As submitted to the Securities and Exchange Commission on May 20, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Condor Systems, Inc.
(Exact name of Co-Registrant as specified in its charter)
California 3812 94-2623793
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
Gary M. Viljoen
Chief Financial Officer and Secretary
2133 Samaratin Drive Condor Systems, Inc.
San Jose, California 95124 2133 Samaratin Drive
(408) 371-9580 San Jose, California 95124
(408) 371-9580
(Address, including zip code, and (Name, address,including zip code,
telephone number, including area code, and telephone number, including area
of Co-Registrant's principal code, of agent for service) CEI
executive offices) Systems, Inc.
CEI Systems, Inc.
(Exact name of Co-Registrant as specified in its charter)
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<S> <C> <C>
Delaware 3812 77-0466448
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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Gary M. Viljoen
Chief Financial Officer and Secretary
2133 Samaratin Drive Condor Systems, Inc.
San Jose, California 95124 2133 Samaratin Drive
(408) 371-9580 San Jose, California 95124
(408) 371-9580
(Address, including zip code, and (Name, address,including zip code,
telephone number, including area code, and telephone number, including area
of Co-Registrant's principal code, of agent for service) CEI
executive offices) Systems, Inc.
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Copies to:
Steven D. Rubin, Esq.
Richard D. Truesdell, Jr., Esq. Eugene F. Cowell III, Esq.
Davis Polk & Wardwell Weil, Gotshal & Manges LLP
450 Lexington Avenue 700 Louisiana, Suite 1600
New York, New York 10017 Houston, Texas 77002
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Approximate date of commencement of proposed sale to the public: From time
to time after the effective date.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earliest effective registration statement for the
same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
=====================================================================================================================
Proposed
Maximum Proposed
Amount Offering Maximum Amount of
Title of Each Class of to be Price Aggregate Offering Registration
Securities to be Registered Registered Per Note Price(1) Fee(2)
<S> <C> <C> <C> <C>
11 7/8% Series B Senior Subordinated Notes due 2009 and
Note Guarantees...................................... $100,000,000 100% $100,000,000 $27,800.00
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(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(f) under the Securities Act of 1933.
(2) Calculated pursuant to Rule 457(f).
The Co-Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Co-Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the SEC, acting pursuant to said Section 8(a), may
determine.
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EXPLANATORY NOTE
This Registration Statement covers the registration of an aggregate
principal amount of $100,000,000 of 11 7/8% Series B Notes due 2009 of Condor
Systems, Inc. ("Condor") guaranteed by CEI Systems, Inc. (the "new notes") that
may be exchanged (the "exchange offer") for equal principal amounts of Condor's
outstanding 11 7/8% Series A Notes due 2009 guaranteed by CEI Systems, Inc.
(the "old notes"). This Registration Statement also covers the registration of
the new notes for resale by Donaldson, Lufkin & Jenrette Securities Corporation
in market-making transactions. The complete prospectus relating to the exchange
offer (the "exchange offer prospectus") follows immediately after this
Explanatory Note. Following the exchange offer prospectus are certain pages
relating solely to such market-making transactions (the "market-making
prospectus"), including alternate front and back cover pages, an alternate
"Risk Factors--No public trading market for the new notes exist" section, an
alternate "Use of Proceeds" section and an alternate "Plan of Distribution"
section. In addition, the market-making prospectus will include references
merely to "notes" instead of to "old notes" and "new notes" and the
following captions (or the information set forth under such captions) in the
exchange offer prospectus: "Summary--The Exchange Offer,"
"Summary--Consequences of Exchanging Old Notes pursuant to the Exchange Offer,"
"Risk Factors--You may suffer consequences if you fail to exchange your old
notes," "The Exchange Offer" and "Certain United States Tax Consequences of the
Exchange Offer." All other sections of the exchange offer prospectus will be
included in the market-making prospectus.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY __, 1999
PROSPECTUS
Condor Systems, Inc.
Offers to Exchange
11 % Series A Senior Subordinated Notes Due 2009 for
11 % Series B Senior Subordinated Notes Due 2009
which have been registered under the Securities Act of 1933, as amended
We are offering to exchange an aggregate principal amount of up to
$100,000,000 of our 11 7/8% Series B Senior Subordinated Notes due 2009
guaranteed by CEI Systems, Inc. (the "new notes"), which have been registered
under the Securities Act of 1933, as amended, for our existing 11 7/8% Series A
Senior Subordinated Notes due 2009 guaranteed by CEI Systems, Inc. (the "old
notes"). We are offering to issue the new notes to satisfy our obligations
contained in the registration rights agreement entered into when the old notes
were sold in transactions pursuant to Rule 144A and Regulation S under the
Securities Act and therefore not registered with the SEC.
The terms of the new notes are identical in all material respects to the
terms of the old notes, except that the new notes have been registered under the
Securities Act, and certain transfer restrictions and registration rights
relating to the old notes do not apply to the new notes.
To exchange your old notes for new notes:
o You must complete and send the letter of transmittal that accompanies
this prospectus to the exchange agent by 5:00 p.m., New York time, on
, 1999.
o If your old notes are held in book-entry form at The Depository Trust
Company ("DTC"), you must instruct DTC through your signed letter of
transmittal that you wish to exchange your old notes for new notes.
When the exchange offer closes, your DTC account will be changed to
reflect your exchange of old notes for new notes.
o You should read the section called "The Exchange Offer" for additional
information on how to exchange your old notes for new notes.
See "Risk Factors" beginning on page 14 for a discussion of certain risk
factors that should be considered by you prior to tendering your old notes in
the exchange offer.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 1999.
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TABLE OF CONTENTS
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Page
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Summary................................................................... 1
Risk Factors.............................................................. 14
The Acquisition and Financing............................................. 26
Use of Proceeds........................................................... 30
Capitalization............................................................ 30
Selected Historical and Unaudited Pro Forma Consolidated
Financial Data.......................................................... 31
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................... 34
Business.................................................................. 48
Management................................................................ 63
Executive Compensation.................................................... 65
Security Ownership of Certain Beneficial Owners and Management............ 68
Certain Relationships and Related Party Transactions...................... 70
Description of New Credit Facility........................................ 73
Description of Notes...................................................... 74
The Exchange Offer........................................................ 115
Certain United States Tax Consequences of the Exchange Offer.............. 123
Plan of Distribution...................................................... 123
Legal Matters............................................................. 123
Independent Accountants................................................... 123
Where You Can Find More Information....................................... 124
Unaudited Pro Forma Condensed Consolidated Financial Statements........... P-1
Index to Consolidated Financial Statements................................ F-1
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Some of the titles and logos of our products referred to in this prospectus are
our trademarks. Each trade name, trademark or servicemark of any other company
appearing in this prospectus is the property of its holder.
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SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary may not contain all of the information that you should consider
before deciding to invest in the notes. We urge you to read this entire
prospectus carefully, including the "Risk Factors" section and the consolidated
financial statements and the notes to those statements.
CONDOR SYSTEMS, INC.
Overview
We are one of the world's leading providers of technologically advanced
signal collection and specialized electronic countermeasure products and systems
in the electronic warfare ("EW") industry. We supply a complete line of
integrated systems, subsystems and products, which are used to intercept,
identify, locate and analyze radar signals for a variety of military needs,
including intelligence, reconnaissance, surveillance, precision targeting,
situational awareness and threat warning. Our systems provide critical
information in support of intelligence collection, tactical operations and
protection of personnel and other high value military assets. For the year ended
December 31, 1998, we generated contract revenues and Adjusted EBITDA (as we
define on page 12) of $101.0 million and $17.7 million, respectively. In
addition, our funded backlog at December 31, 1998 was $62.9 million.
We have established long-term relationships with a wide variety of
customers and supply our products and systems to all of the U.S. intelligence
and military services, the major domestic prime defense contractors such as
Lockheed Martin Corporation, Raytheon Company and The Boeing Company, other
defense contractors worldwide and a number of foreign governments in countries
such as Japan, Norway, Sweden and Taiwan. Our products and systems are used on
high profile airborne, shipboard and ground based platforms, including:
o the U.S. Air Force's B-52H bomber, RC-135 reconnaissance aircraft and
Special Operations C-130 aircraft
o U.S. Navy, Japanese and Norwegian P-3 aircraft
o the U.S. Army's RC-12 Guardrail reconnaissance aircraft and EH-60
Blackhawk helicopters
o the U.S. Navy's Aegis class ships and the Los Angeles class and New
Attack Submarines
o the Swedish Navy's stealth ships
o the U.S. Marine Corps' Mobile EW Support Systems
o the U.S. Army's Shortstop Electronic Protection System program
Approximately 78.1% of our contract revenues for the year ended December
31, 1998 was derived from sole source business, principally as a result of our
strategies of taking steps to retain proprietary rights to our superior products
and technologies and aggressively bidding on competitive development programs,
as well as our large installed base of products. Our plan is to further secure
our strong market positions and grow our business by developing next generation
and complementary products and systems and by selectively acquiring businesses
that will expand our capabilities.
Over the last five years, we have spent a total of approximately $53.1
million on research and development projects, including research and development
purchased through acquisitions, to maintain and enhance our competitive position
within the electronic warfare market. Approximately 59.3% of this spending was
incurred in
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connection with long-term development contracts, a substantial portion of which
was effectively funded by our customers. We also form strategic alliances with
other industry participants to maximize the potential for success by sharing
expertise to minimize risk and costs associated with developing new technology.
We have pursued a market-driven research and development strategy which focuses
on identifying a customer's needs and developing cost-effective solutions that
we believe will ultimately generate long-term production contracts, derivative
products, proprietary upgrades and significant recurring high margin spare parts
revenue.
In addition, we have enhanced our market position by opportunistically
acquiring and integrating four businesses during the past five years. These
acquisitions have broadened our technological capabilities and product offerings
and have strengthened our ability to offer fully integrated electronic warfare
systems to meet the growing needs of our domestic and international customers.
For example, our most recent acquisition, of Whittaker Electronic Systems in
1997, expanded our presence into complementary markets, including electronic
countermeasures and command and control and communications systems.
The Electronic Warfare Industry
The EW industry, which includes virtually all defense-related products and
systems that permit gathering, analyzing and countering electronically generated
signals, is a $4.8 billion industry. The EW industry is composed of four major
areas: Signals Intelligence ("SIGINT"), Electronic Support Measures ("ESM"),
Electronic Countermeasures ("ECM") and threat warning. We primarily compete in
the niche Electronic Intelligence ("ELINT") segment, a subcategory of SIGINT,
and the ESM segment of the industry with secondary capabilities in the ECM
segment. SIGINT refers to the detailed gathering and analysis of electronic
signals to assess technical capabilities and map locations in an area of
interest. ELINT systems focus on radar signal types, providing sophisticated
semi-automatic measurement, collection and classification of signal transmission
and location analysis from target radar equipment. ESM systems focus on rapid
real-time assessment of the entire radar signal environment by gathering and
analyzing target radar signals to help an operator determine the precise nature,
location and classification of all radar signals being emitted in an area of
interest. ECM systems transmit radio frequency signals to deceive, decoy or jam
signal transmissions associated with threats.
