lessee, or to the creation or suffering of
which the Lessee consented; (iii) those liens and encumbrances resulting from
the failure of the Lessee to perform or observe any of its obligations in this
Lease Agreement; and (iv) Permitted Encumbrances other than the Indenture and
this Lease Agreement.
Section 11.6 Effect of Exercise on Options. Upon the exercise of any
option provided in this Article XI, the matured or accrued obligations of the
Lessee to the Lessor hereunder not theretofore performed, shall survive.
36
<PAGE>
Section 11.7 Relative Position of Options and Indenture. The Options
granted to the Lessee in this Article XI, shall be and remain prior and superior
to the Indenture and may be exercised whether or not the Lessee is in default
hereunder, provided that such default will not result in the non-fulfillment of
any condition to the exercise of such option.
ARTICLE XII
-----------
MISCELLANEOUS
-------------
Section 12.1 Surrender of Project. Except as otherwise expressly
provided in this Lease Agreement, at the expiration or sooner termination of the
term of this Lease Agreement, the Lessee will surrender possession of the
Project peaceably and promptly to the Lessor in as good condition as at the
commencement of the Lease Term, excepting only loss by fire or other casualty
covered by insurance, and ordinary wear, tear and obsolescence.
Section 12.2 Notices. All notices, certificates or other communications
hereunder shall be sufficiently given and shall be deemed given when delivered
or mailed by registered or certified mail, postage prepaid, addressed as
follows:
If to the Lessor: The Industrial Development Board
of the City of Huntsville
P.O. Box 408
Huntsville, AL 35804
If to Lessee: Central CVPC Corporation
Attn: Mr. Albert T. Sabol
451 N. Cannon Avenue
Lansdale, PA 19446
If to Trustee: First Union National Bank
123 South Broad Street
Philadelphia, Pennsylvania 19109
Attention: Corporation Trust Administration
If to the Bank: Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Attention: Andrew W. Robin
37
<PAGE>
A duplicate copy of each notice, certificate, or other communication given
hereunder by either the Lessor or the Lessee to the other shall also be given to
the Trustee. The Lessor, the Lessee and the Trustee may, by notice given
hereunder, designate any further or different addresses to which subsequent
notices, certificates or other communications shall be sent.
Section 12.3 Binding Effect. This Lease Agreement shall inure to the
benefit of and shall be binding upon the Lessor, the Lessee, and their
respective successors and assigns, subject, however, to the limitations of
Section 9.1, 9.2 and 9.5 hereof. To the extent provided herein and in the
Indenture, the Trustee and the Bank shall be deemed to be third party
beneficiaries hereof, but nothing herein contained shall be deemed to create any
right in, or for the benefit of, any other person who is not a party hereto.
Section 12.4 Severability. In the event any provision of this Lease
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provisions hereof.
Section 12.5 Amendments, Changes and Modifications. Subsequent to the
issuance of the Bonds and prior to their payment in full (or provision for the
payment thereof having been made in accordance with the provisions of the
Indenture), this Lease Agreement may not be effectively amended, changed,
modified, altered or terminated except in accordance with the Indenture.
Section 12.6 Execution in Counterparts. This Lease Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.
Section 12.7 Recording and Filing. The Lessee will take all actions
that at the time and from time to time may be necessary (or, in the opinion of
the Trustee, may be necessary) to perfect, preserve, protect and secure the
interests of the Lessor and the Trustee, or either, in and to the Project, this
Agreement and the revenues and receipts derived by the leasing or sale of the
Project, including, without limitation, the filing of all financing and
continuation statements that may be required under the Alabama Uniform
Commercial Code.
Section 12.8 Net Lease. This Agreement shall be deemed and constructed
to be a "net lease", and the Lessee shall pay absolutely net during the term
hereof the rent and all other payments required hereunder free of any
deductions, without abatement, deduction or set-off other than those herein
expressly provided.
Section 12.9 Certain Tax Matters. The Lessor and the Lessee acknowledge
and agree that it is their mutual intention that the Lessee, for federal and
state income tax purposes, will be entitled to all deductions and credits with
respect to the Project (including, but not limited to, capital cost recovery and
investment credits) and that for such purposes this Lease Agreement shall be
deemed to be a financing of the Project. The Lessor does hereby make the
election available under Section 144(a)(4) of the Code.
38
<PAGE>
Section 12.10 Date of this Agreement. The date of this Agreement is
intended as and for a date for the convenient identification of this Agreement
and is not intended to indicate that this Agreement was executed or delivered on
such date.
Section 12.11 Applicable Law. This Lease Agreement shall be governed by
and construed in accordance with the laws of the State.
Section 12.12 No Charge Against Lessor's Credit. No provisions hereof
shall be construed to impose a charge against the general credit of the Lessor
or any personal or pecuniary liability upon the Lessor, its officers, directors,
or of the City of Huntsville. Nothing set forth in this Section 12.12, however,
shall relieve the Lessor from the observance and performance of the several
covenants and agreements on its part herein set forth.
Section 12.13 Captions. The captions or headings in this Lease
Agreement are for convenience only and in no way define, limit or describe the
scope or intent of any provisions or sections of this Agreement.
Section 12.14 Relationship of Documents. So long as the Letter of
Credit remains in effect and the Letter of Credit Bank is not in default of its
obligations thereunder, (i) this Agreement shall be subject and subordinate to
the Bank Mortgage, (ii) to the extent that any provision of the Credit Agreement
or the Bank Mortgage is inconsistent with any provision of this Agreement, such
provision of the Credit Agreement and the Bank Mortgage shall govern and
control, (iii) the Lessor hereby agrees to give notice in writing to the Bank of
any Event of Default by the Lessee under the Lease that is known to the Lessor,
and, upon receipt of any such notice, the Bank shall have the right, but not the
obligation, to cure any such Event of Default for the account of the Lessee
within ninety (90) days after receipt of such notice, during which time the
Lessor or the Trustee shall not take any steps to enforce or seek to enforce,
directly or indirectly, any rights pursuant to this Agreement; (iv) the Lessor
and the Trustee shall allow the Bank to enter the Leased Land and the Building
for the purpose of repossessing, removing, selling or otherwise dealing with any
of its personal property collateral and such license shall continue without
change from the date the Bank enters the Leased Land or the Building for so long
as the Bank deems necessary for such purposes; (v) notwithstanding any provision
to the contrary contained in this Agreement, the Bank (or its designee or a
purchaser at a trustee's sale, as the case may be), at its option pursuant to
the Bank Mortgage or in lieu of foreclosure thereunder, shall be allowed to
acquire absolute ownership of the interest of the Lessee or the Lessor in this
Agreement, and if the Bank elects to acquire (or have its designee acquire or
any party at a trustee's sale acquire) such leasehold or other estate, the Bank
(or such designee or other party) will thereupon be recognized as the Lessee
hereunder and be entitled to all of the Lessee's rights hereunder, including,
without limitation, the right of the Lessee to exercise the option to purchase
the Project or the Lessor's rights hereunder, as the case may be, in accordance
with the terms of this Agreement; and (vi) if the Bank (or its designee) becomes
the Lessee under this Agreement, the Bank shall be allowed to sublease or assign
its rights hereunder to a third party who shall be authorized to use the Project
for any lawful purpose and such assignment or sublease shall release and
relieved the Bank (or its designee) of all obligations hereunder, without
releasing the Lessee from any and all liability and responsibility hereunder or
under the Credit Agreement or Bank Mortgage.
39
<PAGE>
Section 12.15 Restatement of Lease. This agreement is intended to amend
and restate in its entirely the 1997 Lease and serve as a substitute therefor.
IN WITNESS WHEREOF, the Lessee has caused this Agreement to be executed
by one of its duly authorized officers, the 29th day of October, 1998, and the
Lessor has caused this Agreement to be executed in its corporate name and its
corporate seal to be hereunder affixed and attested by its duly authorized
officers, the 28th day of October, 1998, all as of the date and year first
above written.
40
<PAGE>
THE INDUSTRIAL DEVELOPMENT
BOARD OF THE CITY OF HUNTSVILLE
By: /s/ W.F. Sanders, Jr.
-------------------------------------------
Its Vice Chairman
ATTEST:
- ------------------------------
Secretary
ACKNOWLEDGMENT OF BOARD
-----------------------
STATE OF ALABAMA )
MADISON COUNTY )
I, the undersigned, a Notary Public in and for said County in said
State, hereby certify that W.F. Sanders, Jr., whose name as Vice Chairman of The
Industrial Devlopment Board of the City of Huntsville, a public corporation, is
signed to the foregoing Lease Agreement, and who is known to me, acknowledged
before me on this day that, being informed of the contents of this Lease
Agreement, he, as such officer and with full authority, executed the same
voluntarily for and as the act of said corporation.
Given under my hand and official seal this the 28th day of October,
1998.
/s/ Theresa Cornelius
--------------------------------
Notary Public
My Commission Expires: 11/14/01
41
<PAGE>
CENTRAL CPVC CORPORATION, an
Alabama corporation
By: /s/ Albert T. Sabol
----------------------------------
Its Executive Vice President
ATTEST:
- ----------------------------
Secretary
ACKNOWLEDGMENT OF LESSEE
------------------------
STATE OF PENNSYLVANIA )
COUNTY OF PHILADELPHIA )
I, the undersigned, a Notary Public in and for said County in said
State, hereby certify that Albert T. Sabol, whose name as Executive Vice
President of Central CPVC Corporation, an Alabama corporation, is signed to the
foregoing Lease Agreement, and who is known to me, acknowledged before me on
this day that, being informed of the contents of this Lease Agreement, he, as
such officer and with full authority, executed the same voluntarily for and as
the act of said corporation.
Given under my hand and official seal this the 29th day of October,
1998.
/s/ Astrid Karnas
---------------------------------
Notary Public
My Commission expires: 12/24/2001
<PAGE>
EXHIBIT 10(y)
------------------------------------
THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF HUNTSVILLE
and
FIRST UNION NATIONAL BANK
as Trustee
--------------
TRUST INDENTURE
--------------
Dated as of October 1, 1998
--------------
$7,500,000
THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF HUNTSVILLE
TAX-EXEMPT VARIABLE RATE DEMAND/FIXED RATE
REFUNDING REVENUE BONDS
(CENTRAL CPVC CORPORATION PROJECT)
SERIES OF 1998
-------------------------------------------
<PAGE>
TABLE OF CONTENTS*
Page
ARTICLE I
DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS
Section 1.01. Definitions..............................................4
Section 1.02. Content of Certificates and Opinions....................17
Section 1.03. Interpretation..........................................18
ARTICLE II
THE BONDS
Section 2.01. Authorization of Bonds..................................18
Section 2.02. Terms of Bonds: Interest on the Bonds...................19
Section 2.03. Execution of Bonds......................................21
Section 2.04. Authentication..........................................21
Section 2.05. Form of Bonds...........................................22
Section 2.06. Transfer of Bonds ......................................23
Section 2.07. Exchange of Bonds.......................................23
Section 2.08. Bond Register...........................................23
Section 2.09. Temporary Bonds.........................................23
Section 2.10. Bonds Mutilated, Lost, Destroyed or Stolen..............24
Section 2.11. Cancellation and Destruction of Surrendered Bonds.......24
Section 2.12. Acts of Bondholders; Evidence of Ownership..............24
Section 2.13. Book-Entry Bonds; Securities Depository.................25
ARTICLE III
ISSUANCE OF BONDS; APPLICATION OF PROCEEDS
Section 3.01. Issuance of the Bonds.........................................26
Section 3.02. Validity of Bonds.............................................26
Section 3.03. Disposition of Proceeds of the Bonds and Other Amounts........26
*This Table of Contents is for convenience only, does not constitute a part of
this Indenture and shall not be considered as having any bearing upon any
interpretation of this Indenture.
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ARTICLE IV
REDEMPTION OF BONDS BEFORE MATURITY
Section 4.01. Extraordinary and Mandatory Redemption...................27
Section 4.02. Optional Redemption......................................29
Section 4.03. Notice of Redemption.....................................29
Section 4.04. Interest on Bonds Called for Redemption..................30
Section 4.05. Cancellation.............................................30
Section 4.06. Partial Redemption of Bonds..............................30
Section 4.07. Payment of Redemption Price with
Available Moneys; Consent of Letter of Credit Bank
to Optional Redemption...................................31
ARTICLE V
CONVERSION OF INTEREST RATE; DEMAND PURCHASE OPTION
Section 5.01. Conversion of Interest Rate on Conversion Date...........31
Section 5.02. Delivery of Bonds After Conversion Date .................33
Section 5.03. Mandatory Purchase Upon Substitution of Letter of Credit.33
Section 5.04. Demand Purchase Option...................................34
Section 5.05. Funds for Purchase of Bonds..............................35
Section 5.06. Delivery of Purchased Bonds..............................37
Section 5.07. Sale of Bonds by Remarketing Agent.......................37
Section 5.08. Delivery of Proceeds of Sale of
Purchased Bonds..........................................38
Section 5.09. Duties of Trustee and Tender Agent with
Respect to Purchase of Bonds.............................38
Section 5.10. No Purchases or Sales After Certain Defaults.............39
ARTICLE VI
REVENUES AND FUNDS
Section 6.01. Creation of the Bond Fund................................39
Section 6.02. Payments into the Bond Fund..............................39
Section 6.03. Use of Moneys in the Bond Fund...........................40
Section 6.04. Custody of Separate Trust Fund...........................40
Section 6.05. [Reserved]...............................................40
Section 6.06. [Reserved]...............................................41
Section 6.07. [Reserved]...............................................41
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Section 6.08. [Reserved]...............................................41
Section 6.09. Nonpresentment of Bonds..................................41
Section 6.10. Moneys to be Held in Trust...............................42
Section 6.11. Repayment to the Bank and the Company
from the Bond Fund.......................................42
Section 6.12. Letter of Credit.........................................42
Section 6.13. [Reserved]...............................................43
Section 6.14. Investment of Moneys in Funds............................45
ARTICLE VII
PARTICULAR COVENANTS
Section 7.01. Punctual Payment.........................................45
Section 7.02. Extension of Payment of Bonds............................46
Section 7.03. Against Encumbrances.....................................46
Section 7.04. Power to Issue Bonds and Make Pledge and Assignment......46
Section 7.05. Accounting Records and Financial Statements..............46
Section 7.06. Reserved.................................................47
Section 7.07. Other Covenants..........................................47
Section 7.08. Reserved.................................................47
Section 7.09. Further Assurances.......................................47
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES OF BONDHOLDERS
Section 8.01. Events of Default........................................48
Section 8.02. Acceleration.............................................49
Section 8.03. Other Remedies...........................................50
Section 8.04. Legal Proceedings by Trustee.............................51
Section 8.05. Discontinuance of Proceedings by Trustee.................51
Section 8.06. Bondholders May Direct Proceedings.......................51
Section 8.07. Limitations on Actions by Bondholders....................52
Section 8.08. Trustee May Enforce Rights Without
Possession of Bonds......................................52
Section 8.09. Delays and Omissions Not to Impair Rights................52
Section 8.10. Application of Moneys in Event of Default................52
Section 8.11. Trustee and Bondholders Entitled to All
Remedies Under Act: Remedies Not Exclusive...............53
Section 8.12. Trustee's Right to Receiver..............................53
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Section 8.13. Subrogation Rights of Bank...............................53
Section 8.14. Waiver of Default........................................54
ARTICLE IX
THE TRUSTEE; THE TENDER AGENT
AND THE REMARKETING AGENT
Section 9.01. Duties, Immunities and Liabilities of Trustee............54
Section 9.02. Merger or Consolidation..................................55
Section 9.03. Liability of Trustee.....................................56
Section 9.04. Right of Trustee to Rely on Documents....................56
Section 9.05. Preservation and Inspection of Documents.................57
Section 9.06. Compensation.............................................57
Section 9.07. The Tender Agent.........................................57
Section 9.08. Qualifications of Tender Agent...........................58
Section 9.09. Qualifications of Remarketing Agent;
Resignation; Removal.....................................58
Section 9.10. Construction of Ambiguous Provisions.....................59
ARTICLE X
MODIFICATION OR AMENDMENT OF THE INDENTURE
Section 10.01. Amendments Permitted.....................................59
Section 10.02. Effect of Supplemental Indenture.........................59
Section 10.03. Trustee Authorized to Join in Amendments
and Supplements; Reliance on Counsel.....................60
ARTICLE XI
DEFEASANCE
Section 11.01. Discharge of Indenture...................................60
Section 11.02. Discharge of Liability on Bonds..........................61
Section 11.03. Deposit of Money or Securities with Trustee..............61
Section 11.04. Payment of Bonds After Discharge of Indenture............62
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ARTICLE XII
MISCELLANEOUS
Section 12.01. Liability of Board Limited to Revenues..................62
Section 12.02. Limitation of Liability of Directors,
Etc. of Board..........................................63
Section 12.03. Covenant Not to Sue.....................................63
Section 12.04. Successor Is Deemed Included in All
References to Predecessor...............................63
Section 12.05. Limitation of Rights to Parties, Bank,
Company and Bondholders.................................63
Section 12.06. Waiver of Notice........................................64
Section 12.07. Severability of Invalid Provisions......................64
Section 12.08. Notices.................................................64
Section 12.09. Evidence of Rights of Bondholders.......................65
Section 12.10. Disqualified Bonds......................................66
Section 12.11. Money Held for Particular Bonds.........................66
Section 12.12. Funds...................................................66
Section 12.13. Payments Due on Days other than Business Days...........67
Section 12.14. Execution in Several Counterparts.......................67
Section 12.15. Notices to Rating Agency................................67
Section 12.16. Continuing Disclosure...................................67
Exhibit "A" - Floating Rate Form of Bond...................................A-1
Exhibit "B" - Fixed Rate Form of Bond......................................B-1
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This TRUST INDENTURE, made and entered into as of October 1, 1998, by
and between THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF HUNTSVILLE, a public
corporation organized under the laws of the State (the "Board") and FIRST UNION
NATIONAL BANK, a national banking association, as trustee (the "Trustee") and
tender agent (the "Tender Agent");
W I T N E S S E T H:
(Capitalized terms not otherwise defined shall have the meanings
ascribed to them in Section 1.01 of this Indenture.)
WHEREAS, proceeds of the Bonds are being issued to refund the
outstanding principal amount of the Board's Industrial Development Revenue Bonds
(Central CPVC Corporation Project) Series 1997 Bonds dated December 1, 1997 (the
"Series 1997 Bonds"). The Series 1997 Bonds were issued in the principal amount
of $7,500,000 and are now outstanding in the same amount. The Series 1997 Bonds
were issued to finance the costs of acquiring, constructing and equipping a
certain manufacturing facility (the "Project") that was leased to Central CPVC
Corporation (the "Company") by the Board pursuant to a Lease Agreement dated as
of December 1, 1997 (the "1997 Lease Agreement"); and
WHEREAS, when the Bonds are issued, the Series 1997 Bonds will be
immediately paid and retired and the 1997 Lease Agreement will be amended and
restated. The Board continues to own the Project and will lease the Project to
the Company pursuant to an Amended and Restated Lease Agreement dated as of
October 1, 1998, which amends and restates the 1997 Lease Agreement; and
WHEREAS, pursuant to the Amended and Restated Lease Agreement dated as
of October 1, 1998 (the "Agreement") the Company will agree to make lease
payments to the Trustee on behalf of the Board at times and in amounts
sufficient to pay debt service on the Bonds and to pay the purchase price of
Bonds tendered for purchase pursuant to the optional or mandatory tender
provisions of this Indenture; and
WHEREAS, the Board has determined to assign, transfer and pledge unto
the Trustee; as trustee under this Indenture, all right, title and interest of
the Board (except for certain reserved rights described herein) in and to the
Agreement and sums payable thereunder; and
WHEREAS, the Company will cause Congress Financial Corporation (the
"Bank") to arrange for First Union National Bank (the "Letter of Credit Bank")
to issue an irrevocable letter of credit in favor of the Trustee to provide for
payment of debt service on the Bonds and to pay the purchase price of Bonds
tendered for purchase pursuant to the optional or mandatory tender provisions of
the Indenture. The initial letter of credit to be delivered to the Trustee and
any substitute letter of credit delivered pursuant to the Indenture are referred
to as the "Letter of Credit"; and
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WHEREAS, the Bank has agreed to guarantee to the Letter of Credit Bank
the performance by the Company of its obligations to the Letter of Credit Bank;
and
WHEREAS, the Bank will arrange for the initial Letter of Credit
pursuant to the Loan and Security Agreement by and among Congress Financial
Corporation, as Lender, and Central Sprinkler Company, Central Castings
Corporation, Central CPVC Corporation, as Borrowers, and Central Sprinkler
Corporation and Central Sprinkler Export Corporation, as Guarantors, dated
September 18, 1998 (the "Loan Agreement") between the Bank and the Company
whereby the Company has agreed to, among other things, reimburse the Bank for
any payments to the Letter of Credit Bank to reimburse the Letter of Credit Bank
for draws made by the Trustee on the Letter of Credit and for other costs,
expenses and charges, as specified in the Loan Agreement; and
WHEREAS, as security for the Company's obligations under the Loan
Agreement, the Company has executed a Fee and Leasehold Mortgage with Security
Agreement and Assignment of Leases and Rents dated September 18, 1998 (together
with all amendments, modifications and restatements thereof, the "Bank
Mortgage") in favor of the Bank, whereby the Bank has a mortgage on and security
interest in the Project, the leasehold interest of the Company, and certain
other collateral; and
WHEREAS, the Bonds will be further secured by the unconditional
guaranty of payment of principal of and interest on the Bonds by Central CPVC
Corporation, an Alabama corporation; and
WHEREAS, the Bonds are the limited obligations of the Lessor payable
solely out of (a) payments made pursuant to the Lease Agreement and the Bond
Guaranty, and (b) money received from a draw on the Letter of Credit. The
Trustee will not have a mortgage on or security interest in the Project. The
Bank Mortgage is for the sole benefit of the Bank; and
WHEREAS, the Bonds never shall constitute the debt or indebtedness of
the City of Huntsville (the "City") or the State of Alabama (the "State"),
within the meaning of any provision or limitation of the constitution or
statutes of Alabama, and shall not constitute or give rise to a pecuniary
liability of the Lessor, its members or the City or the State or a charge
against its or their general credit or the taxing powers of the City or the
State; and
WHEREAS, execution and delivery of this Indenture and the issuance of
the Bonds hereunder and under the Act have been duly and validly authorized by
resolution of the Board of the Board duly adopted prior to such execution and
delivery,
NOW, THEREFORE, in consideration of the premises and of the covenants
hereinafter set forth, the parties hereto do hereby covenant, agree and bind
themselves as follows, to-wit:
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GRANTING CLAUSES AND AGREEMENTS
NOW, THEREFORE, in consideration of the premises and the acceptance by
the Trustee of the trusts hereby created and of the purchase and acceptance of
the Bonds issued and sold by the Board under this Indenture by those who shall
own the same from time to time, and of the sum of one dollar, lawful money of
the United States, duly paid to the Board by the Trustee at or before the
execution and delivery of this Indenture, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
for the purpose of fixing and declaring the terms and conditions upon which the
Bonds are to be executed, authenticated, issued, delivered and accepted by all
persons who shall from time to time be or become owners thereof; and in order to
secure the payment of the principal of and premium (if any) and interest on, and
purchase price of, the Bonds according to their tenor and effect and the
performance and observance by the Board of all the covenants expressed or
implied herein and in the Bonds and the payment and performance of all other of
the Board's obligations, the Board does hereby grant, bargain, sell, convey,
pledge and assign, without recourse, unto the Trustee and unto its successors in
the trust forever (and to the extent provided in Section 8.13 hereof, the Bank
as is hereinafter defined), and grants to the Trustee and to its successors in
the trust (and to the extent provided in Section 8.13 hereof, the Bank as is
hereinafter defined), a security interest in all of the following:
GRANTING CLAUSE FIRST
All right, title and interest of the Board in and to the Agreement and
the security granted thereunder and under the Collateral Documents and the other
Bond Documents, including, but not limited to: (i) the obligation of the Company
under Article III of the Agreement to make payments at such times and in such
amounts as are necessary to pay the principal of, interest and redemption
premium, if any, on the Bonds; (ii) the present and continuing right to make
claim for, collect, receive and receipt for any of the sums, amounts, income,
revenues, issues and profits and any other sums of money payable or receivable
under the Agreement, the Collateral Documents and the other Bond Documents;
(iii) the right to bring actions and proceedings thereunder or for the
enforcement thereof; and (iv) the right to do any and all things which the Board
is or may become entitled to do under the Agreement, the Collateral Documents
and the other Bond Documents.
GRANTING CLAUSE SECOND
All right, title and interest of the Board in and to all moneys and
securities from time to time held by the Trustee under the terms of this
Indenture.
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GRANTING CLAUSE THIRD
Any and all other property rights and interests of every kind and
nature from time to time hereafter by delivery or by writing of any kind
granted, bargained, sold, alienated, demised, released, conveyed, assigned,
transferred, mortgaged, pledged, hypothecated or otherwise subjected hereto, as
and for additional security herewith, by the Company or any other person on its
behalf or with its written consent or by the Board or any other person on its
behalf or with its written consent, and the Trustee is hereby authorized to
receive any and all such property at any and all times and to hold and apply the
same subject to the terms hereof.
EXPRESSLY RESERVING, however, to the Board:
(a) any rights to release and indemnification of the Board contained in
the Agreement or any other agreement or instrument delivered by any party in
connection with the issuance and sale of the Bonds;
(b) the right to exercise its rights provided for in Sections 3.10,
4.03(c), 4.04, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.17, 4.18, 8.02,
8.05, 8.07 and 8.08 of the Agreement; and
(c) the concurrent right to receive any and all reports, surveys,
certificates and evidences of performance which the Company may be required to
furnish pursuant to the terms of the Agreement and the right to exercise any
rights of inspection granted to it pursuant to the terms of the Agreement.
TO HAVE AND TO HOLD all and singular the Trust Estate with all
privileges and appurtenances hereby conveyed and assigned, or agreed or intended
so to be (i) to the Trustee and its successors in trust forever, and (ii) to the
Bank, to the extent provided in Section 8.13 hereof.
IN TRUST NEVERTHELESS, under and subject to the terms and conditions
hereinafter set forth: (a) for the equal benefit, protection and security of the
Owners of any and all of the Bonds, all of which regardless of the time or times
of their issuance or maturity shall be of equal rank, without preference,
priority or distinction of any of the Bonds over any other thereof, except as
otherwise provided in or pursuant to this Indenture; (b) for securing the
observance and performance of the Board's obligations and of all others of the
conditions, promises, stipulations, agreements and terms and provisions of this
Indenture and the uses and purposes herein expressed and declared; and (c) for
the benefit of the Bank.
PROVIDED, HOWEVER, that if the Board, its successors or assigns, well
and truly pays, or causes to be paid, the principal of the Bonds issued
hereunder and the premium (if any) and interest due or to become due thereon,
and the purchase price thereof, at the times and in the manner mentioned in the
Bonds and as provided herein, according to the true intent and meaning thereof,
and shall cause the payments to be made into the Bond Fund as required under
Article VI hereof, or shall provide, as permitted hereby, for payment thereof in
accordance with Article XI hereof, and shall well and truly keep, perform and
observe all of the covenants and conditions pursuant to the terms of this
Indenture and all other of the Board's obligations to be kept, performed and
observed by it, and shall pay or cause to be paid to the Trustee all sums of
money due or to become due in accordance with the terms and provisions hereof,
then upon such final payments or deposits as provided in Article XI hereof, and
upon the termination of the Agreement, the right, title and interest of the
Trustee in and to the Trust Estate shall cease, terminate and be void, and the
Trustee shall thereupon assign, transfer, and turn over the Trust Estate to the
Bank; provided, that if the Trustee shall have received written evidence from
the Bank that all obligations of the Company under the Loan Agreement have been
satisfied and that the Loan Agreement has been terminated, or if no Bank shall
then exist, the Trust Estate shall be assigned, transferred and turned over to
the Company; and the Trustee shall execute and deliver to the Board, the Bank
and the Company; as appropriate, such instruments in writing as shall be
requisite to evidence such transfer of the Trust Estate. Upon the Trustee's
assignment, transfer and turning over to the Bank or the Company, as
appropriate, of the Trust Estate pursuant to the provisions of this Indenture,
the Trustee shall have no further duties, responsibilities or obligations under
and pursuant to this Indenture.
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AND IT IS EXPRESSLY DECLARED that all Bonds issued and secured
hereunder are to be issued, authenticated and delivered and all of the Trust
Estate hereby pledged is to be dealt with and disposed of under, upon and
subject to the terms, conditions, stipulations, covenants, agreements, trusts,
uses and purposes hereinafter expressed, and the Board has agreed and covenanted
and intending to be legally bound does hereby agree and covenant with the
Trustee and with the respective Owners from time to time of the Bonds, or any
part thereof as follows:
ARTICLE I
DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS
Section 1.01. Definitions. Unless the context otherwise requires, the
terms and phrases defined in this Section shall, for all purposes of the
recitals hereto, this Indenture and of any indenture supplemental hereto and of
any certificate, opinion or other document herein mentioned, have the meanings
herein specified, to be equally applicable to both the singular and plural forms
of any of the terms herein defined. Unless otherwise defined in this Indenture,
all terms used herein shall have the meanings assigned to such terms in the Act.
"Accountant" means any firm of independent certified public accountants
(not an individual) selected by the Company and acceptable to the Bank.
"Act" means Act No. 648 adopted at the 1949 Regular Session of the
Legislature of the State of Alabama, approved September 19, 1949, as amended
(said Act being codified as Section 11-54-80, et seq., Code of Alabama, 1975).
"Additional Payments" means any payments required to be made by the
Company pursuant to the Agreement which are not required to be: (i) applied to
the payment of scheduled debt service on the Bonds; or (ii) reimbursed to the
Letter of Credit Bank or the Bank for monies drawn on the Letter of Credit to
pay debt service on the Bonds.
"Administrative Expenses" means those expenses of the Board and the
Bank which are properly chargeable to the Company on account of the Bonds and
the Bond Documents as administrative expenses under Generally Accepted
Accounting Principles and include, without limiting the generality of the
foregoing, the following: (a) fees and expenses of the Trustee, the Tender
Agent, the Board, the Letter of Credit Bank, the Bank and the Placement Agent;
and (b) fees and expenses of the Board's, the Letter of Credit Bank's, the
Bank's, the Trustee's, the Tender Agent's and the Placement Agent's professional
advisors reasonably necessary and fairly attributable to the Project Facilities,
including without limiting the generality of the foregoing, fees and reasonable
expenses of the Board's, the Trustee's, the Bank's and the Placement Agent's
counsel.
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"Agreement" means the Amended and Restated Lease Agreement, dated as of
October 1, 1998, between the Board and the Company, together with all
supplements thereto.
"Authorized Representative" means with respect to the Company, any
person designated as an Authorized Representative of the Company by a
Certificate of the Company executed by the Company and filed with the Trustee.
"Available Moneys" means: (i) moneys derived from drawings under the
Letter of Credit; (ii) moneys held by the Trustee in funds and accounts
established under this Indenture for a period of at least one hundred
twenty-four (124) days and not commingled with any moneys so held for less than
said one hundred twenty-four (124) day period and during and prior to which
period, no petition in bankruptcy was filed by or against the Company, any
partner of the Company, or the Board under the Bankruptcy Code or any applicable
state bankruptcy or insolvency law, unless such petition was dismissed and all
applicable appeal periods have expired without an appeal having been filed;
(iii) investment income derived from the investment of moneys described in
clauses (i) or (ii) above; or (iv) any other moneys, if the Trustee and the
Letter of Credit Bank have received an opinion of nationally recognized counsel
acceptable to Moody's experienced in bankruptcy matters to the effect that
payment of the principal or purchase price of or interest on the Bonds with such
moneys would not, in the event of bankruptcy of the Company, the Board, any
affiliate of the Company or other payor, constitute a voidable preference under
the Bankruptcy Code or any applicable state bankruptcy or insolvency law.
"Bank" means Congress Financial Corporation, whose principal office is
located in the City of New York, New York County, New York, and its successors
and/or assigns; provided, however, that if the Loan Agreement is no longer in
place, "Bank" and "Letter of Credit Bank" shall mean the provider of the Letter
of Credit or of the Substitute Letter of Credit.
"Bankruptcy Code" means the federal Bankruptcy Code, 11 U.S.C. ss.101
et seq., as amended and supplemented from time to time.
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"Board" means The Industrial Development Board of the City of
Huntsville created pursuant to, and as defined in, the Act, and its successors.
"Bond Documents" means any or all of the Agreement, this Indenture, the
Tender Agent Agreement, the Remarketing Agreement and all documents,
certificates and instruments executed in connection therewith.
"Bond Fund" means the fund created in Section 6.01 hereof.
"Bond Registrar" means any bank, national banking association or trust
company designated as registrar for the Bonds, and its successor appointed under
the Indenture.
"Bonds" means the $7,500,000 original aggregate principal amount of the
Board's Tax-Exempt Variable Rate Demand/Fixed Rate Refunding Revenue Bonds
(Central CPVC Corporation Project) Series of 1998 authorized to be issued under
this Indenture.
"Bond Year" means each one year period (or shorter period from date of
issue) that ends at the close of business on a day in the calendar year selected
by the Company.
"Business Day" means any day other than: (i) a Saturday or Sunday; (ii)
a legal holiday or any day on which banking institutions in the State of New
York, the State, the City of New York, or the city in which the principal office
of the Trustee, the Tender Agent or the Letter of Credit Bank are authorized to
remain closed; or (iii) a day on which the New York Stock Exchange is closed.
"Cede & Co." means Cede & Co., as nominee of The Depository Trust
Company, New York, New York.
"Certificate," "Statement," "Request," and "Order" means: (a) with
respect to the Board, a written certificate, statement, request or order
executed in the name of the Board by its Chairman or Vice Chairman or such other
person as may be designated and authorized to sign for the Board; or (b) with
respect to the Company a written certificate, statement, request, or order
executed by an Authorized Representative of the Company. Any such instrument and
supporting opinions or representations, if any, may, but need not, be combined
in a single instrument with any other instrument, opinion or representation, and
the two or more so combined shall be read and construed as a single instrument.
If and to the extent required by Section 1.02 hereof, each such instrument shall
include the statements provided for in such Section 1.02.
"Certified Resolution of the Board" means a copy of a resolution of the
Board of Directors of the Board certified by the Secretary or an Assistant
Secretary of the Board, or other officer serving in a similar capacity, under
its corporate seal, to have been duly adopted by the Board of Directors of the
Board and to be in full force and effect on the date of such certification.
"Clearing Fund" means the fund created pursuant to Section 3.03 hereof.
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"Closing Date" means October 29, 1998 or such other date which shall be
the date of the execution and delivery of the Agreement and the other Bond
Documents and the issuance and delivery of the Bonds.