Our management believes that EW has become a critical component of national
defense spending for military organizations worldwide. As was demonstrated in
Operation Desert Storm, the ability to understand and control the electronic
signal environment is essential to dominance of the battlespace in modern
warfare. As a result, there has been an increasing demand worldwide for EW
systems which can support intelligence collection, precision targeting, tactical
operations and the protection of personnel and other high value military assets.
In addition to this trend, older technology in the international installed base
has created incremental demand overseas for advanced and proven electronic
warfare products and systems.
According to Frost & Sullivan, a leading defense industry expert, the
worldwide electronic warfare market is projected to grow from an estimated $4.8
billion in 1998 to an estimated $6.9 billion in 2005, representing a compound
annual growth rate of 5.3%. In addition, the market niches in which we compete
(EW excluding fighter/attack and rotary-wing aircraft) are forecasted by Frost &
Sullivan to grow worldwide from an estimated $848 million in 1998 to an
estimated $1.3 billion in 2005, a compound annual growth rate of 6.8%, and
domestically from an estimated $183 million in 1998 to an estimated $321 million
in 2005, a compound annual growth rate of 8.4%.
Competitive Strengths
We believe that we are well positioned to take advantage of the current
trends and expected growth in the EW industry as a result of the following
competitive strengths:
Leading Position in Niche Markets. We have successfully established strong
positions in several specialized niches in the EW industry. We are recognized
worldwide for our superior product designs and technology, quality
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workmanship, responsive customer support and overall commitment to customer
satisfaction. We are the sole source supplier of turnkey systems to a number of
nationally significant ELINT and ESM programs in the U.S., including the U.S.
Air Force's RC-135 reconnaissance ELINT program, the U.S. Navy's Anti-Surface
Warfare Improvement ESM program and the New Attack Submarine ESM program. We
believe we are the world's largest supplier of broadband microwave receivers for
ELINT and ESM applications. In addition, we are the only manufacturer of the
Shortstop Electronic Protection System ("SEPS"), a specialized ECM system which
creates an electronic umbrella over a battlefield to protect soldiers and
military assets by predetonating proximity fuses on incoming artillery and
mortar rounds.
Superior Products and Technologies. Our ELINT, ESM and specialized ECM
systems are leading edge, innovative, reliable, cost effective and primarily
based on proprietary technology which management believes will help protect our
numerous sole source positions. Our strategy focuses on identifying customer
needs and developing cost-effective solutions that will generate near-term
business and position us to benefit from spares, repairs, proprietary upgrades
and derivative product opportunities over the long term. We take steps to
protect our proprietary technologies by seeking to maintain ownership of data
rights for key elements of almost all of our products and anticipating future
upgrades as new technologies become available. We also design our products to
fulfill the requirements of various platform types, which significantly
decreases our costs related to development, production and, most importantly,
total life cycle support. We have developed a number of advanced technologies to
secure our leading position within the ELINT, ESM and specialized ECM markets.
Some of our key technologies include Special Signal Processing ("SSP"), which
provides unique emitter identification capabilities; the New Technology ESM
System ("NTES"), which offers affordable, high performance ESM systems for small
to medium sized ships and submarines; Multi-Channel/Multi-Operator ELINT, which
features modular system architecture and advanced ELINT signal processing; and
SEPS, which is a unique "lifesaving" technology offering protection against
proximity-fused munitions on the battlefield.
Long-Standing Customer Relationships. We have established numerous
long-term relationships with the U.S. intelligence agencies and military
services, the domestic prime defense contractors, other defense contractors and
several foreign governments. We have been a key supplier of EW products and
systems to the U.S. Navy since 1986, including working on the EP-3
reconnaissance aircraft program. We have also developed strong relationships
with the three major domestic prime contractors, Lockheed Martin, Raytheon and
Boeing. For example, we have been involved with the U.S. Air Force's RC-135
program through Raytheon since 1988. Our other significant domestic and
international defense contractor customers include Marconi Electronic Systems,
TRW, Celsius Tech Naval Systems, Sumitomo and Racal Defense Systems. In
addition, we have developed strong relationships with a number of foreign
governments in countries such as Japan, Norway, Sweden and Taiwan. For example,
we have secured business from the government of Taiwan since our founding in
1980, and we have provided our products and systems to the government of Norway
since 1985.
Diversified Revenue Base. We have significantly expanded our sales and
marketing efforts in recent years to obtain a more balanced mix between domestic
and international business across a greater number of customers and programs.
Approximately 41.6% of our total contract awards for the year ended December 31,
1998 was derived from international programs. During 1998, we participated in
over 35 programs, of which our largest program represented approximately 6.6% of
contract revenues and no other program represented more than 5.6% of contract
revenues for the year. We believe our large installed product base of proven
equipment in use by the U.S. Government and our strong relationships with
certain foreign governments provide significant opportunities for future growth
and further diversification of our program and customer base.
Strong Historical Financial Performance and Predictable Cash Flow. We have
generated significant growth in revenue and profitability. Our contract revenues
have increased from $41.0 million in 1994 to $101.0 million in 1998, a compound
annual growth rate of 25.3%. Our Adjusted EBITDA has grown from $5.6 million in
1994 to $17.7 million in 1998, a compound annual growth rate of 33.3%. In
addition, we have increased Adjusted EBITDA margins from 13.7% in 1994 to 17.5%
in 1998 through cost reductions, productivity enhancements, leveraging of fixed
costs and successfully integrating four strategic acquisitions. Our funded
backlog has grown from $36.7
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million at December 31, 1994 to $62.9 million at December 31, 1998, a compound
annual growth rate of 14.5%. Historically, we have enjoyed predictable cash flow
due to our strong funded backlog position. For example, over the last three
years approximately 90% of the backlog at the beginning of each year became
contract revenues in the following year.
Experienced Management Team. Our senior management team has extensive
experience in the defense industry, with an average tenure of over ten years at
Condor and over 24 years in the industry. Our senior management team has
successfully transformed Condor from a supplier of electronic warfare products
to a leading supplier of integrated ELINT/ESM systems. In addition, the senior
management team, led by our chief executive officer Robert Young, has
successfully grown the business through the declining defense budgets of the
1990s, secured our current strong market positions, integrated four strategic
acquisitions and positioned us for attractive, profitable internal growth for
the future.
Business Strategy
Our principal strategy is to strengthen and expand our strong positions in
niche segments of the EW industry. We seek to achieve our objectives while
maintaining a balance between domestic and international business.
Specifically, our business strategy combines the following elements:
Continue Market-Driven Product Investment Strategy. We intend to continue
our proven strategy of aggressively bidding on development programs that provide
opportunities for sole source, follow-on production contracts or new products
and capabilities. This strategy is often coupled with alliances with other
companies in the industry to expand our access to technologies and markets. In
addition, substantially all of our products are based on a modular "open
architecture" design, which allows us to leverage our existing "standardized"
products and offer significant value to our customers. For example, we have
successfully leveraged an existing ELINT/ESM system used for the U.S. Navy's
reconnaissance aircraft fleet to win several contract awards to supply similar
ELINT/ESM systems for the New Attack Submarine and the upgrade of its existing
Los Angeles class submarines.
Capitalize on Incumbent Sole Source Position on Key Programs. Approximately
78.1% of our contract revenues for the year ended December 31, 1998 was derived
from sole source business. Our major sole source programs include:
o the U.S. Air Force's B-52H bomber, RC-135 reconnaissance aircraft and
Special Operations C-130 aircraft
o U.S. Navy, Japanese and Norwegian P-3 aircraft
o the U.S. Army's RC-12 Guardrail reconnaissance aircraft and EH-60
Blackhawk helicopters
o the U.S. Navy's Aegis class ships and the Los Angeles class and New
Attack Submarines
o the U.S. Marine Corps' Mobile EW Support Systems
o the U.S. Army's SEPS program.
These programs have provided sustained production, high margin support
business, including spares, repairs, test equipment and training, and
significant upgrade and derivative product opportunities. In addition, we intend
to leverage these "core" sole source programs to offer cost-effective product
solutions for other domestic and international programs.
Broaden International Presence. The expanding global market for electronic
warfare systems offers us significant growth opportunities, and we believe our
extensive proven installed base of products and systems in the
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U.S. and our strong relationships with several foreign governments and agencies
have positioned us to capitalize on existing and new opportunities. We are also
able to leverage our proven core domestic products across a number of
international programs. Our international marketing efforts are focused
primarily on countries which we believe will generate long-term business at
attractive margins. From 1994 to 1998, our international contract revenues grew
from $5.9 million, or 14.4% of contract revenues, to $35.8 million, or 35.5% of
contract revenues, respectively. We have also expanded the number of our major
international programs from eight in 1994 to 14 in 1998. We believe that the
international arena offers significant growth opportunities as countries
continue to reduce overall defense spending and possess older technology which
will require replacements or upgrades, each of which magnifies the importance of
sophisticated EW systems.
Pursue Additional Strategic Acquisitions. The electronic warfare market is
highly fragmented, with 32 significant industry participants, only six of whom
have more than a 5% market share. In addition, there are numerous other
acquisition candidates in the EW industry, as well as in other segments of the
defense electronics industry. Management believes that economies of scale and
the opportunity to acquire synergistic technologies and enter new markets will
drive the consolidation trend among second and third tier electronic warfare
suppliers and provide numerous additional attractive acquisition opportunities
for us. We pursue a targeted acquisition strategy which focuses on those
companies that offer strategic value such as economies of scale, product line
extensions, access to a large and attractive installed product base, new
customer relationships or technology/market synergies. We are continually
engaged in discussions with potential acquisition candidates and have
identified a number of potential future acquisition opportunities. We are in
negotiations to purchase certain EW assets from ARGOSystems, Inc., a subsidiary
of Boeing, for a purchase price of approximately $2.0 million plus a commission
on two specified future contract awards, if they are awarded in 1999 and 2000.
ARGOSystems currently estimates that the commission may aggregate up to $3.8
million.
In addition, we believe that our association with Global Technology
Partners, LLC, one of our equity investors, will assist us in identifying
attractive acquisition candidates. GTP is a specialized group of professionals
with extensive private and public sector experience which has a strategic
partnership with DLJ Merchant Banking Partners II, L.P. to invest in technology,
defense, aerospace and related businesses. GTP is comprised of five former
recent officials in the Department of Defense and two retired senior executives
from the United Technologies Corporation. The seven founding partners of GTP
are:
o Dr. William J. Perry, former Secretary of Defense
o Dr. John M. Deutch, former Undersecretary of Energy and former
Director of Central Intelligence
o Dr. John P. White, former Deputy Secretary of Defense
o Dr. Paul G. Kaminski, former Undersecretary of Defense
o Dr. Ashton B. Carter, former Assistant Secretary of Defense
o Dr. Robert J. Hermann, former Senior Vice President for Science and
Technology at United Technologies and also former head of the
National Reconnaissance Office
o Irving B. Yoskowitz, former Executive Vice President and General
Counsel of United Technologies.