"Code" means the Internal Revenue Code of 1986, as amended, and all
regulations promulgated thereunder.
"Collateral" means all of the rights and assets of the Company or any
other Person in which the Board or the Trustee is now or hereafter granted a
lien or security interest in order to secure the performance of (i) the
Company's obligations under the Agreement or any of the Collateral Documents or
(ii) the obligations of the Board hereunder or under the Bonds.
"Collateral Documents" means all documents executed and delivered or to
be executed and delivered and under which the Board or the Trustee is granted a
lien or security interest in any of the rights and assets of the Company or any
other Person in order to secure the performance of the Company's obligations
under the Agreement or any other Bond Documents or the obligations of the Board
hereunder or under the Bonds.
"Company" means Central CPVC Corporation, a State corporation.
"Conversion Date" means the Optional Conversion Date.
"Conversion Option" means the option granted to the Company in Section
5.01 hereof pursuant to which the interest rate on the Bonds is converted from
the Floating Rate to the Fixed Rate as of the Optional Conversion Date.
"Counsel" means an attorney-at-law or law firm (who may be counsel for
the Company or for the Board) satisfactory to the Trustee.
"Debt Service Requirements," with reference to a specified period
means, with respect to Bonds:
(a) amounts required to be paid into any mandatory sinking
fund account during the period; and
(b) amounts needed to pay the principal of such indebtedness
maturing during the period and not to be redeemed prior to maturity from amounts
on deposit in any sinking fund or redemption, retirement or similar fund or
account; and
(c) interest payable on the subject indebtedness during the
period, excluding capitalized interest and amounts on deposit with the Trustee
which are available under the Indenture to pay interest with respect to such
indebtedness.
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"Demand Purchase Notice" means a notice delivered pursuant to paragraph
(i) of Section 5.04 hereof.
"Demand Purchase Option" means the option granted to Owners of Bonds to
require that Bonds be purchased prior to the Conversion Date pursuant to Section
5.04 hereof.
"Determination Date" means with respect to any Floating Rate Bonds,
each Wednesday or if such Wednesday is not a Business Day, the next succeeding
Business Day.
"Determination of Taxability" means, with respect to any Bond, the
first to occur of the following events: (i) the date on which the Company
determines that an Event of Taxability has occurred by filing with the Trustee a
statement to that effect supported by one or more tax schedules, returns or
documents that disclose that such an Event of Taxability has occurred; (ii) the
date on which the Company or the Trustee is advised by private ruling, technical
advice or any other written communication from any authorized official of the
Internal Revenue Service that, based upon any filings of the Company or any
other person or entity, or upon any review or audit of the Company or any other
person or entity, or upon any other grounds whatsoever, an Event of Taxability
has occurred; (iii) the date on which the Trustee or the Company is advised that
a court of competent jurisdiction has issued an order, declaration, ruling or
judgment to the effect that an Event of Taxability has occurred; (iv) the date
the Trustee shall have received written notice from any owner of the Bonds that
such owner has received a written assertion or claim by any authorized official
of the Internal Revenue Service that an Event of Taxability has occurred; or (v)
the date the Trustee is notified that the Internal Revenue Service has issued
any private ruling, technical advice or any other written communication, with or
to the effect that an Event of Taxability has occurred; provided, however, that
(x) no Determination of Taxability described above shall be deemed to have
occurred unless the Trustee shall have received a written opinion of nationally
recognized bond counsel satisfactory to the Bank and the Company and not
unsatisfactory to the Trustee, and in form and substance satisfactory to the
Bank and the Company and not unsatisfactory to the Trustee, to the effect that
an Event of Taxability has occurred; and (y) no Determination of Taxability
described above shall be deemed to have occurred until 180 days shall have
elapsed from the dates described in clauses (i), (ii), (iii), (iv) or (v) above
without such Determination of Taxability having been rescinded or canceled.
"Event of Default" means any of the events specified in Section 8.01 of
this Indenture.
"Event of Taxability" means, with respect to any Bond, a change of law
or regulations, or the interpretation thereof, or the occurrence of any other
event or the existence of any other circumstances (including without limitation
the fact that any representations or warranties of the Company or the Board made
in connection with the issuance of any Bond is or was untrue or that a covenant
of the Company has been breached) that has the effect of causing interest
payable on any Bond to be includable in gross income for federal income tax
purposes under Section 103 of the Code other than by reason that such interest:
(i) is includable in the gross income of an owner or former owner of any Bond
while such owner or former owner is or was a "substantial user" or a "related
person" to a "substantial user" of the Project Facilities (as such terms are
used in Section 147(a)(1) of the Code); or (ii) is deemed an item of tax
preference, including without limitation an item subject to any alternative
minimum tax.
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"Fiscal Year" means the period of twelve (12) consecutive months
beginning January 1 of each year, or such other period of twelve consecutive
months established by the Company as its new Fiscal Year.
"Fixed Rate" means the interest rate in effect on any Bonds from and
after the Conversion Date, as said rate is determined in accordance with Section
2.02(D) hereof.
"Fixed Rate Bonds" means any Bonds which are converted to a Fixed Rate
in accordance with the provisions of this Indenture.
"Fixed Rate Period" means, with respect to any Bonds, a period during
which interest on such Bonds accrues at a Fixed Rate.
"Floating Rate" means a variable rate of interest equal to the minimum
rate of interest necessary, in the sole judgment of the Remarketing Agent, to
sell the Bonds at a price equal to the principal amount thereof, exclusive of
accrued interest, if any, thereon; said interest rate to be in effect on the
Bonds from the date of issuance of the Bonds until (but not including) the
Conversion Date, as said rate is determined in accordance with Section 2.02(C)
hereof.
"Floating Rate Bonds" means any Bonds which bear interest at the
Floating Rate.
"Generally Accepted Accounting Principles" means those accounting
principles applicable in the preparation of financial statements of business
institutions or industrial development authorities, as appropriate, as
promulgated by the Financial Accounting Standards Board or such other body
recognized as authoritative by the American Institute of Certified Public
Accountants or any successor body.
"Government Obligations" means direct obligations of (including
obligations issued or held in book entry form) or obligations the principal of
and interest on which are unconditionally guaranteed as to full and timely
payment by the United States.
"Holder," "Owner", "Registered Owner" or "Bondholders" whenever used
herein with respect to a Bond, means the person in whose name such Bond is
registered on the registration books maintained by the Trustee.
"Indenture" means this Trust Indenture, dated as of October 1, 1998,
between the Board and the Trustee, as originally executed or as it may, from
time to time, be supplemented, modified or amended by any Supplemental
Indenture.
"Interest Payment Date" means prior to the Conversion Date, the first
day of each calendar month, or if such date is not a Business Day, the next
succeeding Business Day, commencing December 1, 1998 and from and after the
Conversion Date, July 1 and January 1 of each year, commencing on the July 1 or
January 1 next following the Conversion Date.
"Investment Securities" means any of the following which at the time
are legal investments under the laws of the State for moneys held hereunder:
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(i) Government Obligations;
(ii) bonds, debentures, notes or other evidences of
indebtedness issued by any agency or other governmental or government-sponsored
agencies which may be hereafter created by the United States, provided, however,
that the full and timely payment of the securities issued by each such agency or
government-sponsored agency is secured by the full faith and credit of the
United States;
(iii) certificates of deposit of, or time deposits in, any
bank (including the Trustee) or savings and loan association having securities
rated, at the time of purchase or acquisition, in one of the three highest
Rating Categories (without regard to modifiers) of Moody's or S&P;
(iv) certificates which evidence ownership of the right to
the payment of the principal of and interest on obligations described in clauses
(i) and (ii) of this definition, provided that such obligations are held in the
custody of a bank or trust company in a special account separate from the
general assets of such custodian;
(v) obligations which, at the time of purchase or
acquisition, are rated in one of the two highest Rating Categories (without
regard to modifiers) of Moody's and the interest on which is not includable in
gross income for federal income tax purposes and the timely payment of the
principal of and interest on which is fully provided for by the deposit in trust
or escrow of cash or obligations described in clauses (i) or (ii) of this
definition;
(vi) guaranteed investment contracts or other similar
financial instruments with a commercial bank, insurance company or other
financial institution whose long term debt obligations are rated, at the time of
purchase or acquisition, in one of the two highest Rating Categories (without
regard to modifiers) by Moody's;
(vii) mutual funds invested primarily in obligations
described in clauses (i) and (ii) of this definition, and rated, at the time of
purchase, in one of the two highest rating categories (without regard to
modifiers) by Moody's, including, if such fund meets the criteria described in
this clause (vii), mutual funds managed by the Trustee or an affiliate thereof;
(viii) any investment approved in writing by the Bank;
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(ix) repurchase agreements issued by financial institutions:
(i) insured by the Federal Deposit Insurance Corporation; or (ii) whose senior
debt obligations at the time of purchase are rated, at the time of purchase or
acquisition, in any of the three highest Rating Categories (without regard to
modifiers) by Moody's; provided, such repurchase agreements are subject to
perfected security interests in the Investment Securities of the kind specified
in paragraphs (i) or (ii) above, which have a fair market value, exclusive of
accrued interest, at least equal to the amount invested in the repurchase
agreement; and provided further: (1) the Trustee has possession of the
securities; (2) the Trustee has a perfected first security interest in the
securities; (3) the securities are free and clear of any third-party liens; and
(4) failure to maintain the requisite securities percentage will require the
Trustee to liquidate the securities in accordance with the terms of the
repurchase agreement; and
(x) any other security or obligation constituting a
permitted investment under the Act, provided that the Bank consents to the
investment of funds in such security or obligation.
"Issue Date" means the date on which the Trustee authenticates the
Bonds and on which the Bonds are delivered to the purchasers thereof upon
original issuance.
"Letter of Credit" means the Irrevocable Direct Pay Letter of Credit
issued by the Letter of Credit Bank which was arranged by the Bank pursuant to
the provisions of the Loan Agreement, or, in the event of delivery of a
Substitute Letter of Credit, such Substitute Letter of Credit.
"Letter of Credit Bank" means First Union National Bank, as issuer of
the Letter of Credit, and its lawful successors and assigns, and to the extent
applicable, the issuer of any Substitute Letter of Credit. (The Company caused
the Bank to arrange for First Union National Bank to issue an irrevocable letter
of credit in favor of the Trustee to provide for payment of debt service on the
Bonds and to pay the purchase price of Bonds tendered for purchase pursuant to
the optional or mandatory tender provisions of the Indenture.)
"Letter of Credit Termination Date" means the later of: (i) that date
upon which the Letter of Credit shall expire or terminate pursuant to its terms;
or (ii) that date to which the expiration or termination of the Letter of Credit
may be extended, from time to time, either by extension or renewal of the
existing Letter of Credit or the issuance of a Substitute Letter of Credit.
"Loan Agreement" means the Loan and Security Agreement by and among
Congress Financial Corporation, as Lender, and Central Sprinkler Company,
Central Castings Corporation, Central CPVC Corporation, as Borrowers, and
Central Sprinkler Corporation and Central Sprinkler Export Corporation, as
Guarantors, dated September 18, 1998, and any other similar agreement entered
into in connection with the issuance of any Substitute Letter of Credit and any
and all modifications, alterations, amendments, supplements thereto, and
restatements thereof.
"Moody's" means Moody's Investors Service, Inc., a corporation
organized and existing under the laws of the State of Delaware, its successors
and their assigns, or, if such corporation shall be dissolved or liquidated or
shall no longer perform the functions of a securities rating agency, any other
nationally recognized securities rating agency designated by the Board, with the
approval of the Company.
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"Net Proceeds," when used with respect to any insurance proceeds or any
condemnation award, means the amount remaining after deducting all expenses
(including attorneys' fees and disbursements) incurred in the collection of such
proceeds or award from the gross proceeds thereof.
"Obligation Termination Date" means the date on which the Bank delivers
to the Trustee a certificate to the effect that all obligations owing to the
Bank under the Loan Agreement have been paid in full.
"Officers' Certificate" means with respect to the Board, a certificate,
duly executed by the Chairman or Vice Chairman, Secretary or Assistant
Secretary, Treasurer or Assistant Treasurer of the Board, under the corporate
seal of the Board; or with respect to the Company, a certificate duly executed
by an Authorized Representative.
"Opinion of Counsel" means a written opinion of counsel (who may be
counsel for the Board) selected by the Board and acceptable to the Trustee. If
and to the extent required by the provisions of Section 1.02 hereof, each
Opinion of Counsel shall include in substance the statements provided for in
such Section 1.02.
"Optional Conversion Date" means that date on or after December 1,
1998, which shall be a Business Day, from and after which the interest rate on
the Bonds is converted from the Floating Rate to the Fixed Rate as a result of
the exercise by the Company of the Conversion Option in accordance with the
terms of this Indenture.
"Outstanding," when used as of any particular time with reference to
Bonds, means (subject to the provisions of Section 12.10) all Bonds theretofore,
or thereupon being, authenticated and delivered by the Trustee under this
Indenture, except: (1) Bonds theretofore canceled by the Trustee or surrendered
to the Trustee for cancellation; (2) Bonds with respect to which all liability
of the Board shall have been discharged in accordance with Section 11.02,
including Bonds (or portions of Bonds) referred to in Section 12.10; and (3)
Bonds for the transfer or exchange of or in lieu of or in substitution for which
other Bonds shall have been authenticated and delivered by the Trustee pursuant
to this Indenture.
"Participants" means those financial institutions for whom the
Securities Depository effects book-entry transfers and pledges of securities
deposited with the Securities Depository, as such listing of Participants exists
at the time of such reference.
"Permitted Encumbrances" means any liens or encumbrances permitted
under the Loan Agreement or otherwise permitted by the Bank.
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"Person" means an individual, corporation, firm, association,
partnership, trust, or other legal entity or group of entities, including a
governmental entity or any agency or political subdivision thereof.
"Placement Agent" means First Union Capital Markets, a Division of
Wheat First Securities, Inc.
"Pledge Agreement" means: (i) the Pledge and Security Agreement, dated
as of October 1, 1998, between the Company and the Bank, and any amendments or
supplements thereto; and (ii) any pledge and security agreement made by the
Company and the Substitute Bank for the benefit of any Substitute Bank, and any
amendments or supplements thereto.
"Pledged Bonds" means any Bonds which shall, at the time of
determination thereof, be held in pledge for the benefit of the Bank by the
Pledged Bonds Custodian pursuant to the Pledge Agreement.
"Pledged Bonds Custodian" means that banking entity which serves as the
custodian for the Pledged Bonds under the terms and conditions of the Pledge
Agreement. The initial Pledged Bonds Custodian shall be the Tender Agent.
"Premises" shall mean that certain parcel of real property located at
3425 Stanwood Blvd., N.E., Huntsville, Alabama 35811.
"Principal Corporate Trust Office" means the principal corporate trust
office of the Trustee, which at the date of the execution of the Indenture is
located at 123 South Broad Street, Philadelphia, Pennsylvania 19109, Attention:
Corporation Trust Administration.
"Project" means the building, the machinery and equipment to be used in
the manufacturing of CPVC pipe and fittings for the fire protection industry to
be located at the Premises.
"Project Facilities" shall mean all of the Company's right, title and
interest in and to the Premises, together with all the right, title and interest
of the Company in and to all buildings, improvements, and appurtenant facilities
located on the Premises.
"Purchase Price" means an amount equal to 100% of the principal amount
of any Bond tendered or deemed tendered pursuant to Sections 5.01, 5.03 or 5.04
hereof, plus accrued and unpaid interest thereon to the date of purchase.
"Rating Agency" means Moody's when the Bonds are rated by Moody's and
S&P when the Bonds are rated by S&P. The Bonds will not be rated as of the date
of issuance and there are no plans to have the Bonds rated.
"Rating Category" means one of the general rating categories of Moody's
or S&P, without regard to any refinement or gradation of such rating category by
a numerical modifier or otherwise.
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"Record Date" means, prior to the Conversion Date, that day which is
the seventh calendar day next preceding any Interest Payment Date and
thereafter, that date which is the fifteenth calendar day next preceding any
Interest Payment Date.
"Remarketing Agent" means (singly or collectively, as the case may be)
the remarketing agent(s) appointed by the Company and accepted and consented to
in writing by the Board and the Trustee and at the time serving as such under
the Remarketing Agreement.
"Remarketing Agreement" means the Remarketing Agreement, dated October
29, 1998, by and between the Company and First Union Capital Markets, a division
of Wheat First Securities, Inc., as the remarketing agent, and accepted and
consented in writing to by the Board and the Trustee.
"Replacement Bonds" means Bonds issued to the beneficial owners of the
Bonds in accordance with Section 2.13 hereof.
"Revenues" means all amounts received by the Board or the Trustee for
the account of the Board pursuant or with respect to the Agreement or the Letter
of Credit, including, without limiting the generality of the foregoing, payments
under the Agreement (including both timely and delinquent payments and any late
charges, and whether paid from any source), prepayments, insurance proceeds,
condemnation proceeds, and all interest, profits or other income derived from
the investment of amounts in any fund or account established pursuant to this
Indenture.
"Securities Depository" means The Depository Trust Company and its
successors and assigns or if: (i) the then-Securities Depository resigns from
its functions as depository of the Bonds; or (ii) the Board discontinues use of
the then-Securities Depository pursuant to Section 2.13, any other securities
depository which agrees to follow the procedures required to be followed by a
securities depository in connection with the Bonds and which is selected by the
Board with the consent of the Company.
"Securities Depository Nominee" means, as to any Securities Depository,
such Securities Depository or the nominee of such Securities Depository in whose
name there shall be registered on the registration books maintained by the
Trustee the Bond certificates to be delivered to and immobilized at such
Securities Depository during the continuation with such Securities Depository of
participation in its book-entry system.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"S&P" means Standard & Poor's Rating Services, a division of the
McGraw-Hill Companies, Inc., a corporation organized and existing under the laws
of the State of Delaware, its successors and their assigns, or, if such
corporation shall be dissolved or liquidated or shall no longer perform the
functions of a securities rating agency, any other nationally recognized
securities rating agency designated by the Board, with the approval of the
Company.
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"State" means the State of Alabama.
"Substitute Bank" means a commercial bank, savings and loan association
or savings bank or other financial institution which has issued a Substitute
Letter of Credit.
"Substitute Letter of Credit" means a letter of credit delivered to the
Trustee in accordance with Section 4.07 of the Agreement: (i) issued by the
Letter of Credit Bank or a Substitute Bank, the short term unsecured debt of
which shall then have been assigned a rating by Moody's of "P-1" or the
equivalent rating assigned by S&P, or the long term senior subordinated debt of
which shall then have been assigned a rating of "Aa3" or higher by Moody's or
the equivalent rating assigned by S&P; (ii) replacing any existing Letter of
Credit; (iii) dated no later than the date of the expiration or replacement date
of the Letter of Credit for which the same is to be substituted; (iv) which
shall expire on a date which is 15 days after an Interest Payment Date for the
Bonds; (v) having a term of at least one year; and (vi) issued on substantially
identical terms and conditions as the then existing Letter of Credit, except
that the stated amount of the Substitute Letter of Credit shall equal the sum
of: (A) the aggregate principal amount of Bonds at the time Outstanding, plus
(B) an amount equal to (i) prior to the Conversion Date, forty-six (46) days'
interest or such other number of days as shall be required by the Rating Agency
(computed at a rate of 15% per annum) on all Bonds at the time Outstanding and
(ii) from and after the Conversion Date, two hundred (200) days' interest or
such other number of days as shall be required by the Rating Agency (computed at
the fixed rate on all Bonds at the time outstanding).
"Substitution Date" shall mean the date the Company delivers a
Substitute Letter of Credit to the Trustee in accordance with the terms and
conditions of Section 4.3 of the Agreement.
"Supplemental Indenture" means any indenture hereafter duly authorized
and entered into between the Board and the Trustee, supplementing, modifying or
amending this Indenture, but only if and to the extent that such Supplemental
Indenture is specifically authorized hereunder.
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"Tender Agent" means First Union National Bank, a national banking
association, and its successors and any corporation resulting from or surviving
any consolidation or merger to which it or its successors may be a party or
Tender Agent hereunder and under the Tender Agent Agreement. "Delivery Office"
and "Principal Office" of the Tender Agent means 3C3 1525 West W.T. Harris
Boulevard, Charlotte, NC 28288, Attention: Corporate Trust Operations or such
other address as may be designated in writing to the Board, the Trustee, the
Remarketing Agent and the Company.
"Tender Agent Agreement" means the Tender Agent Agreement, dated as of
October 1, 1998, between the Company, the Trustee and the Tender Agent and any
amendments and supplements thereto.
"Trust Estate" means all property rights and interests transferred,
assigned, or otherwise pledged to the Trustee and the Bank pursuant to the
Granting Clauses hereof.
"Trustee" means First Union National Bank, a national banking
association and its successor and any entity resulting from or surviving any
consolidation or merger to which it or its successors may be a party and any
successor trustee at the time serving as successor trustee hereunder.
"United States" means the United States of America.
"Unremarketed Bonds" means Bonds which have been purchased pursuant to
Sections 5.01, 5.03 or 5.04 hereof but which have not been remarketed.
"Weekly Period" shall mean, while the Bonds bear interest at the
Floating Rate, the weekly period that begins on and includes Wednesday of each
calendar week and ends at the close of business on Tuesday of the next
succeeding week.
Section 1.02. Content of Certificates and Opinions. The Trustee may,
but shall not be obligated to, require that every certificate or opinion
provided for in this Indenture with respect to compliance with any provision
hereof shall include: (1) a statement to the effect that the Person making or
giving such certificate or opinion has read such provision and the definitions
herein relating thereto; (2) a brief statement as to the nature and scope of the
examination or investigation upon which the certificate or opinion is based; (3)
a statement to the effect that in the opinion of such person, he has made or
caused to be made such examination or investigation as is necessary to enable
him to express an informed opinion with respect to the subject matter referred
to in the instrument to which his signature is affixed; (4) a statement of the
assumptions upon which such certificate or opinion is based, and that such
assumptions are reasonable; and (5) a statement as to whether, in the opinion of
such person, such provision has been complied with.
Any such certificate or opinion made or given by an officer of the
Board or the Company may be based, insofar as it relates to legal or accounting
matters, upon a certificate or opinion of or representation by counsel or an
accountant, unless such officer knows, or in the exercise of reasonable care
should have known, that the certificate, opinion or representation with respect
to the matters upon which such certificate or statement may be based, as
aforesaid, is erroneous. Any such certificate or opinion made or given by
counsel or an accountant may be based, insofar as it relates to factual matters
(with respect to which information is in the possession of the Board or the
Company, as the case may be) upon a certificate or opinion of or representation
by an officer of the Board or the Company, unless such counsel or accountant
knows, or in the exercise of reasonable care should have known, that the
certificate or opinion or representation with respect to the matters upon which
such person's certificate or opinion or representation may be based, as
aforesaid, is erroneous. The same officer of the Board or the Company, or the
same counsel or accountant, as the case may be, need not certify to all of the
matters required to be certified under any provision of this Indenture, but
different officers, counsel or accountants may certify to different matters,
respectively.
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Section 1.03. Interpretation.
(a) Unless the context otherwise indicates, words expressed
in the singular shall include the plural and vice versa and the use of the
neuter, masculine, or feminine gender is for convenience only and shall be
deemed to mean and include the neuter, masculine or feminine gender, as
appropriate.
(b) Headings of articles and sections herein and the table
of contents hereof are solely for convenience of reference, do not constitute a
part hereof and shall not affect the meaning, construction or effect hereof.
(c) All references herein to "Articles," "Sections" and
other subdivisions are to the corresponding Articles, Sections or subdivisions
of this Indenture; the words "herein," "hereof," "hereby," "hereunder" and other
words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or subdivision hereof.
(d) Whenever in this Indenture it is required that notice be
provided to the Bank or that consent of the Bank be obtained, such provisions
shall be effective only when: (i) the Letter of Credit is in effect; or (ii) the
Bank, in its capacity as provider of the Letter of Credit, is the Holder of any
Bonds.
ARTICLE II
THE BONDS
Section 2.01. Authorization of Bonds. The Bonds shall be issued
hereunder in order to obtain moneys to finance the Project for the benefit of
the Board and the Company. The Bonds are designated as "$7,500,000 The
Industrial Development Board of the City of Huntsville Tax-Exempt Variable Rate
Demand/Fixed Rate Refunding Revenue Bonds (Central CPVC Corporation Project),
Series of 1998." The aggregate principal amount of Bonds which may be issued and
Outstanding under this Indenture shall not exceed Seven Million Five Hundred
Thousand Dollars ($7,500,000). No additional bonds may be issued under this
Indenture. This Indenture constitutes a continuing agreement by the Board for
the benefit of the Holders from time to time of the Bonds to secure the full
payment of the principal of and interest on all such Bonds subject to the
covenants, provisions and conditions herein contained.
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Section 2.02. Terms of Bonds; Interest on the Bonds.
(A) The Bonds shall be issued in fully registered form.
Prior to the Conversion Date: (i) such Bonds shall be Outstanding in
denominations of $100,000 or any integral multiple of $5,000 in excess thereof;
and (ii) such Bonds may not be issued, exchanged or transferred except in the
authorized denominations of $100,000 or any integral multiple of $5,000 in
excess thereof. From and after the Conversion Date: (x) such Bonds shall be
Outstanding in denominations of $5,000 or any integral multiple of $5,000; and
(y) such Bonds may not be issued, exchanged or transferred except in the
authorized denominations of $5,000 or any integral multiple of $5,000 in excess
thereof. The Bonds shall be dated as of the date of delivery and shall mature,
subject to prior redemption, as provided herein. Unless the Board shall
otherwise direct, prior to the Conversion Date the Bonds shall be lettered "VR"
and shall be numbered consecutively from 1 upward, and after the Conversion Date
the Bonds shall be lettered "FR" and shall be numbered consecutively from 1
upward.
(B) Each Bond shall be dated the Issue Date and shall bear
interest, payable: (i) prior to the Conversion Date, on the first day of each
calendar month, or if such date is not a Business Day, the next succeeding
Business Day commencing December 1, 1998; (ii) on the Conversion Date; and (iii)
from and after the Conversion Date, on July 1 and January 1 of each year,
commencing on the July 1 or January 1 next following the Conversion Date, in
each case from the Interest Payment Date next preceding the date of
authentication thereof to which interest has been paid or duly provided for,
unless the date of authentication thereof is an Interest Payment Date to which
interest has been paid or duly provided for, in which case from the date of
authentication thereof, or unless no interest has been paid or duly provided for
on the Bonds, in which case from the Issue Date, until payment of the principal
thereof has been made or duly provided for. Notwithstanding the foregoing, any
Bond authenticated after any Record Date and before the following Interest
Payment Date shall bear interest from such Interest Payment Date, provided,
however, that if the Board shall default in the payment of interest due on such
Interest Payment Date, then such Bond shall bear interest from the next
preceding Interest Payment Date to which interest has been paid or duly provided
for, or, if no interest has been paid or duly provided for on the Bonds, from
the Issue Date.
The Bonds shall mature on January 1, 2013.
(C) (i) From the Issue Date to the Conversion Date, the
Bonds shall bear interest at the Floating Rate. The Floating Rate shall be
determined by the Remarketing Agent by 9:30 a.m. on each Determination Date and
shall be effective on such Determination Date for the immediately following
Weekly Period. If the Determination Date is, for example, a Thursday, the Weekly
Period starts the preceding Wednesday.
(ii) The Remarketing Agent shall advise the
Company and the Trustee of the Floating Rate by telephone
(confirmed by telecopy to the Trustee) at or before the close of business on
each Determination Date. Upon request of any Bondholder, the Remarketing Agent
shall notify such Bondholder of the Floating Rate then borne by the Bonds.
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(iii) If for any reason the interest rate on a
Bond for any Weekly Period is not determined by the Remarketing Agent pursuant
to (C)(i) above, or a court holds that the Floating Rate set as provided
pursuant to (C)(i) above is invalid or unenforceable, the Floating Rate for such
Bonds shall be for the first such Weekly Period that a Floating Rate is not
determined by the Remarketing Agent or has been determined invalid or
unenforceable, a rate per annum equal to the Floating Rate established by the
Remarketing Agent pursuant to (C)(i) on the immediately preceding Determination
Date and on each Determination Date thereafter, shall be a rate per annum equal
to 85% of the interest rate per annum for 30 day commercial paper having a
rating of A-2/P-2 as reported in The Wall Street Journal on each Determination
Date.
(iv) The determination of the Floating Rate by the
Remarketing Agent shall be conclusive and binding upon the Board, the Trustee,
the Letter of Credit Bank, the Letter of Credit Bank, the Bank, the Company, the
Remarketing Agent, the Tender Agent and the Owners of the Bonds.
Anything herein to the contrary notwithstanding, the
Floating Rate shall in no event exceed 15% per annum.
(D) The Bonds shall bear interest at the Fixed Rate from and
after the Conversion Date until the maturity of the Bonds. The Fixed Rate shall
be a fixed annual interest rate on the Bonds established by the Remarketing
Agent as the rate of interest for which the Remarketing Agent has received
commitments from purchasers on or prior to the 5th Business Day preceding the
Conversion Date to purchase all the Outstanding Bonds on the Conversion Date at
a price of par.
(E) Prior to the Conversion Date, interest on the Bonds
shall be computed on the basis of a 365/366-day year, for the actual number of
days elapsed. On and after the Conversion Date, interest on the Bonds shall be
computed on the basis of a 360-day year of twelve 30-day months. The principal
of and premium, if any, on the Bonds shall be payable in lawful money of the
United States at the Principal Corporate Trust Office of the Trustee, or of its
successor in trust. The Purchase Price of the Bonds shall be payable in lawful
money of the United States by the Tender Agent to the Owner of Bonds entitled to
receive such Purchase Price.
Interest on the Bonds shall be payable on each Interest
Payment Date to the persons in whose name the Bonds are registered at the close
of business on the Record Date for the respective Interest Payment Date.
Interest shall be paid by check mailed to each Owner at the addresses shown on
the registration books maintained by the Trustee, provided that such interest
shall be paid by wire transfer to: (i) the Bank; and (ii) any Holder of at least
$1,000,000 in aggregate principal amount of Bonds, if the Holder makes a written
request of the Trustee at least 15 days before a Record Date specifying the
account address and wiring instructions. Such a request may provide that it will
remain in effect for subsequent interest payments until changed or revoked by
written notice to the Trustee or upon the transfer or re-registration of the
Bond.
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The principal of the Bonds shall be payable in lawful money
of the United States at the Principal Corporate Trust Office of the Trustee;
provided, however that payment of Bonds tendered pursuant to Sections 5.01, 5.03
and 5.04 hereof shall be paid at the Delivery Office of the Tender Agent. Except
as provided for in Section 2.13 hereof, no payment of principal shall be made on
any Bond until such Bond is surrendered to the Trustee at its Principal
Corporate Trust Office.
Section 2.03. Execution of Bonds. The Bonds shall be executed in the
name and on behalf of the Board with the manual or facsimile signature of its
Chairman or Vice Chairman, under its seal attested by the manual or facsimile
signature of its Secretary or Assistant Secretary. Such seal may be in the form
of a facsimile of the Board's seal and may be reproduced, imprinted or impressed
on the Bonds. The Bonds shall then be delivered to the Trustee for
authentication by it. In case any of the officers who shall have executed or
attested any of the Bonds shall cease to be such officer or officers of the
Board before the Bonds so executed or attested shall have been authenticated or
delivered by the Trustee or issued by the Board, such Bonds may nevertheless be
authenticated, delivered and issued and, upon such authentication, delivery and
issue, shall be as binding upon the Board as though those who executed and
attested the same had continued to be such officers of the Board, and also any
Bond may be signed and attested on behalf of the Board by such persons as at the
actual date of execution of such Bond shall be the proper officers of the Board
although at the nominal date of such Bond any such person shall not have been
such officer of the Board.
Only such of the Bonds as shall bear thereon a certificate of
authentication substantially in the form set forth on the form of Bond, manually
executed by the Trustee, shall be valid or obligatory for any purpose or
entitled to the benefits of this Indenture, and such certificate of the Trustee
shall be conclusive evidence that the Bonds so authenticated have been duly
executed, authenticated and delivered hereunder and are entitled to the benefits
of this Indenture.
Section 2.04. Authentication.
(a) The Board hereby appoints the Tender Agent as a
co-authenticating agent for the Bonds.
(b) No Bond shall be valid or obligatory for any purpose or
entitled to any security or benefit under this Indenture unless and until a
certificate of authentication on such Bond, substantially in the form set forth
in Exhibit "A" and Exhibit "B" attached hereto, shall have been duly executed by
the Trustee or by the Tender Agent and such executed certificate of
authentication upon any such Bond shall be conclusive evidence that such Bond
has been authenticated and delivered under this Indenture. The certificate of
authentication on any Bond shall be deemed to have been executed by the Trustee
or the Tender Agent if executed by an authorized signatory of the Trustee or the
Tender Agent, as the case may be, but it shall not be necessary that the same
signatory execute the certificate of authentication on all of the Bonds.
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(c) In the event any Bond is deemed tendered to the Tender
Agent as provided in Section 5.01 or 5.04 hereof but is not physically delivered
to the Tender Agent, the Board shall execute and the Trustee or the Tender Agent
shall authenticate a new Bond of like denomination as that deemed tendered.
(d) Upon issuance of the Bonds, the Trustee shall
authenticate and deliver the Bonds to the initial purchaser thereof against
receipt of the purchase price for the Bonds, but only upon receipt of the
following:
(i) executed counterpart originals of this
Indenture, the Agreement, the Tender Agent Agreement and the Loan Agreement;
(ii) a written order of the Board directing the
authentication and delivery of the Bonds and the
application of the proceeds received from the sale of the Bonds;
(iii) the original Letter of Credit; and
(iv) the opinions of Bond Counsel, counsel to the
Company and counsel to the Letter of Credit Bank in form and substance
satisfactory to the Trustee.
Section 2.05. Form of Bonds. The Floating Rate Bonds and the
certificate of authentication to be endorsed thereon prior to the Conversion
Date are to be in substantially the form set forth in Exhibit "A" which is
attached hereto and hereby made a part hereof as though fully set forth herein,
with appropriate variations, omissions and insertions as permitted or required
by this Indenture and applicable law. The Fixed Rate Bonds and the certificate
of authentication to be endorsed thereon are to be in substantially the form set
forth in Exhibit "B" which is attached hereto and hereby made a part hereof as
though fully set forth herein, with appropriate variations, omissions and
insertions as permitted or required by this Indenture.
Section 2.06. Transfer of Bonds. Any Bond may be transferred in
accordance with its terms upon the books required to be kept pursuant to the
provisions of Section 2.08 hereof. Such transfer shall be made, in accordance
with the requirements of Section 2.02 hereof, by the person in whose name it is
registered, in person or by his duly authorized attorney, upon surrender of such
registered Bond for cancellation, accompanied by delivery of a written
instrument of transfer, duly executed in a form approved by the Trustee.