Drs. Kaminski and Hermann are members of our board of directors
Maintain and Enhance Customer Service Orientation. Responsive customer
service is critical to maintaining and developing sole source or strong
competitive positions on existing programs and positioning us for follow-on
business. We have a dedicated customer service organization which focuses
proactively on meeting our customers' needs. In addition, our marketing and
business area teams are organized around key customer groups, and we
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appoint program managers to monitor the life cycle of a particular program to
completion. We also maintain a continuous improvement program focused on quality
management of the customer service organizations and processes.
The Acquisition and Financing
WDC Acquisition Corp. was formed by affiliates of DLJ Merchant Banking
Partners II, L.P. for the purpose of facilitating the acquisition of our company
for consideration of approximately $134.0 million, including debt refinanced and
certain fees and expenses. The acquisition was financed with the proceeds from
the offering of the old notes and a $50.9 million equity investment by
affiliates of DLJ Merchant Banking Partners II, L.P., affiliates of Global
Technology Partners, LLC, affiliates of Behrman Capital, L.P. and management. We
also entered into a $50.0 million new credit facility. Immediately following the
acquisition, we merged with WDC Acquisition Corp.
and became the surviving corporation.
Risk Factors
See "Risk Factors" immediately following this summary for a discussion of
certain risks factors that should be considered by you prior to tendering your
old notes in the exchange offer.
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Our principal executive offices are located at 2133 Samaritan Drive, San
Jose, California 95124. Our telephone number is (408) 371-9580.
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THE EXCHANGE OFFER
Securities Offered..................... We are offering up to $100,000,000
aggregate principal amount of 11 7/8%
Series B Senior Subordinated Notes due
2009, which have been registered under
the Securities Act. The terms of the
new notes are identical in all
material respects to the terms of the
old notes, except that the new notes
have been registered under the
Securities Act, and certain transfer
restrictions and registration rights
relating to the old notes do not apply
to the new notes.
The Exchange Offer..................... We are offering to issue the new notes
in exchange for a like principal
amount of your old notes. We are
offering to issue the new notes to
satisfy our obligations contained in
the registration rights agreement
entered into when the old notes were
sold in transactions pursuant to Rule
144A and Regulation S under the
Securities Act and therefore not
registered with the SEC. For
procedures for tendering, see "The
Exchange Offer."
Tenders, Expiration Date, Withdrawal... The exchange offer will expire at 5:00
p.m. New York City time on
, 1999 unless it is
extended. If you decide to exchange
your old notes for new notes, you must
acknowledge that you are not engaging
in, and do not intend to engage in, a
distribution of the new notes. If you
decide to tender your old notes
pursuant to the exchange offer, you
may withdraw them at any time prior to
, 1999. If we decide for any
reason not to accept any old notes for
exchange, your old notes will be
returned to you without expense to you
promptly after the exchange offer
expires.
Federal Income Tax Consequences........ Your exchange of old notes for new
notes pursuant to the exchange offer
will not result in any income, gain or
loss to you for Federal income tax
purposes. See "Certain United States
Federal Income Tax Consequences of the
Exchange Offer."
Use of Proceeds........................ We will not receive any proceeds from
the issuance of the new notes pursuant
to the exchange offer.
Exchange Agent......................... State Street Bank and Trust Company is
the exchange agent for the exchange
offer. See page 122 for information on
how to contact the exchange agent.
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CONSEQUENCES OF EXCHANGING OLD NOTES
PURSUANT TO THE EXCHANGE OFFER
Based on interpretations by the SEC's staff in no-action letters issued to
third parties, we believe that new notes issued in exchange for old notes
pursuant to the exchange offer may be offered for resale, resold or otherwise
transferred by you without registering the new notes under the Securities Act or
delivering a prospectus so long as each of the following applies to you:
o you are not one of our "affiliates", which is defined in Rule 405 of
the Securities Act
o you acquire the new notes in the ordinary course of your business
o either you are a broker-dealer or you do not have any arrangement with
any person to participate in the distribution of such new notes
Unless you are a broker-dealer, you must acknowledge both that:
o you are not engaged in, and do not intend to engage in, a distribution
of the new notes
o you have no arrangement or understanding to participate in a
distribution of the new notes
If you are an affiliate of Condor, or you are engaged in, intend to engage
in or have any arrangement or understanding with respect to, the distribution of
new notes acquired in the exchange offer, you (1) should not rely on our
interpretations of the position of the SEC's staff and (2) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
If you are a broker-dealer and receive new notes for your own account
pursuant to the exchange offer:
o you must acknowledge that you will deliver a prospectus in connection
with any resale of such new notes. The letter of transmittal states
that by acknowledging and delivering a prospectus, you will not be
deemed to admit that you are an "underwriter" within the meaning of
the Securities Act
o you may use this prospectus, as it may be amended or supplemented from
time to time, in connection with the resale of new notes received in
exchange for old notes acquired by you as a result of market-making or
other trading activities
For a period of 90 days after the expiration of the exchange offer, we will
make this prospectus available to any broker-dealer for use in connection with
any such resale.
In addition, you may offer or sell the new notes in certain jurisdictions
only if they have been registered or qualified for sale there, or an exemption
from registration or qualification is available and is complied with. Subject to
the limitations specified in the registration rights agreement, we will register
or qualify the new notes for offer or sale under the securities laws of any
jurisdictions that you reasonably request in writing. Unless you request that
the sale of the new notes be registered or qualified in a jurisdiction, we
currently do not intend to register or qualify the sale of the new notes in any
jurisdiction. If you do not comply with such requirement, you could incur
liability under the Securities Act, and we will not indemnify you in such
circumstances.
8
<PAGE>
SUMMARY DESCRIPTION OF THE NOTES
The terms of the new notes and the old notes are identical in all material
respects, except that the new notes have been registered under the Securities
Act, and certain transfer restrictions and registration rights relating to old
notes do not apply to the new notes. We use "notes" to refer to both the old
notes and the new notes.
Maturity Date........................ May 1, 2009.
Interest Payment Dates............... Every May 1 and November 1, commencing
November 1, 1999.
Optional Redemption.................. We may redeem any of the notes at any
time on or after May 1, 2004, in whole
or in part, in cash at the redemption
prices set forth on page 79, plus
accrued interest. In addition, on or
before May 1, 2002, we may redeem up
to 35% of the aggregate principal
amount of notes originally issued from
time to time only:
o at a redemption price of 111.875%,
plus accrued interest
o with the net cash proceeds of a
public equity offering
o provided that at least 65% of the
aggregate principal amount of
notes originally issued from time
to time remains outstanding
Change of Control.................. Upon the occurrence of certain change
of control events, you may require us
to repurchase your notes at 101% of
their principal amount, plus accrued
interest. We cannot assure you that we
will have sufficient resources to
satisfy our repurchase obligation in
such circumstances. See "Risk
Factors--We may be unable to purchase
the notes upon a change of control"
and "Description of Notes."
Ranking............................ The notes:
o rank junior to all of our existing
and future senior indebtedness and
secured indebtedness, including
any borrowings and reimbursement
obligations with respect to
letters of credit under
our new credit facility
o rank equally with any of our
future senior subordinated
indebtedness
o rank senior to any of our future
subordinated indebtedness
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<PAGE>
o will effectively rank junior to
all of the liabilities of our
subsidiaries other than CEI
Systems, Inc.
At March 31, 1999, assuming the
acquisition and the related
financings, including this offering,
had been completed at that time, the
notes would have ranked junior to $0.0
million of liabilities, including
trade payables, excluding guarantees
of the new credit facility and
intercompany obligations of our
subsidiaries other than CEI Systems,
Inc.
Guarantees......................... The notes will be unconditionally
guaranteed on a senior subordinated
basis by CEI Systems, Inc., our only
material subsidiary. The guarantees:
o are general unsecured obligations
of CEI Systems, Inc.
o are subordinated in right of
payment to all existing and
future senior indebtedness of
CEI Systems, Inc., including
obligations under our new credit
facility
o rank senior in right of payment
to any future subordinated
indebtedness of CEI Systems, Inc.
Certain Covenants.................. The indenture governing the notes
contains certain covenants limiting or
prohibiting our ability and the
ability of certain of our subsidiaries
to:
o incur additional indebtedness
o create liens
o engage in sale-leaseback
transactions
o pay dividends or make other
equity distributions
o purchase or redeem capital stock
o make certain investments
o sell assets
o engage in transactions with
affiliates
o effect a consolidation or merger
However, these limitations will be
subject to a number of important
qualifications and exceptions.
Use of Proceeds..................... We will not receive any proceeds from
the exchange of new notes for old
notes.
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<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL DATA
The table below sets forth our summary historical and unaudited pro forma
consolidated financial data. The summary historical consolidated financial data
is derived from our audited consolidated financial statements and the notes
thereto, which are included elsewhere in this prospectus. The summary unaudited
pro forma consolidated financial data is derived from our historical financial
data and gives effect to the transactions described in "Unaudited Pro Forma
Condensed Consolidated Financial Statements" included elsewhere in this
prospectus. The summary unaudited pro forma consolidated financial data is
presented for illustrative purposes only and is not necessarily indicative of
our financial position or results of operations if such transactions had
actually occurred on such dates, and is not necessarily indicative of our future
results of operations or financial position. The information contained in this
table should be read in conjunction with "The Acquisition and Financing,"
"Selected Historical and Unaudited Pro Forma Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Unaudited Pro Forma Condensed Consolidated Financial Statements"
and our consolidated financial statements and the notes thereto included
elsewhere in this prospectus.
<TABLE>
Pro Forma
Pro Forma Quarter
Years Ended Year-Ended Quarters Ended Ended
December 31, December 31, March 31, March 31,
----------------------------------- ------------- ---------------------- -----------
1996 1997 1998 1998 1998 1999 1999
---- ---- ---- ---- ---- ---- ----
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Contract revenues............ $ 67.5 $ 79.6 $ 101.0 $ 101.0 $ 19.5 $ 19.0 $ 19.0
Gross margin................. 23.7 26.5 39.4 39.4 8.4 7.8 7.8
Operating income (loss)...... (13.7) 0.2 11.7 11.7 2.0 1.8 1.8
Net income (loss)............ (11.5) (3.2) 2.6 (1.1) -- 0.1 (0.9)
Other Financial Data:
Adjusted EBITDA(1)........... $ 10.1 $ 11.6 $ 17.7 $ 17.7 $ 3.3 $ 3.3 $ 3.3
Adjusted EBITDA margin....... 14.9% 14.6% 17.5% 17.5% 16.9% 17.5% 17.5%
Depreciation and
amortization(2)........... 2.2 2.8 4.9 4.9 1.2 0.6 0.6
Capital expenditures......... 1.4 1.7 2.5 2.5 0.8 0.2 0.2
Net Cash Provided By (Used In):
Operating activities......... (13,616) 2,445 12,076 870 926 --
Investing activities......... (1,368) (21,415) (2,502) (795) (237) --
Financing activities......... 16,875 15,431 (5,953) 2,520 (3,843) --
Certain Pro Forma Data:
Cash interest expense........ -- -- -- $ 12.9 -- -- --
Ratio of net debt to Adjusted --
EBITDA.................... -- -- -- 5.2X -- --
Ratio of Adjusted EBITDA --
to cash interest expense.. -- -- -- 1.4x -- --
Ratio of Adjusted EBITDA --
less capital expenditures
to cash interest expense.. -- -- -- 1.2x -- --
Other Operating Data:
Contract awards(3)........... $ 77.3 $ 89.9 $ 104.2 $ 104.2 $ 40.0 $ 11.4 $ 11.4
Funded backlog at end of
period(4)................. 49.4 59.7 62.9 62.9 80.2 55.3 55.3
</TABLE>
11
<PAGE>
<TABLE>
At December 31, 1998 At March 31, 1999
-------------------- -------------------------
Historical Historical Pro Forma
---------- ---------- ---------
(dollars in millions)
Balance Sheet Data:
<S> <C> <C> <C>
Cash and cash equivalents(5)................... 8.3 $ 6.7 $ 6.8
Working capital................................ 29.0 29.5 34.3
Total assets................................... 67.9 61.5 69.2
Total debt (including current maturities)(6)... 55.8 55.0 100.0
Shareholders' deficit.......................... (13.0) (12.9) (50.2)
- -------------------
</TABLE>
(1) EBITDA is defined as operating income (loss) plus depreciation and
amortization. EBITDA is a key financial measure but should not be construed
as an alternative to operating income or cash flow from operating
activities as determined in accordance with generally accepted accounting
principles. We believe EBITDA is a useful supplement to net income (loss)
and other consolidated income statement data in understanding cash flows
generated from operations that are available for taxes, debt service and
capital expenditures. However, our method of computation may or may not be
comparable to other similarly titled measures of other companies.
Adjusted EBITDA equals EBITDA plus the following other charges:
<TABLE>
Pro Forma
Quarter
Years Ended Quarters Ended Ended
December 31, March 31, March 31,
-------------------------------- -------------------- ---------
1996 1997 1998 1998 1999 1999
---- ---- ---- ---- ---- ----
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
EBITDA ......................... $ (11.5) $ 3.0 $ 16.6 $ 3.2 $ 2.4 $ 2.4
Adjustment for other charges:
Recapitalization costs ...... 15.7 -- -- -- -- --
Product line and plant
closure costs ............ 5.9 -- -- -- 0.9 0.9
Write-off of in-process
technology ............... -- 8.4 -- -- -- --
Abandoned acquisition costs.. -- 0.2 0.5 -- -- --
------- ------- ------- ------ ------ ------
Total adjustments ........ 21.6 8.6 0.5 -- 0.9 0.9
------- ------- ------- ------ ------ ------
Adjusted EBITDA before
cost savings from plant
closure .................. 10.1 11.6 17.1 3.2 3.3 3.3
------- ------- ------- ------ ------ ------
Annual cost savings from plant
closure ..................... -- -- 0.6 0.1 -- --
------- ------- ------- ------ ------ ------
Adjusted EBITDA ................ $ 10.1 $ 11.6 $ 17.7 $ 3.3 $ 3.3 $ 3.3
======= ======= ======= ====== ====== ======
</TABLE>
The cost savings in the table above represent future cost savings,
principally the elimination of facility and compensation costs, to be
realized in connection with our decision to close our facilities in
Sterling, Virginia. We began to close the facility in March 1999, and plan
to fully close the facility by June 1999. We expect to realize $0.5
million of such cost savings during 1999. In addition, we recorded a
charge during the first quarter of 1999 of approximately $0.9 million to
cover certain other costs associated with the plant closure. Eventually,
we will begin to pass a portion of these cost savings back to the U.S.
Government through our sole source programs. However, we believe this
reduction in our costs will make us more price competitive for future
contracts.
12
<PAGE>
Such future cost savings do not qualify as pro forma adjustments under
Regulation S-X promulgated under the Securities Act and constitute forward
looking statements within the meaning of the Litigation Reform Act.
Accordingly, such cost savings have been excluded from the pro forma
adjustments in "Unaudited Pro Forma Condensed Consolidated Financial
Statements." PricewaterhouseCoopers LLP does not express any opinion or
other form of assurance with respect to Adjusted EBITDA or the estimated
cost savings included therein. Actual results and cost savings may differ
materially from those reflected in Adjusted EBITDA.
(2) Reflects depreciation and amortization of plant and equipment, goodwill
and other intangible assets. Excludes $0.4 million, $0.9 million, $0.2
million and $0.2 million of amortization of deferred financing costs and
debt discounts for the years ended December 31, 1997 and 1998, and the
three months ended March 31, 1998 and 1999, respectively, as they are
recorded in interest expense.
(3) Contract awards represent the total dollar value of contract awards
received during the period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(4) Contracts awards are generally subject to termination for convenience by
the customer prior to shipment. The level of backlog at any given date
during the year will be materially affected by the timing of our receipt
of contract awards and the recognition of contract revenues. See "Business
-- Backlog."
(5) Cash and cash equivalents include restricted cash of $4.0 million at
December 31, 1998 and $5.6 million at March 31, 1999, which is currently
used to collateralize our outstanding letters of credit. As of March 31,
1999, on a pro forma basis, $18.8 million of our new credit facility would
be used to provide back-to-back letters of credit for our outstanding
letters of credit, which new letters of credit would not be required to be
cash collateralized.
(6) Total debt is defined as long-term debt, including current portion, and
short-term borrowings, net of unamortized discount related to stock
warrants.
13
<PAGE>
RISK FACTORS
In addition to the other matters described in this prospectus, you should
carefully consider the following risk factors.
You may suffer consequences if you fail to exchange your old notes
If you do not exchange your old notes in the exchange offer, your old notes
will continue to be subject to the restrictions on transfer described in the
legend on the certificate for the old notes. In general, you may offer or sell
the old notes only if they are registered under, offered or sold pursuant to an
exemption from, or offered or sold in a transaction not subject to, the
Securities Act and applicable state securities laws.
We believe that new notes issued in exchange for old notes pursuant to the
exchange offer may be offered for resale, resold or otherwise transferred by you
without registering the new notes under the Securities Act or delivering a
prospectus so long as you (1) are not one of our "affiliates", which is defined
in Rule 405 of the Securities Act, (2) acquire the new notes in the ordinary
course of your business and (3) either you are a broker-dealer or you do not
have any arrangement with any person to participate in the distribution of such
new notes. Our belief is based on interpretations by the SEC's staff in
no-action letters issued to third parties. Please note that the SEC has not
considered our exchange offer in the context of a no-action letter and we cannot
assure you that the SEC's staff would make a similar determination with respect
to our exchange offer.
Unless you are a broker-dealer, you must acknowledge that you are not
engaged in, and do not intend to engage in, a distribution of the new notes and
that you have no arrangement or understanding to participate in a distribution
of the new notes. If you are an affiliate of Condor, or you are engaged in,
intend to engage in or have any arrangement or understanding with respect to,
the distribution of new notes acquired in the exchange offer, you (1) should not
rely on our interpretations of the position of the SEC's staff and (2) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
If you are a broker-dealer and receive new notes for your own account
pursuant to the exchange offer, you must acknowledge that you will deliver a
prospectus in connection with any resale of such new notes. The letter of
transmittal states that by so acknowledging and by delivering a prospectus, you
will not be deemed to admit that you are an "underwriter" within the meaning of
the Securities Act. If you are a broker-dealer, you may use this prospectus, as
it may be amended or supplemented from time to time, in connection with the
resale of new notes received in exchange for old notes acquired by you as a
result of market-making or other trading activities. For a period of 90 days
after the expiration of the exchange offer, we will make this prospectus
available to any broker-dealer for use in connection with any such resale.
In addition, you may offer or sell the new notes in certain jurisdictions
only if they have been registered or qualified for sale there, or an exemption
from registration or qualification is available and is complied with. Subject to
the limitations specified in the registration rights agreement, we will register
or qualify the new notes for offer or sale under the securities laws of any
jurisdictions that you reasonably request in writing. Unless you request that
the sale of the new notes be registered or qualified in a jurisdiction, we
currently do not intend to register or qualify the sale of the new notes in any
jurisdiction. If you do not comply with such requirement, you could incur
liability under the Securities Act, and we will not indemnify you in such
circumstances.
Risks relating to our debt
We have a significant amount of debt
We have incurred a significant amount of indebtedness in connection with
the acquisition of our company. On a pro forma basis, as of March 31, 1999, we
had: (a) total consolidated indebtedness of approximately $100.0 million; and
(b) approximately $46.6 million of borrowings available under our new credit
facility, less $18.8
14
<PAGE>
million in standby letters of credit, subject to customary conditions. In
addition, subject to the restrictions in our new credit facility and the
indenture, we may incur significant additional indebtedness, which may be
secured, from time to time.
The level of our indebtedness could have important consequences, including:
o limiting cash flow available for general corporate purposes, including
acquisitions, because a substantial portion of our cash flow from
operations must be dedicated to servicing our debt
o limiting our ability to obtain additional debt financing in the future
for working capital, capital expenditures or acquisitions
o limiting our flexibility in reacting to competitive and other changes
in our industry and economic conditions generally
o restricting our ability to obtain letters of credit which are
necessary to support our international business
o otherwise impairing our ability to obtain contract awards from
customers concerned about our leverage
We may not be able to service our debt
Our ability to pay or to refinance our indebtedness will depend upon our
future operating performance, which will be affected by general economic,
financial, competitive, legislative, regulatory, business and other factors
beyond our control.
We anticipate that our operating cash flow, together with money we can
borrow under our new credit facility, will be sufficient to meet anticipated
future operating expenses, to fund capital expenditures and to service our debt
as it becomes due. If we were still unable to meet our debt service obligations,
we could attempt to restructure or refinance our indebtedness or seek additional
equity capital. We cannot assure you that we will be able to accomplish such
actions on satisfactory terms, if at all.
In addition, subject to the restrictions and limitations contained in our
debt agreements, we may incur significant additional indebtedness to finance
future acquisitions, which could adversely affect our operating cash flows and
our ability to service indebtedness.
Restrictive covenants in our indenture and new credit facility may adversely
affect us
The indenture governing the notes contains various covenants that limit our
ability to engage in certain transactions.
In addition, our new credit facility contains other and more restrictive
covenants and prohibits us from prepaying our subordinated indebtedness,
including the notes. Our new credit facility also requires us to maintain
specified financial ratios and satisfy certain other financial condition tests.