Whenever any Bond or Bonds shall be surrendered for transfer, the Board
shall execute and the Trustee or the Tender Agent, as the case may be, shall
authenticate and deliver a new Bond or Bonds of the same Series for a like
aggregate principal amount. The Trustee shall require the Bondholder requesting
such transfer to pay any tax or other governmental charge required to be paid
with respect to such transfer, and may in addition require the payment of a
reasonable sum to cover expenses incurred by the Board or the Trustee in
connection with such transfer.
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During the Fixed Rate Period, the Trustee shall not be required to
transfer any Bond during the period beginning 15 days before the mailing of
notice of redemption calling the Bond or any portion of the Bond for redemption
and ending on the redemption date.
Section 2.07. Exchange of Bonds. Bonds may be exchanged at the
Principal Corporate Trust Office of the Trustee for a like aggregate principal
amount of Bonds of other authorized denominations in accordance with the
requirements of Section 2.02 hereof. The Trustee shall require the Bondholder
requesting such exchange to pay any tax or other governmental charge required to
be paid with respect to such exchange, and may in addition require the payment
of a reasonable sum to cover expenses incurred by the Board or the Trustee in
connection with such exchange.
During the Fixed Rate Period, the Trustee shall not be required to
exchange any Bond during the period beginning 15 days before the mailing of
notice of redemption calling the Bond or any portion of the Bond for redemption
and ending on the redemption date.
Section 2.08. Bond Register. The Trustee is hereby appointed the Bond
Registrar of the Board and the Tender Agent is hereby appointed the Co-Bond
Registrar of the Board. The Trustee or the Tender Agent, as the case may be,
will keep or cause to be kept sufficient books for the registration and transfer
of the Bonds, which shall at all times be open to inspection during regular
business hours by any Bondholder or his agent duly authorized in writing, the
Board, the Company, the Bank and the Remarketing Agent; and upon presentation
for such purpose, the Trustee or the Tender Agent, as the case may be, shall,
under such reasonable regulations as they may prescribe, register or transfer or
cause to be registered or transferred, on such books, Bonds as hereinbefore
provided.
Section 2.09. Temporary Bonds. The Bonds may be issued in temporary
form exchangeable for definitive Bonds when ready for delivery. Any temporary
Bond may be printed, lithographed or typewritten, shall be of such denomination
as may be determined by the Board, shall be in fully registered form without
coupons and may contain such reference to any of the provisions of this
Indenture as may be appropriate. Every temporary Bond shall be executed by the
Board and be authenticated by the Trustee or the Tender Agent, as the case may
be, upon the same conditions and in substantially the same manner as the
definitive Bonds. If the Board issues temporary Bonds it will execute and
deliver definitive Bonds as promptly thereafter as practicable, and thereupon
the temporary Bonds may be surrendered, for cancellation, in exchange therefor
at the Principal Corporate Trust Office of the Trustee and the Trustee or the
Tender Agent, as the case may be, shall authenticate and deliver in exchange for
such temporary Bonds an equal aggregate principal amount of definitive Bonds of
authorized denominations. Until so exchanged, the temporary Bonds shall be
entitled to the same benefits under this Indenture as definitive Bonds
authenticated and delivered hereunder.
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Section 2.10. Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond
shall become mutilated, the Board, at the expense of the Holder of said Bond,
shall execute, and the Trustee shall thereupon authenticate and deliver, a new
Bond of like tenor and number in exchange and substitution for the Bond so
mutilated, but only upon surrender to the Trustee of the Bond so mutilated.
Every mutilated Bond so surrendered to the Trustee shall be canceled by it and
delivered to, or upon the order of, the Board. If any Bond shall be lost,
destroyed or stolen, evidence of such loss, destruction or theft may be
submitted to the Board and the Trustee and, if such evidence be satisfactory to
both and indemnity satisfactory to them both shall be given, the Board, at the
expense of the Holder, shall execute, and the Trustee shall thereupon
authenticate and deliver, a new Bond of like tenor and number in lieu of and in
substitution for the Bond so lost, destroyed or stolen (or if any such Bond
shall have matured or shall be about to mature, instead of issuing a substitute
Bond, the Trustee may pay the same without surrender thereof). The Board may
require payment by the Holder of a sum not exceeding the actual cost of
preparing each new Bond issued under this Section and of the expenses which may
be incurred by the Board and the Trustee in connection therewith. Any Bond
issued under the provisions of this Section in lieu of any Bond alleged to be
lost, destroyed or stolen shall constitute an original additional contractual
obligation on the part of the Board whether or not the Bond so alleged to be
lost, destroyed or stolen be at any time enforceable by anyone, and shall be
entitled to the benefits of this Indenture with all other Bonds secured by this
Indenture.
Section 2.11. Cancellation and Destruction of Surrendered Bonds. All
Bonds surrendered for payment or redemption and all Bonds purchased with moneys
available for that purpose in any funds established under this Indenture, shall,
at the time of such payment or redemption, be canceled and destroyed by the
Trustee. The Trustee shall deliver to the Board certificates of destruction with
respect to all Bonds destroyed in accordance with this Section.
Section 2.12. Acts of Bondholders; Evidence of Ownership. Any action to
be taken by Bondholders may be evidenced by one or more concurrent written
instruments of similar tenor signed or executed by such Bondholders in person or
by agents appointed in writing. The fact and date of the execution by any person
of any such instrument may be proved by acknowledgment before a notary public or
other officer empowered to take acknowledgments or by an affidavit of a witness
to such execution. Any action by the holder of any Bond shall bind all future
holders of the same Bond in respect of any thing done or suffered by the Board
or the Trustee in pursuance thereof.
Section 2.13. Book-Entry Bonds; Securities Depository.
(a) The Bonds shall initially be registered to Cede & Co.,
the nominee for the Securities Depository, and no beneficial owner will receive
certificates representing their respective interests in the Bonds, except in the
event the Trustee issues Replacement Bonds as provided in subsection (b) hereof.
It is anticipated that during the term of the Bonds, the Securities Depository
will make book-entry transfers among its Participants and receive and transmit
payment of principal of, premium, if any, and interest on, the Bonds to the
Participants until and unless the Trustee authenticates and delivers Replacement
Bonds to the beneficial owners as described in subsection (b).
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(b) If the Company determines: (1) that the Securities
Depository is unable to properly discharge its responsibilities; or (2) that the
Securities Depository is no longer qualified to act as a securities depository
and registered clearing agency under the Securities Exchange Act; or (3) that
the continuation of a book-entry system to the exclusion of any Bonds being
issued to any Bondowner other than Cede & Co. is no longer in the best interests
of the beneficial owners of the Bonds, then the Trustee shall notify the
Bondowners of such determination or such notice and of the availability of
certificates of Owners requesting the same, and the Trustee shall register in
the name of and authenticate and deliver Replacement Bonds to the beneficial
owners or their nominees in principal amounts representing the interest of each,
making such adjustments as it may find necessary or appropriate as to accrued
interest and previous calls for redemption; provided, that in the case of a
determination under (1) or (2) of this subsection (b), the Company, with the
consent of the Trustee, may select a successor Securities Depository in
accordance with subsection (c) hereof to effect book-entry transfers. In such
event, all references to the Securities Depository herein shall relate to the
period of time when the Securities Depository has possession of at least one
Bond. Upon the issuance of Replacement Bonds, all references herein to
obligations imposed upon or to be performed by the Securities Depository shall
be deemed to be imposed upon and performed by the Trustee, to the extent
applicable with respect to such Replacement Bonds. If the Securities Depository
resigns and the Company, the Trustee or Bondowners are unable to locate a
qualified successor of the Securities Depository in accordance with subsection
(c) hereof, then the Trustee shall authenticate and cause delivery of
Replacement Bonds to Bondowners, as provided herein. The Trustee may rely on
information from the Securities Depository as to the names of the beneficial
owners of the Bonds. The cost of printing Replacement Bonds shall be paid for by
the Company.
(c) In the event the Securities Depository resigns, is
unable to properly discharge its responsibilities, or is no longer qualified to
act as a securities depository and registered clearing agency under the
Securities Exchange Act, the Company may appoint a successor Securities
Depository provided the Trustee receives written evidence satisfactory to the
Trustee with respect to the ability of the successor Securities Depository to
discharge its responsibilities. Any such successor Securities Depository shall
be a securities depository which is a registered clearing agency under the
Securities Exchange Act, or other applicable statute or regulation that operates
a securities depository upon reasonable and customary terms. The Trustee upon
its receipt of a Bond or Bonds for cancellation shall cause the delivery of
Bonds to the successor Securities Depository in appropriate denominations and
form as provided herein.
(d) Notwithstanding any provision herein to the contrary, so
long as the Bonds are subject to a system of book-entry transfers pursuant to
this Section 2.13, any requirement for the delivery of Bonds to the Tender Agent
or the Trustee in connection with a tender pursuant to Section 5.01, 5.03 or
5.04 or a partial redemption pursuant to Section 4.01 shall be deemed satisfied
upon the transfer, on the registration books of the Securities Depository, of
the beneficial ownership interests in such Bonds tendered for purchase to the
account of the Tender Agent, or a Participant acting on behalf of or at the
discretion of such Tender Agent, or on the books of the Trustee.
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ARTICLE III
ISSUANCE OF BONDS; APPLICATION OF PROCEEDS
Section 3.01. Issuance of the Bonds. At any time after the execution of
this Indenture, the Board may execute and the Trustee or the Tender Agent, as
the case may be, shall authenticate and, upon request of the Board, deliver the
Bonds in the aggregate principal amount of Seven Million Five Hundred Thousand
Dollars ($7,500,000).
Section 3.02. Validity of Bonds. The validity of the authorization and
issuance of the Bonds is not dependent on and shall not be affected in any way
by any proceedings taken by the Board or the Trustee with respect to or in
connection with the Agreement. The recital contained in the Bonds that the same
are issued pursuant to the Act and the Constitution and laws of the State shall
be conclusive evidence of their validity and of compliance with all provisions
of law in their issuance.
Section 3.03. Disposition of Proceeds of the Bonds and Other Amounts.
The Board shall deposit or cause to be deposited with the Trustee, immediately
upon receipt thereof, all proceeds derived from the sale of the Bonds, together
with any monies deposited by the Company as an equity contribution; provided,
however, that the Trustee shall segregate bond proceeds from equity contribution
monies. The Trustee shall deposit all such amounts in a special fund, which the
Trustee is hereby directed to establish and create, to be known as the "Clearing
Fund", and in the following order, the Trustee shall:
(a) Transfer to the persons identified in writing by the
Board and the Company in payment, or reservation for payment, the costs of
issuance incurred in connection with the Bonds; and
(b) Transfer to the holder of the Series 1997 Bonds the
purchase price of the said Bonds..
ARTICLE IV
REDEMPTION OF BONDS BEFORE MATURITY
Section 4.01. Extraordinary and Mandatory Redemption.
(a) Extraordinary Redemption. During any time the Bonds are
in a fixed rate mode, they are callable for redemption in, whole or in part, in
the event: (1) the Project Facilities or any portion thereof are damaged or
destroyed or taken in a condemnation proceeding as provided in Section 6.4 of
the Agreement; or (2) the Company shall exercise its option to cause the Bonds
to be redeemed as provided in Section 9.4 of the Agreement. If called for
redemption at any time pursuant to this Section 4.01(a), the Bonds shall be
subject to redemption by the Board on any Interest Payment Date, in whole or in
part, at a redemption price equal to 100% of the principal amount thereof being
redeemed, which such amount shall be limited to the amount of insurance or
condemnation proceeds, plus accrued interest to the redemption date.
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(b) Mandatory Redemption. The Bonds are subject to mandatory
redemption:
(1) at any time, in whole, within one hundred
eighty (180) days after the Trustee receives notice of the occurrence of a
Determination of Taxability, at a redemption price equal to one hundred
percent (100%) of the aggregate principal amount of Bonds Outstanding plus
accrued interest to the redemption date; or
(2) five (5) Business Days prior to the Letter of
Credit Termination Date, in whole, at a redemption price equal to one
hundred percent (100%) of the principal amount thereof being redeemed plus
accrued interest to the redemption date if, on the 30th Business Day prior
to the Letter of Credit Termination Date, the Trustee shall not have
received a Substitute Letter of Credit which will be effective on or before
the Letter of Credit Termination Date.
(c) Mandatory Sinking Fund Redemption. The Bonds
are subject to mandatory sinking fund redemption on the Interest Payment
Date occurring in the month of January in each of the years set forth below
commencing on the Interest Payment Date occurring in January of 2000 (each,
a "Mandatory Sinking Fund Payment Date"), at a redemption price equal to
100% of the principal amount thereof plus accrued interest as follows:
Mandatory Sinking
Year Fund Payments
---- -----------------
2000 $560,000
2001 $560,000
2002 $560,000
2003 $560,000
2004 $560,000
2005 $560,000
2006 $560,000
2007 $560,000
2008 $560,000
2009 $575,000
2010 $580,000
2011 $580,000
2012 $580,000
2013 $145,000*
*Final maturity of the Bonds is January 1, 2013
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(d) [Reserved]
(e) Mandatory Redemption upon Determination of Taxability.
The Bonds will be subject to redemption by the Board in whole within one hundred
eighty (180) days after the occurrence of a "Determination of Taxability" (as
hereinafter defined), at a redemption price equal to one hundred percent (100%)
of the aggregate principal amount of Bonds outstanding plus accrued interest to
the redemption date.
A "Determination of Taxability " with respect to any Bond
shall be deemed to have been made upon the first to occur of the following
events:
(i) the date on which the Company determines that an
Event of Taxability (11ereinafter defined) has occurred by filing with
the Trustee a statement to that effect supported by one or more tax
schedules, returns or documents which disclose that such an Event of
Taxability has occurred;
(ii) the date on which the Company or the Trustee is
advised by private ruling, technical advice or any other written
communication from any authorized official of the Internal Revenue
Service that, based upon any filing of the Company or any other person
or entity, or upon any review or audit of the Company or any other
person or entity, or upon any other grounds whatsoever, an Event of
Taxability has occurred;
(iii) the date on which the Trustee or the Company is
advised that a court of competent jurisdiction has issued an order,
declaration, ruling or judgment to the effect that an Event of
Taxability has occurred;
(iv) the date the Trustee shall have received written
notice from any holder of Bonds that such owner has received a written
assertion or claim by any authorized official of the Internal Revenue
Service that an Event of Taxability has occurred; or
(v) the date the Trustee is notified that the
Internal Revenue Service has issued any private ruling, technical
advice or any other written communication, with or to the effect that
an Event of Taxability has occurred;
provided that (A) no Determination of Taxability described in clauses (i) or (v)
shall be deemed to have occurred unless the Trustee shall have received a
written opinion of nationally-recognized bond counsel satisfactory to the Lender
and the Company and not unsatisfactory to the Trustee, and in form and substance
satisfactory to the Lender and the Company and not unsatisfactory to the
Trustee, to the effect that an Event of Taxability has occurred; and (B) no
Determination of Taxability described in clauses (i), (ii), (iii), (iv) or (v)
above shall be deemed to have occurred until 180 days shall have elapsed from
the dates described in clauses (i), (ii), (iii), (iv) or (v) above without such
Determination of Taxability having been rescinded or cancelled.
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As used herein the phrase "Event of Taxability" with respect
to any Bond shall mean a change of law or regulations, or the interpretation
thereof, or the occurrence of any other event or the existence of any other
circumstance (including, without limitation, the fact that any representations
or warranties of the Company or the Board made in connection with the issuance
of the Bonds is or was untrue or that a covenant of the Company has been
breached) which has the effect of causing interest payable on any Bond to be
includable in gross income for federal income tax purposes under Section 103 of
the Internal Revenue Code of 1986, as amended, and the applicable regulations
thereunder (the "Code") other than by reason that such interest (i) is
includable in the gross income of an owner or former owner of a Bond while such
owner or former owner is or was a "substantial user" or a "related person" to a
"substantial user" of the Project Facility (as such terms are used in Section
147(a)(1) of the Code) or is deemed an item of tax preference, including,
without limitation, an item subject to any alternative minimum tax.
Section 4.02. Optional Redemption. On or prior to the Conversion Date,
the Bonds are subject to redemption by the Board, at the option of the Company,
at any time, subject to provisions of Section 4.03 hereof, in whole or in part,
at the redemption price of 100% of the principal amount thereof being redeemed
plus accrued interest to the redemption date.
After the Conversion Date, if the length of time from the Conversion
Date to the final maturity date of the Bonds is seven (7) years or more, the
Bonds are subject to redemption by the Board, at the option of the Company, on
or after the fifth anniversary of the Conversion Date, in whole at any time or
in part on any Interest Payment Date, at the redemption price of 100% of the
principal amount thereof being redeemed plus accrued interest to the redemption
date.
If, pursuant to a conversion from the Floating Rate to the Fixed Rate
in accordance with Section 5.01 hereof, the Remarketing Agent certifies to the
Trustee and the Company in writing that the foregoing call restriction is not
consistent with the then prevailing market conditions, the foregoing call
restriction may be revised in accordance with the best professional judgment of
the Remarketing Agent to reflect the then prevailing market conditions;
provided, however that the Company shall have consented to such revision and
shall have furnished the Trustee with an opinion addressed to the Trustee, the
Board, the Company, the Paying Agent, the Bank and the Remarketing Agent, if any
at such time, of Bond Counsel (as defined in the Lease Agreement) acceptable to
the Company and the Trustee, stating that such revision will not adversely
affect the excludability from federal income taxation of interest on the Bonds.
Notwithstanding the foregoing, no such optional redemption shall occur
after the Conversion Date unless there shall be available in the Bond Fund
sufficient Available Moneys to pay all amounts due with respect to such a
redemption.
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Section 4.03. Notice of Redemption. Notice of the call for redemption,
identifying the Bonds or portions thereof to be redeemed and the redemption
price (including the premium, if any), shall be given by the Trustee by mailing
a copy of the redemption notice by first-class mail, postage prepaid, at least
thirty (30) days but not more than sixty (60) days prior to the date fixed for
redemption to the Owner of each Bond to be redeemed in whole or in part at the
address shown on the registration books. Such notice shall contain such matters
specified in the Bonds for the redemption thereof and shall state that such
redemption is conditional upon the receipt of monies by the Trustee for such
purpose on or prior to the redemption date. Any notice mailed as provided in
this Section shall be conclusively presumed to have been duly given, whether or
not the Owner receives the notice. The Trustee shall deliver a copy of any such
redemption notice to the Tender Agent, the Company and to the Remarketing Agent.
The Trustee shall notify the Board promptly in writing of the maturity
or redemption in whole of the Bonds.
Section 4.04. Interest on Bonds Called for Redemption. Upon the giving
of notice and the deposit of Available Moneys for redemption at the required
times on or prior to the date fixed for redemption, as provided in this Article,
interest on the Bonds or portions thereof thus called shall no longer accrue
after the date fixed for redemption.
Section 4.05. Cancellation. All Bonds which have been redeemed shall
not be reissued but shall be canceled and destroyed by the Trustee in accordance
with Section 2.11 hereof.
Section 4.06. Partial Redemption of Bonds.
(a) If less than all the Bonds are to be redeemed, the
particular Bonds or portions thereof to be redeemed shall be selected by the
Trustee by lot.
(b) Upon surrender of any Bond for redemption in part only,
the Board shall execute and the Trustee shall authenticate and deliver to the
Owner thereof a new Bond or Bonds of authorized denominations, in an aggregate
principal amount equal to the unredeemed portion of the Bond surrendered. If all
or a portion of Bonds tendered for purchase pursuant to Section 5.04 hereof have
been selected by the Trustee for redemption, the Tender Agent, upon receipt of
such tendered Bonds, shall authenticate and redeliver only such portion of
tendered Bonds not subject to redemption. The Tender Agent shall deliver to the
tendering Bondholder a copy of the notice of redemption, indicating the portion
of the Bonds subject thereto, and upon receipt of funds as provided herein, an
amount representing the principal of and interest on the Bonds not called for
redemption. The principal of and interest accrued on the Bonds called for
redemption shall be paid to such bondholder on the redemption date. The Tender
Agent shall cancel the Bond or such portion thereof tendered for purchase and
subject to redemption, and shall deliver a certificate evidencing such
cancellation and the canceled Bond to the Trustee.
(c) (i) Prior to the Conversion Date, in case a Bond is of a
denomination larger than $100,000, a portion of such Bond ($100,000 or any
integral multiple of $5,000 in excess thereof) may be redeemed, but Bonds shall
be redeemed only if the remaining unredeemed portion of such Bond is in the
principal amount of $100,000 or any integral multiple of $5,000 in excess of
$100,000.
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(ii) After the Conversion Date, in case a Bond is
of a denomination larger than $5,000, a portion of such Bond ($5,000 or any
integral multiple thereof) may be redeemed, but Bonds shall be redeemed only if
the remaining unredeemed portion of such Bond is in the principal amount of
$5,000 or any integral multiple of $5,000.
(d) Notwithstanding anything to the contrary contained in
this Indenture, whenever the Bonds are to be redeemed in part, Bonds which are
Pledged Bonds at the time of selection of Bonds for redemption shall be selected
for redemption prior to the selection of any other Bond. If the aggregate
principal amount of Bonds to be redeemed exceeds the aggregate principal amount
of Pledged Bonds at the time of selection, the Trustee may select for redemption
Bonds in an aggregate principal amount equal to such excess in such manner as
the Trustee in its discretion shall deem fair and appropriate.
Section 4.07. Payment of Redemption Price with Available Moneys;
Consent of Bank to Optional Redemption. Notwithstanding any provision to the
contrary contained in this Indenture, the payment of the redemption price of
Bonds shall be made only from Available Moneys. On each date that the Bonds are
subject to redemption, the Trustee shall draw on the Letter of Credit in an
amount sufficient to pay the full redemption price of the Bonds then subject to
redemption from the sources and in the order provided in Section 6.03 hereof. As
long as the Letter of Credit Bank is not in default under the Letter of Credit,
the Trustee shall not call Bonds for Optional Redemption unless it has received
the prior written consent to such Optional Redemption from the Bank.
ARTICLE V
CONVERSION OF INTEREST RATE; DEMAND PURCHASE OPTION
Section 5.01. Conversion of Interest Rate on Conversion Date. The
interest rate on the Bonds shall be converted from the Floating Rate to the
Fixed Rate upon the exercise by the Company of the Conversion Option, and the
Bonds shall be subject to mandatory tender for purchase by the Owners thereof on
the Conversion Date. To exercise the Conversion Option, the Company shall notify
the Trustee, the Tender Agent, the Bank, the Board and the Remarketing Agent at
least thirty-five (35) days prior to the Conversion Date of such exercise, cause
the Remarketing Agent to furnish to the Trustee the information set forth in
paragraphs 1 and 4 below and, thereafter cause the Trustee to deliver or mail by
first class mail a notice at least twenty (20) days but not more than thirty
(30) days prior to the Conversion Date to the Owner of each Bond at the address
shown on the registration books of the Bond Registrar. No such notice may be
given unless the Trustee first receives: (i) an opinion of nationally recognized
bond counsel to the effect that the proposed conversion of the interest rate on
the Bonds will not cause the interest on the Bonds to be includable in gross
income of the Bondholders for federal income tax purposes; (ii) a commitment
from the Bank or a Substitute Bank to issue or arrange for the issuance of a
Substitute Letter of Credit to take effect on the Conversion Date, together with
a proposed form of such Substitute Letter of Credit; and (iii) a Company
certificate to the effect that each of the Company's representations and
warranties made in the Agreement and in any other agreements or certificates
given by the Company in connection with the issuance of the Bonds remain true
and correct in all material respects as of the proposed Conversion Date. Any
notice given as provided in this section shall be conclusively presumed to have
been duly given, whether or not the Owner receives the notice. Said notice shall
state in substance the following:
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1. the Conversion Date;
2. that the existing Letter of Credit will expire five (5)
Business Days after the Conversion Date;
3. that unless firm commitments for the purchase of all
Outstanding Bonds have been received on or prior to the fifth (5th)
Business Day prior to the proposed Conversion Date, the Company has the
option to rescind an optional conversion of the Bonds; and
4. that in the event the Company elects not to rescind the
optional conversion of the Bonds, all Bonds shall be subject to
mandatory purchase on the Conversion Date pursuant to this Section
5.01.
On or prior to the Conversion Date, Owners of Bonds shall be required to deliver
their Bonds to the Tender Agent for purchase at the Purchase Price, and any such
Bonds not delivered to the Tender Agent on or prior to the Conversion Date
("Undelivered Bonds"), for which there has been irrevocably deposited in trust
with the Trustee or the Tender Agent an amount of Available Money sufficient to
pay the Purchase Price of the Undelivered Bonds, shall be deemed to have been
purchased pursuant to this Section 5.01 and are deemed to be no longer
Outstanding with respect to such prior Owners. IN THE EVENT OF A FAILURE BY AN
OWNER OF BONDS TO DELIVER ITS BONDS ON OR PRIOR TO THE CONVERSION DATE, SAID
OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE ON
OR SUBSEQUENT TO THE CONVERSION DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH
UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE
BENEFIT OF THIS INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE
PRICE THEREFOR.
Notwithstanding the foregoing provisions, to the extent that at the
close of the fifth Business Day prior to the proposed Conversion Date, the
Remarketing Agent has not presented to the Company firm commitments for the
purchase of all of the Bonds, the Company, at its option, may rescind an
optional conversion of the Bonds. Any such election to rescind must be made by
the close of the fourth Business Day prior to the proposed Conversion Date and
the Company shall give written notice to the Trustee, the Tender Agent and the
Bank of its decision to rescind by such time. The Company shall cause the
Trustee to immediately notify the Owners of such rescission and thereafter the
Bonds shall bear interest at the Floating Rate in effect for the current Weekly
Period and thereafter the Bonds shall bear interest at the Floating Rate until
any subsequent Conversion Date effected in accordance with this Indenture.
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In the event the Company rescinds the proposed optional conversion in
accordance with the terms of the foregoing paragraph, the Letter of Credit then
in effect will remain in effect in accordance with its terms.
The Bonds are subject to mandatory purchase in whole on the Conversion
Date, at a purchase price equal to 100% of the principal amount thereof being
purchased, plus accrued interest to the purchase date; provided, however, that:
(i) all Pledged Bonds for which a commitment to purchase has not been received
in connection with a conversion of the Bonds to a Fixed Rate, shall be redeemed
or otherwise paid by the Company on or before the Conversion Date; and (ii) no
such mandatory purchase shall take place in the event the Company exercises its
right to rescind the conversion.
Section 5.02. Delivery of Bonds After Conversion Date. At any time
prior to the Record Date preceding the first Interest Payment Date following the
Conversion Date, the Trustee or the Tender Agent, as the case may be, shall
deliver Bonds in the form of Exhibit "B" hereto. Prior to the delivery by the
Trustee of such Bonds, there shall be filed with the Trustee a request and
authorization to the Trustee on behalf of the Board, which shall be executed by
the Chairman or Vice Chairman, Secretary, Assistant Secretary or any authorized
officer of the Board to authenticate and deliver the Bonds, as executed by the
Board, to the purchasers thereof. Such delivery shall be made by the Trustee or
the Tender Agent, as the case may be, without making any charge therefor to the
Owner of such Bonds.
Section 5.03. Mandatory Purchase upon Substitution of Letter of Credit.
Prior to the Conversion Date, the Bonds are subject to mandatory purchase in
whole on the Substitution Date, at a purchase price equal to 100% of the
principal amount thereof being purchased, plus accrued interest to the purchase
date. The Trustee shall deliver or mail by first class mail a notice at least
twenty (20) days but not more than thirty (30) days prior to the Substitution
Date to the Owner of each Bond at the address shown on the registration books of
the Bond Registrar notifying such Owner that their Bonds are subject to
mandatory purchase. No such notice may be given unless the Company shall have
satisfied the provisions of Section 4.3 of the Agreement. Any notice given as
provided in this Section 5.03 shall be conclusively presumed to have been given,
whether or not the Owner receives the notice. Said notice shall state in
substance the following:
(1) the Substitution Date;
(2) that the existing Letter of Credit securing such Bonds
will expire five (5) Business Days after the Substitution Date; and
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(3) that if the Company satisfies the conditions precedent
to delivery of the Substitute Letter of Credit, all Bonds shall be subject to
mandatory purchase on the Substitution Date pursuant to this Section 5.03.
On or prior to the Substitution Date, Owners of Bonds shall be required to
deliver their Bonds to the Tender Agent for purchase at the Purchase Price, and
any such Bonds not delivered to the Tender Agent on or prior to the Substitution
Date ("Undelivered Bonds"), for which there has been irrevocably deposited in
trust with the Trustee or the Tender Agent an amount of money sufficient to pay
the Purchase Price of the Undelivered Bonds, shall be deemed to have been
purchased pursuant to this Section 5.03 and are deemed to be no longer
Outstanding with respect to such prior Owners. IN THE EVENT OF A FAILURE BY AN
OWNER OF BONDS TO DELIVER ITS BONDS ON OR PRIOR TO THE SUBSTITUTION DATE, SAID
OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE ON
OR SUBSEQUENT TO THE SUBSTITUTION DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH
UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE
BENEFIT OF THIS INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE
PRICE THEREFOR.
Notwithstanding the foregoing provisions, to the extent that at the
close of the fifth Business Day prior to the proposed Substitution Date, the
Company has not delivered to the Board, the Trustee and the Remarketing Agent
the items set forth in Section 4.3(i) through (iv) of the Agreement, the
mandatory purchase of Bonds shall be rescinded and the Trustee shall notify the
Owners of such rescission immediately and thereafter the Bonds shall continue to
be secured by the existing Letter of Credit until its termination date.
Section 5.04. Demand Purchase Option. Prior to the Conversion Date,
any Bond shall be purchased at the Purchase Price from the Owner thereof upon:
(i) delivery by such Owner to the Trustee and the Tender
Agent at their Principal Corporate Trust Office and Delivery Office,
respectively, and to the Remarketing Agent at its principal office set forth in
Section 12.08 hereof, of a notice (the "Demand Purchase Notice") (said notice to
be irrevocable and effective upon receipt) which states: (1) the aggregate
principal amount and bond numbers of the Bonds to be purchased; and (2) the date
on which such Bonds are to be purchased, which date shall be a Business Day not
prior to the seventh (7th) day next succeeding the date of delivery of such
notice and which date shall be prior to the Conversion Date;
(ii) if such Bonds are to be purchased prior to an Interest
Payment Date and after the Record Date in respect thereof, delivery to the
Tender Agent together with the Demand Purchase Notice described in (i) above, of
a nonrecourse due-bill, payable to bearer, for interest due on such interest
payment date; and
(iii) delivery to the Tender Agent at its Delivery Office at
or prior to 10:00 a.m., New York City time, on the date designated for purchase
in the applicable Demand Purchase Notice of such Bonds to be purchased, with an
appropriate endorsement for transfer or accompanied by a bond power endorsed in
blank.
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Any Bond as to which a Demand Purchase Notice has been delivered
pursuant to paragraph (i) above, must be delivered to the Tender Agent, as
provided in (iii) above, and any such Bond not so delivered ("Undelivered
Bonds"), for which there has been irrevocably deposited in trust with the
Trustee or the Tender Agent an amount of money sufficient to pay the Purchase
Price thereof, shall be deemed to have been purchased at the Purchase Price
pursuant to this Section 5.04 and are deemed to be no longer Outstanding with
respect to such tendering Owner. IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS
TO DELIVER ITS BONDS AS SPECIFIED ABOVE, SAID OWNER SHALL NOT BE ENTITLED TO ANY
PAYMENT (INCLUDING ANY INTEREST TO ACCRUE ON OR SUBSEQUENT TO THE DATE
DESIGNATED FOR PURCHASE IN THE APPLICABLE DEMAND PURCHASE NOTICE) OTHER THAN THE
PURCHASE PRICE FOR SUCH UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO
LONGER BE ENTITLED TO THE BENEFIT OF THE INDENTURE, EXCEPT FOR THE PAYMENT OF
THE PURCHASE PRICE THEREFOR.
Notwithstanding the foregoing provisions, in the event any Bond as to
which the Owner thereof has exercised the Demand Purchase Option is remarketed
to such Owner pursuant to the Remarketing Agreement, such Owner need not deliver
such Bond to the Tender Agent as provided in (iii) above, although such Bond
shall be deemed to have been delivered to the Tender Agent, redelivered to such
Owner, and remarketed for purposes of this Indenture, including, without
limitation, for purposes of adjusting the Floating Rate as provided in Section
2.02(C) hereof.
Notwithstanding anything contained herein to the contrary, an Owner of
a Bond shall not be entitled to exercise the Demand Purchase Option described
herein if there shall have occurred any Event of Default in respect of which the
principal of all Bonds Outstanding shall have been declared immediately due and
payable under the Indenture and such declaration shall not have been annulled.
Section 5.05. Funds for Purchase of Bonds.
(a) On the date Bonds are to be purchased pursuant to
Section 5.01, Section 5.03 or Section 5.04 hereof, such Bonds shall be purchased
at the Purchase Price only from the funds listed below. Subject to the
provisions of Section 6.12(b), funds for the payment of the Purchase Price shall
be derived from the following sources in the order of priority indicated:
(i) moneys drawn by the Trustee under the Letter
of Credit (in the event of a drawing on the Letter of Credit to fund payment of
the Purchase Price of Bonds tendered pursuant to Section 5.03 hereof, the
Trustee shall draw on the existing Letter of Credit and not the Substitute
Letter of Credit to fund such payment);
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(ii) proceeds of the remarketing of the Bonds; and
(iii) any other Available Moneys furnished to the
Trustee or the Tender Agent and available for such purpose.
(b) Payment for the Bonds purchased pursuant to Sections
5.01, 5.03 or 5.04 shall be made as follows:
(i) On the date on which such Bonds are to be
purchased (the "Purchase Date"), the Trustee shall make a drawing pursuant to
the Letter of Credit in respect of the Purchase Price of such Bonds. In
connection therewith, the Trustee shall prepare and present to the Letter of
Credit Bank the appropriate certificates required under the Letter of Credit by
12:00 noon, New York City time on the Business Day immediately preceding the
Purchase Date.
(ii) By not later than 10:00 a.m., New York City
time, on the Purchase Date, the Remarketing Agent shall give telephonic notice,
promptly confirmed in writing, to the Bank, the Trustee and the Tender Agent,
specifying:
(1) the total principal amount of Bonds, if
any, remarketed by it; and
(2) the names of the persons to whom such
Bonds were sold and are to be registered, each such person's address and social
security number or taxpayer identification number, the denominations in which
replacement Bonds are to be prepared, and any other appropriate registration and
transfer instructions.
(iii) There is hereby established with the Tender
Agent a special fund to be designated the "Bond Purchase Fund" and therein two
separate and segregated accounts to be designated the "Remarketing Account" and
the "Bank Account." An amount equal to the proceeds received by the Trustee
pursuant to a draw under the Letter of Credit and all other amounts, if any,
certified by the Bank, as due it, but unpaid, under the Loan Agreement, shall be
transferred by the Trustee in immediately available funds to the Tender Agent
for deposit in the Bank Account no later than 12:30 p.m., New York City time on
the applicable Purchase Date.
(iv) No later than 1:00 p.m., New York City time,
on each Purchase Date, the Tender Agent shall give telephonic notice (promptly
confirmed by telecopy) to the Remarketing Agent of the amount deposited in the
Bank Account on such date. No later than 2:00 p.m., New York City time, on each
Purchase Date the Remarketing Agent shall: (x) transfer to the Letter of Credit
Bank an amount of the proceeds of the remarketing of the Bonds equal to the
amount deposited in the Bank Account on such Purchase Date unless the Bank
notifies the Trustee in writing to the contrary; (y) transfer the remainder of
the proceeds of the remarketing of the Bonds to the Tender Agent for deposit in
the Remarketing Account and shall give telephonic notice (promptly confirmed by
telecopy) to the Tender Agent of the amount of such proceeds transferred to the
Bank; and (z) give telephonic notice, promptly confirmed in writing, to the
Company of the total principal amount of Unremarketed Bonds, if any.
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(v) The Tender Agent shall pay the Purchase Price
to the tendering Bondholders from the amounts on deposit in the Bank Account to
the extent available. If amounts on deposit in the Bank Account are insufficient
to pay the Purchase Price to the tendering Bondholders, the Tender Agent shall
make up any such deficiency from amounts on deposit in the Remarketing Account.
(vi) The Letter of Credit Bank shall give
telephonic confirmation to the Tender Agent and the Trustee by 4:00 p.m., New
York City time on the applicable Purchase Date of its receipt of the remarketing
proceeds described in Section 5.05(b)(iv) hereof.
Section 5.06. Delivery of Purchased Bonds.
(a) Remarketed Bonds shall be delivered by the Tender Agent,
at its Delivery Office, to or upon the order of the purchasers thereof.
(b) Unremarketed Bonds purchased with funds drawn under the
Letter of Credit shall be delivered by the Tender Agent to the Pledged Bonds
Custodian or otherwise upon the order of the Bank pursuant to the Pledge
Agreement.
(c) Unremarketed Bonds purchased with moneys described in
Section 5.05(a)(iii) hereof shall, at the direction of the Company, be: (i)
delivered as instructed by the Company; or (ii) delivered to the Trustee for
cancellation; provided, however, that any Bonds so purchased after the selection
thereof by the Trustee for redemption shall be delivered to the Trustee for
cancellation.
(d) The Tender Agent shall deliver to the person to whom the
Tender Agent is to deliver such Bonds, the nonrecourse due-bills, if any,
delivered to the Tender Agent with respect to such Bonds in accordance with
Section 5.04 hereof.
Bonds delivered as provided in this Section shall be registered in the
manner directed by the recipient thereof.
Section 5.07. Sale of Bonds by Remarketing Agent.
(a) On each Purchase Date, the Remarketing Agent shall offer
for sale and use its best efforts to sell, as agent of the Company, all Bonds
tendered or deemed tendered for purchase on such Purchase Date at the Purchase
Price thereof and, if such Bonds are not sold on such date, the Remarketing
Agent shall continue, for a period not in excess of thirty (30) days thereafter,
to use its best efforts to sell such Bonds.
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(b) Notwithstanding anything to the contrary herein:(i) the
Remarketing Agent shall use its best efforts to remarket any Bonds tendered or
deemed tendered for purchase in such a manner that, immediately following the
remarketing of any Bonds, at least one (1) Holder will own at least $200,000 in
aggregate principal amount of Bonds; and (ii) the Remarketing Agent shall not
remarket any Bonds to the Board, the Company or any affiliate thereof.
Section 5.08. Delivery of Proceeds of Sale of Purchased Bonds.
(a) Except in the case of the sale of any Pledged Bonds, the
proceeds of the sale of any Bonds delivered or deemed delivered to the Tender
Agent pursuant to Sections 5.01, 5.03 or 5.04 hereof, to the extent not required
to pay the Purchase Price to tendering Bondholders and not required to reimburse
the Letter of Credit Bank or the Bank under the Letter of Credit or the Loan
Agreement, shall be paid to or upon the order of the Company.
(b) In the event the Remarketing Agent shall have remarketed
any Pledged Bonds and the Company or the Remarketing Agent shall have directed
the Bank to cause the Pledged Bonds Custodian to deliver such Pledged Bonds to
the Tender Agent pursuant to the Pledge Agreement, such Bonds shall be delivered
to the Tender Agent and the proceeds of sale of such Bonds shall be delivered to
the Delivery Office of the Tender Agent, and shall be paid to the Letter of
Credit Bank or the Bank upon the order of the Bank; provided that any amounts so
paid in excess of amounts then due to the Letter of Credit Bank or the Bank in
respect of drawings under the Letter of Credit shall be delivered by the Bank to
or upon the order of the Company; provided further that Pledged Bonds shall not
be delivered to the Tender Agent until the Letter of Credit has been reinstated
in accordance with the terms of the Pledge Agreement and the Letter of Credit.
Section 5.09. Duties of Trustee and Tender Agent with Respect to
Purchase of Bonds.
(a) The Tender Agent shall hold all Bonds delivered to it
pursuant to Sections 5.01, 5.03 or 5.04 hereof in trust for the benefit of the
respective Owners of Bonds which shall have so delivered such Bonds until moneys
representing the Purchase Price of such Bonds shall have been delivered to or
for the account of or to the order of such Owners of Bonds. Upon delivery of
monies representing the Purchase Price of such Bonds to or for the account of or
to the order of such Owners of Bonds, the Tender Agent shall deliver all such
Unremarketed Bonds, the funds for which have been obtained by a drawing under
the Letter of Credit, to the Pledged Bonds Custodian pursuant to Section 5.06(b)
hereof for the purpose of perfecting the Bank's security interest therein under
the Pledge Agreement unless the Bank shall direct the Tender Agent to deliver
such Bonds to or upon the order of the Bank in accordance with Section 5.06
hereof.
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(b) The Trustee and the Tender Agent shall hold all moneys
delivered to them pursuant to this Indenture for the purchase of Bonds in a
separate account, in trust for the benefit of the Bank or, in the case of
remarketed Bonds, the purchasers of such Bonds, until the Bonds purchased with
such moneys shall have been delivered to or for the account of the Pledged Bonds
Custodian, the Bank or to such other purchaser, as appropriate.
(c) The Trustee shall deliver to the Company and the Bank a
copy of each notice delivered to it in accordance with Section 5.04 within two
(2) days of the receipt thereof.
(d) As soon as possible, but not later than the close of
business on any date designated for purchase of Bonds in accordance with Section
5.04; the Tender Agent shall give telephonic or telegraphic notice to the
Remarketing Agent and the Trustee specifying the principal amount of Bonds
delivered or deemed delivered for purchase on such date.
(e) The Trustee shall draw moneys under the Letter of Credit
in accordance with the terms thereof to the extent required by Sections 5.05 and
6.12 hereof to provide for timely payment of the Purchase Price of Bonds.
Section 5.10. No Purchases or Sales After Certain Defaults. Anything in
this Indenture to the contrary notwithstanding, there shall be no purchases or
sales of Bonds pursuant to Section 5.04 if there shall have occurred any Event
of Default in respect of which the principal of all Bonds Outstanding shall have
been declared immediately due and payable pursuant to Section 8.02 and such
declaration shall not have been annulled. If the Trustee shall have given a
notice of a call for redemption pursuant to Section 4.03 hereof and such notice
shall not have been rescinded, the Remarketing Agent shall provide a notice of
such redemption to any prospective purchaser of such Bonds upon the remarketing
of any Bonds tendered pursuant to Section 5.04 hereof. Nothing in this Section
is intended to limit secondary trading or transfer of the Bonds.
ARTICLE VI
REVENUES AND FUNDS
Section 6.01. Creation of the Bond Fund. There is hereby created and
established with the Trustee a trust fund to be designated "Bond Fund" which
shall be used to pay when due the principal and Purchase Price of, premium, if
any, and interest on the Bonds.
Section 6.02. Payments into the Bond Fund. There shall be deposited
into the Bond Fund from time to time the following:
(a) [Reserved]
(b) any amount deposited into the Bond Fund pursuant to
Section 6.04 hereof;
(c) all payments specified in Sections 5.3 and 5.4 of the
Agreement (other than amounts paid for the Trustee's or the Board's own
account);
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(d) any moneys received pursuant to the Collateral
Documents;
(e) any moneys drawn under the Letter of Credit which moneys
shall be deposited or credited (in the case of a draw to pay the Purchase Price)
in a separate subaccount of the Bond Fund and shall not be commingled with any
other moneys held by the Trustee;
(f) amounts, if any, held by the Trustee pursuant to Section
5.09 hereof; and
(g) all other moneys received by the Trustee under and
pursuant to any of the provisions of the Agreement which are required to be or
which are accompanied by directions that such moneys are to be paid into the
Bond Fund.
Section 6.03. Use of Moneys in the Bond Fund. Except as provided in
Sections 5.05, 5.09 and 6.11 hereof, moneys in the Bond Fund shall be used
solely for the payment of the principal of, premium, if any, and interest on the
Bonds, for the redemption of the Bonds prior to maturity and for payment of the
Acceleration Price as defined in Section 8.02 hereof. Subject to the provisions
of Section 6.12(b) hereof, funds for such payments of redemption price and
principal of and premium, if any, and interest on the Bonds shall be derived
from the following sources in the order of priority indicated:
(i) moneys drawn by the Trustee under the Letter of Credit;
(ii) amounts deposited into the Bond Fund which constitute
Available Moneys (other than moneys drawn by the Trustee under the Letter of
Credit); and
(iii) any other moneys furnished to the Trustee and
available for such purpose.
Section 6.04. Custody of Separate Trust Fund. The Trustee is authorized
and directed to hold all Net Proceeds from any insurance proceeds or
condemnation award and disburse such proceeds in accordance with Article VII of
the Agreement. If the Company directs that any portion of such Net Proceeds be
applied to redeem Bonds, the Trustee shall deposit such Net Proceeds in a
separate sub-account of the Bond Fund, and the Board covenants and agrees to
take and cause to be taken any action requested of the Board to redeem on the
earliest possible redemption date the amount of Bonds so specified by the
Company.
Section 6.05. [Reserved]
Section 6.06. [Reserved]
Section 6.07. [Reserved]
Section 6.08. [Reserved]
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Section 6.09. Nonpresentment of Bonds. In the event any Bond shall not
be presented for payment when the principal thereof becomes due, either at
maturity, or at the date fixed for redemption thereof, or otherwise, if
Available Moneys sufficient to pay any such Bond shall have been made available
to the Trustee for the benefit of the Owner thereof, all liability of the Board
to the Owner thereof for the payment of such Bond shall forthwith cease,
determine and be completely discharged, and thereupon it shall be the duty of
the Trustee to hold such funds uninvested, without liability for interest
thereon, for the benefit of the Owner of such Bond who shall thereafter be
restricted exclusively to such funds for any claim of whatever nature on his
part under this Indenture with respect to such Bond.
Any moneys so deposited with and held by the Trustee not so applied to
the payment of Bonds within five (5) years after the date on which the same
shall have become due shall be repaid by the Trustee to the Company upon written
direction of a Company Representative, and thereafter Owners of Bonds shall be
entitled to look only to the Company for payment, and then only to the extent of
the amount so repaid, and all liability of the Trustee with respect to such
money shall thereupon cease, and the Company shall not be liable for any
interest thereon and shall not be regarded as a trustee of such money.
Section 6.10. Moneys to be Held in Trust. All moneys required to be
deposited with or paid to the Trustee for the account of any fund or account
referred to in any provision of this Indenture or the Agreement shall be held by
the Trustee in trust, and shall, while held by the Trustee, constitute part of
the Trust Estate and be subject to the lien and security interest created
hereby.
Section 6.11. [Reserved]
Section 6.12. Letter of Credit and Repayment to the Letter of Credit
Bank or the Bank from the Bond Fund.
(a) During the term of the Letter of Credit, the Trustee
shall draw moneys under the Letter of Credit in accordance with the terms
thereof: (i) in an amount sufficient to pay when due the principal of (whether
by reason of maturity, redemption, conversion, acceleration or otherwise) , and
interest and, to the extent the Letter of Credit covers same, any premium on the
Bonds; and (ii) in an amount sufficient to pay when due the Purchase Price of
Bonds. Within two (2) Business Days after the last Determination Date of each
month, the Trustee shall give written notice (which notice may be transmitted
via facsimile) to the Company, the Letter of Credit Bank and the Bank of the
amount that the Trustee will draw under the Letter of Credit on the next
Interest Payment Date. After the Trustee draws moneys under the Letter of Credit
to pay the items set forth above, any amounts paid by the Company under the
Agreement into the Bond Fund or any other fund or account created hereunder
shall be paid as soon as possible to the Letter of Credit Bank, unless the Bank
notifies the Trustee in writing to the contrary, to reimburse the Letter of
Credit Bank or the Bank for the monies so drawn under the Letter of Credit as
set forth above and for all other amounts, if any, certified by the Bank as due
it but unpaid under the terms of the Loan Agreement.
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(b) Notwithstanding any provision to the contrary which may
be contained in this Indenture, including, without limitation, Section 6.12(a):
(i) in computing the amount to be drawn under the Letter of Credit on account of
the payment of the principal or Purchase Price of, interest or, to the extent
the Letter of Credit covers same, any premium, on the Bonds, the Trustee shall
exclude any such amounts in respect of any Bonds which it is advised by the
Tender Agent (pursuant to Section 5.09(d) hereof) are Pledged Bonds prior to the
date such payment is due; and (ii) amounts drawn by the Trustee under the Letter
of Credit shall not be applied to the payment of the Purchase Price of any Bonds
which are Pledged Bonds prior to the date such payment is due.
(c) The Letter of Credit shall terminate in accordance with
its terms on the Letter of Credit Termination Date. Upon such termination, the
Trustee shall deliver the terminated Letter of Credit to the Bank, together with
such certificates as may be required by the terms of the Letter of Credit.
Section 6.13. [Reserved]
Section 6.14. Investment of Moneys in Funds. All moneys in any of the
funds established pursuant to this Indenture (except moneys obtained from a draw
on the Letter of Credit, which moneys shall be held uninvested) shall be
invested by the Trustee, as directed in writing by the Company, solely in
Investment Securities except with respect to Available Moneys held by the
Trustee for the payment of Undelivered Bonds, which Available Moneys the Trustee
shall not invest. Investment Securities may be purchased at such prices as the
Trustee may in its discretion determine or as may be directed by the Company.
All Investment Securities shall be acquired subject to the limitations as to
maturities hereinafter in this Section set forth and such additional limitations
or requirements consistent with the foregoing as may be established by request
of the Company.
To the extent the Bank has not been reimbursed under the Loan Agreement
and has notified the Trustee of same in writing, all interest, profits and other
income received from the investment of moneys in any fund established pursuant
to this Indenture shall be transferred to the Letter of Credit Bank or the Bank
as specified by the Bank. Otherwise, such amounts shall be deposited to the
appropriate fund or account in which such investments were made. Notwithstanding
anything to the contrary contained in this paragraph, an amount of interest
received with respect to any Investment Security equal to the amount of accrued
interest, or premium paid, if any, paid as part of the purchase price of such
Investment Security shall be credited to the fund from which such accrued
interest was paid.
Investment Securities acquired as an investment of moneys in any fund
established under this Indenture shall be credited to such fund. For the purpose
of determining the amount in any fund, all Investment Securities credited to
such fund shall be valued at the lesser of cost or par value plus, prior to the
first payment of interest following purchase, the amount of accrued interest, if
any, paid as a part of the purchase price.
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The Trustee may act as principal or agent in the making or disposing of
any investment. The Trustee may sell or present for redemption, any Investment
Securities so purchased whenever it shall be necessary to provide moneys to meet
any required payment, transfer, withdrawal or disbursement from the fund to
which such Investment Security is credited, and the Trustee shall not be liable
or responsible for any loss resulting from such investment.
ARTICLE VII
PARTICULAR COVENANTS
Section 7.01. Punctual Payment. The Board shall punctually pay or cause
to be paid the principal, premium, if any, and interest to become due in respect
of all the Bonds, in strict conformity with the terms of the Bonds and of this
Indenture, according to the true intent and meaning thereof, but only out of
Revenues and other assets pledged for such payment as provided in this
Indenture. The Board shall be deemed to have discharged its obligations under
this Section by including a covenant to such effect by the Company in the
Agreement.
Section 7.02. Extension of Payment of Bonds. The Board shall not
directly or indirectly extend or assent to the extension of the maturity of any
of the Bonds or the time of payment of any claims for interest by the purchase
or funding of such Bonds or claims for interest or by any other arrangement and
in case the maturity of any of the Bonds or the time of payment of any such
claims for interest shall be extended, such Bonds or claims for interest shall
not be entitled, in case of any default hereunder, to the benefits of this
Indenture, except subject to the prior payment in full of the principal of all
of the Bonds then outstanding and of all claims for interest thereon which shall
not have been so extended. Nothing in this Section shall be deemed to limit the
right of the Board to issue Bonds for the purpose of refunding any Outstanding
Bonds, and such issuance shall not be deemed to constitute an extension of
maturity of Bonds.
Section 7.03. Against Encumbrances. The Board shall not create, or
permit the creation of, any pledge, lien, charge or other encumbrance upon the
Revenues and other assets pledged or assigned under this Indenture while any of
the Bonds are Outstanding, except the pledge and assignment created by this
Indenture and the lien created by the Bank Mortgage and will assist the Trustee
in contesting any such pledge, lien, charge or other encumbrance which may be
created. Subject to this limitation, the Board expressly reserves the right to
enter into one or more other indentures for any of its corporate purposes,
including other programs under the Act, and reserves the right to issue other
obligations for such purposes.
Section 7.04. Power to Issue Bonds and Make Pledge and Assignment. The
Board represents and covenants that it is duly authorized pursuant to law to
issue the Bonds and to enter into this Indenture and to pledge and assign the
Revenues and other assets pledged and assigned, respectively, under this
Indenture in the manner and to the extent provided in this Indenture. The Bonds
and the provisions of this Indenture are and will be the legal, valid and
binding limited obligations of the Board in accordance with their terms, and the
Board and Trustee shall at all times, to the extent permitted by law, defend,
preserve and protect said pledge and assignment of Revenues and other assets and
all the rights of the Bondholders under this Indenture against all claims and
demands of all Persons whomsoever.
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Section 7.05. Accounting Records and Financial Statements. (A) The
Trustee shall at all times keep, or cause to be kept, proper books of record and
account as shall be consistent with prudent industry practice, in which complete
and accurate entries shall be made of all transactions relating to the proceeds
of Bonds, the Revenues, the Agreement and all funds established pursuant to this
Indenture. Such books of record and account shall be available for inspection by
the Board, the Company, the Bank and any bondholder, or his agent or
representative duly authorized in writing, at reasonable hours and under
reasonable circumstances.
(B) The Trustee shall within 30 days after the end of each
month furnish to the Company a monthly statement (which need not be audited)
covering receipts, disbursements, allocation and application of Revenues and any
other moneys (including proceeds of Bonds) in any of the funds and accounts
established pursuant to this Indenture for such month.
Section 7.06. Reserved.
Section 7.07. Other Covenants. (A) The Trustee shall promptly collect
all amounts due from the Company pursuant to the Agreement, and upon an Event of
Default (as defined in the Agreement) shall perform all duties imposed upon it
pursuant to the Agreement and shall diligently enforce, and take all steps,
actions and proceedings reasonably necessary for the enforcement of all of the
rights of the Board and all of the obligations of the Company.
(B) The Board shall not amend, modify or terminate any of
the terms of the Agreement, or consent to any such amendment, modification or
termination, without the written consent of the Trustee. The Trustee shall give
such written consent only if (1) notification of such amendment, modification or
termination has been given to each rating agency then rating the Bonds and to
the Holders, (2) the Trustee receives the written consent of the Bank, (3)(i)
such amendment, modification or termination will not materially adversely affect
the interests of the Bondholders or result in any material impairment of the
security hereby given for the payment of the Bonds or (ii) the Trustee first
obtains the written consent of the Bank and the Holders of a majority in
principal amount of the Bonds then Outstanding to such amendment, modification
or termination and provides notice of such amendment, modification or
termination and of such written consent to the Holders, provided that no such
amendment, modification or termination shall reduce the amount of the lease
payments to be made to the Board or the Trustee by the Company pursuant to the
Agreement, or extend the time for making such payments, without the written
consent of all of the Holders of the Bonds then Outstanding, and (4) the Board
shall have delivered to the Trustee an opinion of Counsel satisfactory to the
Trustee that all of the provisions and conditions set forth in this Section
7.07(B) have been satisfied.
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Section 7.08. Reserved.
Section 7.09. Further Assurances. The Board and the Trustee will make,
execute and deliver any and all such further indentures, instruments and
assurances as may be reasonably necessary or proper to carry out the intention
or to facilitate the performance of this Indenture and for the better assuring
and confirming unto the Holders of the Bonds of the rights and benefits provided
in this Indenture.
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES OF BONDHOLDERS
Section 8.01. Events of Default. The following events shall be Events
of Default:
(a) default in the due and punctual payment of the principal
of any Bond when and as the same shall become due and payable, whether at
maturity as therein expressed, by proceedings for redemption, by acceleration,
or otherwise; or
(b) default in the due and punctual payment of any
installment of interest on any Bond when and as the same shall become due and
payable; or
(c) failure to pay the Purchase Price on any Bond tendered
pursuant to Article V when such payment is due; or
(d) default by the Board in the observance of any of the
other covenants, agreements or conditions on its part in this Indenture or in
the Bonds, if such default shall have continued for a period of sixty (60) days
after written notice thereof, specifying such default and requiring the same to
be remedied, shall have been given to the Board by the Trustee, or to the Board
and the Trustee by the Holders of not less than twenty-five per cent (25%) in
aggregate principal amount of the Bonds at the time Outstanding; or
(e) if there occurs an Event of Default as defined in the
Agreement; or
(f) the Trustee's receipt of written notice from the Bank
that the Bank has declared an Event of Default under the provisions of the Loan
Agreement and instructing the Trustee to declare the principal amount of the
Outstanding Bonds to be immediately due and payable; or
(g) if, after a draw under the Letter of Credit and in
accordance with the terms thereof, the Trustee shall have received notice from
the Bank that the amount of such draw corresponding to the payment of interest
on the Bonds shall not be reinstated in the amount and in the manner set forth
in the Letter of Credit.
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Upon actual knowledge of the existence of any Event of Default or of
any breach of any covenant or any fact or circumstance which, except for any
grace period permitted by this Indenture or the Agreement, would result in any
breach of a covenant or Event of Default by the Company hereunder or thereunder,
the Trustee shall, as soon as practicable, notify the Bank, the Company, the
Board, the Tender Agent and the Remarketing Agent. Anything contained in this
Indenture to the contrary notwithstanding: (i) no Event of Default under
subsections (d) or (e) above shall occur without the prior written consent of
the Bank so long as the Bank is not in default under the terms of the Letter of
Credit; and (ii) the Trustee shall not notify bondholders of the existence of
any Event of Default without the prior written consent of the Bank (except upon
the occurrence of an Event of Default under subsections 8.01(f) or (g) hereof),
as long as the Bank is not in default under the terms of the Letter of Credit.
Section 8.02. Acceleration. If any Event of Default under Section 8.01
hereof occurs, the Trustee (with the written consent of the Bank provided the
Letter of Credit Bank is not in default of its obligations under the Letter of
Credit) may, and upon request of the Owners of 25% in principal amount of the
Bonds then Outstanding shall, by written notice to the Board, the Bank and the
Company, declare the principal amount of all Bonds then Outstanding and the
interest accrued thereon to such date (the "Acceleration Date") to be due and
the Acceleration Price (as such phrase is hereinafter defined) shall thereupon
become payable on the first (lst) Business Day following the Acceleration Date
(the "Payment Date"). Thereupon, the Trustee, among other things, shall draw
immediately upon the Letter of Credit as set forth in Section 6.12 hereof.
Interest on the accelerated Bonds shall cease to accrue on the Acceleration
Date. Accelerated Bonds shall be payable at a price equal to 100% of the
aggregate principal amount thereof plus interest accrued to the Acceleration
Date (the "Acceleration Price"). Notwithstanding anything contained herein to
the contrary, upon the occurrence of an Event of Default described in Section
8.01(f) or (g), the Trustee shall, by written notice to the Bank, the Company
and the Board declare immediately due and payable the principal amount of, and
interest accrued on, the Outstanding Bonds.
Any such declaration is subject to the condition that if, at any time
after such declaration and before any judgment or decree for the payment of the
moneys due shall have been obtained or entered, the Letter of Credit shall have
been reinstated in full as to principal and interest and the reasonable charges
and expenses of the Trustee, and any and all other defaults known to the Trustee
(other than in the payment of principal of and interest on the Bonds due and
payable solely by reason of such declaration) shall have been made good or cured
to the satisfaction of the Trustee or provision deemed by the Trustee to be
adequate shall have been made therefor, then, and in every such case, the
Holders of not less than 25% in aggregate principal amount of the Bonds then
Outstanding, by written notice to the Board, the Bank, the Company and the
Trustee, or the Trustee if such declaration was made by the Trustee, may, on
behalf of the Holders of all of the Bonds, rescind and annul such declaration
and its consequences and waive such default; but such rescission and annulment
shall not extend to or affect any subsequent default, and shall not impair or
exhaust any right or power in consequence thereof. The foregoing to the contrary
notwithstanding, Owners of 25% in principal amount of the Bonds then outstanding
shall have no right to request the Trustee to accelerate the Bonds under this
Section 8.02 and the Trustee shall not be obligated to give any Bondholder
notice of a default under the Indenture (except upon the occurrence of an Event
of Default under Section 8.01(f) or (g) hereof), the Agreement or any other
documents executed and delivered in connection with the Bonds without the prior
written consent of the Bank, unless the Letter of Credit Bank shall be in
default of its obligations under the Letter of Credit or a voluntary or
involuntary case has been commenced by the filing of a petition under the
Bankruptcy Code or any other law relating to bankruptcy, insolvency,
reorganization, winding-up or composition debts by or against the Bank.
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Upon any declaration of acceleration hereunder, the Trustee shall as
soon as possible give written notice of the acceleration to the Bondholders as
set forth below. In addition, notice of such acceleration shall be mailed, by
registered or certified mail or overnight mail, to the rating agency then rating
the Bonds, if any, but failure to mail any such notice or any defect in the
mailing thereof shall not affect the validity of such acceleration. Such notice
of acceleration: (i) shall be given in the name of the Board; (ii) shall
identify the accelerated Bonds (by name, date of issue, interest rate and
maturity date); (iii) shall specify the Acceleration Date; (iv) shall specify
the Payment Date and the Acceleration Price; (v) shall state that the interest
on the accelerated Bonds ceased to accrue on the Acceleration Date; (vi) shall
state the reason for the acceleration; and (vii) shall state that on the Payment
Date the Acceleration Price will be payable at the principal corporate trust
office of the Trustee. The Trustee shall use "CUSIP" numbers on such notices as
a convenience to Bondholders and such notice shall state that no representation
is made as to the correctness of such "CUSIP" numbers either as printed on the
Bonds or as contained in any notice of acceleration and that reliance may be
placed on the registration and description printed on the Bonds.
Upon acceleration pursuant to this Section 8.02, the Trustee shall
immediately exercise such rights as it may have under the Agreement to declare
all payments thereunder to be immediately due and payable and shall immediately
draw upon the Letter of Credit as provided in Section 6.12 hereof in an amount
that, together with any Available Moneys on deposit in the Bond Fund (excluding
Available Moneys held by the Trustee for the Owner of any Bond not presented for
payment as provided in Section 6.09 hereof) and irrevocably committed to the
payment of principal of and interest on the Bonds, is sufficient to pay the
Acceleration Price due on the Outstanding Bonds on the Payment Date.
Upon receipt by the Trustee of any amount from the Letter of Credit
Bank under the preceding paragraphs of this Section 8.02 (or after receipt by
the Trustee of any amounts from the Letter of Credit Bank under any other
provision of this Indenture), the Bank shall be subrogated to the right, title
and interest of the Trustee and the Bondholders in and to this Indenture, the
Agreement, and any other security held for the payment of the Bonds (other than
said funds), all of which, upon payment of any fees and expenses due and payable
to the Trustee pursuant to the Agreement or this Indenture, shall be assigned by
the Trustee to the Bank.
Section 8.03. Other Remedies. If any Event of Default occurs and is
continuing, the Trustee, before or after declaring the principal of the Bonds
immediately due and payable, may enforce each and every right granted to the
Board or the Trustee under the Indenture, the Agreement, the Letter of Credit or
any other security instrument, or under any supplements or amendments thereto,
and shall, at all times complying with the provisions of Section 8.02 hereof,
apply any Revenues or Available Moneys in the Bond Fund held by the Trustee to
the payment of principal of or interest on the Bonds. In exercising such rights
and the rights given the Trustee under this Article VIII, the Trustee shall take
such action, as in the judgment of the Trustee, applying the standards described
in Section 9.01 hereof, would best serve the interests of the Bondholders.
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Section 8.04. Legal Proceedings by Trustee. If any Event of Default has
occurred and is continuing, the Trustee in its discretion may and, upon the
written request of the Bank or the Owners of 25% in principal amount of the
Bonds then Outstanding (subject to the consent of the Bank, as long as the
Letter of Credit Bank is not in default of its obligations under the Letter of
Credit or a voluntary or involuntary case has not been commenced by the filing
of a petition under the Bankruptcy Code or any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts by
or against the Letter of Credit Bank) and receipt of indemnity to its
satisfaction shall, in its own name:
(A) by mandamus, other suit, action or proceeding at law or
in equity, enforce all rights of the Bondholders, including the right to require
the Board to collect the amounts payable under the Agreement and to require the
Board to carry out any other provisions of this Indenture for the benefit of the
Bondholders and to perform its duties under the Act;
(B) bring suit upon the Bonds;
(C) by action or suit in equity require the Board to account
as if it were the trustee of an express trust for the Bondholders; and
(D) by action or suit in equity enjoin any acts or things
that may be unlawful or in violation of the rights of the Bondholders.
Section 8.05. Discontinuance of Proceedings by Trustee. If any
proceeding taken by the Trustee on account of any Event of Default is
discontinued or is determined adversely to the Trustee, the Board, the Trustee,
the Bondholders, the Letter of Credit Bank and the Bank shall be restored to
their former positions and rights hereunder as though no such proceeding had
been taken, but subject to the limitations of any such adverse determination.
Section 8.06. Bondholders May Direct Proceedings. The Holders of a
majority in principal amount of the Bonds Outstanding hereunder shall have the
right to direct the method and place of conducting all remedial proceedings by
the Trustee hereunder, provided that such direction shall not be otherwise than
in accordance with law or the provisions of this Indenture, and that the Trustee
shall not be required to comply with any such direction which it deems to be
unlawful or unjustly prejudicial to Bondholders not parties to such direction.
The foregoing provisions of this Section 8.06 to the contrary notwithstanding,
as long as the Letter of Credit Bank shall not be in default under the Letter of
Credit, the Bank shall have the right to direct the method and the place of
conducting all remedial proceedings by the Trustee hereunder provided that such
direction shall not be otherwise than in accordance with law or the provisions
of this Indenture.
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Section 8.07. Limitations on Actions by Bondholders. Anything in this
Indenture to the contrary notwithstanding, no bondholder shall have any right to
pursue any remedy hereunder or under the Agreement unless:
(a) the Trustee shall have been given written notice of an
Event of Default;
(b) the holders of at least 25% in aggregate principal
amount of the Bonds Outstanding shall have requested the Trustee, in writing, to
exercise the powers hereinabove granted or to pursue such remedy in its or their
name or names;
(c) the Trustee shall have been offered indemnity
satisfactory to it against costs, expenses and liabilities;
(d) the Trustee shall have failed to comply with such
request within a reasonable time; and
(e) the Letter of Credit Bank shall be in default of its
obligations under the Letter of Credit or a voluntary or involuntary case has
been commenced by the filing of a petition under the Bankruptcy Code or any
other law relating to bankruptcy, insolvency, reorganization, winding-up or
composition or adjustment of debts by or against the Letter of Credit Bank;
provided, however, that nothing herein shall affect or impair the right of any
Owner of any Bond to enforce payment of the principal thereof and interest
thereon at and after the maturity thereof, or the obligation of the Board to pay
such principal and interest to the respective Owners of the Bonds at the time
and place, from the source and in the manner expressed herein and in the Bonds,
provided further that such action shall not disturb or prejudice the lien of
this Indenture.
Section 8.08. Trustee May Enforce Rights Without Possession of Bonds.
All rights under the Indenture and the Bonds may be enforced by the Trustee
without the possession of any Bonds or the production thereof at the trial or
other proceedings relative thereto, and any proceedings instituted by the
Trustee shall be brought in its name for the ratable benefit of the Owners of
the Bonds.
Section 8.09. Delays and Omissions Not to Impair Rights. No delay or
omission in respect of exercising any right or power accruing upon any Event of
Default shall impair such right or power or be a waiver of such Event of Default
and every remedy given by this Article VIII may be exercised, from time to time,
and as often as may be deemed expedient.
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Section 8.10. Application of Moneys in Event of Default. Any money
received by the Trustee under this Article VIII shall be applied in the order
listed below (provided that any money received by the Trustee upon a drawing
under the Letter of Credit together with Available Moneys on deposit in the Bond
Fund and available for payment of principal and interest on all Outstanding
Bonds, any money held by the Trustee upon the nonpresentment of Bonds and any
money held by the Trustee for the defeasance of Bonds pursuant to Article XI
shall be applied only as provided in clause (B) below and only to pay
outstanding principal and accrued interest, as provided in the Letter of Credit,
with respect to the Bonds):
(A) To the payment of the fees and expenses of the Trustee
and the Board including reasonable counsel fees and expenses, and any
disbursements of the Trustee with interest thereon and its reasonable
compensation;
(B) To the payment of principal and interest then owing on
the Bonds, including any interest on overdue interest, and in case such money
shall be insufficient to pay the same in full, then to the payment of principal
and interest ratably, without preference or priority of one over another or of
any installment of principal or interest over any other installment of principal
or interest; and
The surplus, if any, remaining after the application of the money as
set forth above shall to the extent of any unreimbursed drawing under the Letter
of Credit, or other obligations owing by the Company to the Bank under the Loan
Agreement, be paid to the Letter of Credit Bank or the Bank as the Bank shall
direct. Any remaining money shall be paid to the Company or the person lawfully
entitled to receive the same as a court of competent jurisdiction may direct.