Our ability to meet those financial ratios and tests can be affected by events
beyond our control, and we cannot assure you that we will meet those tests. A
breach of any of these covenants could result in a default under our new credit
facility and/or the notes. Upon the occurrence of an event of default under our
new credit facility, the lenders could elect to declare all amounts outstanding
under our new credit facility to be immediately due and payable, terminate all
commitments to extend further credit and require us to cash collateralize
outstanding letters of credit. If we were unable to repay those amounts, the
lenders could proceed against the collateral granted to them to secure that
indebtedness. We have pledged substantially all of our assets, other than assets
of our foreign subsidiaries, as security under our new credit facility. If the
lenders under our new credit facility accelerate the repayment of borrowings, we
cannot assure you that we will have sufficient assets to repay our new credit
facility and our other indebtedness, including the notes.
15
<PAGE>
The notes will be subordinated to other debt
The notes rank junior to all of our existing and future senior
indebtedness, including all indebtedness under our new credit facility. The
guarantees of the notes by CEI Systems, Inc. will be subordinated to the prior
payment in full of all senior indebtedness of CEI Systems, Inc., including the
guarantee of our new credit facility by CEI Systems, Inc., to the same extent
the notes are subordinated to our senior indebtedness.
As a result of the subordination of the notes, if any of the following
events occur:
o we become insolvent or enter into a bankruptcy or similar proceeding
o we fail to make a payment when due on senior indebtedness
o any senior indebtedness is accelerated
then the holders of our senior indebtedness and of the senior indebtedness of
our guarantor, CEI Systems, Inc., must be paid in full before you are paid. If
we or CEI Systems, Inc. incur any additional debt that ranks equally with the
notes and the guarantees, the holders of such debt will be entitled to share
ratably with you in any proceeds distributed in connection with any insolvency,
liquidation, reorganization, dissolution or other winding-up of our company or
CEI Systems, Inc. This may have the effect of reducing the amount of proceeds
paid to you.
In addition, we cannot make any cash payments to you if we have failed to
make payments to holders of certain senior indebtedness. Under certain
circumstances, we cannot make any payments to you for a period of up to 179 days
if we have defaulted, other than failures to make payments, under certain of our
senior indebtedness covenants.
Holders of indebtedness and other liabilities of our subsidiaries other
than CEI Systems, Inc. will effectively be senior to your claims against such
subsidiaries. As of March 31, 1999, on a pro forma basis, such subsidiaries
would have had $0.0 million of outstanding liabilities, including trade payables
and excluding guarantees of the new credit facility and intercompany
obligations.
We may be unable to purchase the notes upon a change of control
Upon the occurrence of certain change of control events, you may require us
to purchase your notes at 101% of their principal amount, plus accrued interest.
The terms of our new credit facility limit our ability to purchase your notes in
such circumstances. Any of our future debt agreements may contain similar
restrictions and provisions. Accordingly, we may not be able to satisfy our
obligations to purchase your notes unless we are able to refinance or obtain
waivers under the new credit facility and certain other indebtedness. We cannot
assure that we will have the financial resources to purchase your notes,
particularly if such change of control event triggers a similar repurchase
requirement for, or results in the acceleration of, other indebtedness. Our new
credit facility currently provides that certain change of control events will
constitute a default and could result in the acceleration of our indebtedness
under the new credit facility.
Further reductions or changes in military expenditures may adversely affect us
The U.S. defense budget has declined significantly in the 1990s, resulting
in reduced revenues, increased pressure on operating margins and, in certain
cases, net losses for many defense-related contractors. During this period, our
contract revenues from agencies of, and contractors to, the U.S. Government have
increased. Approximately 64.5% of our contract revenues in 1998 were to the U.S.
Government or to prime contractors that identified the U.S. Government as the
ultimate purchaser. Our largest program contributed approximately 6.6% of
contract revenues for the year ended December 31, 1998, and no other program
represented more than 5.6% of contract revenues for this period. We believe our
continued development and success in the future will depend, in
16
<PAGE>
part, upon the continued willingness of the U.S. Government to commit
substantial resources to military spending and, in particular, upon continued
purchases of our products. A significant decline in U.S. military expenditures
generally, the loss or significant cutback of a large program in which we
participate, or a change in focus of defense spending that de-emphasizes EW
could materially adversely affect our future contract revenues and earnings and
thus our ability to meet our financial obligations.
Risks relating to our government contracts
Our contracts may be terminated or adjusted
Companies engaged primarily in supplying defense-related equipment and
services to government agencies are subject to certain business risks peculiar
to the defense industry. These risks include the ability of the U.S.
Government to:
o insist on strict compliance with the contract terms
o prosecute us for knowing failures to comply with contract terms or
procurement laws and regulations
o obtain treble damages and penalties for knowing or reckless failures
to comply with contract terms or procurement laws and regulations
o suspend us from receiving new contracts pending resolution of alleged
violations of procurement laws or regulations
o terminate existing contracts
o audit our contract-related costs and fees, including allocated
indirect costs
Contracts with the U.S. Government are subject to a complex set of
regulations and laws and the U.S. Government has available a wide variety of
criminal penalties, treble damage remedies and civil penalties to enforce those
requirements. The U.S. Government may challenge positions we have taken with
respect to those regulations, such as whether we qualify as a small business. If
the U.S. Government finds that we have violated any of its requirements, we may
be subject to criminal investigation and prosecution and may face civil damages
provisions and penalties.
All of our contracts involving U.S. Government programs, including
contracts involving sales to prime contractors or subcontractors, can be
terminated by the U.S. Government either for its convenience or if we default.
Termination for convenience provisions provide only for our recovery of costs
incurred or committed, settlement expenses and profit on work completed prior to
termination. Termination for default provisions require return of unliquidated
progress payments for unaccepted work and provide that we would be liable for
excess costs incurred by the U.S. Government in procuring undelivered items from
another source. As of December 31, 1998, our performance had been delayed on 11
of our domestic contracts with an aggregate contract value of approximately
$36.3 million and three of our international contracts with an aggregate
contract value of approximately $37.2 million. Performance delays constitute
defaults under those contracts. However, none of our customers has ever invoked
the default provisions because of performance delays. In addition, none of our
customers has terminated these contracts for this reason, although we may incur
additional costs as we work with our customers to revise their contract
schedules.
In addition to the right of the U.S. Government to terminate, U.S.
Government contracts are conditioned upon the continuing approval by Congress of
the necessary spending. Congress usually appropriates funds for a given program
on a fiscal-year basis even though contract performance may take more than one
year. Consequently, at the beginning of a major program, the contract is usually
partially funded, and additional monies are normally
17
<PAGE>
committed to the contract only if, as and when appropriations are made by
Congress for future fiscal years. Foreign defense contracts generally contain
similar provisions relating to termination at the convenience of the government.
The U.S. Government may review our costs and performance on their
contracts, as well as our accounting and general business practices. Under the
Truth in Negotiations Act, for any contract in excess of $500,000, the U.S.
Government may reduce the contract price by the amount by which it was
overstated as a result of not providing current, accurate or complete cost or
pricing data. Based on the results of these audits, historically we have not had
to fund any material adjustments. As of March 1, 1999, the U.S. Government is
claiming adjustments in an aggregate amount of $1.7 million for three contracts.
We have responded to these claims and are working with the U.S. Government to
resolve these matters. We believe that the resolution of these claims will not
have a material adverse effect on our financial condition and results of
operations. However, we cannot assure you that any claims for future audit
adjustments will not have a material adverse effect on our business. In
addition, under U.S. Government purchasing regulations, some of our costs,
including certain financing costs, goodwill, portions of research and
development costs and certain marketing expenses may not be reimbursable under
U.S. Government contracts. Further, as a government contractor, we are subject
to investigation, legal action and/or liability that would not apply to a
commercial company.
Our contracts are subject to additional risks
We obtain military contracts through the process of competitive bidding and
through sole source negotiations. While most of our historical contract revenues
have been derived from sole source negotiations, as our international business
increases we expect to derive a greater portion of our contract revenues through
competitive bidding. In addition, while our domestic production programs are
predominately sole source, some of our development programs are competitively
bid. We cannot assure you that we will continue to be successful in having our
bids accepted or, if accepted, that awarded contracts will generate sufficient
contract revenues to result in profitability. In particular, we often
aggressively compete on development programs by pursuing a low price bidding
strategy. Accordingly, such development programs are typically unprofitable or
break-even after allocating overhead, administrative and other indirect costs.
Although we pursue such development programs because we expect to profit from
the follow-on sole source business, we cannot assure you that we will obtain
such follow-on business. Also, the U.S. Government may in the future determine
to shift programs historically awarded to us on a sole source basis to a
competitive bidding process.
We are also subject to risks associated with the following:
o the frequent need to bid on programs in advance of the completion of
their design (which may result in unforeseen software development or
other technological difficulties and/or cost overruns)
o the substantial time and effort required for relatively unproductive
design and development
o design complexity and obsolescence
o the constant need for design improvement
In addition, many of our products and systems require licenses from U.S.
Government agencies for export from the United States, and some of our products
are not permitted to be exported. We cannot be sure of our ability to gain any
licenses required to export our products, and failure to receive required
licenses could materially reduce our ability to sell our products outside the
United States.
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<PAGE>
Our acquisition requires Department of Defense approval
Since we perform work on classified U.S. Government contracts, we had to
submit the acquisition to review by the Department of Defense because of the
change in control effected by the acquisition. DLJ Merchant Banking Partners II,
L.P., one of our equity investors, is indirectly majority owned by a holding
company incorporated in France. We have received a preliminary decision from the
Department of Defense, based on information regarding the terms of the
acquisition we submitted to the Department, that we will not be under foreign
ownership, control or influence once the acquisition is consummated. Although we
believe we will receive an official Department of Defense determination to this
effect after consummation of the acquisition, we cannot assure you of this, or
that such determination, if granted, will not be subsequently withdrawn by the
Department of Defense in the event that it concludes that we were or became
under foreign ownership, control or influence because of DLJMB's equity
ownership in us. Should the Department of Defense reach such a conclusion, in
order for us to maintain our ability to perform work on classified U.S.
Government contracts, we may be required to implement methods to mitigate such
foreign ownership, control or influence. These mitigating methods may include
placing control of our board of directors in the hands of independent outside
directors with no relationship to any of our shareholders, eliminating or
modifying certain approval rights that DLJMB will have over actions by our board
of directors or implementing prior approval requirements regarding
communications between us and DLJMB.
Our fixed price contracts entail certain risks
We provide our products and services primarily through fixed price
contracts. Fixed price contracts constituted approximately 97.7% of our contract
revenues for the year ended December 31, 1998. We record revenues and profits on
our long-term fixed price contracts by using the percentage-of-completion
cost-to-cost method of accounting. As a result, revisions made to our estimates
of costs and profits are reflected in the period in which the conditions that
require such revisions become known and can be estimated. The risks of long-term
fixed price contracts include the difficulty of forecasting costs and delivery
schedules and obtaining contract revenues that are related to performance in
accordance with contract specifications, and the possibility of obsolescence in
connection with long-term procurements. Failure to anticipate technical
problems, estimate costs accurately or control costs during performance of a
fixed price contract may reduce our profitability or cause a loss. Although we
believe that adequate provisions for losses for our fixed price contracts are
reflected in our financial statements, as required under U.S. generally accepted
accounting principles, we cannot assure you that these estimates and provisions
are adequate or that losses on fixed price contracts will not occur in the
future.