Section 8.11. Trustee and Bondholders Entitled to All Remedies Under
Act; Remedies Not Exclusive. It is the purpose of this Article VIII to provide
to the Trustee and the Bondholders all rights and remedies as may be lawfully
granted under the provisions of the Act; but should any remedy herein granted be
held unlawful, the Trustee and the Bondholders shall nevertheless be entitled to
every remedy permitted by the Act. It is further intended that, insofar as
lawfully possible, the provisions of this Article VIII shall apply to and be
binding upon any trustee or receiver appointed under the Act.
No remedy herein conferred is intended to be exclusive of any other
remedy or remedies, and each remedy is in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute.
Section 8.12. Trustee's Right to Receiver. As provided by the Act, the
Trustee shall be entitled as of right to the appointment of a receiver; and the
Trustee, the Bondholders and any receiver so appointed shall have such rights
and powers and be subject to such limitations and restrictions as may be
contained in or permitted by the Act.
Section 8.13. Subrogation Rights of Bank. The Bank shall be subrogated
to all rights theretofore possessed under the Indenture by the Bondholders if
the principal of the Bonds or the interest thereon or the purchase price thereof
due with respect to any mandatory purchase hereunder shall have been paid with
funds provided by the Letter of Credit Bank pursuant to the Letter of Credit,
but only to the extent that the Company has not theretofore repaid such funds.
As limited by the provisions hereof, the subrogation rights of the Bank arising
from the payments made pursuant to the Letter of Credit to provide for the
payment of the principal of or interest on or the purchase price of any of the
Bonds shall be on a parity with the rights of all other Bondholders.
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If the principal of or the interest on any Bond or the purchase price
thereof due with respect to any mandatory purchase hereunder is paid with funds
provided by the Letter of Credit Bank pursuant to the Letter of Credit, and if
the Company has not theretofore repaid such funds, then, insofar as the
subrogation rights of the Bank are concerned, such Bond shall, at the option of
the Bank, be deemed to be in default with respect to the said principal,
interest or purchase price until all amounts paid in respect thereof under the
Letter of Credit shall have been repaid, and the Bank may exercise all rights
which it would have had under the Indenture as the Bondholder of the said Bond
then in default as to the payment of such principal, interest or purchase price.
Anything contained herein to the contrary notwithstanding, the payment
of all amounts due the Bank in respect of its subrogation rights under the
Indenture shall be secured by the Indenture on a parity with the principal of
and interest on all Bonds which are then deemed to be outstanding for reasons
other than the extent to which they evidence subrogation rights of the Bank, and
the Bank shall, to the extent of the amount due in respect of its subrogation
rights, be entitled to share all moneys derived from the Trust Estate with the
Bondholders to whom such principal and interest shall be due ratably and in
proportion to the amounts respectively due to the Bank and to each of such
Bondholders
The Bank may exercise all its subrogation rights under the Indenture in
respect of any Bonds without the necessity of possessing any of the Bonds or
producing the same in any judicial or other proceeding related to the
enforcement of its rights in respect thereof. Nevertheless, in order to evidence
the subrogation rights acquired in respect of any Bonds paid or purchased with
funds provided pursuant to the Letter of Credit, the Bank may require the
Trustee to transfer to it all Bonds surrendered for payment or purchase with
funds provided pursuant to the Letter of Credit or to issue to it new Bonds of
like tenor with those so surrendered. The subrogation rights granted to the Bank
in this Indenture are not intended to be exclusive of any other remedy or
remedies available to the Bank, and such subrogation rights shall be cumulative
and shall be in addition to (i) every other remedy given hereunder or under the
Loan Agreement or any other instrument or agreement with respect to the
reimbursement of moneys paid pursuant to the Letter of Credit and (ii) every
other remedy now or hereafter existing at law or in equity or by statute.
Section 8.14. Waiver of Default. As long as the Letter of Credit Bank
is not in default of its obligations under the Letter of Credit and the Letter
of Credit is in full force and effect, the Bank may waive an Event of Default
and if the Bank does so, the Trustee must also waive such Event of Default. The
Trustee may not waive an Event of Default under this Indenture if the Letter of
Credit has not been reinstated to cover principal and interest on the Bonds in
accordance with the terms of the Letter of Credit.
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ARTICLE IX
THE TRUSTEE, THE TENDER AGENT
AND THE REMARKETING AGENT
Section 9.01. Duties, Immunities and Liabilities of Trustee. (A) The
Trustee shall, prior to an Event of Default, and after the curing of all Events
of Default which may have occurred, perform such duties and only such duties as
are specifically set forth in this Indenture. The Trustee shall, during the
existence of any Event of Default (which has not been cured or waived), exercise
such of the rights and powers vested in it by this Indenture, and use the same
degree of care and skill in their exercise, as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs.
(B) The Board hereby directs and authorizes the Company to
remove the Trustee if at any time requested to do so by an instrument or
concurrent instruments in writing executed by the Holders of not less than a
majority in aggregate principal amount of the Bonds then Outstanding (or their
attorneys duly authorized in writing) or if at any time the Trustee shall cease
to be eligible to act in such capacity, or shall become incapable of acting, or
shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its
property shall be appointed, or any public officer shall take control or charge
of the Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, in each case by giving written notice of such
removal to the Trustee, and thereupon the Company shall appoint, with the
consent of the Bank, a successor Trustee by an instrument in writing.
(C) The Trustee may at any time resign by giving written
notice of such resignation to the Board, the Company and the Bank and by giving
the Bondholders notice of such resignation by mail at the addresses shown on the
registration books maintained by the Trustee. Upon receiving such notice of
resignation, the Company shall promptly appoint, with the consent of the Bank, a
successor Trustee by an instrument in writing.
(D) Any removal or resignation of the Trustee and
appointment of a successor Trustee shall become effective upon acceptance of
appointment by the successor Trustee and the transfer of the Letter of Credit to
the successor Trustee. If no successor Trustee shall have been appointed and
have accepted appointment within forty-five (45) days of giving notice of
removal or notice of resignation as aforesaid, the resigning Trustee or any
Bondholder (on behalf of himself and all other Bondholders) may petition any
court of competent jurisdiction for the appointment of a successor Trustee, and
such court may thereupon, after such notice (if any) as it may deem proper,
appoint such successor Trustee. Any successor Trustee appointed under this
Indenture, shall signify its acceptance of such appointment by executing and
delivering to the Company and the Board and to its predecessor Trustee a written
acceptance thereof, and thereupon such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the moneys, estates,
properties, rights, powers, trusts, duties and obligations of such predecessor
Trustee, with like effect as if originally named Trustee herein; but,
nevertheless at the request of the Company or the Board or the request of the
successor Trustee, such predecessor Trustee shall execute and deliver any and
all instruments of conveyance or further assurance and do such other things as
may reasonably be required for more fully and certainly vesting in and
confirming to such successor Trustee all the right, title and interest of such
predecessor Trustee in and to any property held by it under this Indenture and
shall pay over, transfer, assign and deliver to the successor Trustee any money
or other property subject to the trusts and conditions herein set forth. Upon
request of the successor Trustee, the Board shall execute and deliver any and
all instruments as may be reasonably required for more fully and certainly
vesting in and confirming to such successor Trustee all such moneys, estates,
properties, rights, powers, trusts, duties granted to the Trustee hereunder.
Upon the acceptance of the appointment by a successor Trustee as provided in
this subsection, the successor Trustee shall mail a notice of the succession of
such Trustee to the trusts hereunder to the Rating Agency and to the Bondholders
at the addresses shown on the registration books maintained by the Trustee.
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(E) Any Trustee appointed under the provisions of this
Section in succession to the Trustee shall be a trust company or bank having the
powers of a trust company, having a corporate trust office in the State or the
Commonwealth of Pennsylvania, having a combined capital and surplus of at least
One Hundred Million Dollars ($100,000,000), subject to supervision or
examination by federal or state authorities and shall be rated at least Baa3/P-3
by Moody's if the Bonds are then rated by Moody's or has received written
evidence from Moody's that the use of such Trustee would not result in a
reduction or withdrawal of the rating on the Bonds. If such bank or trust
company publishes a report of condition at least annually, pursuant to law or to
the requirements of any supervising or examining Board above referred to, then
for the purpose of this subsection the combined capital and surplus of such bank
or trust company shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published.
Section 9.02. Merger or Consolidation. Any company into which the
Trustee may be merged or converted or with which it may be consolidated or any
company resulting from any merger, conversion or consolidation to which it shall
be a party or any company to which the Trustee may sell or transfer all or
substantially all of its corporate trust business, provided such company shall
be eligible under subsection (E) of Section 9.01, shall be the successor to such
Trustee without the execution or filing of any paper or any further act,
anything herein to the contrary notwithstanding.
Section 9.03. Liability of Trustee. (A) The recitals of facts herein
and in the Bonds contained shall be taken as statements of the Board, and the
Trustee shall assume no responsibility for the correctness of the same, or make
any representations as to the validity or sufficiency of this Indenture or of
the Bonds or shall incur any responsibility in respect thereof, other than in
connection with the duties or obligations herein or in the Bonds assigned to or
imposed upon it. The Trustee shall, however, be responsible for its
representations contained in its certificate of authentication on the Bonds. The
Trustee shall not be liable in connection with the performance of its duties
hereunder, except for its own gross negligence or willful misconduct. The
Trustee may become the owner of Bonds with the same rights it would have if it
were not Trustee and, to the extent permitted by law, may act as depositary for
and permit any of their officers or directors to act as a member of, or in any
other capacity with respect to, any committee formed to protect the rights of
Bondholders, whether or not such committee shall represent the Holders of a
majority in principal amount of the Bonds then Outstanding.
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(B) The Trustee shall not be liable for any error of
judgment made in good faith by a responsible officer, unless it shall be proved
that the Trustee was grossly negligent in ascertaining the pertinent facts.
(C) The Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of not less than a majority in aggregate principal
amount of the Bonds at the time Outstanding relating to the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee under this Indenture.
(D) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture (other than the making of
a draw under the Letter of Credit in accordance with its terms and the terms
hereof, declaring the principal of the Bonds to be immediately due and payable
when required hereunder or making payments on the Bonds when due) at the
request, order or direction of any of the Bondholders pursuant to the provisions
of this Indenture unless such Bondholders shall have offered to the Trustee
indemnification to its satisfaction for indemnity against the costs, expenses
and liabilities which may be incurred therein or thereby.
(E) The Trustee shall not be liable for any action taken by
it in good faith and believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Indenture.
Section 9.04. Right of Trustee to Rely on Documents. The Trustee may
conclusively rely, and shall be protected in acting upon any notice, resolution,
request, consent, order, certificate, report, opinion, bond or other paper or
document believed by it to be genuine and to have been signed or presented by
the proper party or parties. The Trustee may consult with counsel, who may be
counsel of or to the Board, with regard to legal questions, and the opinion of
such counsel shall be full and complete authorization and protection in respect
of any action taken or suffered by it hereunder in good faith and in accordance
therewith.
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The Trustee shall not be bound to recognize any person as the Holder of
a Bond unless and until such Bond is submitted for inspection, if required, and
his title thereto is satisfactorily established, if disputed.
Whenever in the administration of the trusts imposed upon it by this
Indenture the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or suffering any action hereunder, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
Certificate of the Board, and such Certificate shall be full warrant to the
Trustee for any action taken or suffered in good faith under the provisions of
this Indenture in reliance upon such Certificate, but in its discretion the
Trustee may, in lieu thereof, accept other evidence of such matter or may
require such additional evidence as it may deem reasonable.
Section 9.05. Preservation and Inspection of Documents.
(A) All documents received by the Trustee under the
provisions of this Indenture shall be retained in its possession and shall be
subject during normal business hours of the Trustee to the inspection of the
Board, the Bank, the Company and any Bondholder, and their agents and
representatives duly authorized in writing, at reasonable hours and under
reasonable conditions.
(B) The Trustee covenants and agrees that it shall maintain
a current list of the names and addresses of all the Bondholders.
Section 9.06. Compensation. The Trustee shall be paid by the Company
(solely from Additional Payments) from time to time reasonable compensation for
all services rendered under this Indenture, and also all reasonable expenses,
charges, legal and consulting fees and other disbursements and those of its
attorneys, agents and employees, incurred in and about the performance of its
powers and duties under this Indenture. The Board shall have no responsibility
for the payment of such fees and expenses.
Section 9.07. The Tender Agent. First Union National Bank, the initial
Tender Agent appointed by the Company, and each successor tender agent appointed
in accordance herewith, shall designate its office and signify its acceptance of
the duties and obligations imposed upon it as described herein by a written
instrument of acceptance delivered to the Trustee and the Company under which
the Tender Agent shall, among other things:
(a) hold all Bonds delivered to it hereunder in trust for
the benefit of the respective Owners of Bonds which shall have so delivered such
Bonds until moneys representing the Purchase Price of such Bonds shall have been
delivered to or for the account of or to the order of such Owners of Bonds. Upon
delivery of moneys representing the Purchase Price of such Bonds to or for the
account of or to the order of such Owners of Bonds, the Tender Agent shall hold
all such Bonds which are required to be delivered to the Pledged Bonds Custodian
pursuant to Section 5.06(b) hereof, as the agent of the Bank for the purpose of
perfecting the Bank's security interest therein under the Pledge Agreement
(which agency shall terminate upon delivery of such Bonds by the Tender Agent to
or upon the order of the Bank in accordance with such Section 5.06(b); and
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(b) hold all moneys delivered to it hereunder and under the
Tender Agent Agreement for the purchase of such Bonds in a separate account in
trust for the benefit of the person or entity which shall have so delivered such
moneys until required to transfer such funds as provided herein.
Section 9.08. Qualifications of Tender Agent.
(a) The Tender Agent shall be a bank with trust powers or
trust company duly organized under the laws of the United States or any state or
territory thereof, having a combined capital stock, surplus and undivided
profits of at least Fifty Million Dollars ($50,000,000) or that is a
wholly-owned subsidiary of such a bank or trust company, and authorized by law
to perform all duties imposed upon it by this Indenture and shall be rated at
least Baa3/P-3 by Moody's if the Bonds are then rated by Moody's, or has
received written evidence from Moody's that the use of such Tender Agent would
not result in a reduction or withdrawal of the rating on the Bonds. The Tender
Agent may at any time resign and be discharged of its duties and obligations by
giving at least sixty (60) days' written notice to the Board, the Trustee, the
Remarketing Agent, the Bank, and the Company; provided that such resignation
shall not take effect until a successor Tender Agent is appointed and accepts
such appointment. Upon the written approval of the Bank, the Tender Agent may be
removed at any time by the Company upon written notice to the Board, the Trustee
and the Remarketing Agent. Successor Tender Agents may be appointed from time to
time by the Company, with the prior written consent of the Bank.
(b) Upon the resignation or removal of the Tender Agent, the
Tender Agent shall deliver any Bonds and moneys held by it in such capacity to
its successor.
(c) The Tender Agent shall have the same rights and
immunities granted to the Trustee hereunder.
Section 9.09. Qualifications of Remarketing Agent; Resignation;
Removal. The Remarketing Agent shall be a financial institution or registered
broker/dealer authorized by law to perform all the duties imposed upon it by
this Indenture. The Remarketing Agent may at any time resign and be discharged
of its duties and obligations created by this Indenture giving at least thirty
(30) days' written notice to the Board, the Bank, the Company and the Trustee.
The Remarketing Agent may be removed at any time, upon not less than thirty (30)
days' written notice from the Company filed with the Trustee. Upon the
resignation or removal of the Remarketing Agent, the Company shall appoint a
successor Remarketing Agent and shall provide written notice thereof to the
Trustee. The resignation or removal of the Remarketing Agent shall not become
effective until a successor Remarketing Agent is appointed and accepts such
appointment.
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Section 9.10. Construction of Ambiguous Provisions. The Trustee may
construe any provision hereof insofar as such may appear to be ambiguous or
inconsistent with any other provision hereof; and any construction of any such
provision by the Trustee, in good faith shall be binding upon the Owners of the
Bonds.
ARTICLE X
MODIFICATION OR AMENDMENT OF THE INDENTURE
Section 10.01. Amendments Permitted. The Indenture and the rights and
obligations of the Board, of the Trustee and of the Holders of the Bonds may be
modified or amended from time to time and at any time for any lawful purpose, by
an indenture or indentures supplemental thereto, which the Board and the Trustee
may enter into without the consent of any Bondholders but with the prior written
consent of the Company and the Bank (as long as the Letter of Credit Bank is not
in default under the Letter of Credit), provided that the Trustee determines
that such modification or amendment will not materially adversely affect the
interests of the Bondholders or result in any material impairment of the
security given under the Indenture. Any other modification or amendment must be
approved by a majority in aggregate principal amount of the Bonds then
Outstanding, provided that such consent of the Bondholders shall not be required
if such modification or amendment is consented to in writing by the Bank
provided that (a) the Letter of Credit Bank is not then in default of its
obligations under the Letter of Credit and (1)) no voluntary or involuntary case
has been commenced by the filing of a petition under the United States
Bankruptcy Code or any other law relating to bankruptcy, insolvency,
reorganization, winding-up or composition or adjustment of debts by or against
the Letter of Credit Bank. The foregoing to the contrary notwithstanding, no
such modification or amendment shall, without the consent of the Company and the
Holders of all Bonds then Outstanding, (i) extend the maturity date of any Bond,
(ii) reduce the amount of principal thereof, (iii) extend the time of payment or
change the method of computing the rate of interest thereon, without the consent
of the Holder of each Bond so affected, or eliminate the Holders' rights to
tender the Bonds, (iv) extend the due date for the purchase of Bonds tendered by
the Holders thereof, or (v) reduce the purchase price of such Bonds. It shall
not be necessary for the consent of the Bondholders to approve the particular
form of any Supplemental Indenture, but it shall be sufficient if such consent
shall approve the substance thereof. Promptly after the execution by the Board
and the Trustee of any Supplemental Indenture, the Trustee shall mail a notice,
setting forth in general terms the substance of such Supplemental Indenture, to
each rating agency then rating the Bonds, if any, and the Holders of the Bonds
at the address shown on the registration books of the Trustee. Any failure to
give such notice, or any defect therein, shall not, however, in any way impair
or affect the validity of any such Supplemental Indenture.
Section 10.02. Effect of Supplemental Indenture. Upon the execution of
any Supplemental Indenture pursuant to this Article, this Indenture shall be
deemed to be modified and amended in accordance therewith, and the respective
rights, duties and obligations under this Indenture of the Board, the Trustee
and all Holders of Bonds Outstanding shall thereafter be determined, exercised
and enforced hereunder subject in all respects to such modification and
amendment, and all the terms and conditions of any such Supplemental Indenture
shall be deemed to be part of the terms and conditions of this Indenture for any
and all purposes.
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Section 10.03. Trustee Authorized to Join in Amendments and
Supplements; Reliance on Counsel. The Trustee is authorized to join with the
Board in the execution and delivery of any supplemental indenture or amendment
permitted by this Article X and in so doing shall be fully protected by an
opinion of Counsel that such supplemental indenture or amendment is so permitted
and has been duly authorized by the Board and that all things necessary to make
it a valid and binding agreement have been done.
ARTICLE XI
DEFEASANCE
Section 11.01. Discharge of Indenture. The Bonds may be paid by the
Board in any of the following ways, provided that the Board also pays or causes
to be paid any other sums payable hereunder by the Board:
(a) by paying or causing to be paid the principal of and
interest on the Bonds, as and when the same become due and payable;
(b) with respect to Bonds which bear interest at a Fixed
Rate, by depositing with the Trustee, in trust, Available Moneys or securities
purchased with Available Moneys in the necessary amount (as provided in Section
11.03) to pay or redeem all Bonds then Outstanding; or
(c) by delivering to the Trustee, for cancellation by it,
the Bonds then Outstanding.
If the Board shall also pay or cause to be paid all Bonds then
Outstanding and shall also pay or cause to be paid all other sums payable
hereunder by the Board and the Letter of Credit shall have terminated and all
amounts drawn thereunder, together with interest thereon and other costs and
expenses payable under the Loan Agreement shall have been reimbursed to the
Letter of Credit Bank or the Bank, as the Bank shall direct, then and in that
case, at the election of the Board (evidenced by a Certificate of the Board
filed with the Trustee, signifying the intention of the Board to discharge all
such indebtedness and this Indenture), and notwithstanding that any Bonds shall
not have been surrendered for payment, this Indenture, the assignment of the
Agreement and the pledge of Revenues and other assets made under this Indenture
and all covenants, agreements and other obligations of the Board under this
Indenture shall cease, terminate, become void and be completely discharged and
satisfied. In such event, upon request of the Board, the Trustee shall cause an
accounting for such period or periods as may be requested by the Board to be
prepared and filed with the Board and shall execute and deliver to the Board all
such instruments, as prepared by or caused to be prepared by the Board, that may
be necessary or desirable to evidence such discharge and satisfaction, and the
Trustee shall pay over, transfer, assign or deliver all moneys or securities or
other property held by it pursuant to this Indenture, which are not required
for: (i) the payment of all the charges and reasonable expenses of the Trustee
under this Indenture; (ii) the payment or redemption of Bonds not theretofore
surrendered for such payment or redemption; (iii) the payment of amounts owed to
the Bank by the Company under the Loan Agreement, to the Company; or (iv) the
payment of any and all sums due to the United States pursuant to Section 6.13
hereof.
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Section 11.02. Discharge of Liability on Bonds. During the Fixed Rate
Period, upon the deposit with the Trustee, in trust, at or before maturity, of
money or securities in the necessary amount (as provided in Section 11.03) to
pay or redeem any Outstanding Bond (whether upon or prior to the end of the
Fixed Rate Period or the redemption date of such Bond), provided that, if such
Bond is to be redeemed prior to maturity, notice of such redemption shall have
been given as in Article IV provided or provision satisfactory to the Trustee
shall have been made for the giving of such notice, then all liability of the
Board in respect of such Bond shall cease, terminate and be completely
discharged, and the Holder thereof shall thereafter be entitled only to payment
out of such money or securities deposited with the Trustee as aforesaid for
their payment, subject, however, to the provisions of Section 11.04.
The Board may at any time surrender to the Trustee for cancellation by
it any Bonds previously issued and delivered, which the Board may have acquired
in any manner whatsoever, and such Bonds, upon such surrender and cancellation,
shall be deemed to be paid and retired.
Section 11.03. Deposit of Money or Securities with Trustee. During the
Fixed Rate Period, whenever in this Indenture it is provided or permitted that
there be deposited with or held in trust by the Trustee money or securities in
the necessary amount to pay or redeem any Bonds, the money or securities so to
be deposited or held shall be cash or Government Obligations, which Government
Obligations shall be noncallable and not subject to prepayment, the principal of
and interest on which when due will provide money sufficient to pay the
principal of, premium, if any, and all unpaid interest to maturity, or to the
redemption date, as the case may be, on the Bonds to be paid or redeemed, as
such principal, premium, if any, and interest become due, provided that, in the
case of Bonds which are to be redeemed prior to the maturity thereof, notice of
such redemption shall have been given as provided in Article IV or provision
satisfactory to the Trustee shall have been made for the giving of such notice;
provided, in each case, that the Trustee shall have been irrevocably instructed
(by Request of the Board) to apply such money to the payment of such principal
and interest with respect to such Bonds.
Whenever Government Obligations are deposited with the Trustee in
accordance with Section 11.03 hereof, the Company shall provide to the Trustee
and the Rating Agency: (i) a verification report from an independent public
accountant, satisfactory in form and content to the Trustee, demonstrating that
the Government Obligations so deposited and the income therefore shall be
sufficient to pay the principal of, premium, if any, and all unpaid interest to
maturity, or to the redemption date, as the case may be, on the Bonds to be paid
or redeemed, as such principal or premium, if any, and interest become due; and
(ii) an opinion acceptable to the Rating Agency, of nationally recognized
bankruptcy counsel, to the effect that the provision for payment of the Bonds
contemplated to be made pursuant to this Section 11.03 will not constitute or
result in such payments constituting voidable preferences under Section 547 of
the Bankruptcy Code.
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Section 11.04. Payment of Bonds After Discharge of Indenture.
Notwithstanding any provisions of this Indenture, any moneys held by the Trustee
in trust for the payment of the principal of, premium, if any, or interest on,
any Bonds and remaining unclaimed for five years after the principal of all of
the Bonds has become due and payable (whether at maturity or upon call for
redemption or by acceleration as provided in this Indenture), if such moneys
were so held at such date, or five years after the date of deposit of such
moneys if deposited after said date when all of the Bonds became due and
payable, shall be repaid to the Company, upon its written request, free from the
trusts created by this Indenture and all liability of the Trustee with respect
to such moneys shall thereupon cease; provided, however, that before the
repayment of such moneys to the Company as aforesaid, the Trustee may (at the
cost and request of the Company) first mail to the Holders of Bonds which have
not been paid, at the addresses last shown on the registration books maintained
by the Trustee, a notice, in such form as may be deemed appropriate by the
Trustee with respect to the Bonds so payable and not presented and with respect
to the provisions relating to the repayment to the Company of the moneys held
for the payment thereof.
ARTICLE XII
MISCELLANEOUS
Section 12.01. Liability of Board Limited to Revenues. Notwithstanding
anything to the contrary contained in this Indenture or in the Bonds, the Board
shall not be required to advance any moneys derived from any source other than
the Revenues and other assets pledged under this Indenture for any of the
purposes in this Indenture mentioned, whether for the payment of the principal
of or interest on the Bonds or for any other purpose of this Indenture.
Notwithstanding any provisions of this Indenture to the contrary, no recourse
under or upon any obligation, covenant or agreement contained herein or in any
Bond shall be had against the Board, it being expressly agreed and understood
that the obligations of the Board hereunder, and under the Bonds and elsewhere,
are solely special, limited obligations of the Board and shall be enforceable
only out of the Board's interest in this Indenture and the Agreement (except for
the Board's rights to payment of certain costs, fees and expenses as set forth
in this Indenture, the Agreement and elsewhere) and there shall be no other
recourse against the Board or any property now or hereafter owned by it and
after entry of judgment against the Board by virtue of the power herein
contained, the Board shall mark the judgment index to the effect that the
judgment is limited as aforesaid.
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Section 12.02. Limitation of Liability of Directors, Etc., of Board. No
covenant, agreement, provision or obligation contained herein shall be deemed to
be a covenant, agreement or obligation of any present or future director,
commissioner, officer, employee, member or agent of the Board in his individual
capacity, and neither the members of the Board nor any officer thereof shall be
liable personally on this Indenture or any of the Bonds or be subject to any
personal liability or accountability by reason of the issuance thereof or this
Indenture. No director, commissioner, officer, employee, member or agent of the
Board shall incur any personal liability with respect to any other action taken
by him pursuant to this Indenture or the Act. Notwithstanding anything contained
herein to the contrary, the liability of the Board, including its officers,
members, and employees, under any and all of the documentation executed in
connection with the issuance of the Bonds shall not constitute its general
obligation and recourse against the Board on the documentation executed in
connection with the issuance of the Bonds shall be had only against the property
specifically pledged as security therefor and any rents, issues or profits
thereof. It is expressly understood that the Board shall not otherwise be
obligated and that none of its members, officers, or employees shall be in any
way obligated for any costs, expenses, fees or other obligations or liabilities
incurred or imposed in connection with the issuance of the Bonds, whether
incurred prior to or after closing, and that recourse against the Board and its
members, officers, or employees, shall be limited as set forth herein.
Section 12.03. Covenant Not to Sue. The forms of Bonds provide that the
owners of the Bonds agree not to sue the Board or any of its board members,
officers, agents or employees, past, present or future except as provided herein
and in the Agreement as a condition of, and in consideration for, the issuance
of the Bonds; accordingly, except as provided herein and in the Agreement, the
Trustee shall not be permitted to sue the Board, on behalf of the owners of the
Bonds.
Section 12.04. Successor Is Deemed Included in All References to
Predecessor. Whenever in this Indenture either the Board or the Trustee is named
or referred to, such reference shall be deemed to include the successors or
assigns thereof, and all the covenants and agreements in this Indenture
contained by or on behalf of the Board or the Trustee shall bind and inure to
the benefit of the respective successors and assigns thereof whether so
expressed or not.
Section 12.05. Limitation of Rights to Parties, Bank, Company and
Bondholders. Nothing in this Indenture or in the Bonds expressed or implied is
intended or shall be construed to give to any person other than the Board, the
Trustee, the Bank, the Company and the Holders of the Bonds, any legal or
equitable right, remedy or claim under or in respect of this Indenture or any
covenant, condition or provision therein or herein contained; and all such
covenants, conditions and provisions are and shall be held to be for the sole
and exclusive benefit of the Board, the Trustee, the Bank, the Company and the
Holders of the Bonds.
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Section 12.06. Waiver of Notice. Whenever in this Indenture the giving
of notice by mail or otherwise is required, the giving of such notice may be
waived in writing by the person entitled to receive such notice and in any such
case the giving or receipt of such notice shall not be a condition precedent to
the validity of any action taken in reliance upon such waiver.
Section 12.07. Severability of Invalid Provisions. If any one or more
of the provisions contained in this Indenture or in the Bonds shall for any
reason be held to be invalid, illegal or unenforceable in any respect, then such
provision or provisions shall be deemed severable from the remaining provisions
contained in this Indenture and such invalidity, illegality or unenforceability
shall not affect any other provision of this Indenture, and this Indenture shall
be construed as if such invalid or illegal or unenforceable provision had never
been contained herein. The Board hereby declares that it would have entered into
this Indenture and each and every other Section, paragraph, sentence, clause or
phrase hereof and authorized the issuance of the Bonds pursuant thereto
irrespective of the fact that any one or more Sections, paragraphs, sentences,
clauses or phrases of this Indenture may be held illegal, invalid or
unenforceable.
Section 12.08. Notices. All notices to Bondholders shall be given by
telex, telegram, telecopier or other telecommunication device unless otherwise
provided herein and confirmed in writing as soon as practicable. All such
notices shall also be sent to the Holder and any person designated by any Holder
to receive copies of such notices. Any notice to or demand upon the Trustee may
be served or presented, and such demand may be made, at the Principal Corporate
Trust Office of the Trustee, or at such other address as may have been filed in
writing by the Trustee with the Board. Any notice to or demand upon the Trustee,
the Board, the Company, the Remarketing Agent, the Tender Agent, the Letter of
Credit Bank or the Bank shall be deemed to have been sufficiently given or
served for all purposes by being delivered or sent by telex or by being
deposited, postage prepaid, in a post office letter box, addressed, as the case
may be,
To the Trustee: First Union National Bank
123 South Broad Street
Philadelphia, Pennsylvania 19109
Attention: Corporation Trust Administration
To the Board: The Industrial Development
Board of the City of Huntsville
P. O. Box 408
Huntsville, Alabama 35804
(or such other address as may have been filed in writing by the Board with the
Trustee),
To the Company: Central CPVC Corporation
c/o Central Sprinkler Corporation
451 North Cannon Avenue
Lansdale, Pennsylvania 19446
(or such other address as may have been filed in writing by the Company with the
Trustee),
To the Remarketing Agent: First Union Capital Markets
Second Floor South
600 Penn Street
Reading, Pennsylvania 19602
Attention: Sales and Underwriting Department
(or such other address as may have been filed in writing by the Remarketing
Agent with the Trustee),
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To the Tender Agent: First Union National Bank
301 College Street
Charlotte, North Carolina 28277
Attention: Sales and Underwriting
(or such other address as may have been filed in writing by the Tender Agent
with the Trustee),
To the Letter of Credit Bank: First Union National Bank
2240 Butler Pike
Plymouth Meeting, PA 19462-1302
Attention: William Johnston, Vice President
(or such other address as may have been filed in writing by the Letter of Credit
Bank with the Trustee).
To the Bank: Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Attention: Andrew W. Robin
(or such other address as may have been filed in writing by the Bank with the
Trustee).
Section 12.09. Evidence of Rights of Bondholders. Any request, consent
or other instrument required or permitted by this Indenture to be executed by
Bondholders may be in any number of concurrent instruments of substantially
similar tenor and shall be signed or executed by such Bondholders in person or
by an agent or agents duly appointed in writing. Proof of the execution of any
such request, consent or other instrument or of a writing appointing any such
agent, or of the holding by any person of Bonds transferable by delivery, shall
be sufficient for any purpose of this Indenture and shall be conclusive in favor
of the Trustee and of the Board if made in the manner provided in this Section.
The fact and date of the execution by any person of any such request,
consent or other instrument or writing may be proved by the certificate of any
notary public or other officer of any jurisdiction, authorized by the laws
thereof to take acknowledgments of deeds, certifying that the person signing
such request, consent or other instrument acknowledged to him the execution
thereof, or by an affidavit of a witness of such execution duly sworn to before
such notary public or other officer.
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The ownership of Bonds shall be proved by the bond registration books
held by the Trustee.
Any request, consent, or other instrument or writing of the Holder of
any Bond shall bind every future Holder of the same Bond and the Holder of every
Bond issued in exchange therefor or in lieu thereof, in respect of anything done
or suffered to be done by the Trustee or the Board in accordance therewith or in
reliance thereon.
Section 12.10. Disqualified Bonds. In determining whether the Holders
of the requisite aggregate principal amount of Bonds have concurred in any
demand, request, direction, consent or waiver under this Indenture, Bonds which
are owned or held by or for the account of the Board or the Company, or by any
other obligor on the Bonds, or by any person directly or indirectly controlling
or controlled by, or under direct or indirect common control with, the Board,
the Company, or any other obligor on the Bonds, shall be disregarded and deemed
not to be Outstanding for the purpose of any such determination. Bonds so owned
which have been pledged in good faith may be regarded as Outstanding for the
purposes of this Section if the pledgee shall establish to the satisfaction of
the Trustee the pledgee's right to vote such Bonds and that the pledgee is not a
person directly or indirectly controlling or controlled by, or under direct or
indirect common control with, the Board or the Company, or any other obligor on
the Bonds. In case of a dispute as to such right, any decision by the Trustee
taken upon the advice of counsel shall be full protection to the Trustee.
Section 12.11. Money Held for Particular Bonds. The money held by the
Trustee for the payment of the interest, principal or premium due on any date
with respect to particular Bonds (or portions of Bonds in the case of registered
Bonds redeemed in part only) shall, on and after such date and pending such
payment, be set aside on its books and held uninvested in trust by it for the
Holders of the Bonds entitled thereto, subject, however, to the provisions of
Section 11.04 hereof.
Section 12.12. Funds. Any fund required by this Indenture to be
established and maintained by the Trustee may be established and maintained in
the accounting records of the Trustee, either as a fund or an account, and may,
for the purposes of such records, any audits thereof and any reports or
statements with respect thereto, be treated either as a fund or as an account;
but all such records with respect to all such funds shall at all times be
maintained in accordance with current industry standards, to the extent
practicable, and with due regard for the requirements of Section 7.05 hereof and
for the protection of the security of the Bonds and the rights of every holder
thereof.
Section 12.13. Payments Due on Days other than Business Days. If a
payment day is not a Business Day at the place of payment, then payment may be
made at that place on the next Business Day and no interest shall accrue for the
intervening period.
Section 12.14. Execution in Several Counterparts. This Indenture may be
executed in any number of counterparts and each of such counterparts shall for
all purposes be deemed to be an original; and all such counterparts, or as many
of them as the Board and the Trustee shall preserve undestroyed, shall together
constitute but one and the same instrument.
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Section 12.15. [Reserved]
Section 12.16. Continuing Disclosure. Pursuant to Section 2.3 of the
Agreement, the Company has undertaken all responsibility for compliance with,
and the Board shall have no liability to the holders of the Bonds or any other
person with respect to, any reports, notices or disclosures required by or
provided pursuant to the continuing disclosure agreement authorized by said
Section 4.19. The Trustee hereby covenants and agrees with the holders from time
to time of the Bonds that it will, for their benefit, comply with and carry out
all of the provisions of the continuing disclosure agreement and Section 4.19 of
the Agreement. Notwithstanding any other provision of the Indenture, failure of
the Company or the Trustee to perform in accordance with the continuing
disclosure agreement shall not constitute a Default, and the rights and remedies
provided by the Indenture upon the occurrence of a default or an Event of
Default shall not apply to any such failure, but the continuing disclosure
agreement may be enforced only as provided therein.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF
HUNTSVILLE has caused this Indenture to be executed in its name by its Chairman
and attested by its Secretary, and FIRST UNION NATIONAL BANK, as evidence of its
acceptance of the trusts created hereunder, has caused this Indenture to be
signed in its corporate name by its duly authorized officer and attested, all as
of the day and year first above written.
THE INDUSTRIAL DEVELOPMENT BOARD OF THE
CITY OF HUNTSVILLE
By /s/ W.F. Sanders, Jr.
------------------------------
Vice Chairman
[SEAL]
Attest:
-------------------------
Assistant Secretary
<PAGE>
FIRST UNION NATIONAL BANK, as Trustee and
Tender Agent
By
-----------------------------
Authorized Officer
[SEAL]
Attest:
------------------------
Authorized Officer
<PAGE>
EXHIBIT "A"
(FLOATING RATE FORM OF BOND)
Unless this certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC") to the Board or its
agent for registration of transfer, exchange or payment, and any certificate
issued is registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner (the
"Registered Owner") hereof, Cede & Co., has an interest herein.
NEITHER THE CITY OF HUNTSVILLE NOR THE STATE OF ALABAMA IS
OBLIGATED TO PAY, AND NEITHER THE FAITH AND CREDIT NOR
TAXING POWER OF THE CITY OF HUNTSVILLE OR THE STATE OF
ALABAMA IS PLEDGED TO THE PAYMENT OF, THE PRINCIPAL OR
PREMIUM, IF ANY, OF OR INTEREST ON THIS BOND. THIS BOND IS A
SPECIAL, LIMITED OBLIGATION OF THE BOARD, PAYABLE SOLELY OUT
OF THE REVENUES OR OTHER RECEIPTS, FUNDS OR MONEYS OF THE
BOARD PLEDGED UNDER THE INDENTURE AND FROM ANY AMOUNTS
OTHERWISE AVAILABLE UNDER THE INDENTURE FOR THE PAYMENT OF
THE BONDS. THIS BOND DOES NOT NOW AND SHALL NEVER CONSTITUTE
A CHARGE AGAINST THE GENERAL CREDIT OF THE BOARD. THE BOARD
HAS NO TAXING POWER.
No. VR- $7,500,000
THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF HUNTSVILLE
TAX-EXEMPT VARIABLE RATE DEMAND/FIXED RATE
REFUNDING REVENUE BOND
(CENTRAL CPVC CORPORATION PROJECT)
SERIES OF 1998
MATURITY DATE: January 1, 2013 CUSIP
DATE OF ISSUANCE: October 29, 1998
<PAGE>
THIS BOND IS SUBJECT TO MANDATORY TENDER FOR PURCHASE AT THE TIME AND
IN THE MANNER HEREINAFTER DESCRIBED, AND MUST BE SO TENDERED OR WILL BE DEEMED
TO HAVE BEEN SO TENDERED UNDER CERTAIN CIRCUMSTANCES DESCRIBED HEREIN.
<PAGE>
KNOW ALL MEN BY THESE PRESENTS that the THE INDUSTRIAL
DEVELOPMENT BOARD OF THE CITY OF HUNTSVILLE (the "Board"), for value received,
promises to pay from the source and as hereinafter provided, to CEDE & CO. or
registered assigns, on the maturity date hereof (or upon prior redemption as
hereinafter provided), upon surrender hereof, the principal sum of Seven Million
Five Hundred Thousand Dollars ($7,500,000), and in like manner to pay interest
on said sum at the rate described below on the first day of each calendar month,
or if such date is not a Business Day, the next succeeding Business Day and on
the Conversion Date (hereinafter defined), commencing December 1, 1998 (each an
"Interest Payment Date"), from the Interest Payment Date next preceding the date
of authentication hereof to which interest has been paid or duly provided for,
unless the date of authentication hereof is an Interest Payment Date to which
interest has been paid or duly provided for, in which case from the date of
authentication hereof, or unless no interest has been paid or duly provided for
on the Bonds (as hereinafter defined), in which case from the date of issuance
set forth above (the "Date of Issuance"), until payment of the principal hereof
has been made or duly provided for. Notwithstanding the foregoing, if this Bond
is authenticated after any date which is the seventh calendar day next preceding
any Interest Payment Date (a "Record Date") and before the following Interest
Payment Date, this Bond shall bear interest from such Interest Payment Date;
provided, however, that if the Board shall default in the payment of interest
due on such Interest Payment Date, then this Bond shall bear interest from the
next preceding Interest Payment Date to which interest has been paid or duly
provided for, or, if no interest has been paid or duly provided for on the
Bonds, from the Date of Issuance. The principal of this Bond is payable in
lawful money of the United States of America at the principal corporate trust
office of First Union National Bank (together with its successors in trust, the
"Trustee") or at the duly designated office of any successor Trustee under the
Trust Indenture, dated as of October 1, 1998, between the Board and the Trustee
(which, as from time to time amended and supplemented, is hereinafter referred
to as the "Indenture"). Payment of interest on this Bond shall be made on each
Interest Payment Date to the registered Owner hereof as of the applicable Record
Date and shall be paid by check mailed by the Trustee to such registered Owner
at his address as it appears on the registration books of the Board or at such
other address as is furnished to the Trustee in writing by such registered
Owner, or in such other manner as may be permitted by the Indenture; provided,
that such interest shall be paid by wire transfer to: (i) the Bank; and (ii) any
Holder of at least $1,000,000 in aggregate principal amount of Bonds, if the
Holder makes a written request of the Trustee at least 15 days before a Record
Date specifying the account address and wiring instructions. Such a request may
provide that it will remain in effect for subsequent interest payments until
changed or revoked by written notice to the Trustee or upon the transfer or
re-registration of the Bond.
The purchase price (the amount equal to 100% of the principal amount
of any Bond tendered or deemed tendered pursuant to the terms of the Indenture
plus accrued and unpaid interest thereon to the date of purchase (the "Purchase
Price") of this Bond shall be payable by First Union National Bank (together
with any successor Tender Agent, the "Tender Agent") to the registered Owner
hereof at the principal corporate trust office of the Tender Agent. As used
herein, the term "Business Day" means any day other than: (i) a Saturday or
Sunday; (ii) a legal holiday or any day on which banking institutions in the
State of New York, the State of Alabama, the City of New York, or the city in
which the principal office of the Trustee, the Tender Agent or the Bank are
authorized to remain closed; or (iii) a day on which the New York Stock Exchange
is closed.
<PAGE>
This Bond is one of the duly authorized bonds designated as the
Tax-Exempt Variable Rate Demand/Fixed Rate Refunding Revenue Bonds (Central CPVC
Corporation Project) Series of 1998 of the Board issued in the aggregate
principal amount of $7,500,000 (herein referred to as the "Bonds") under and by
virtue of Act No. 648 adopted at the 1949 Regular Session of the Legislature of
the State of Alabama, approved September 19, 1949, as amended (said Act being
codified as Section 11-54-80, et seq., Code of Alabama, 1975) (the "Act"), and
by virtue of a resolution duly adopted by the Board of Directors of the Board
(the "Bond Resolution"), and equally and ratably secured under the Indenture,
for the purpose of raising funds to refund a bond which was issued to finance a
portion of the costs of a project consisting of (i) the acquisition,
construction, and equipping a manufacturing facility for the manufacture of CPVC
pipe and fittings for the fire protection industry to be located at the
Premises; and (ii) the payment of a portion of the costs of issuance of the
Bonds (the "Project"). Pursuant to an Amended and Restated Lease Agreement,
dated as of October 1, 1998 (the "Agreement") by and between the Board and
Central CPVC Corporation, an Alabama corporation (the "Company"), lease payments
sufficient for the prompt payment when due of the principal and Purchase Price
of, premium, if any, and interest on the Bonds are to be paid to the Trustee for
the account of the Board and deposited in the Bond Fund established by the
Indenture and have been duly pledged for that purpose, all to the extent and in
the manner provided in the Indenture.
The Bonds are all issued under and are equally and ratably secured by
and entitled to the protection of the Indenture, pursuant to which all payments
due from the Company to the Board under the Agreement (other than certain
indemnification payments and the payment of certain expenses of the Board) are
assigned to the Trustee to secure the payment of the principal and Purchase
Price of, and premium, if any, and interest on the Bonds and certain costs, fees
and expenses of the Trustee. The Company has caused to be delivered to the
Trustee an irrevocable direct pay letter of credit (together with any Substitute
Letter of Credit, the "Letter of Credit") issued by First Union National Bank
(in such capacity, the "Bank") and dated the Date of Issuance of the Bonds,
which will expire, unless earlier terminated or extended, on March 31, 2001.
Subject to certain conditions, the Letter of Credit may be replaced by a
Substitute Letter of Credit of another commercial bank, savings and loan
association or savings bank. Under the Letter of Credit, the Trustee will be
entitled to draw up to an amount sufficient to pay: (a) the principal of the
Bonds or the portion of the Purchase Price corresponding to the principal of the
Bonds; and (b) accrued interest (at the maximum rate of 15% per annum based on
365/366 day year and the actual number of days elapsed) on the Bonds or the
portion of the Purchase Price of the Bonds corresponding to accrued interest
thereon.
<PAGE>
Reference is hereby made to the Indenture, the Agreement and the Letter
of Credit for a description of the property pledged and assigned, the
provisions, among others, with respect to the nature and extent of the security,
the rights, duties and obligations of the Board, the Trustee and the Owners of
the Bonds and the terms upon which the Bonds are issued and secured; and the
Owner of this Bond, by acceptance hereof, hereby consents to the terms and
provisions of all of the foregoing as a material portion of the consideration
for the issuance of this Bond.
This Bond shall bear interest as follows:
(A) From the Date of Issuance of this Bond to the Conversion
Date, this Bond shall bear interest at the "Floating Rate." The "Floating Rate"
shall be a variable rate of interest equal to the minimum rate of interest
necessary, in the sole judgment of the Remarketing Agent (hereinafter defined),
to sell the Bonds on any Business Day at a price equal to the principal amount
thereof, exclusive of accrued interest, if any, thereon. The Floating Rate shall
be determined weekly by First Union Capital Markets, a Division of Wheat First
Securities, Inc., Reading, Pennsylvania (the "Remarketing Agent") by 9:30 a.m.
on each Wednesday (or if such Wednesday is not a Business Day, on the next
succeeding Business Day) and shall be effective on such Wednesday for the
immediately following Weekly Period (as hereinafter defined), all as more fully
set forth in the Indenture. The determination of the Floating Rate shall be
conclusive and binding upon the Board, the Trustee, the Letter of Credit Bank,
the Bank, the Company, the Remarketing Agent, the Tender Agent and the Owners of
this Bond.
Anything herein to the contrary notwithstanding, the
Floating Rate shall in no event exceed 15% per annum.
(B) The Bonds shall bear interest at the "Fixed Rate" from
and after the Conversion Date. In such event, the Fixed Rate shall be applicable
until the maturity of the Bonds. The "Fixed Rate" shall be a fixed annual
interest rate on the Bonds established by the Remarketing Agent as the rate of
interest for which the Remarketing Agent has received commitments on or prior to
the 5th Business Day preceding the Conversion Date, at a price of par without
discount or premium.
Prior to the Conversion Date, interest on the Bonds shall be computed
on the basis of a 365/366-day year, actual number of days elapsed. On and after
the Conversion Date, interest on the Bonds shall be computed on the basis of a
360-day year of twelve 30-day months.
<PAGE>
As used herein, the term "Conversion Date" means the Optional
Conversion Date; the term "Letter of Credit Termination Date" means the later
of: (i) that date upon which the Letter of Credit shall expire or terminate
pursuant to its terms; or (ii) that date to which the expiration or termination
of the Letter of Credit may be extended, from time to time, either by extension
or renewal of the existing Letter of Credit or the issuance of a Substitute
Letter of Credit (as such phrase is defined in the Indenture); the term
"Optional Conversion Date" means that date on or after December 1, 1998 which
shall be a Business Day, from and after which the interest rate on the Bonds is
converted from the Floating Rate to the Fixed Rate as a result of the exercise
by the Company of the Conversion Option; the term "Conversion Option" means the
option granted to the Company in the Indenture pursuant to which the interest
rate on the Bonds is converted from the Floating Rate to the Fixed Rate as of
the Optional Conversion Date; the term "Purchase Price" means an amount equal to
100% of the principal amount of any Bond tendered or deemed tendered for
purchase pursuant to the Indenture or with respect to which the Demand Purchase
Option has been exercised, plus accrued and unpaid interest thereon to the date
of purchase.
The interest rate on the Bonds may be converted from the Floating Rate
to the Fixed Rate upon satisfaction of certain conditions and notice given by
the Trustee at the direction of the Company to the Owners of the Bonds at least
twenty (20) days but not more than thirty (30) days prior to the Conversion Date
in accordance with the requirements of the Indenture, and the Bonds shall be
subject to mandatory tender by the Owners thereof on the Conversion Date. On and
after the Conversion Date, the Demand Purchase Option will not be available to
the Owners of the Bonds. On or prior to the Conversion Date, an Owner of Bonds,
shall be required to deliver their Bonds to the Tender Agent for purchase at the
Purchase Price. Accrued interest on the Bonds will be payable on the Conversion
Date to the Owners of Bonds as of the Conversion Date. Any Bonds not delivered
to the Tender Agent on or prior to the Conversion Date ("Undelivered Bonds"),
for which there has been irrevocably deposited in trust with the Trustee or the
Tender Agent an amount of money sufficient to pay the Purchase Price of the
Undelivered Bonds, shall be deemed to have been purchased at the Purchase Price
and are deemed to be no longer outstanding with respect to such prior Owners. IN
THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO DELIVER ITS BONDS ON OR PRIOR TO
THE CONVERSION DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING
ANY INTEREST TO ACCRUE ON OR SUBSEQUENT TO THE CONVERSION DATE) OTHER THAN THE
PURCHASE PRICE FOR SUCH UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO
LONGER BE ENTITLED TO THE BENEFIT OF THE INDENTURE, EXCEPT FOR THE PURPOSE OF
PAYMENT OF THE PURCHASE PRICE THEREFOR.
Notwithstanding the foregoing provisions, to the extent that at the
close of the fifth Business Day prior to the proposed Optional Conversion Date,
the Remarketing Agent has not presented to the Company firm commitments for the
purchase of all of the Bonds, the Company, at its option, may rescind an
optional conversion of the Bonds. Any such election to rescind must be made by
the close of the fourth Business Day prior to the proposed Conversion Date and
the Company shall give written notice to the Trustee, the Tender Agent and the
Bank of its decision to rescind the optional conversion by such time. The
Company shall cause the Trustee to immediately notify the Owners of such
rescission and thereafter the Bonds shall bear interest at the Floating Rate in
effect for the then current Weekly Period and thereafter the Bonds shall bear
interest at the Floating Rate until any subsequent Conversion Date effected in
accordance with the Indenture. As used herein, "Weekly Period" means, while this
Bond bears interest at the Floating Rate, the weekly period that begins on and
includes Wednesday of each calendar week and ends at the close of business on
Tuesday of the next succeeding week.
<PAGE>
At any time prior to the Record Date preceding the first Interest
Payment Date following the Conversion Date, the Trustee or the Tender Agent, as
the case may be, shall deliver a replacement Bond evidencing interest payable at
the Fixed Rate.
Prior to the Conversion Date, this Bond shall be purchased, at the
option of the Owner hereof ("Demand Purchase Option") at the Purchase Price,
upon:
(a) delivery by such Owner to the Trustee and the Tender
Agent at their principal corporate trust office and Delivery Office (hereinafter
defined) respectively, and to the Remarketing Agent at its principal office of a
notice (a "Demand Purchase Notice") (said notice to be irrevocable and effective
upon receipt) which states: (i) the aggregate principal amount and the bond
numbers of Bonds to be purchased; and (ii) the date on which such Bonds are to
be purchased, which date shall be a Business Day not prior to the seventh (7th)
day next succeeding the date of delivery of such notice and which date shall be
prior to the Conversion Date;
(b) if such Bonds are to be purchased prior to an Interest
Payment Date and after the Record Date in respect thereof, delivery to the
Tender Agent together with the Demand Purchase Notice described in (a) above, of
a non-recourse due-bill, payable to bearer, for interest due on such Interest
Payment Date; and
(c) delivery to the Tender Agent at its Delivery Office
(hereinafter defined) at or prior to 10:00 a.m., New York City time, on the date
designated for purchase in the applicable Demand Purchase Notice of such Bonds
to be purchased with an appropriate endorsement for transfer or accompanied by a
bond power endorsed in blank.
Any Bond as to which a Demand Purchase Notice has been delivered
pursuant to (a) above, must be delivered to the Tender Agent as provided in (c)
above, and any such Bonds not so delivered ("Undelivered Bonds"), for which
there has been irrevocably deposited in trust with the Trustee or the Tender
Agent an amount of money sufficient to pay the Purchase Price thereof, shall be
deemed to have been purchased at the Purchase Price and are deemed to be no
longer outstanding with respect to such tendering Owner. IN THE EVENT OF A
FAILURE BY AN OWNER OF BONDS TO DELIVER ITS BONDS AS SPECIFIED ABOVE, SAID OWNER
SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE ON OR
SUBSEQUENT TO THE DATE DESIGNATED FOR PURCHASE IN THE APPLICABLE DEMAND PURCHASE
NOTICE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNDELIVERED BONDS, AND ANY
UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFIT OF THE INDENTURE,
EXCEPT FOR THE PAYMENT OF THE PURCHASE PRICE THEREFOR.
<PAGE>
Notwithstanding the foregoing provisions, in the event any Bond as to
which the Owner thereof has exercised the Demand Purchase Option is remarketed
to such Owner pursuant to the Remarketing Agreement, such Owner need not deliver
such Bond to the Tender Agent as provided in (c) above, although such Bond shall
be deemed to have been delivered to the Tender Agent, redelivered to such Owner,
and remarketed for purposes of the Indenture.
The Agreement provides that the Company, upon satisfaction of certain
conditions precedent, may, at any time, at its option, provide for the delivery
to the Trustee of a Substitute Letter of Credit. The Bonds shall be subject to
mandatory tender by the Owners thereof on the date of delivery of the Substitute
Letter of Credit (the "Substitution Date"). On or prior to the Substitution
Date, Owners of Bonds shall be required to deliver their Bonds to the Tender
Agent for purchase at the Purchase Price. Accrued interest on the Bonds will be
payable on the Substitution Date to the Owners of Bonds as of the Substitution
Date. Any Bonds not delivered to the Tender Agent on or prior to the
Substitution Date ("Undelivered Bonds"), for which there has been irrevocably
deposited in trust with the Trustee or the Tender Agent an amount of money
sufficient to pay the Purchase Price of the Undelivered Bonds, shall be deemed
to have been purchased at the Purchase Price and are deemed to be no longer
outstanding with respect to such Owners. IN THE EVENT OF A FAILURE BY AN OWNER
OF BONDS TO DELIVER ITS BONDS ON OR PRIOR TO THE SUBSTITUTION DATE, SAID OWNER
SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE ON OR
SUBSEQUENT TO THE SUBSTITUTION DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH
UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE
BENEFIT OF THE INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE
PRICE THEREFOR.
Any delivery of a notice required to be made to the Trustee at its
principal corporate trust office pursuant to (a) above shall be delivered to the
Trustee at 123 South Broad Street, Philadelphia, Pennsylvania 19109, Attention:
Corporation Trust Administration or to the office designated for such purpose by
any successor Trustee; any delivery of a notice required to be made to the
Remarketing Agent at its principal office pursuant to (a) above shall be
delivered to the Remarketing Agent at Second Floor South, 600 Penn Street,
Reading, Pennsylvania 19602, Attention: First Union Capital Markets, Sales and
Underwriting Department, or to the office designated for such purpose by any
successor Remarketing Agent; and any delivery of Bonds required to be made to
the Tender Agent pursuant to (b) above shall be delivered to the Tender Agent at
123 South Broad Street, Philadelphia, Pennsylvania 19109, Attention: Corporation
Trust Administration or to the office designated for such purpose by any
successor Tender Agent (the "Delivery Office").
Notwithstanding any provision herein to the contrary, so long as this
Bond is subject to a system of book-entry transfers, any requirement for the
delivery of Bonds to the Tender Agent in connection with an optional or
mandatory tender shall be deemed satisfied upon the transfer, on the
registration books of DTC, of the beneficial ownership interests in the Bonds
tendered for purchase to the account of the Tender Agent, or a Participant (as
such term is defined in the Indenture) acting on behalf of or at the discretion
of such Tender Agent.
<PAGE>
Pursuant to the Act, neither the members of the Board nor any person
executing bonds for the Board shall be liable personally on said bonds by reason
of the issuance thereof.
The Bonds Outstanding from time to time are limited and special
obligations of the Board, the principal of, premium, if any, and interest on
which are payable solely from the amounts to be paid under the Agreement and
otherwise as provided in the Indenture and in the Agreement, which amounts are
hereby specifically pledged to the payment thereof in the manner and to the
extent herein specified, and shall not be deemed to constitute a general
obligation or liability of the Board, its officers of employees. NEITHER THE
CITY OF HUNTSVILLE NOR THE STATE OF ALABAMA IS OBLIGATED TO PAY, AND NEITHER THE
FAITH AND CREDIT NOR TAXING POWER OF THE CITY OF HUNTSVILLE NOR THE STATE OF
ALABAMA IS PLEDGED TO THE PAYMENT OF, THE PRINCIPAL OR REDEMPTION PRICE, IF ANY,
OF OR INTEREST ON THIS BOND. THIS BOND IS NOT AND SHALL NOT BE IN ANY WAY A DEBT
OR LIABILITY OF THE CITY OF HUNTSVILLE, THE STATE OF ALABAMA OR OF ANY POLITICAL
SUBDIVISION THEREOF AND DOES NOT AND SHALL NOT CREATE OR CONSTITUTE ANY
INDEBTEDNESS, LIABILITY OR OBLIGATION OF THE CITY OF HUNTSVILLE, STATE OF
ALABAMA OR OF ANY POLITICAL SUBDIVISION THEREOF WHETHER LEGAL, MORAL OR
OTHERWISE. THIS BOND IS A SPECIAL, LIMITED OBLIGATION OF THE BOARD, PAYABLE
SOLELY OUT OF THE REVENUES OR OTHER RECEIPTS, FUNDS OR MONEYS OF THE BOARD
PLEDGED UNDER THE INDENTURE AND FROM ANY AMOUNTS OTHERWISE AVAILABLE UNDER THE
INDENTURE FOR THE PAYMENT OF THE BONDS. THE BOND DOES NOT NOW AND SHALL NEVER
CONSTITUTE A CHARGE AGAINST THE GENERAL CREDIT OF THE BOARD. THE BOARD HAS NO
TAXING POWER.
This Bond is transferable by the Registered Owner hereof in person or
by his attorney duly authorized in writing, at the principal corporate trust
office of the Trustee or at the Delivery Office of the Tender Agent or that of
any successor Tender Agent, but only in the manner, subject to the limitations
and upon payment of the charges provided in the Indenture, and upon surrender
and cancellation of this Bond. Upon such transfer a new registered Bond or Bonds
of authorized denomination or denominations for the same aggregate principal
amount will be issued to the transferee in exchange herefor. The Board, the
Tender Agent and the Trustee may deem and treat the registered Owner hereof as
the absolute Owner hereof (whether or not this Bond shall be overdue) for all
purposes, and neither the Board, the Tender Agent nor the Trustee shall be bound
by any notice or knowledge to the contrary.
Prior to the Conversion Date: (i) the Bonds are issuable as fully
registered bonds without coupons in the denominations of $100,000 or any
integral multiple of $5,000 in excess thereof; and (ii) the Bonds may not be
issued, exchanged or transferred except in authorized denominations of $100,000
or any integral multiple of $5,000 in excess thereof. From and after the
Conversion Date, the Bonds shall be issuable as fully registered bonds without
coupons in the denominations of $5,000 or any integral multiple thereof.
<PAGE>
Mandatory Redemption
The Bonds are subject to mandatory redemption, five (5) Business Days
prior to the Letter of Credit Termination Date, in whole, at a redemption price
equal to one hundred percent (100%) of the principal amount thereof being
redeemed plus accrued interest to the redemption date if, on the thirtieth
(30th) Business Day prior to the Letter of Credit Termination Date, the Trustee
shall not have received a Substitute Letter of Credit which will be effective on
or before the Letter of Credit Termination Date.
The Bonds are also subject to mandatory redemption, in whole, at any
time, within one hundred eighty (180) days after the Trustee receives notice of
the occurrence of a "Determination of Taxability" (as such phrase is hereinafter
defined), at a redemption price equal to one hundred percent (100%) of the
aggregate principal amount of Bonds Outstanding plus accrued interest to the
redemption date.
"Event of Taxability" with respect to any Bond means a change of law or
regulations, or the interpretation thereof, or the occurrence of any other event
or the existence of any other circumstance (including without limitation the
fact that any representations or warranties of the Company or the Board made in
connection with the issuance of any Bond is or was untrue or that a covenant of
the Company has been breached) that has the effect of causing interest payable
on any Bond to be includable in gross income for federal income tax purposes
under Section 103 of the Internal Revenue Code of 1986, as amended, and the
applicable regulations thereunder (the "Code") other than by reason that such
interest: (i) is includable in the gross income of an Owner or former Owner of
any Bond while such Owner or former Owner is or was a "substantial user" or a
"related person" to a "substantial user" of the Project Facilities (as such
terms are used in Section 147(a)(1) of the Code); or (ii) is deemed an item of
tax preference including, without limitation, an item subject to any alternative
minimum tax.
"Determination of Taxability" with respect to any Bond shall be deemed
to have been made upon the first to occur of the following events:
<PAGE>
(i) the date on which the Company determines that an Event
of Taxability has occurred by filing with the Trustee a statement to that effect
supported by one or more tax schedules, returns or documents which disclose that
such an Event of Taxability has occurred;
(ii) the date on which the Company or the Trustee is advised
by private ruling, technical advice or any other written communication from any
authorized official of the Internal Revenue Service that, based upon any filings
of the Company or any other person or entity, or upon any review or audit of the
Company or any other person or entity, or upon any other grounds whatsoever, an
Event of Taxability has occurred;
(iii) the date on which the Trustee or the Company is
advised that a court of competent jurisdiction has issued an order, declaration,
ruling or judgment to the effect that an Event of Taxability has occurred;
(iv) the date the Trustee shall have received written notice
from any owner of the Bonds that such owner has received a written assertion or
claim by any authorized official of the Internal Revenue Service that an Event
of Taxability has occurred; or
(v) the date the Trustee is notified that the Internal
Revenue Service has issued any private ruling, technical advice or any other
written communication, with or to the effect that an Event of Taxability has
occurred;
provided, however, that (x) no Determination of Taxability described in each of
clause (i), (ii), (iii), (iv) or (v) above shall be deemed to have occurred
unless the Trustee shall have received a written opinion of nationally
recognized bond counsel satisfactory to the Trustee, in form and substance
satisfactory to the Bank and the Company and not unsatisfactory to the Trustee,
to the effect that an Event of Taxability has occurred; and (y) no Determination
of Taxability described in each of clauses (i), (ii), (iii), (iv) or (v) above
shall be deemed to have occurred until 180 days shall have elapsed from the
dates described in clauses (i), (ii), (iii), (iv) or (v) above without such
Determination of Taxability having been rescinded or canceled.
Mandatory Sinking Fund Redemption
The Bonds are subject to mandatory sinking fund redemption on the
Interest Payment Date occurring in the month of September in each of the years
set forth below commencing on the Interest Payment Date occurring in September
of 1998 (each, a "Mandatory Sinking Account Fund Date"), at a redemption price
equal to 100% of the principal amount thereof plus accrued interest as follows:
Mandatory Sinking
Year Fund Payments
---- -------------
2000 $560,000
2001 $560,000
2002 $560,000
2003 $560,000
2004 $560,000
2005 $560,000
2006 $560,000
2007 $560,000
2008 $560,000
2009 $575,000
2010 $580,000
2011 $580,000
2012 $580,000
2013 $145,000*
*Final maturity of the Bonds is January 1, 2013
Optional Redemption
<PAGE>
On or prior to the Conversion Date, the Bonds are subject to redemption
by the Board, at the option of the Company, at any time, subject to the notice
provisions described below, in whole or in part, at the redemption price of 100%
of the principal amount thereof being redeemed plus accrued interest to the
redemption date.
No such optional redemption shall occur unless there shall be available
in the Bond Fund established under the Indenture sufficient Available Moneys (as
defined in the Indenture) to pay all amounts due with respect to such a
redemption.
In the event any of the Bonds or portions thereof are called for
redemption as aforesaid, notice of the call for redemption, identifying the
Bonds or portions thereof to be redeemed and the redemption price (including the
premium, if any), shall be given by the Trustee by mailing a copy of the
redemption notice by first-class mail at least thirty (30) days but not more
than sixty (60) days prior to the date fixed for redemption to the Owner of each
Bond to be redeemed in whole or in part at the address shown on the registration
books. Any notice mailed as provided above shall be conclusively presumed to
have been duly given, whether or not the Owner receives the notice. No further
interest shall accrue on the principal of any Bond called for redemption after
the redemption date if Available Moneys (as defined in the Indenture) sufficient
for such redemption have been deposited with the Trustee. Notwithstanding the
foregoing, the notice requirements contained in the first sentence of this
paragraph may be deemed satisfied with respect to a transferee of a Bond which
has been purchased pursuant to the Demand Purchase Option under certain
circumstances provided in Section 4.06 of the Indenture, after such Bond has
previously been called for redemption, notwithstanding the failure to satisfy
the notice requirements of the first sentence of this paragraph with respect to
such transferee.
If less than all the Bonds are to be redeemed, the particular Bonds or
portions thereof to be redeemed shall be selected by the Trustee by lot. Prior
to the Conversion Date, in case a Bond is of a denomination larger than
$100,000, a portion of such Bond ($100,000 or any integral multiple of $5,000 in
excess thereof) may be redeemed, but Bonds shall be redeemed only if the
remaining unredeemed portion of such Bond is in the principal amount of $100,000
or any integral multiple in excess of $100,000.
The Bonds are issued pursuant to and in full compliance with the
Constitution and laws of the State, particularly the Act, and by appropriate
action duly taken by the Board which authorizes the execution and delivery of
the Agreement and the Indenture. The Bonds have been issued under the provisions
of the Act.
<PAGE>
Notwithstanding anything to the contrary contained herein or in the
Indenture, the Agreement, or in any other instrument or document executed by or
on behalf of the Board in connection herewith, no stipulation, covenant,
agreement or obligation contained herein or therein shall be deemed or construed
to be a stipulation, covenant, agreement or obligation of any present or future
member, commissioner, director, trustee, officer, employee or agent of the
Board, or of any successor to the Board, in any such person's individual
capacity, and no such person, in his individual capacity, shall be liable
personally for any breach or nonobservance of or for any failure to perform,
fulfill or comply with any such stipulations, covenants, agreements or the
principal of or premium, if any, or interest on any of the Bonds or for any
claim based thereon or on any such stipulation, covenant, agreement or
obligation, against any such person, in his individual capacity, either directly
or through the Board or any successor to the Board, under any rule of law or
equity, statute or constitution or by the enforcement of any assessment or
penalty or otherwise, and all such liability of any such person, in his
individual capacity, is hereby expressly waived and released.
The Owner of this Bond shall have no right to enforce the provisions of
the Indenture or to institute action to enforce the covenants therein, or to
take any action with respect to any default under the Indenture, or to
institute, appear in or defend any suit or other proceedings with respect
thereto, unless certain circumstances described in the Indenture shall have
occurred. In certain events, on the conditions, in the manner and with the
effect set forth in the Indenture, the principal of all the Bonds issued under
the Indenture and then outstanding may become or may be declared due and payable
before the stated maturity thereof, together with interest accrued thereon.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Board and the rights of the Owners of the Bonds at any time by the Board with
the consent of the Company, the Bank and the holders of all Bonds at the time
outstanding. Any such consent or any waiver by the Company, the Bank and the
holders of all Bonds at the time outstanding shall be conclusive and binding
upon the Owner and upon all future Owners of this Bond and of any Bond issued in
replacement hereof whether or not notation of such consent or waiver is made
upon this Bond. The Indenture also contains provisions which, subject to certain
conditions, permit or require the Trustee to waive certain past defaults under
the Indenture and their consequences.
It is hereby certified, recited and declared that all acts, conditions
and things required to exist, happen and be performed precedent to and in
connection with the execution and delivery of the Indenture and the issuance of
this Bond do exist, have happened and have been performed in due time, form and
manner as required by law; and that the issuance of this Bond and the issue of
which it forms a part, together with all other obligations of the Board, does
not exceed or violate any constitutional or statutory limitation.
This Bond shall not be valid or become obligatory for any purpose or be
entitled to any security or benefit under the Indenture until the certificate of
authentication hereon shall have been signed by the Trustee or the Tender Agent,
as authenticating agent.
<PAGE>
IN WITNESS WHEREOF, The Industrial Development Board of the City of
Huntsville has caused this Bond to be signed in its name and on its behalf by
the manual or facsimile signature of its Chairman or Vice Chairman, and its
corporate seal to be affixed, imprinted or reproduced hereon and attested by the
manual or facsimile signature of its Secretary or Assistant Secretary all as of
the date first above written.