In addition, as our business has evolved from individual products to
complex systems requiring sophisticated software development, we are
increasingly exposed to the risks associated with software development,
including time delays and unplanned costs. During 1997 we made significant
upward revisions to our cost estimates on our two largest development programs
partially due to our decision to incorporate more advanced software into those
systems. These programs involved significantly more complex software development
efforts than our prior programs.
Our operations involve keeping up with technological change
Changes in technology are a key feature of the electronic warfare industry.
To succeed in the future, we will need to design, develop, manufacture,
assemble, test, market and support new products and enhancements on a timely and
cost-effective basis. Historically, our technology has been developed through
research and development incurred in connection with long-term development
contracts, a substantial portion of which was effectively funded by our
customers, as well as through acquisitions and from internally funded research
and development. We cannot assure you that we will be able to maintain the same
level of customer funding for research and development incurred in connection
with long-term development contracts in the future. In addition, when we work on
such a contract, we seek to protect our proprietary technologies by taking steps
to maintain ownership of data rights for our "core" technologies, source codes
and other developments. We keep records of our data rights in order to claim
these rights as our proprietary technology, but generally we do not make
specific delineations in our government
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contracts of ideas which we developed under these rights prior to entering into
such contracts. We cannot assure you that our customers will not challenge our
data rights as technology that was developed with government funds or in the
performance of their contracts.
Our contracts associated with funded backlog could be terminated
At December 31, 1998 we had funded backlog of $62.9 million. The U.S.
Government and foreign governments may unilaterally modify or terminate the
contracts associated with our funded backlog. Accordingly, most of our funded
backlog could be modified or terminated by the U.S. Government or foreign
governments. We cannot assure you that our funded backlog will result in
contract revenues. Further, we cannot assure you that any contract included in
funded backlog will be profitable.
Our acquisition strategy entails certain risks
We have historically pursued a targeted acquisition strategy and, as part
of our ongoing strategy to promote growth, we are currently in negotiations with
respect to other potential acquisitions, including with respect to the purchase
of certain EW assets from ARGOSystems. There are various risks associated with
pursuing a growth strategy of this nature.
o Any future growth will require us to manage our expanding domestic and
international operations, integrate new businesses and adapt our
operational and financial systems to respond to changes in our
business environment, while maintaining a competitive cost structure
o The acquisition strategy will continue to place demands on our
management to improve our operational, financial and management
information systems, to develop further the management skills of our
managers and supervisors, and to continue to retain, train, motivate
and effectively manage our employees
o We may not be able to generate sufficient cash flow or obtain
financing on acceptable terms to fund any acquisition. Our ability to
obtain financing may be limited by our debt agreements
Our failure to manage growth effectively could have a material adverse
effect on us. We also cannot assure you that suitable acquisition candidates
will be available or that acquisitions, including the ARGOSystems acquisition,
can or will be completed on reasonable terms or any anticipated benefits will be
realized.
Our international business is subject to risks
For the years ended December 31, 1997 and 1998, international contract
revenues comprised approximately 27.2% and 35.5%, respectively, of our total
contract revenues. International contract revenues are subject to numerous
risks, including:
o political and economic instability in foreign markets
o restrictive trade policies of foreign governments
o inconsistent product regulation by foreign agencies or governments
o imposition of product tariffs and burdens
o costs of complying with a wide variety of international and U.S.
export laws and regulatory requirements
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We typically receive one or more advance payments from our international
customers during the initial phase of the contract, which advances range from
approximately 20% to 60% of the total contract value. We generally provide
letters of credit to guarantee our performance of the contract. The customer may
draw down on the letters of credit if we default under the contract. A number of
our foreign contracts also give our customers the right to receive liquidated
damages ranging from 5% to 15% of the aggregate value of the items not delivered
or performed on schedule. As of December 31, 1998, our performance had been
delayed on three of our international contracts, which have an aggregate
contract value of approximately $37.2 million. Performance delays constitute
defaults under those contracts. However, none of our customers has ever invoked
the default provisions because of performance delays. In addition, none of our
customers has attempted to draw down on our letters of credit or sought
liquidated damages in any material amount, although we may incur additional
costs as we work with our customers to revise their contract schedules.
Our international sales require export licenses for certain products and
systems. We cannot assure you that we will be able to continue to obtain the
necessary export licenses. The failure to receive required licenses could
materially reduce our ability to sell our products outside the United States. It
may also constitute a default under a contract where the failure to receive an
export license precludes our performance. Additionally, we cannot assure you
that we will be able to compete successfully in international markets or that
our international sales will be profitable. Substantially all of our contract
revenues in 1998 were denominated in U.S. dollars, and we intend to continue to
enter into U.S. dollar-denominated contracts. Accordingly, we do not, and
believe that in the future we will not, have significant exposure to
fluctuations in currency. Nevertheless, fluctuations in currency could adversely
affect our customers, which may lead to delays in the timing and execution of
contract awards.
We operate in a competitive industry
The electronic warfare industry is highly competitive. The defense industry
in general has experienced substantial consolidation due to declining defense
budgets and increasing pressures for cost reductions. Our ability to compete for
electronic warfare contracts largely depends on the following factors:
o the effectiveness and innovations of our research and development
programs
o our ability to offer better performance than our competitors at a
lower cost
o the readiness of our facilities, equipment and personnel to undertake
the programs for which we compete
Many of our competitors are larger than us and have substantially greater
financial and other resources than we have.
We are dependent on key personnel
Our success depends to a significant extent on the continued services of
our senior management and other members of management. We could be adversely
affected if any of these persons were unwilling or unable to continue in our
employ. We have taken steps to minimize these risks by executing employment
agreements with key executive officers as described in "Management--Employment
and Severance Benefit Agreements."
We are controlled by principal shareholders
Upon consummation of the acquisition, all of our outstanding shares of
common stock will be held by affiliates of Global Technology Partners LLC,
affiliates of Behrman Capital L.P., certain members of management and investment
funds of DLJ Merchant Banking Partners II, L.P. All of these stockholders are
subject to an investors' agreement which, among other things, sets the number of
our directors at five and gives GTP the right to appoint three directors and
Behrman the right to appoint one, with the Chief Executive Officer as the final
director. The shares of common stock held by the GTP shareholders initially has
11.564 votes per share. Behrman's
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common stock has one vote per share. Although DLJMB's shares of common stock
does not have any voting rights, DLJMB's consent is required prior to
implementing certain decisions of our board of directors, including decisions
related to financings and acquisitions. As a result of their stock ownership and
the shareholders agreement, these principal shareholders control us and have the
power to elect all of our directors and approve any action requiring the
approval of the holders of common stock, including adopting amendments to our
certificate of incorporation and approving acquisitions or sales of all or
substantially all of our assets.
The general partners of each of the DLJMB funds are affiliates or employees
of Donaldson, Lufkin & Jenrette, Inc. Donaldson, Lufkin & Jenrette Securities
Corporation, which was an initial purchaser of the old notes, is an affiliate of
DLJ.
Circumstances may occur in which the interests of such principal
shareholders could be in conflict with your interests. In addition, such
shareholders may have an interest in pursuing transactions that, in their
judgment, enhance the value of their equity investment in our company, even
though such transactions may involve risks to you as a holder of the notes.
Our business may be disrupted by Year 2000 problems
The year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. Thus, as the turn of
the century approaches, computer programs may be unable to distinguish between
the year 1900 and the year 2000. The inability to recognize or properly treat
the year 2000 may cause computer systems to process critical data incorrectly.
During 1997, we implemented a year 2000 compliance plan to assess our year 2000
risks, update our internal hardware and software systems and assess whether any
substantial issues exist concerning products sold to customers.
Our compliance plan is now substantially complete and cost a total of
approximately $1.7 million as of the year ended December 31, 1998. We expect to
spend an additional $0.2 million in 1999. We believe that our internal
information systems and infrastructure are currently year 2000 compliant. We
have surveyed all of our vendors regarding their compliance efforts. In addition
to these surveys, we have also received certification of year 2000 compliance
from all of our major software vendors. We have also evaluated our systems and
products, including some older systems sold by our predecessors. This evaluation
has included testing that we have performed independently or in conjunction with
our customers. Our systems and products do not operate in a time sensitive
environment; as a result, we believe that any failure of such equipment to be
year 2000 compliant will not have any material adverse effect on the operation
of such equipment for its intended purpose.
However, we are uncertain as to the extent our customers and vendors may be
affected by year 2000 issues that require commitment of significant resources
and may cause disruptions in the customers' and vendors' businesses. Moreover,
year 2000 issues present a number of risks that are beyond our reasonable
control, such as:
o the failure of utility companies to deliver electricity
o the failure of telecommunications companies to provide voice and data
services
o the failure of financial institutions to process transactions and
transfer funds
o the failure of vendors to deliver materials or perform services
required by us
o the collateral effects on us of the effects of year 2000 issues on the
economy in general or on our customers in particular
We have developed contingency plans to attempt to minimize the impact on
our systems and operations in the event certain of our customers and vendors are
seriously affected by year 2000 problems or assert claims against us
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for damages resulting from the failure of installed products produced by us or
our predecessors to be year 2000 compliant. We cannot assure you that such
contingency plans will successfully mitigate any adverse effects that the year
2000 issue may have on our business, financial condition or results of
operations.
Limits on protecting our intellectual property may adversely affect us
Our ability to compete will depend, in part, on our ability to obtain and
enforce intellectual property protection for our technology in the United States
and internationally. Although we hold several U.S. patents, we currently rely
primarily on a combination of trade secret and trademark laws and employee and
third-party nondisclosure agreements. We also limit access to and distribution
of proprietary information. Trade secret laws, however, afford limited
protection because they cannot be used to prevent third parties from reverse
engineering and reproducing our products. We cannot assure you that our methods
for protecting proprietary information will be adequate to prevent
misappropriation of our technology or to preclude competitors from independently
developing such technology. We cannot assure you that the obligations to
maintain the confidentiality of our proprietary technology will prevent
disclosure of such information. In addition, trade secret protection of our
proprietary technology may be unavailable or limited in certain foreign
countries. Litigation may be necessary for us to defend against claims of
infringement or to protect our proprietary technology. Additionally, we cannot
assure you that third parties will not assert infringement claims against us or,
as described above, that our customers will not challenge our data rights in our
proprietary technology as constituting technology that was developed in the
performance of their contracts.