THE INDUSTRIAL DEVELOPMENT
BOARD OF THE CITY OF HUNTSVILLE
Attest: By
(SEAL)
(Form of Certificate of Authentication)
CERTIFICATE OF AUTHENTICATION
This Bond is one of the Bonds of the issue described in the
within-mentioned Trust Indenture.
FIRST UNION NATIONAL BANK,
as Trustee and Tender Agent
By:
Authorized Representative
Date of Authentication:
<PAGE>
(Form for Transfer)
FOR VALUE RECEIVED, _________________, the undersigned, hereby sells,
assigns and transfers unto (Tax Identification or Social Security
No._______________) the within Bond and all rights thereunder, and hereby
irrevocably constitutes and appoints attorney to transfer the within Bond on the
books kept for registration thereof, with full power of substitution in the
premises.
Dated
NOTICE: Signature(s) must be
guaranteed by an approved eligible
guarantor institution, an institution
which is participant in a Securities
Transfer Association recognized
signature guarantee program.
NOTICE: The signature to this assignment
must correspond with the name as it
appears upon the face of the within Bond
in every particular, without alteration or
enlargement or any change whatever.
<PAGE>
EXHIBIT "B"
(FIXED RATE FORM OF BOND)
Unless this certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC") to the Board or its
agent for registration of transfer, exchange or payment, and any certificate
issued is registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner (the
"Registered Owner") hereof, Cede & Co., has an interest herein.
NEITHER THE CITY OF HUNTSVILLE NOR THE STATE OF ALABAMA IS
OBLIGATED TO PAY, AND NEITHER THE FAITH AND CREDIT NOR
TAXING POWER OF THE CITY OF HUNTSVILLE OR THE STATE OF
ALABAMA IS PLEDGED TO THE PAYMENT OF, THE PRINCIPAL OR
PREMIUM, IF ANY, OF OR INTEREST ON THIS BOND. THIS BOND IS A
SPECIAL, LIMITED OBLIGATION OF THE BOARD, PAYABLE SOLELY OUT
OF THE REVENUES OR OTHER RECEIPTS, FUNDS OR MONEYS OF THE
BOARD PLEDGED UNDER THE INDENTURE AND FROM ANY AMOUNTS
OTHERWISE AVAILABLE UNDER THE INDENTURE FOR THE PAYMENT OF
THE BONDS. THIS BOND DOES NOT NOW AND SHALL NEVER CONSTITUTE
A CHARGE AGAINST THE GENERAL CREDIT OF THE BOARD. THE BOARD
HAS NO TAXING POWER.
THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF HUNTSVILLE
TAX-EXEMPT VARIABLE RATE DEMAND/FIXED RATE
REFUNDING REVENUE BOND
(CENTRAL CPVC CORPORATION PROJECT)
SERIES OF 1998
No. FR- $
Interest Rate: CUSIP
<PAGE>
KNOW ALL MEN BY THESE PRESENTS that THE INDUSTRIAL DEVELOPMENT
BOARD OF THE CITY OF HUNTSVILLE (the "Board"), for value received, promises to
pay from the source and as hereinafter provided, to CEDE & CO. or registered
assigns, on ____________________, upon surrender hereof, the principal sum of
Dollars, and in like manner to pay interest (calculated on the basis of a
360-day year of twelve 30 day months) on said sum at the rate per annum set
forth above on July 1 and January 1 of each year, commencing , (each an
"Interest Payment Date") from the Interest Payment Date next preceding the date
of authentication hereof to which interest has been paid or duly provided for,
unless the date of authentication hereof is an Interest Payment Date to which
interest has been paid or duly provided for, in which case from the date of
authentication hereof or unless no interest has been paid or duly provided for
on the Bonds (as hereinafter defined), in which case from the Conversion Date
(as defined in the Indenture, as hereinafter defined), until payment of the
principal hereof has been made or duly provided for. Notwithstanding the
foregoing, if this Bond is authenticated after any date which is the fifteenth
day next preceding any Interest Payment Date (a "Record Date") and before the
following Interest Payment Date, this Bond shall bear interest from such
Interest Payment Date; provided, however, that if the Board shall default in the
payment of interest due on such Interest Payment Date, then this Bond shall bear
interest from the next preceding interest payment date to which interest has
been paid or duly provided for, or, if no interest has been paid or duly
provided for on the Bonds, from the Date of Issuance. The principal of this Bond
is payable in lawful money of the United States of America at the principal
corporate trust office of First Union National Bank, as trustee (together with
its successors in trust, the "Trustee") or at the duly designated office of any
successor Trustee under the Trust Indenture, dated as of October 1, 1998 between
the Board and the Trustee (which Indenture, as from time to time amended and
supplemented, is hereinafter referred to as the "Indenture"). Payment of
interest on this Bond shall be made on each Interest Payment Date to the
registered Owner hereof as of the applicable Record Date and shall be paid by
check mailed by the Trustee to such address as it appears on the registration
books of the Board or at such other address as is furnished to the Trustee in
writing by such registered Owner, or in such other manner as may be permitted by
the Indenture; provided, that such interest shall be paid by wire transfer to:
(i) the Bank; and (ii) any Holder of at least $1,000,000 in aggregate principal
amount of Bonds, if the Holder makes a written request of the Trustee at least
15 days before a Record Date specifying the account address and wiring
instructions. Such a request may provide that it will remain in effect for
subsequent interest payments until changed or revoked by written notice to the
Trustee or upon the transfer or re-registration of the Bond.
As used herein, the term "Business Day" means a day which is not a
Saturday, Sunday or legal holiday on which banking institutions in the State of
New York, State of Alabama, the City of New York, or the city in which the
principal office of the Trustee, the Tender Agent or the Bank are authorized to
remain closed or on which the New York Stock Exchange is closed.
<PAGE>
This Bond is one of the duly authorized bonds designated as the
Tax-Exempt Variable Rate Demand/Fixed Rate Refunding Revenue Bonds (Central CPVC
Corporation Project) Series of 1998 of the Board issued in the original
aggregate principal amount of $7,500,000 (herein referred to as the "Bonds")
under and by virtue of Act No. 648 adopted at the 1949 Regular Session of the
Legislature of the State of Alabama, approved September 19, 1949, as amended
(said Act being codified as Section 11-54-80, et seq., Code of Alabama, 1975)
(the "Act"), and by virtue of a resolution duly adopted by the Board (the "Bond
Resolution"), and equally and ratably secured under the Indenture, for the
purpose of raising funds to refund a bond issued to finance a portion of the
costs of a project consisting of (i) the acquisition, construction, and
equipping a manufacturing facility for the manufacture of CPVC pipe and fittings
for the fire protection industry to be located at the Premises; and (ii) the
payment of a portion of the costs of issuance of the Bonds (the "Project").
Pursuant to an Amended and Restated Lease Agreement, dated as of October 1, 1998
(the "Agreement") by and between the Board and Central CPVC Corporation, an
Alabama corporation (the "Company"), lease payments sufficient for the prompt
payment when due of the principal and Purchase Price of, premium, if any, and
interest on the Bonds are to be paid to the Trustee for the account of the Board
and deposited in the Bond Fund established by the Indenture and have been duly
pledged for that purpose, all to the extent and in the manner provided in the
Indenture.
The Bonds are ratably secured by and entitled to the protection of the
Indenture, pursuant to which all payments due from the Company to the Board
under the Agreement (other than certain indemnification payments and the payment
of certain expenses of the Board) are assigned to the Trustee to secure the
payment of the principal of and premium, if any, and interest on the Bonds.
Reference is hereby made to the Indenture and the Agreement for a
description of the property pledged and assigned, the provisions, among others,
with respect to the nature and extent of the security, the rights, duties and
obligations of the Board, the Trustee and the Owners of the Bonds, and the terms
upon which the Bonds are issued and secured; and the Owner of this Bond, by
acceptance hereof, hereby consents to the terms and provisions of all of the
foregoing as a material portion of the consideration for the issuance of this
Bond.
Pursuant to the Act, neither the members of the Board nor any person
executing bonds for the Board shall be liable personally on said bonds by reason
of the issuance thereof.
<PAGE>
The Bonds Outstanding from time to time are limited and special
obligations of the Board, the principal of, premium, if any, and interest on
which are payable solely from the amounts to be paid under the Agreement and
otherwise as provided in the Indenture and in the Agreement, which amounts are
hereby specifically pledged to the payment thereof in the manner and to the
extent herein specified, and shall not be deemed to constitute a general
obligation or liability of the Board, its officers of employees. NEITHER THE
CITY OF HUNTSVILLE NOR THE STATE OF ALABAMA IS OBLIGATED TO PAY, AND NEITHER THE
FAITH AND CREDIT NOR TAXING POWER OF THE CITY OF HUNTSVILLE OR THE STATE OF
ALABAMA IS PLEDGED TO THE PAYMENT OF, THE PRINCIPAL OR REDEMPTION PRICE, IF ANY,
OF OR INTEREST ON THIS BOND. THIS BOND IS NOT AND SHALL NOT BE IN ANY WAY A DEBT
OR LIABILITY OF THE CITY OF HUNTSVILLE OR THE STATE OF ALABAMA OR OF ANY
POLITICAL SUBDIVISION THEREOF AND DOES NOT AND SHALL NOT CREATE OR CONSTITUTE
ANY INDEBTEDNESS, LIABILITY OR OBLIGATION OF THE CITY OF HUNTSVILLE OR THE STATE
OF ALABAMA OR OF ANY POLITICAL SUBDIVISION THEREOF WHETHER LEGAL, MORAL OR
OTHERWISE. THIS BOND IS A SPECIAL, LIMITED OBLIGATION OF THE BOARD, PAYABLE
SOLELY OUT OF THE REVENUES OR OTHER RECEIPTS, FUNDS OR MONEYS OF THE BOARD
PLEDGED UNDER THE INDENTURE AND FROM ANY AMOUNTS OTHERWISE AVAILABLE UNDER THE
INDENTURE FOR THE PAYMENT OF THE BONDS. THE BOND DOES NOT NOW AND SHALL NEVER
CONSTITUTE A CHARGE AGAINST THE GENERAL CREDIT OF THE BOARD. THE BOARD HAS NO
TAXING POWER.
This Bond is transferable by the Registered Owner hereof in person or
by his attorney duly authorized in writing, at the principal corporate trust
office of the Trustee but only in the manner, subject to the limitations and
upon payment of the charges provided in the Indenture, and upon surrender and
cancellation of this Bond. Upon such transfer a new registered Bond or Bonds of
authorized denomination or denominations for the same aggregate principal amount
will be issued to the transferee in exchange herefor. The Board and the Trustee
may deem and treat the registered Owner hereof as the absolute Owner hereof
(whether or not this Bond shall be overdue) for all purposes, and neither the
Board nor the Trustee shall be bound by any notice or knowledge to the contrary.
The Bonds shall be issuable as fully registered Bonds without coupons
in the denomination of $5,000 or any integral multiple thereof.
Extraordinary Redemption
The Bonds are callable for redemption in the event: (1) the Project
Facilities or any portion thereof is damaged or destroyed or taken in a
condemnation proceeding as provided in Section 6.4 of the Agreement; or (2) the
Company shall exercise its option to cause the Bonds to be redeemed as provided
in Section 9.4 of the Agreement. If called for redemption at any time pursuant
to (1) or (2) above, the Bonds shall be subject to redemption by the Board on
any interest payment date, in whole or in part, at a redemption price of one
hundred percent (100%) of the principal amount thereof plus accrued interest to
the redemption date.
Mandatory Redemption
The Bonds are subject to mandatory redemption, five (5) Business Days
prior to the Letter of Credit Termination Date, in whole, at a redemption price
equal to one hundred percent (100% of the principal amount thereof being
redeemed plus accrued interest to the redemption date if, on the thirtieth
(30th) Business Day prior to the Letter of Credit Termination Date, the Trustee
shall not have received a Substitute Letter of Credit which will be effective on
or before the Letter of Credit Termination Date.
<PAGE>
The Bonds are also subject to mandatory redemption, in whole, at any
time, within one hundred eighty (180) days after the Trustee receives notice of
the occurrence of a "Determination of Taxability" (as hereinafter defined), at a
redemption price equal to one hundred percent (100%) of the aggregate principal
amount of Bonds Outstanding plus accrued interest to the redemption date.
"Event of Taxability" with respect to any Bond means a change of law or
regulations, or the interpretation thereof, or the occurrence of any other event
or the existence of any other circumstance (including without limitation the
fact that any representations or warranties of the Company or the Board made in
connection with the issuance of any Bond is or was untrue or that a covenant of
the Company has been breached) that has the effect of causing interest payable
on any Bond to be includable in gross income for federal income tax purposes
under Section 103 of the Internal Revenue Code of 1986, as amended, and the
applicable regulations thereunder (the "Code") other than by reason that such
interest: (i) is includable in the gross income of an Owner or former Owner of
any Bond while such Owner or former Owner is or was a "substantial user" or a
"related person" to a "substantial user" of the Project Facilities (as such
terms are used in Section 147(a)(1) of the Code); or (ii) is deemed an item of
tax preference including, without limitation, an item subject to any alternative
minimum tax.
"Event of Taxability" means, with respect to any Bond shall be deemed
to have been made upon the first to occur of the following events:
(i) the date on which the Company determines that an Event
of Taxability has occurred by filing with the Trustee a statement to that effect
supported by one or more tax schedules, returns or documents which disclose that
such an Event of Taxability has occurred;
(ii) the date on which the Company or the Trustee is advised
by private ruling, technical advice or any other written communication from any
authorized official of the Internal Revenue Service that, based upon any filings
of the Company or any other person or entity, or upon any review or audit of the
Company or any other person or entity, or upon any other grounds whatsoever, an
Event of Taxability has occurred;
(iii) the date on which the Trustee or the Company is
advised that a court of competent jurisdiction has issued an order, declaration,
ruling or judgment to the effect that an Event of Taxability has occurred;
(iv) the date the Trustee shall have received written notice
from any owner of the Bonds that such owner has received a written assertion or
claim by any authorized official of the Internal Revenue Service that an Event
of Taxability has occurred; or
(v) the date the Trustee is notified that the Internal
Revenue Service has issued any private ruling, technical advice or any other
written communication, with or to the effect that an Event of Taxability has
occurred;
<PAGE>
provided, however, that (x) no Determination of Taxability described in each of
clauses (i), (ii), (iii), (iv) or (v) above shall be deemed to have occurred
unless the Trustee shall have received a written opinion of other nationally
recognized bond counsel satisfactory to the Bank and the Company and not
unsatisfactory to the Trustee, and in form and substance satisfactory to the
Bank and the Company and not unsatisfactory to the Trustee, to the effect that
an Event of Taxability has occurred; and (y) no Determination of Taxability
described above shall be deemed to have occurred until 180 days shall have
elapsed from the dates described in clauses (i), (ii), (iii), (iv) or (v) above
without such Determination of Taxability having been rescinded or canceled.
Mandatory Sinking Fund Redemption
The Bonds are subject to mandatory redemption on the Interest Payment
Date occurring in the month of September in each of the years set forth below
commencing on the Interest Payment Date occurring in September of 1998 (each, a
"Mandatory Sinking Fund Payment Date"), at a redemption price equal to 100% of
the principal amount thereof plus accrued interest as follows:
Mandatory Sinking
Year Fund Payments
---- -------------
2000 $560,000
2001 $560,000
2002 $560,000
2003 $560,000
2004 $560,000
2005 $560,000
2006 $560,000
2007 $560,000
2008 $560,000
2009 $575,000
2010 $580,000
2011 $580,000
2012 $580,000
2013 $145,000*
*Final maturity of the Bonds is January 1, 2013
<PAGE>
Optional Redemption
If the length of time from the Conversion Date to the final maturity
date of the Bonds is seven (7) years or more, the Bonds are subject to
redemption by the Board, at the option of the Company, on or after the fifth
(5th) anniversary of the Conversion Date, in whole at any time or in part on any
Interest Payment Date, at the redemption price of 100% of the principal amount
thereof being redeemed plus accrued interest to the redemption date.
In the event any of the Bonds or portions thereof are called for
redemption as aforesaid, notice of the call for redemption, identifying the
Bonds or portions thereof to be redeemed and the redemption price, shall be
given by the Trustee by mailing a copy of the redemption notice by first-class
mail at least thirty (30) days but not more than sixty (60) days prior to the
date fixed for redemption to the Owner of each Bond to be redeemed in whole or
in part at the address shown on the registration books. Any notice mailed as
provided above shall be conclusively presumed to have been duly given, whether
or not the Owner receives the notice. No further interest shall accrue on the
principal of any Bond called for redemption after the redemption date if moneys
sufficient for such redemption have been deposited with the Trustee.
If less than all the Bonds are to be redeemed, the particular Bonds or
portions thereof to be redeemed shall be selected by the Trustee by lot.
<PAGE>
The Bonds are issued pursuant to and in full compliance with the
Constitution and laws of the State, particularly the Act, and by appropriate
action duly taken by the Board which authorizes the execution and delivery of
the Agreement and the Indenture. The Bonds have been issued under the provisions
of the Act.
Notwithstanding anything to the contrary contained herein or in the
Indenture, the Agreement, or in any other instrument or document executed by or
on behalf of the Board in connection herewith, no stipulation, covenant,
agreement or obligation contained herein or therein shall be deemed or construed
to be a stipulation, covenant, agreement or obligation of any present or future
member, commissioner, director, trustee, officer, employee or agent of the
Board, or of any successor to the Board, in any such person's individual
capacity, and no such person, in his individual capacity, shall be liable
personally for any breach or nonobservance of or for any failure to perform,
fulfill or comply with any such stipulations, covenants, agreements or
obligations, nor shall any recourse be had for the payment of the principal of
or premium, if any, or interest on any of the Bonds or for any claim based
thereon or on any such stipulation, covenant, agreement or obligation, against
any such person, in his individual capacity, either directly or through the
Board or any successor to the Board, under any rule of law or equity, statute or
constitution or by the enforcement of any assessment or penalty or otherwise,
and all such liability of any such person, in his individual capacity, is hereby
expressly waived and released.
The Owner of this Bond shall have no right to enforce the provisions of
the Indenture or to institute action to enforce the covenants therein, or to
take any action with respect to any default under the Indenture, or to
institute, appear in or defend any suit or other proceedings with respect
thereto, unless certain circumstances described in the Indenture shall have
occurred. In certain events, on the conditions, in the manner and with the
effect set forth in the Indenture, the principal of all the Bonds issued under
the Indenture and then outstanding may become or may be declared due and payable
before the stated maturity thereof, together with interest accrued thereon.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Board and the rights of the Owners of the Bonds at any time by the Board with
the consent of the Company, the Bank and the holders of all Bonds at the time
outstanding. Any such consent or any waiver by the Company, the Bank and the
holders of all Bonds shall be conclusive and binding upon the Owner and upon all
future Owners of this Bond and of any Bond issued in replacement hereof whether
or not notation of such consent or waiver is made upon this Bond. The Indenture
also contains provisions which, subject to certain conditions, permit or require
the Trustee to waive certain past defaults under the Indenture and their
consequences.
<PAGE>
It is hereby certified, recited and declared that all acts, conditions
and things required to exist, happen and be performed precedent to and in
connection with the execution and delivery of the Indenture and the issuance of
this Bond do exist, have happened and have been performed in due time, form and
manner as required by law; and that the issuance of this Bond and the issue of
which it forms a part, together with all other obligations of the Board does not
exceed or violate any constitutional or statutory limitation.
This Bond shall not be valid or become obligatory for any purpose or be
entitled to any security or benefit under the Indenture until the certificate of
authentication hereon shall have been signed by the Trustee or a duly appointed
authenticating agent pursuant to the Indenture.
IN WITNESS WHEREOF, The Industrial Development Board of the City of
Huntsville has caused this Bond to be signed in its name and on its behalf by
the manual or facsimile signature of its Chairman or Vice Chairman and its
corporate seal to be affixed, imprinted or reproduced hereon and attested by the
manual or facsimile signature of its Secretary or Assistant Secretary, all as of
the Date of Issuance.
THE INDUSTRIAL DEVELOPMENT BOARD
OF THE CITY OF HUNTSVILLE
Attest: By:
(SEAL)
(Form of Certificate of Authentication)
CERTIFICATE OF AUTHENTICATION
This Bond is one of the Bonds of the issue described in the
within-mentioned Trust Indenture.
FIRST UNION NATIONAL BANK, as Trustee
By
Authorized Representative
Date of Authentication:
<PAGE>
(Form for Transfer)
FOR VALUE RECEIVED, , the undersigned, hereby sells, assigns and
transfers unto (Tax Identification or Social Security No. ) the within Bond and
all rights thereunder, and hereby irrevocably constitutes and appoints attorney
to transfer the within Bond on the books kept for registration thereof with full
power of substitution in the premises.
Dated:
NOTICE: Signature(s) must be guaranteed
by an approved eligible guarantor
institution, an institution which is
participant in a Securities Transfer
Association recognized signature
guarantee program.
NOTICE: The signature to this assignment
must correspond with the name as it
appears upon the face of the within Bond
in every particular, without alteration
or enlargement or any change whatever.
<PAGE>
Exhibit 10(z)
LETTER OF
OUR CREDIT NO. ISSUE DATE EXPIRY DATE CREDIT AMOUNT
- -------------- ---------- ----------- -------------
SM406777 October 29, 1998 March 31, 2001 $7,641,781.00
BENEFICIARY APPLICANT
- ----------- ---------
First Union National Bank, as trustee Central CPVC Corporation
123 South Broad Street 451 North Cannon Avenue
Philadelphia, Pennsylvania 19109 Lansdale, Pennsylvania 19446
Attention: Corporate Trust Administration
Dear Beneficiary:
At the request, on the instructions and for the account of our
customer, Central CPVC Corporation (the "Applicant"), with a business address at
451 North Cannon Avenue, Lansdale, Pennsylvania 19426, we (the "Bank") hereby
establish our Irrevocable Letter of Credit No. SM406777 (the "Letter of Credit")
in your favor, as Trustee under the Trust Indenture, dated as of October 1, 1998
(the "Indenture"), between The Industrial Development Board of the City of
Huntsville (the "Board") and you pursuant to which $7,500,000 in aggregate
principal amount of the Board's Tax-Exempt Variable Rate Demand/Fixed Rate
Refunding Revenue Bonds (Central CPVC Corporation Project), Series of 1998 (the
"Bonds") are being issued. This Letter of Credit is irrevocable and issued with
respect to the Bonds.
This Irrevocable Letter of Credit is issued in the aggregate initial
amount of Seven Million Six Hundred Forty-One Thousand Seven Hundred Eighty-One
Dollars ($7,641,781) (such amount, as reduced and reinstated from time to time
in accordance with the provisions hereof, the "Stated Amount") of which (i) an
amount not exceeding Seven Million Five Hundred Thousand Dollars ($7,500,000)
(as reduced and reinstated from time to time in accordance with the terms
hereof, the "Principal Component"), may be drawn upon with respect to payment of
the unpaid principal amount or the portion of Purchase Price corresponding to
principal of the Bonds and (ii) an amount not exceeding One Hundred Forty-One
Thousand Seven Hundred Eighty-One Dollars ($ 141,781) (representing 46 days of
interest computed at the rate of 15% per annum as reduced and reinstated from
time to time in accordance with the terms hereof, the "Interest Component") may
be drawn upon with respect to payment of unpaid accrued interest, or the portion
of Purchase Price corresponding to interest, on the Bonds on or prior to their
stated maturity date, effective immediately and expiring on March 31, 2001 (the
"Expiration Date").
<PAGE>
First Union National Bank
October 29, 1998
Page 2
Subject to the foregoing and the further provisions of this Letter of
Credit, a demand for payment may be made by you under this Letter of Credit
against your sight draft(s) drawn on us, signed by an Authorized Officer stating
on its face the clause, "Drawn under First Union National Bank Irrevocable
Letter of Credit No. SM406777" and accompanied by: (A) if the drawing is being
made with respect to the payment of the portion of the Purchase Price of the
Bonds delivered to the Tender Agent (as defined in the Indenture) pursuant to
Sections 5.01, 5.03 or 5.04 of the Indenture, corresponding to the principal
thereof (an "A Drawing"), receipt by us of your written certificate in the form
of Exhibit A attached hereto appropriately completed and signed by an Authorized
Officer; (B) if the drawing is being made with respect to the payment of
principal of the Bonds upon maturity or as a result of acceleration or
redemption of the Bonds (a "B Drawing"), receipt by us of your written
certificate in the form of Exhibit B attached hereto, appropriately completed
and signed by an Authorized Officer, and (C) if the drawing is being made with
respect to the payment of interest, or the portion of Purchase Price
corresponding to interest, on the Bonds (a "C Drawing"), receipt by us of your
written certificate in the form of Exhibit C attached hereto, appropriately
completed and signed by an Authorized Officer. Presentation of such sight
draft(s) and certificate(s) shall be made by writing (including telecopier) at
our office located at First Union National Bank, 1345 Chestnut Street, 9th
Floor, Philadelphia, Pennsylvania 19107, Attention: Letter of Credit Department,
telephone number: (215) 973-8157, telecopier number: (215) 786-8803, or at any
other office which may be designated by us by written notice delivered to you.
All payments made by the Bank shall be made with its own funds.
Demands for payment may be made by you under this Letter of Credit on
or prior to the expiration hereof at any time during our business hours on a
Business Day at the address at which your sight draft(s) is(are) to be presented
in accordance with the terms hereof. As used herein the term "Business Day"
means any day other than (i) a Saturday or Sunday, (ii) a legal holiday or any
other day on which banking institutions in the State of New York, the
Commonwealth of Pennsylvania, the City of New York, the city in which the
office of the Trustee and the Tender Agent administering the Indenture is
located, the city in which the principal office of the Bank is located, are
authorized or required by law to close, or (iii) a day on which the New York
Stock Exchange is closed. If your sight draft accompanied by documents
conforming to the terms and conditions of this Letter of Credit is made by you
at or prior to 12:00 noon (Eastern Time) on a Business Day, such draft will be
honored by us by 12:00 noon (Eastern Time) on the next succeeding Business Day.
If your sight draft accompanied by documents conforming to the terms and
conditions of this Letter of Credit is made by you after 12:00 noon (Eastern
Time) on a Business Day, such draft will be honored by us by 12:00 noon (Eastern
Time) on the second succeeding Business Day. Payment of any draft indicating a
<PAGE>
First Union National Bank
October 29, 1998
Page 3
payment date which is not a Business Day as defined herein will be effected the
next succeeding Business Day. If a demand for payment made by you hereunder does
not, in any instance, conform to the terms and conditions of this Letter of
Credit, we shall give you prompt notice that the purported negotiation was not
effected in accordance with the terms and conditions of this Letter of Credit,
stating the reasons therefor and that we are holding any documents at your
disposal or are returning the same to you, as we may elect. Upon being notified
that the purported negotiation was not effected in conformity with this Letter
of Credit, you may attempt to correct any such nonconforming demand for payment
if, and to the extent that, you are entitled (without regard to the provisions
of this sentence) and able to do so.
Demands for payment hereunder honored by us shall not, in the
aggregate, exceed the Stated Amount, as the Stated Amount may have been reduced
by us or reinstated by us as provided below. Subject to the reinstatement
effected in accordance with the terms hereof, each "A Drawing" and each "B
Drawing" honored by the Bank hereunder shall pro tanto reduce the Principal
Component and each "C Drawing" honored by the Bank hereunder shall pro tanto
reduce the Interest Component; any such reduction shall result in a
corresponding reduction in the Stated Amount, it being understood that after the
effectiveness of any such reduction you shall no longer have any right to make a
drawing hereunder in respect of the amount of such principal and/or interest on
the Bonds or the payment of Purchase Price corresponding thereto.
Upon reimbursement to us or Congress Financial Corporation
("Congress"), as Congress so directs, from the proceeds of a remarketing of
Bonds purchased with the proceeds of an "A Drawing" hereunder, of all amounts
paid by us pursuant to an "A Drawing" hereunder, the Principal Component shall
be reinstated automatically by the amount of such reimbursement. In addition, if
you shall not have received, within ten calendar days after any payment in
respect of a "C Drawing", written notice by tested telex from us that Congress
has determined not to reinstate the Letter of Credit because either (i) the
Company has failed to reimburse the Bank or Congress for the amount of such
payment, together with interest thereon, or (ii) there is presently existing an
Event of Default under and as defined in the Loan and Security Agreement dated
September 18, 1998 (the "Loan Agreement") by and between the Applicant, certain
affiliates of Applicant and Congress, the Interest Component shall be reinstated
automatically, as of the opening of business on the tenth calendar day
following such payment, by the amount of such "C Drawing"; provided, however,
that in the event such "C Drawing" shall be submitted in respect of the payment
of the portion of the Purchase Price corresponding to interest on the Bonds,
upon reimbursement to us or Congress, as Congress so directs, from the proceeds
of a remarketing of Bonds of all amounts paid by us pursuant to a "C Drawing"
hereunder, the Interest Component shall be reinstated automatically by the
amount of such reimbursement;
<PAGE>
First Union National Bank
October 29, 1998
Page 4
provided further, that in no event shall the Interest Component be reinstated to
an amount in excess of 46 days' interest (such amount computed as set forth in
the third succeeding paragraph of this Letter of Credit) on the sum of the then
applicable Principal Component plus the aggregate principal amount of any
Pledged Bonds. Upon presentation to us by the Trustee of the Reduction
Certificate attached hereto as Exhibit D, we will automatically reduce the
Stated Amount of this Letter of Credit.
Only you as Trustee may make a drawing under this Letter of Credit.
Upon the payment to you, to your designee or to your order of the amount
specified in a sight draft drawn, we shall not thereafter be obligated to make
any further payments under this Letter of Credit with respect to such sight
draft to you or any other person who may have made to you or makes to you a
demand for payment of principal of, Purchase Price of, or interest on, any
Bond. By paying to you an amount demanded in accordance herewith, we make no
representation as to the correctness of the amount demanded.
Payments made by us hereunder will be made to you in immediately
available funds and out of our funds, and not, directly or indirectly, out of
funds or other assets of the Applicants.
This Letter of Credit applies only to the payment of principal or the
portion of Purchase Price of the Bonds corresponding to principal, provided,
that any of the Bonds pledged to the Bank will not be entitled to the payment of
principal with funds drawn hereunder until the principal amount of all other
Bonds has been paid, and to pay up to $ 141,781 which is 46 days' interest
accruing on the Bonds (computed at a rate of 15% per annum), from the Issue Date
through the Expiration Date (computed on the basis of a 365- or 366-day year,
actual days elapsed, notwithstanding the actual rate borne from time to time by
the Bonds) and does not apply to any interest that may accrue thereon or any
principal, or other amounts which may be payable with respect to the Bonds
subsequent to the expiration of this Letter of Credit.
This Letter of Credit shall automatically terminate and be delivered to
the Bank for cancellation, at 4 p.m. (Eastern Time) on the date which is the
earliest of (i) upon receipt of your certificate in the form of Exhibit E signed
by an Authorized Officer and the honoring by us of the final drawing available
to be made hereunder, (ii) five calendar days after the date upon which we
receive your certificate in the form of Exhibit E signed by an Authorized
Officer with respect to either (a) receipt of a Substitute Letter of Credit or
(b) conversion of the Bonds to a fixed rate of interest, (iii) upon receipt of
your certificate in the form of Exhibit E signed by an Authorized Officer to the
effect that no Bonds remain outstanding under the Indenture, together with the
Letter of Credit and (iv) March 31, 2001, the stated Expiration Date. This
Letter of Credit shall
<PAGE>
First Union National Bank
October 29, 1998
Page 5
be promptly surrendered to us by you upon such termination.
Communications with respect to this Letter of Credit shall be in
writing and shall be addressed to us at First Union National Bank, 1345 Chestnut
Street, 9th Floor, Philadelphia Pennsylvania 19107, Attention: Letter of Credit
Department, specifically referring thereon to this Letter of Credit by number.
This Letter of Credit is transferable in its entirety (but not in part)
to any transferee who has succeeded you as Trustee under the Indenture. We agree
to issue a substitute Letter of Credit to any such successor trustee (and to
successively replace any such substitute letter of credit) upon the return to us
for cancellation of the original of the Letter of Credit to be replaced,
accompanied by a request relating to such Letter of Credit, which (i) shall be
substantially in the form of Exhibit F attached hereto with the blanks
appropriately completed, (ii) shall be signed by an Authorized Officer, (iii)
shall specifically refer to the letter of credit number as the number of the
letter of credit to be replaced and (iv) shall state the name and address of the
successor trustee.
As used herein (a) "Authorized Officer" shall mean any person signing
as one of your Vice Presidents, Assistant Vice Presidents, Trust Officers or
Assistant Trust Officers and (b) "Purchase Price" shall mean the principal
amount of, together with accrued interest on, any Bonds to be purchased in
accordance with Sections 5.01, 5.03 or 5.04 of the Indenture. Other capitalized
terms used herein but not defined herein shall have the same meanings as in the
Indenture or in the Loan Agreement.
This Letter of Credit sets forth in full our undertaking, and such
undertaking shall not in any way be modified, amended, amplified or limited by
reference to any document, instrument or agreement referred to herein
(including, without limitation, the Bonds), except only the certificate(s) and
sight draft(s) referred to herein; and any such reference shall not be deemed to
incorporate herein by reference any document, instrument or agreement except for
such certificate(s) and such sight draft(s).
<PAGE>
First Union National Bank
October 29, 1998
Page 6
This Letter of Credit is subject to the Uniform Customs and Practice
for Documentary Credits (1993 Revision), International Chamber of Commerce,
Publication No. 500 (the "Uniform Customs"). This Letter of Credit shall be
deemed to be made under the laws of the Commonwealth of Pennsylvania and shall,
as to matters not governed by the Uniform Customs, be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania.
Very truly yours,
FIRST UNION NATIONAL BANK
/s/ Richard Fortina
-------------------------
AUTHORIZED SIGNATURE
<PAGE>
EXHIBIT A
CERTIFICATE FOR "A DRAWING"
(Draws with respect to payment of Purchase Price
of the Bonds pursuant to Mandatory and Optional Tenders
of the Bonds)
[Date]
First Union National Bank
1345 Chestnut Street, 9th Floor
Philadelphia, Pennsylvania 19107
Attention: Letter of Credit Department
Re: Irrevocable Letter of Credit No. SM406777
------------------------------------------
The undersigned, a duly authorized officer of First Union National Bank
(the "Trustee"), hereby certifies to First Union National Bank (the "Bank") with
reference to the Bank's Irrevocable Letter of Credit No. SM406777 (the "Letter
of Credit") (any capitalized terms used herein and not defined shall have its
respective meaning as set forth in the Letter of Credit issued by the Bank in
favor of the Trustee) that:
(1) The Trustee is the Trustee under the Indenture for the holders of the
Bonds.