Fraudulent transfer statutes may limit your rights as a noteholder
Federal or state fraudulent transfer laws permit a court, if it makes
certain findings, to
o avoid all or a portion of our obligations to you
o subordinate our obligations to you to our other existing and future
indebtedness, entitling other creditors to be paid in full before any
payment is made on the notes
o take other action detrimental to you, including, in certain
circumstances, invalidating the notes
If a court were to take any of those actions, we cannot assure you that you
would ever be repaid. Moreover, if the payments to certain of our stockholders
made pursuant to the merger agreement with the proceeds of the notes were
determined to have violated the financial requirements in the California
corporations statute, you will not be entitled under such law to recover these
payments from either the stockholders or the members of our board of directors
that authorized these payments.
Under federal and state fraudulent transfer laws, in order to take any of
those actions, courts will typically need to find that, at the time the notes
were issued, we:
(1) issued the notes with the intent of hindering, delaying or
defrauding current or future creditors; or
(2) received less than fair consideration or reasonably equivalent
value for incurring the indebtedness represented by the notes and
(a) were insolvent or were rendered insolvent by reason of the
issuance of the notes;
(b) were engaged, or about to engage, in a business or
transaction for which our assets were unreasonably small; or
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(c) intended to incur, or believed (or should have believed) we
would incur, debts beyond our ability to pay as such debts
mature (as all of the foregoing terms are defined in or
interpreted under such fraudulent transfer statutes).
Different jurisdictions define "insolvency" differently. However, we
generally would be considered insolvent at the time we incurred the indebtedness
constituting the notes if:
(1) the fair market value (or fair saleable value) of our assets is less
than the amount required to pay our total existing debts and
liabilities (including the probable liability related to contingent
liabilities) as they become absolute or matured or
(2) we were incurring debts beyond our ability to pay as such debts
mature.
We cannot assure you as to what standard a court would apply in order to
determine whether we were "insolvent" as of the date the notes were issued, and
we cannot assure you that, regardless of the method of valuation, a court would
not determine that we were insolvent on that date. Nor can we assure you that a
court would not determine, regardless of whether we were insolvent on the date
the notes were issued, that the payments constituted fraudulent transfers on
another ground.
The guarantees of the notes by our guarantor, CEI Systems, Inc., also may
be subject to review under various laws for the protection of creditors,
including federal and state fraudulent conveyance and fraudulent transfer laws,
if a bankruptcy case or a lawsuit, including in circumstances where bankruptcy
is not involved, is commenced by or on behalf of any creditor of CEI Systems,
Inc. or a representative of any such creditor. In such a case, the analysis
described above would generally apply, except that the guarantees could also by
subject to the claim that, since the guarantees were incurred for our benefit,
and only indirectly for the benefit of CEI Systems, Inc., the obligations of CEI
Systems, Inc. under the guarantees were incurred for less than reasonably
equivalent value or fair consideration. A court could void CEI Systems, Inc.'s
obligations under the guarantees, subordinate the guarantees to other
indebtedness of CEI Systems, Inc., direct that you return any amounts paid under
the guarantees to CEI Systems, Inc., or to a fund for the benefit of its
creditors, or take other action detrimental to you. In addition, the liability
of CEI Systems, Inc. under the indenture will be limited to the amount that will
result in its guarantees of the notes not constituting a fraudulent conveyance
and we cannot assure you as to what standard a court would apply in making a
determination as to what would be the maximum liability of CEI Systems, Inc.
No public trading market for the notes exist
The new notes are being offered to holders of the old notes, which were
issued on April 15, 1999 to a limited number of investors. There is currently no
active trading market for the notes, and it is not possible to predict how the
notes will trade in the secondary market or whether such market will be liquid
or illiquid. If a trading market does develop, the notes may trade at a discount
from their initial offering price, depending upon prevailing interest rates, the
market for similar securities and other factors, including economic conditions
and our financial condition, performance, and prospects. The liquidity of, and
trading markets for, the notes may also be adversely affected by declines in the
market for high yield securities generally. We do not intend to apply for
listing of the notes on any securities exchange.
You may not be able to rely on forward-looking statements
The information contained in this prospectus includes some forward-looking
statements that involve a number of risks and uncertainties. A number of factors
could cause our actual results, performance, achievements or industry results to
be very different from the results, performance or achievements expressed or
implied by such forward-looking statements. These factors include, but are not
limited to:
o the competitive environment in our industry in general and in our
specific market areas
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o defense spending
o economic conditions in general and in our specific market areas
o changes in or our failure to comply with federal, state, local or
foreign laws and government regulations
o liability and other claims asserted against our company
o changes in operating strategy or development plans
o the ability to attract and retain qualified personnel
o our significant indebtedness
o changes in our acquisition and capital expenditure plans
o technology shifts away from our technological strengths
o unforeseen interruptions with our largest customers
o our ability to integrate acquired businesses
o our ability to compete internationally
o the increased working capital required if we lose our U.S. Government
small business designation
o other factors we refer to in this prospectus
In addition, forward-looking statements depend upon assumptions, estimates
and dates that may not be correct or precise and involve known and unknown
risks, uncertainties and other factors. Accordingly, a forward-looking statement
in this prospectus is not a prediction of future events or circumstances and
those future events or circumstances may not occur. Given these uncertainties,
you are warned not to rely on the forward-looking statements. A forward-looking
statement is usually identified by our use of certain terminology including
"believes," "expects," "may," "will," "should," "seeks," "pro forma,"
"anticipates" or "intends" or by discussions of strategy or intentions. We are
not undertaking any obligation to update these factors or to publicly announce
the results of any changes to our forward-looking statements due to future
events or developments.
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THE ACQUISITION AND FINANCING
DLJ Merchant Banking Partners II, L.P. ("DLJMB") and affiliated funds and
entities (what we call, collectively, the "DLJ Entities") formed WDC Acquisition
Corp. (what we call "Merger Sub") and WDC Stock Acquisition Corp. (what we call
"Other Sub"), California corporations wholly owned by DLJMB for the purpose of
consummating the Merger (which we define below). As of March 8, 1999, Other Sub
entered into (1) a stock purchase and consent agreement among Other Sub, Condor
and certain Condor shareholders (what we call the "Purchase and Consent
Agreement") and (2) a stock purchase agreement between Other Sub and Condor's
employee stock ownership plan (what we call the "ESOP Stock Purchase Agreement"
and collectively with the Purchase and Consent Agreement, what we call the
"Stock Purchase Agreements"). Also as of March 8, 1999, Merger Sub entered into
a merger agreement (the "Merger Agreement") among Merger Sub, Condor, Behrman
Capital, L.P., Behrman Capital "B" L.P. and Strategic Entrepreneur Fund, L.P.
(what we call, collectively, the "Behrman Funds") and certain members of
management ("Management"). The Purchase and Consent Agreement included written
consents from the Behrman Funds, as holders of all of our outstanding shares of
Series A preferred stock, Management and other Condor employees, as holders of
all of our outstanding shares of Class B common stock, to approve the Merger,
the Merger Agreement and the other transactions contemplated thereby.
The Purchase and Investment of Shares. Pursuant to an equity commitment
letter (the "Equity Commitment Letter") dated March 8, 1999:
o the DLJ Entities purchased 671,238 shares of common stock of Merger
Sub for $671,238, all of which are non-voting
o Global Technology Partners, LLC or its members thereof ("GTP")
purchased 2,551,053 shares of common stock of Merger Sub for
$2,551,053, which have voting rights equal in the aggregate to the sum
of the shares held by GTP and the DLJ Entities, or initially 11.564
votes per share
o affiliates of Behrman Capital, L.P. ("Behrman") purchased 15,000,000
shares of common stock of Merger Sub for $15,000,000, each share of
which has one vote
GTP paid for its shares partly in cash, partly by cancellation of a fee
payable in connection with the consummation of the Acquisition (as defined on
page 28) and partly with the proceeds of non-recourse loans from Condor. The
non-recourse loans are secured by shares of Merger Sub common stock and by
securities received pursuant to other equity investments GTP has made or will
make with DLJMB.
Pursuant to the Stock Purchase Agreements, Other Sub purchased:
o 1,922,467 shares of Class A common stock of Condor at $4.57785979 per
share from certain Condor employees who continued to own common stock
of Condor, including Management (what we call the "Rollover
Shareholders") at the Effective Time (which we define below) and from
certain Condor employees who ceased to own common stock of Condor
(what we call the "Non-Rollover Shareholders") at the Effective Time
o 3,371,837 shares of Class A common stock of Condor at $4.57785979 per
share from the Condor employee stock ownership plan
o 12,819,341 shares of Class B common stock of Condor at $0.15922254 per
share from the Rollover Shareholders and the Non-Rollover Shareholders
Immediately prior to the Effective Time, Other Sub assigned its rights and
obligations under the Stock Purchase Agreements to the DLJ Entities, who
purchased the shares. Immediately following the purchase, the DLJ Entities held
5,294,304 shares of Class A common stock and 12,819,341 shares of Class B common
stock. After
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completing the purchase, as holder of a majority of the Class A common stock of
Condor, the DLJ Entities executed a written consent to approve the Merger, the
Merger Agreement and the other transactions contemplated thereby.
The Merger. Under the terms of the Merger Agreement, following the
consummation of the transactions set forth in the Equity Commitment Letter and
the Stock Purchase Agreements, Merger Sub was merged with and into Condor (what
we call the "Merger"). As a result of the Merger, the separate corporate
existence of Merger Sub ceased and Condor became the surviving corporation. Upon
the effectiveness of the Merger on April 15, 1999 (what we call the "Effective
Time"):
(1) each issued and outstanding share of common stock of Merger Sub
was converted into and become a share of common stock of Condor,
with the same voting rights as previously attached to the common
stock of Merger Sub
(2) each issued and outstanding share of Class A common stock and
Class B common stock purchased by the DLJ Entities was converted
into and become 26,277,709 non-voting shares of common stock of
Condor, and the DLJ Entities received cash for fractional shares
(3) each issued and outstanding share of Class A common stock and
Class B common stock held by the Rollover Shareholders was
converted into and become 6,407,891 shares of common stock of
Condor, each of which has one vote per share, and the Rollover
Shareholders received cash for fractional shares
(4) each issued and outstanding share of Class A common stock not
held by the Rollover Shareholders or the DLJ Entities was
converted into the right to receive $4.57785979 per share
(5) each issued and outstanding share of Series A preferred stock of
Condor, all of which were held by the Behrman Funds, was
converted into the right to receive $3.47924725 per share
(6) outstanding warrants to purchase 19,148,940 shares of Class B
common stock of Condor outstanding were converted into the right
to receive $0.15922254 per share minus the exercise price of such
warrant (what we call the "Warrant Consideration")
We refer to the cash amounts described in (4) and (5) above collectively as
the "Merger Consideration."
At or immediately prior to the Effective Time, each outstanding stock
option to purchase shares of Class B common stock of Condor (the "Company
Options") was canceled and each holder of any such option, whether or not then
vested or exercisable, was paid by Condor promptly after the Effective Time a
cash payment equal to (a) $0.15922254 per share multiplied by the number of
shares of Class B common stock that would have been issuable upon the exercise
of such Company Option, reduced by (b) the aggregate exercise price for the
shares of Class B common stock then issuable upon exercise of such Company
Option (we call such net amount in the aggregate, the "Option Consideration").