(2) The Trustee is making a drawing under the above-referenced Letter of
Credit in the amount of $__________ with respect to payment of the portion
of the Purchase Price of Bonds corresponding to the principal amount
thereof, which Bonds are to be purchased pursuant to Sections 5.01, 5.03 or
5.04 of the Indenture.
(3) The amount of the sight draft accompanying this certificate hereby does
not exceed the stated amount or the amount available on the date hereof to
be drawn under the above-referenced Letter of Credit in respect of the
portion of the Purchase Price of Bonds corresponding to the principal amount
thereof.
(4) Upon receipt by the undersigned of the amount demanded hereby, (a) the
undersigned will transfer such amount to the Tender Agent for the payment
when due of
<PAGE>
the principal amount owing on account of the purchase of the Bonds pursuant
to the Indenture, (b) no portion of said amount shall be applied by the
undersigned for any other purpose and (c) no portion of said amount shall be
commingled with other funds held by the undersigned.
IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate
as of the ______ day of _____________________19__.
FIRST UNION NATIONAL BANK, as trustee
By:__________________________________
Title:_______________________________
<PAGE>
EXHIBIT B
CERTIFICATE FOR "B DRAWING"
(Draws with respect to payment of principal at maturity, upon
acceleration or upon partial redemption or
redemption in whole)
[Date]
First Union National Bank
1345 Chestnut Street, 9th Floor
Philadelphia, Pennsylvania 19107
Attention: Letter of Credit Department
Re: Irrevocable Letter of Credit No. SM406777
-----------------------------------------
The undersigned, a duly authorized officer of First Union National Bank
(the "Trustee"), hereby certifies to First Union National Bank (the "Bank") with
reference to the Bank's Irrevocable Letter of Credit No. SM406777 (the "Letter
of Credit") (any capitalized terms used herein and not defined shall have its
respective meaning as set forth in the Letter of Credit issued by the Bank in
favor of the Trustee) that:
(1) The Trustee is the Trustee under the Indenture for the holders of the
Bonds.
(2) The Trustee is making a drawing under the above-referenced Letter of
Credit in the amount of $________ with respect to payment of the principal
of the Bonds, which amount has, or will, within five business days, become
due and payable pursuant to the Indenture, upon maturity or as a result of
acceleration or redemption of the Bonds.
(3) The amount of the sight draft accompanying this certificate hereby does
not exceed the stated amount or the amount available on the date hereof to
be drawn under the above-referenced Letter of Credit in respect of the
principal of the Bonds.
(4) Upon receipt by the undersigned of the amount demanded hereby, (a) the
undersigned will apply the same directly to the payment when due of the
principal amount owing on account of the maturity, redemption or
acceleration of the Bonds
<PAGE>
pursuant to the Indenture, (b) no portion of said amount shall be applied by
the undersigned for any other purpose and (c) no portion of said amount
shall be commingled with other funds held by the undersigned.
IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate
as of the _____ day of __________________ 19__.
FIRST UNION NATIONAL BANK, as trustee
By:__________________________________
Title:_______________________________
<PAGE>
EXHIBIT C
CERTIFICATE FOR "C DRAWING"
(Draws with respect to payment of
accrued interest upon the Bonds)
(Date]
First Union National Bank
1345 Chestnut Street, 9th Floor
Philadelphia, Pennsylvania 19107
Attention: Letter of Credit Department
Re: Irrevocable Letter of Credit No. SM406777
-----------------------------------------
The undersigned, a duly authorized officer of First Union National Bank
(the "Trustee"), hereby certifies to First Union National Bank (the "Bank") with
reference to the Bank's Irrevocable Letter of Credit No. SM406777 (the "Letter
of Credit") (any capitalized terms used herein and not defined shall have its
respective meaning as set forth in the Letter of Credit issued by the Bank in
favor of the Trustee) that:
(1) The Trustee is the Trustee under the Indenture for the holders of the
Bonds.
(2) The Trustee is making a drawing under the above-referenced Letter of
Credit in the amount of $___________ with respect to payment of [the portion
of the Purchase Price of $_____________ in principal amount of the Bonds
corresponding to the accrued interest thereon, which Bonds are to be
purchased pursuant to Sections 5.01, 5.03 or 5.04 of the Indenture] or
[interest on the Bonds, which amount has accrued and become due and payable
pursuant to the Indenture, upon a stated Interest Payment Date or as a
result of acceleration or redemption of the Bonds].
(3) The amount of the sight draft accompanying this certificate hereby does
not exceed $____________ (which represents no more than 46 days' interest
accrued on the Bonds), the amount available on the date hereof to be drawn
under the above-referenced Letter of Credit in respect of unpaid accrued
interest on the Bonds or the portion of the Purchase Price corresponding to
interest on the Bonds.
<PAGE>
(4) Upon receipt by the undersigned of the amount demanded hereby, (a) the
undersigned will [apply the same directly to the payment when due of the
interest owing on account of the Bonds pursuant to the Indenture] or
[transfer such amount to the Tender Agent for the payment of the portion of
the Purchase Price of Bonds pursuant to Sections 5.01, 5.03 or 5.04 of the
Indenture corresponding to accrued interest thereon], (b) no portion of said
amount shall be applied by the undersigned for any other purpose and (c) no
portion of said amount shall be commingled with other funds held by the
undersigned.
IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate
as of the _______ day of 19__.
FIRST UNION NATIONAL BANK, as trustee
By:_______________________________
Title:____________________________
<PAGE>
First Union National Bank
Irrevocable Letter of Credit
No. SM406777
EXHIBIT D
REDUCTION CERTIFICATE
The undersigned, a duly authorized officer of First Union National Bank
(the "Trustee"), hereby certifies as follows to First Union National Bank as
issuer of the above-referenced letter of credit (the "Letter of Credit").
1. All terms defined in the Letter of Credit are used herein with the
same meanings.
2. The Trustee is the Trustee under the Indenture.
3. The Trustee hereby notifies you that on or prior to the date hereof
the Bonds in a principal amount of ______________ Dollars ($__________ ) have
been redeemed or defeased, and are deemed paid, pursuant to the Indenture.
4. The Trustee hereby consents to a reduction in the Stated Amount by
______________ Dollars ($____________), representing the sum of the aggregate
principal amount of the Bonds referred to in the preceding paragraph hereof and
interest thereon in the amount of _____________ Dollars ($__________).
Dated:_____________ FIRST UNION NATIONAL BANK, as trustee
By:__________________________________
Title:_______________________________
<PAGE>
First Union National Bank
Irrevocable Letter of Credit
No. SM406777
EXHIBIT E
TERMINATION CERTIFICATE
The undersigned, a duly authorized officer of First Union National Bank
(the "Trustee"), hereby certifies as follows to First Union National Bank as
issuer of the above-referenced letter of credit (the "Letter of Credit").
1. All terms defined in the Letter of Credit are used herein with the
same meanings.
2. The Trustee is the Trustee under the Indenture.
3. The Trustee hereby requests termination of the Letter of Credit
submitted herewith for the following reason [state one of the following]:
(a) The draft or demand accompanying this Certificate is the final
draft or demand to be drawn under the Letter of Credit and, upon the honoring of
such draft or demand, the Trustee will surrender the Letter of Credit to the
Bank for cancellation;
(b) The conditions precedent to the acceptance of a Substitute
Letter of Credit have been satisfied and the Trustee has accepted the Substitute
Letter of Credit; or
(c) The Bonds have been converted to a fixed rate of interest in
accordance with the Indenture; or
(d) No Bonds remain Outstanding (as defined in the Indenture).
Dated:______________ FIRST UNION NATIONAL BANK, as trustee
By:__________________________________
Title:_______________________________
<PAGE>
EXHIBIT F
TRANSFER CERTIFICATE
[Date]
First Union National Bank
1345 Chestnut Street, 9th Floor
Philadelphia, Pennsylvania 19107
Attention: Letter of Credit Department
Re: First Union Irrevocable Letter of Credit No. SLM406777
------------------------------------------------------
Gentlemen:
Reference is made to (i) the above-referenced letter of credit (the
"Old Letter of Credit") and (ii) the Trust Indenture dated as of October 1, 1998
(the "Indenture") between The Industrial Development Board of the City of
Huntsville and us.
[Name and address of successor trustee] (the "Successor Trustee") has
been properly appointed and qualified as successor trustee under the terms of
Article IX of the Indenture. You are hereby requested to issue, in accordance
with the terms of the Old Letter of Credit, a new letter of credit to the
Successor Trustee having the same terms and providing for the same Stated Amount
then applicable under the Old Letter of Credit.
We submit herewith for cancellation the original of the Old Letter of
Credit.
The individual signing below on our behalf hereby represents that he or
she is duly authorized to so sign on our behalf.
Very truly yours,
FIRST UNION NATIONAL BANK, as trustee
By:__________________________________
Title:_______________________________
<PAGE>
Exhibit 10(aa)
UNITED STATES OF AMERICA
CONSUMER PRODUCT SAFETY COMMISSION
- ------------------------------
In the Matter of
CENTRAL SPRINKLER CORP.,
and CPSC DOCKET NO. 98-2
CENTRAL SPRINKLER Co.,
Respondents
- ------------------------------
CONSENT AGREEMENT
This Consent Agreement is made by and between the staff of the
Consumer Product Safety Commission and Respondents, Central Sprinkler Corp. and
Central Sprinkler Co., to settle the above-captioned administrative action. The
parties agree as follows:
Parties
1. The "staff" is the staff of the United States Consumer Product
Safety Commission ("CPSC" or "the Commission"), an independent regulatory agency
of the United States, established by Congress pursuant to Section 4 of the
Consumer Product Safety Act ("CPSA"), 15 U.S.C. Section 2053.
2. Respondents Central Sprinkler Corporation and Central Sprinkler
Company (hereinafter collectively "Central") are corporations organized and
existing under the laws of
Accepted and Approved: Accepted and Approved:
- --------------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
<PAGE>
the Commonwealth of Pennsylvania, with their principal place of business at 451
North Cannon Ave., Lansdale, PA 19446.
Subject Matter
3. From 1982 to July, 1998, Central manufactured and sold and/or
distributed between 9 and 10 million "Omega" brand automatic fire sprinklers. On
March 3, 1998, the staff of the Consumer Product Safety Commission filed an
Administrative Complaint ("Complaint") against Central, seeking recall and
replacement of Central's Omega fire sprinklers pursuant to 15 U.S.C. Section
2064. The Complaint alleges that Central's Omega sprinklers are defective and
will not function in certain fire situations, creating a substantial risk of
bodily injury and/or death.
4. To date, the staff has received reports that from 1990 to the
present, Omega sprinklers did not function in 20 fires.
5. Central his filed an answer to the Complaint in which it avers, inter
alia, that its Omega sprinklers are not defective within the meaning of 15
U.S.C. Section 2064.
6. The staff also contends that Central obtained information which
reasonably supported the conclusion that Omega sprinklers contained a defect or
defects that could create a substantial risk of injury to the public but failed
to report such information in a timely manner pursuant to 15 U.S.C. 2064(b).
Central denies any wrongdoing under 15 U.S.C. Section 2064(b).
Agreement of the Parties
Accepted and Approved: Accepted and Approved:
- --------------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
2
<PAGE>
7. It is the express purpose of the parties in entering into this
Agreement to protect the public safety by carrying out the recall and
replacement of Omega sprinklers.
8. The parties intend for this Consent Agreement and the attached Order
(hereinafter "Order" or "the Order"), which is hereby incorporated by reference.
to resolve all allegations and requests for relief set forth in the
Administrative Complaint in this proceeding and to bar the initiation or
referral by the CPSC of any administrative, civil, or criminal claims within the
CPSC's jurisdiction arising from the conduct of Central, its officers, directors
and/or employees regarding Omega sprinklers. This resolution shall not apply to
any actions arising from non-compliance with or disputes pertaining to this
Agreement or the Order.
9. For purposes of this settlement only, Central admits that "Omega"
fire sprinklers are "consumer products" under Section 3 of the CPSA, 15 U.S.C.
Section 2052, subject to the jurisdiction of the Consumer Product Safety
Commission.
10. For purposes of this settlement only, Central agrees not to contest
the allegations in the Complaint that "Omega" fire sprinklers contain a "defect
which creates a substantial product hazard," as those terms are defined in
Section 15(a) of the CPSA, 15 U.S.C. Section 2064(a). Central has agreed not to
contest these allegations in order to avoid the expense, inconvenience and risks
associated with further litigation, and the parties recognize that this
resolution and this Consent Agreement may not be used or introduced as evidence
of defect or hazard against Central in other litigation not involving the
Commission or its staff. Entry of the Order will neither impair nor assist the
bringing of any other action.
Accepted and Approved: Accepted and Approved:
- --------------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
3
<PAGE>
11. As part of the amounts referenced in 1.a and 1.b of Appendix C of
the Order, Central shall deposit, without any adjudication or admission of fact
or law, $1.3 million into the Trust established in Appendix C of the Order, in
settlement of the staff's contention that Central failed to report to the
Commission problems with the Omega pursuant to 15 U.S.C. Section 2064(b).
Central has agreed to do so solely to avoid the inconvenience and burden of
litigation of this issue.
12. Upon acceptance by the Consumer Product Safety Commission of this
Consent Agreement, and entry of the Order, Central knowingly, voluntarily and
completely waives and relinquishes any past, present and/or future right or
rights in this matter: (1) to an administrative or judicial hearing and to all
further procedural steps, including findings of fact, conclusions of law and/or
further determination of whether Omega sprinklers contain a defect which creates
a substantial product hazard within the meaning of Section 15 of the CPSA; (2)
to seek judicial review or otherwise contest the validity of this Consent
Agreement and/or Order as issued and entered, and (3) to seek judicial review of
this or any past orders, findings and/or determinations of the Commission or the
Presiding Officer in this matter, except as set forth in the provisions
regarding review in Paragraph 28 of this Agreement.
13. Central agrees to fulfill all requirements of the Order.
14. Central agrees to immediately cease and desist manufacturing,
selling, distributing, marketing, exporting, importing, and/or attempting to
distribute or sell any
Accepted and Approved: Accepted and Approved:
- --------------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
4
<PAGE>
Omega sprinkler, whether by itself or through its subsidiaries, affiliates,
Central-owned distribution centers, or any other persons or entities over whom
Central has control, whether in the United States or any other foreign state,
country, or territory.
15. Central shall request that Underwriters Laboratories, Inc. withdraw
its listing of approval for all Omega sprinklers.
16. Central shall provide the staff with thirty days written notice of
any transfer of property rights it holds in the following U.S. Patents:
4,465,141; 4,491,182; 4,508,175; 4,553,602; 5,094,298; 4,619,327; 3,734,191;
3,902,510; 3,877,527, 3,911,940; 3,991,829, and 4,359,098.
17. A violation of this Consent Agreement or the Order is a prohibited
act within the meaning of Section 19 of the CPSA, 15 U.S.C. Section 2068.
18. The Commission or Central may disclose terms of this Consent
Agreement and Order to the public.
19. This Consent Agreement shall take effect upon its final acceptance
by the Consumer Product Safety Commission.
20. This Consent Agreement and Order shall be binding upon the parties
hereto and their successors, assigns, and receivers. If, prior to the
termination of this Consent Agreement and Order, Central merges with any other
corporation or sells, assigns, or otherwise transfers substantially all of its
assets, Central shall provide reasonable prior notice to the surviving
corporation or, in the case of an asset sale, assignment, or transfer, the
Accepted and Approved: Accepted and Approved:
- --------------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
5
<PAGE>
purchaser, transferee, or assignee of substantially all of Central's assets, of
this Consent Agreement and Order, and of its binding effect upon said surviving
corporation, purchaser, assignee, or transferee. The existence of this Consent
Agreement and Order and their binding effect shall be noted in any agreement
between Central and such surviving corporation, purchaser, transferee, or
assignee. It shall be a condition of any such merger, sale, assignment, or
transfer that the surviving corporation or, in the case of an asset sale, the
purchaser, assignee, or transferee, execute a document agreeing to be bound by
the provisions of this Consent Agreement and Order, and to submit to the
jurisdiction of the Commission for purposes of enforcement of this Consent
Agreement and Order. In the event of any merger or sale, transfer, or assignment
of substantially all of Central's assets, notice shall be provided to the staff
no later than 15 days prior to any such merger or asset sale, transfer, or
assignment.
21. This Consent Agreement and Order have been negotiated by the
parties. Central is not relying on the advice of the staff, nor anyone
associated with the staff, as to legal, tax, or other consequences of any kind
arising out of this Consent Agreement and Order, and Central specifically
assumes the risk of all such legal, tax and other consequences.
22. For all purposes, this Consent Agreement and Order shall constitute
an enforceable judgment obtained in an action or proceeding by a governmental
unit to enforce its police or regulatory power. Central acknowledges and agrees
that this Agreement and Order are pursuant to the Commission's police or
regulatory power to remedy the risk
Accepted and Approved: Accepted and Approved:
- --------------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
6
<PAGE>
created by and protect the public from a substantial product hazard which the
Commission believes is presented by Omega sprinklers, and that the Agreement and
Order are not subject to an automatic stay if Central becomes the subject of a
bankruptcy proceeding.
23. If all of the Replacement Sprinklers are not listed or approved by
Underwriters' Laboratories Inc. "UL") and all of the exclusively non-residential
Replacement Sprinklers are not listed or approved by Factory Mutual Research
Corporation ("FMRC") by November 1, 1998, or if the listing or approval of any
of the Replacement Sprinklers by UL or FMRC is withdrawn, discontinued or
modified at any time, for any reason whatsoever, the Commission, at its sole
discretion and upon reasonable notice to Central, may void, suspend, or rescind
all or any part of this Consent Agreement and Order.
24. The Commission, at its sole discretion and upon reasonable notice to
Central, may void, suspend, or rescind all or any part of this Consent Agreement
and Order if Central has made material misrepresentations regarding its current
financial condition, manufacturing and shipping costs for Replacement Sprinklers
and Replacement Parts, the number of Omega sprinklers remaining to be remediated
(approximately 8.4 million), and/or the projected costs of administering the
recall and replacement program in this Agreement and Order, and the staff has
relied on those misrepresentations in entering into this Agreement. Appendix D
of the Order lists those documents containing representations deemed material by
the parties.
Accepted and Approved: Accepted and Approved:
- --------------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
7
<PAGE>
25. Beginning 3 months after the effective date of the Commission's
Order, and for every 3 months thereafter until the expiration or final
determination of the Claims as defined in Paragraph 1.c of Appendix C of the
Order, Central shall provide to the staff a full report on the progress and
status of the Claims as defined in Paragraph 1.c of Appendix C of the Order, and
the progress and status of the remediation program set forth in this Agreement
and Order, including but not limited to the payments made to the Trust as
defined in Appendix C of the Order, and the expenses paid and/or incurred for
notice and administration of the remediation program set forth in this Agreement
and Order. Central shall provide, with these reports, the daily timesheets, with
descriptions of all work performed, of each Central employee involved in
administration of the remediation program, for the time period since the last
report date. At any time, upon reasonable written notice, the Commission may
require Central to submit to an independent or Commission review and/or audit of
the remediation program set forth in this Consent Agreement and Order, and/or
any Claims as defined in Paragraph 1.c of Appendix C. Central shall provide the
staff with a copy of every audit report of its financial condition within 5
business days of the date the report is prepared.
26. If, after the effective date hereof, any provision of this Consent
Agreement and Order is held to be illegal, invalid, or unenforceable under
present or future laws effective during the terms of this Consent Agreement and
Order, such provision shall be fully severable. The rest of the Agreement and
Order shall remain in full effect, unless the
Accepted and Approved: Accepted and Approved:
- --------------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
8
<PAGE>
Commission determines that severing the provision materially impacts the
rernediation program set forth in this Agreement and Order.
27. Central acknowledges that this Consent Agreement and Order have been
negotiated between unrelated, sophisticated and knowledgeable parties acting in
their own self-interest and represented by counsel, and the provisions of this
Consent Agreement and Order shall not be interpreted or construed against any
person or entity because that person or entity or any of its attorneys or
representatives drafted or participated in drafting this Consent Agreement.
28. The provisions of this Consent Agreement and Order shall be
interpreted in a reasonable manner to effect its purpose to remedy the alleged
hazard that Omegas pose. In the event of a dispute between the parties arising
under this Consent Agreement and Order, the parties agree to submit the issue
for determination by the Commission. Except as stated to the contrary in
Paragraphs 7 through 10 of Appendix C of the Order, Central shall have the right
to seek judicial review of the Commission decision, such review to be based upon
the record of any such Commission proceeding and according to law.
29. The existence of a dispute shall not excuse, toll, or suspend any
obligation or deadline imposed upon Central under this Consent Agreement and
Order.
30. This Consent Agreement and Order shall not be waived, changed,
amended, modified, or otherwise altered, except in writing executed by the party
or parties against
Accepted and Approved: Accepted and Approved:
- --------------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
9
<PAGE>
whom such amendment, modification, alteration, or waiver is sought to be
enforced, and approved by the Commission.
Dated: October 1, 1998
-------------------------
/s/ Eric H. Singer, Esq. /s/ J. Gordon Cooney, Jr., Esq.
- ---------------------------------------- ------------------------------------
Deborah S. Orlove, Esq. J. Gordon Cooney, Jr., Esq.
Eric H. Singer, Esq. Emily J. Lawrence, Esq.
Howard N. Tarnoff, Esq. MORGAN, LEWIS & BOCKIUS LLP
Complaint Counsel 2000 One Logan Square
U.S. Consumer Product Safety Commission Philladelphia, PA 19103
Office of Compliance (215) 963-5000
4330 East West Highway
Bethesda, MD 20814
(301) 504-0626
Of Counsel Michael F. Healy. Esq.
Eric L. Stone MORGAN, LEWIS & BOCKIUS LLP
Director, Legal Division 1800 M Street, NW
Alan H. Schoem Washington, DC 20036-5869
Assistant Executive Director (202) 467-7000
Office of Compliance
John C. Fenningham, Esq.
Complaint Counsel CORR, STEVENS & FENNINGHAM
Five Neshaminy Interplex, Suite 315
Trevose, PA 19053
(215) 639-4070
Counsel for Respondents
/s/ E. Talbot Briddell
------------------------------------
E. Talbot Briddell
CEO, Central Sprinkler Corp. and
Central Sprinkler Co.
Accepted and Approved: Accepted and Approved:
- --------------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
10
<PAGE>
Exhibit 10(ab)
UNITED STATES OF AMERICA
CONSUMER PRODUCT SAFETY COMMISSION
- ----------------------------------------
In the Matter of
CENTRAL SPRINKLER CORP.,
and CPSC DOCKET NO. 98-2
CENTRAL SPRINKLER CO.,
Respondents
- ----------------------------------------
UPON CONSIDERATION of the Administrative Complaint against Respondents
Central Sprinkler Corp. and Central Sprinkler Co. (collectively, "Central")
issued on or about March 3, 1998, and the Consent Agreement between the parties;
UPON CONSIDERATION of Central's concession that "Omega" fire sprinklers
are "consumer products" under the CPSA, 15 U.S.C. ss. 2052;
UPON CONSIDERATION of Central's decision not to contest the allegations
in the Complaint that "Omega" fire sprinklers contain a defect which creates a
"substantial product hazard," and
Pursuant to Sections 15(c) and (d) of the CPSA, 15 U.S.C. ss. 2064(c)
and (d), IT IS HEREBY ORDERED THAT:
Accepted and Approved: Accepted and Approved:
- --------------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
<PAGE>
1. The Consent Agreement between Central Sprinkler Corp. and Central
Sprinkler Co. (collectively, "Central") and the Commission staff is accepted and
incorporated by reference herein, and Central shall comply with all of its
obligations thereunder.
2. All allegations of the Administrative Complaint are resolved by this
Consent Agreement and Order. Based on the Consent Agreement, including Central's
admissions and agreement not to contest certain allegations of the
Administrative Complaint for settlement purposes, the Commission finds that the
Consent Agreement and this Order are necessary to protect the public from the
hazard the Commission believes is presented by Omega sprinklers.
3. To remedy the alleged substantial product hazard created by Omega
sprinklers, Central shall remove from service and replace all Omega sprinklers
with replacement glass bulb sprinklers containing a Belleville Washer-Type Seal
("Replacement Sprinklers"), pursuant to, and in accordance with, the terms of
Paragraphs 4 through 21 below and all of its obligations under the Consent
Agreement incorporated by reference herein.
4. Central shall immediately cease and desist Manufacturing, selling,
distributing, marketing, exporting, importing, and/or attempting to distribute
or sell any Omega sprinkler, whether by itself or through its subsidiaries,
affiliates, Central-owned distribution centers, or any other persons or entities
over whom Central has control, whether in the United States or any other foreign
state, country, or territory.
Accepted and Approved: Accepted and Approved:
- --------------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
2
<PAGE>
5. Central shall provide notice to the public, its customers, and Omega
owners, of the alleged hazard posed by Omega sprinklers, and the remedy to which
Omega owners are entitled, which notice shall include the elements set forth in
Appendix A of this Order. All notices, including all script(s) for operators of
the toll-free numbers set forth in Appendix A, must be approved by the
Commission staff prior to dissemination.
6. Central shall provide Replacement Sprinklers to all owners of Omega
sprinklers, at no cost to the Omega owners, according to the provisions set
forth in Appendix C of this Order. A listing of the Replacement Sprinkler(s) for
each Omega is set forth in Appendix B of this Order.
7. Central shall provide replacement escutcheons, extensions, and any
and all other fittings, fixtures and/or appurtenances necessary for proper
replacement of Omegas with the Replacement Sprinklers ("Replacement Parts") at
no cost to the Omega owners.
8. Beginning in November, 1998, and for 48 months thereafter, Central
shall make best efforts to manufacture and distribute to Omega owners at least
100,000 Replacement Sprinklers, and the accompanying Replacement Parts, per
month for as long as the demand for Replacement Sprinklers equals or exceeds
100,000 per month.
9. It Central receives requests for Replacement Sprinklers and
Replacement Parts at a rate that exceeds its monthly capacity to manufacture and
ship the Replacement Sprinklers and Replacement Parts, Central shall devise a
plan for sprinkler and parts distribution to ensure priority replacement of
sprinklers in buildings where members of the public are
Accepted and Approved: Accepted and Approved:
- --------------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
3
<PAGE>
particularly vulnerable. Central's plan for sprinkler distribution shall be
submitted to the Commission staff for approval prior to implementation. In the
event the staff disagrees with Central's plan for sprinkler distribution,
Central shall implement the plan as amended or devised by the staff.
10. In addition to providing Replacement Sprinklers and Replacement
Parts as stated in Paragraphs 6 through 9 herein, Central shall pay, into a
Trust for the benefit of Omega owners, a monetary contribution toward the labor
costs of replacing their Omega sprinklers in accordance with the procedures set
forth in Appendix C of this Order. The monetary contribution is for the purpose
of assisting Omega owners in paying the costs associated with removing and
replacing their existing Omegas, and thus encouraging Omega owners to
participate in the remediation program provided herein, in order to remedy the
hazard the Commission believes is presented by the Omegas, and protect the
public health and safety.
11. In order to obtain Replacement Sprinklers and Replacement Parts,
and the monetary contribution provided for in Paragraph 10 herein, Omega owners
must follow the procedures required by Appendix C of this Order.
12. Recognizing that suitable Replacement Sprinklers are not currently
available for all Omega sprinkler models, Central shall pay $5.00 per Omega
sprinkler to any owner of Omega sprinklers who does not want or cannot use
Central's Replacement Sprinklers, provided such owner gives Central reasonable
proof of removal and replacement of Omegas. Central shall also pay to all such
Omega owners a monetary contribution toward the costs of
Accepted and Approved: Accepted and Approved:
- --------------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
4
<PAGE>
removing and replacing their Omega sprinklers in accordance with the procedures
set forth in Appendix C of this Order. This payment is for the purpose of
assisting Omega owners in paying the costs associated with removing and
replacing their existing Omegas, and thus encouraging Omega owners to remove and
replace their existing Omega sprinklers, in order to remedy the hazard the
Commission believes is presented by the Omegas, and protect the public health
and safety.
13. For those Omega owners who, after May 1, 1996, but prior to the
effective date of this Order, 1) already replaced or contracted to replace their
Omegas with non-Omega sprinklers and 2) who received in value from Central less
than what they would have received under Paragraph 12 of this Order, Central
shall pay such owners the difference between what they have already paid and the
amount they would have paid under Paragraph 12 of this Order. This payment shall
be made for the purpose of encouraging owners of products that present or may
present a substantial product hazard to take immediate action to remove and,
where appropriate, replace that product. This payment assists in the fulfillment
of the Commission's mandate to protect the public health and safety from the
risks associated with products that present a substantial product hazard.
14. If Central fails to make timely contributions to the Trust as
required by Appendix C hereto, Central shall be liable for additional
contributions to the Trust, separate from any penalty it may incur pursuant to
Paragraph 17 of the Consent Agreement. Such additional contribution(s) shall
include the following:
Accepted and Approved: Accepted and Approved:
- --------------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
5
<PAGE>
a. Interest at the percentage rate established by the Department of the
Treasury pursuant to 31 U.S.C. Section 3717, for any period after the
due date;
b. A handling charge of $10,000 at the end of each 30 day late period;
and
c. A 7% (seven percent) per annum penalty charge if the deposit is not
made within 30 days of the due date.
These additional contributions are intended to encourage Respondents to fulfill
their obligations to remedy the hazard the Commission believes is presented by
Omega sprinklers, and protect the public health and safety.
15. Central shall devise procedures to ensure the destruction of the
Omega sprinklers. Central shall destroy all finished goods inventory and
returned Omegas, from whatever source, and will not use any component parts of
any returned or finished goods Omega for the manufacture or sale of any other
product. Central must provide to the staff a monthly accounting of all returned
and destroyed sprinklers for the first three months after the effective date of
this Order, and a quarterly accounting of all returned and destroyed sprinklers
thereafter, for four years. Such reports shall be provided in a format approved
by the Commission staff.
16. Central shall not, without first both notifying and consulting with
the staff, manufacture for sale, offer for sale, distribute in commerce, export,
or import into the United States any automatic sprinkler containing all of the
following elements: (a) a body or body portion housing a dynamic valve plug
(whether or not utilizing an elastomeric seal) that
Accepted and Approved: Accepted and Approved:
- --------------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
6
<PAGE>
controls the release of water or other extinguishing agent; (b) a retaining
groove within the body of the sprinkler housing locking ball bearings; (c) a
plunger; and (d) a cylindrical chimney (whether or not utilizing external heat
collecting fins) housing a fusible element, bearing disk, and part or all of the
plunger. Central shall notify the Commission staff at least 90 calendar days
before it begins manufacturing, offering, distributing, exporting, or importing
any such sprinkler(s). Central shall provide the staff prompt access to all
design, testing, and listing documents pertaining to any and all such
sprinklers.
17. Beginning December 1, 1998, and by 5:00 p.m. on the first business
day of every month thereafter, Central must provide to the staff a monthly
status report, in a form acceptable to the staff, of the progress of the
remediation program for the Omegas.
18. Central must immediately notify the staff of the Consumer Product
Safety Commission in writing if:
a. Factory Mutual Research Corporation (FMRC) or Underwriters
Laboratories Inc. (UL) does not approve or list, withdraws or discontinues its
approval or listing, no longer approves or lists, or modifies its approval or
listing of any of the Replacement Sprinklers at any time, for any reason
whatsover;
b. the Replacement Sprinklers fail any test conducted by FMRC or UL
and indicated in Appendix E of this Order; or
c. Central obtains information with respect to Replacement
Sprinklers that is reportable under Section 15(b) of the CPSA.
Accepted and Approved: Accepted and Approved:
- --------------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
7
<PAGE>
19. Central shall provide to the staff a copy of all filings it makes
with the Securities and Exchange Commission (SEC) within five business days of
making such filings. Central shall also notify the staff in writing of any
changes in corporate officers and directors within five business days of such
changes.
20. Central shall allow the Commission and/or staff to inspect any and
all records that are not subject to the attorney-client privilege or attorney
work-product doctrine, regarding the Replacement Sprinklers and Parts,
remediation program, any class action lawsuits regarding Omega sprinklers, and
any claims or lawsuits against its insurers or other third parties relating to
Omega sprinklers, and to inspect all manufacturing, design and/or receiving
facilities regarding Replacement Sprinklers at any time during normal business
hours, upon reasonable notice.
21. This Order, and all of the obligations it imposes on Central, shall
terminate in its entirety upon the final distribution of all funds required to
be placed in the Trust pursuant to Appendix C of this Order, unless Central has
not completely fulfilled its obligations under the Consent Agreement and Order.
BY ORDER OF THE CONSUMER PRODUCT SAFETY COMMISSION
-----------------------------
Sadye Dunn, Secretary
Dated:____________________
Accepted and Approved: Accepted and Approved:
- --------------------------------- --------------------------------
CPSC Office of Compliance Respondents Central Sprinkler Co.
and Central Sprinkler Corp.
8
<PAGE>
Exhibit 21
CENTRAL SPRINKLER CORPORATION
SUBSIDIARIES OF THE REGISTRANT
Names
Jurisdiction of Under Which
Name Organization Doing Business
----------------------------- --------------- --------------
CSC Finance Company Delaware Corporate Name
CSC Investment Company Delaware Corporate Name
Central Sprinkler Company Pennsylvania Corporate Name
Spraysafe Automatic
Sprinklers Limited United Kingdom Corporate Name
Central Castings Corporation Alabama Corporate Name
Central CPVC Corporation Alabama Corporate Name
Central Sprinkler
Export Corporation Barbados Corporate Name
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed Form S-8
Registration Statement File No. 33-30092.
/s/ Arthur Andersen LLP
Philadelphia, Pa.
January 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000766041
<NAME> CENTRAL SPRINKLER CORPORATION
<MULTIPLIER> 1000
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<EXCHANGE-RATE> 1
<CASH> 18,801
<SECURITIES> 0
<RECEIVABLES> 52,003
<ALLOWANCES> 6,688
<INVENTORY> 43,319
<CURRENT-ASSETS> 123,520
<PP&E> 74,984
<DEPRECIATION> 29,989
<TOTAL-ASSETS> 177,104
<CURRENT-LIABILITIES> 46,093
<BONDS> 76,807
0
0
<COMMON> 56
<OTHER-SE> 30,711
<TOTAL-LIABILITY-AND-EQUITY> 177,104
<SALES> 224,930
<TOTAL-REVENUES> 224,930
<CGS> 164,929
<TOTAL-COSTS> 164,929
<OTHER-EXPENSES> 87,289
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,161
<INCOME-PRETAX> (32,449)
<INCOME-TAX> (9,845)
<INCOME-CONTINUING> (22,604)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,604)
<EPS-PRIMARY> (6.89)
<EPS-DILUTED> (6.89)
</TABLE>