In addition, the Merger Agreement required us to make incentive payments
limited to a maximum aggregate amount of $7.0 million to our existing
shareholders, option holders and warrantholders if we conduct a public equity
offering, sell our business or make substantial acquisitions within eight years
after the Acquisition. See "Certain Relationships and Related Party
Transactions."
The Financing. In order to (a) fund the Merger Consideration, the Option
Consideration and the Warrant Consideration pursuant to the Merger Agreement,
the amounts paid by the DLJ Entities pursuant to the Stock Purchase Agreements,
including the fees and expenses of Rollover Shareholders and Non-Rollover
Shareholders of approximately $7.1 million, and the non-recourse loans we
provided to GTP in the amount of $1.2 million to fund
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the purchase by GTP of the shares of Merger Sub common stock, which loans are
secured by shares of Condor common stock owned by GTP and by securities received
pursuant to other equity investments GTP has made or will make with DLJMB (what
we call, collectively, the "Acquisition Consideration") immediately prior to the
Effective Time, (b) refinance and/or retire our outstanding indebtedness and (c)
pay expenses in connection therewith, on a pro forma basis as of March 31, 1999:
o we issued and sold the old notes in the aggregate principal amount of
$100.0 million
o we received a new equity investment in the amount of $44.5 million
o Rollover Shareholders converted their existing shares to shares of
Condor in the amount of $6.4 million
o we used cash on our balance sheet
At the Effective Time, we entered into a $50.0 million syndicated senior
secured loan facility (what we call the "New Credit Facility") with a group of
financial institutions, with Bank of America National Trust & Savings
Association ("BAC") as the administrative agent. At the Effective Time, we did
not borrow under the New Credit Facility, although $18.8 million, the amount of
letters of credit outstanding as of March 31, 1999, of the revolving credit
availability thereunder was utilized to provide back-to-back letters of credit
for our outstanding letters of credit held by international customers. We may
use the borrowing availability under the New Credit Facility to fund our working
capital requirements, subject to certain conditions, including the absence of
any material adverse change.
We refer to the investment and purchase of shares pursuant to the Equity
Commitment Letter and the Stock Purchase Agreements and the related transactions
described therein, and the consummation of the Merger pursuant to the Merger
Agreement and the related transactions described therein collectively as the
"Acquisition.".
The following table sets forth the sources and uses of funds for the
Acquisition, the related financing and related fees and expenses on a pro forma
basis as of March 31, 1999:
(dollars in
millions)
Sources
Notes................................................... $ 100.0
New equity investment(1)................................ 44.5
Rollover management equity(2)........................... 6.4
Cash on balance sheet................................... 6.7
---------------
Total Sources........................................ $ 157.6
===============
Uses
Acquisition Consideration............................... $ 79.0
Rollover management equity(2)........................... 6.4
Refinance existing debt(3).............................. 55.7
Excess cash............................................. 6.8
Transaction fees and expenses(4)........................ 9.7
---------------
Total Uses........................................... $ 157.6
===============
- -------------------
(1) Includes $18.2 million paid under the Equity Commitment Letter to Merger
Sub and $26.3 million paid under the Stock Purchase Agreements to certain
of our previous stockholders.
(2) Rollover management equity consists of the outstanding shares of Class B
and certain shares of Class A common stock held by the Rollover
Shareholders which were converted into and became 6,407,891 shares of
common stock of Condor upon consummation of the Acquisition.
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(3) Includes the repayment of $50.7 million of indebtedness outstanding under
the Note and Warrant Purchase Agreement dated as of November 15, 1996 and
related notes among Condor, Nomura Holding America Inc., Antares Leveraged
Capital Corp. and First Union Bank of Connecticut, shown net of $0.7
million of unamortized debt discount related to stock warrants on the March
31, 1999 balance sheet, and $5.0 million of Condor's subordinated notes due
December 2004.
(4) Includes transaction fees and expenses of $10.8 million less $0.7 million
of transaction fees and expenses and $0.5 million of abandoned acquisition
costs paid prior to March 31, 1999.
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USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the new notes
being offered. New notes will be exchanged for old notes as described in this
prospectus on our receipt of old notes in like principal amount. We will retire
and cancel all of the old notes surrendered in exchange for the new notes.
Our net proceeds from the sale of the old notes, after deducting expenses
of the offering, including discounts to the initial purchasers, were
approximately $96.2 million. We used the net proceeds, together with our new
equity investment and cash on our balance sheet, to fund the Acquisition
Consideration, to repay our existing indebtedness and to pay fees and expenses
related to the Acquisition. The remaining net proceeds were used for general
corporate purposes and were initially temporarily invested in short-term
securities.
CAPITALIZATION
The following table sets forth cash and cash equivalents and consolidated
capitalization of Condor as of March 31, 1999 (a) on a historical basis and (b)
pro forma to give effect to the Acquisition and the related financing. This
table should be read in conjunction with our consolidated financial statements
and the notes thereto included elsewhere herein, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "The Acquisition
and Financing."
As of March 31, 1999
----------------------
Historical Pro Forma
---------- ---------
(dollars in millions)
Cash and cash equivalents(1)............................ $ 6.7 $ 6.8
========= ========
Long-term debt:
New Credit Facility(2)............................... $ -- $ --
Notes................................................ -- 100.0
Other debt obligations............................... 55.0 --
--------- --------
Total long-term debt (including
current portion)(3)........................... 55.0 100.0
--------- --------
Total shareholders' deficit.......................... (12.9) (50.2)
--------- --------
Total capitalization................................ $ 42.1 $ 49.8
========= ========
- -------------------
(1) Cash and cash equivalents include restricted cash of $5.6 million, which is
currently used to collateralize our outstanding letters of credit. As of
March 31, 1999, on a pro forma basis, $18.8 million of our new credit
facility would be used to provide back-to-back letters of credit for our
outstanding letters of credit, which new letters of credit would not be
required to be cash collateralized.
(2) Consists of a revolving credit facility of up to $50.0 million, under
which, on a pro forma basis, as of March 31, 1999, we had approximately
$46.6 million of borrowings available (less $18.8 million in standby
letters of credit), subject to customary conditions.
(3) Total debt is defined as long-term debt, including current portion, and
short-term borrowings, net of unamortized discount related to stock
warrants (which discount was $0.7 million as of March 31, 1999).
30
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data of Condor for
each of the five years in the period ended December 31, 1998 is derived from
Condor's audited consolidated financial statements and the notes thereto. The
Statement of Operations Data for the years ending December 31, 1996, 1997 and
1998 and the Balance Sheet Data for the years ended December 31, 1997 and 1998
are derived from our audited financial statements included elsewhere in this
prospectus. The Statement of Operations Data for the years ending December 31,
1994 and 1995 and the Balance Sheet Data for the years ended December 31, 1994,
1995 and 1996 are derived from our audited financial statements not included in
this prospectus. The selected historical financial data as of and for the three
months ended March 31, 1998 and 1999 were derived from the unaudited historical
financial statements of Condor included elsewhere in this prospectus and in the
opinion of management of Condor, include all adjustments consisting only of
normal and recurring adjustments necessary to present fairly the financial
position and results of operations for the periods presented. The results of
operations for interim periods are not necessarily indicative of results of
operations for the full year.
The selected unaudited pro forma consolidated financial data is derived
from our historical financial data and gives effect to the transactions
described in "Unaudited Pro Forma Condensed Consolidated Financial Statements"
included elsewhere in this prospectus. The selected unaudited pro forma
consolidated financial data is presented for illustrative purposes only and is
not necessarily indicative of our financial position or results of operations if
such transactions had actually occurred on such dates, and is not necessarily
indicative of our future results of operations or financial position. The
information contained in this table should be read in conjunction with "The
Acquisition and Financing," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Unaudited Pro Forma Condensed
Consolidated Financial Statements" and our consolidated financial statements and
the notes thereto included elsewhere in this prospectus.
<TABLE>
Pro Forma
Year Pro Forma
Ended Quarter
December Quarters Ended Ended
Years Ended December 31, 31, March 31, March 31,
----------------------------------------------- -------- ----------------- ---------
1994 1995 1996 1997 1998 1998 1998 1999 1999
---- ---- ---- ---- ---- ---- ---- ---- ----
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Contract revenues...............$ 41.0 $ 60.2 $ 67.5 $ 79.6 $ 101.0 $ 101.0 $ 19.5 $ 19.0 $ 19.0
Contract costs.................. 26.2 38.7 43.8 53.1 61.6 61.6 11.1 11.2 11.2
-------- ------ ------- ------- ------- ------- ------- ------- -------
Gross margin................. 14.8 21.5 23.7 26.5 39.4 39.4 8.4 7.8 7.8
Technology related costs:
Research and development..... 0.9 2.2 1.7 1.0 4.4 4.4 0.6 1.1 1.1
Amortization of purchased
technology................. -- -- -- 0.6 2.5 2.5 0.6 -- --
Write-off of in-process
technology................. -- -- -- 8.4 -- -- -- -- --
Selling, general and
administrative............... 10.3 13.3 14.1 16.1 20.3 20.3 5.2 4.0 4.0
Other charges:
Recapitalization costs....... -- -- 15.7 -- -- -- -- -- --
Product line and plant
closure costs.............. -- -- 5.9 -- -- -- -- 0.9 0.9
Abandoned acquisitions
costs...................... -- -- -- 0.2 0.5 0.5 -- -- --
-------- ------ ------- ------- ------- ------- ------- ------- -------
Operating income (loss)...... 3.6 6.0 (13.7) 0.2 11.7 11.7 2.0 1.8 1.8
Interest and other income....... 0.1 0.1 -- 0.1 0.3 0.2 -- 0.1 0.1
Interest expense................ (0.6) (0.8) (1.3) (5.7) (7.7) (13.7) (1.9) (1.8) (3.4)
-------- ------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes...................... 3.1 5.3 (15.0) (5.4) 4.3 (1.8) 0.1 0.1 (1.5)
Provision for (benefit of)
income taxes................. 0.8 1.9 (3.5) (2.2) 1.7 (0.7) 0.1 -- (0.6)
-------- ------ ------- ------- ------- ------- ------- ------- -------
</TABLE>
31
<PAGE>
<TABLE>
Pro Forma
Year Pro Forma
Ended Quarter
December Quarters Ended Ended
Years Ended December 31, 31, March 31, March 31,
----------------------------------------------- -------- ----------------- ---------
1994 1995 1996 1997 1998 1998 1998 1999 1999
---- ---- ---- ---- ---- ---- ---- ---- ----
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) ...........$ 2.3 $ 3.4 $(11. 5) $ (3.2) $ 2.6 $ (1.1) $ -- $ .01 $ (0.9)
======== ====== ===== = ======= ======= ======= ==== ======= =======
Other Financial Data:
Adjusted EBITDA(1)..............$ 5.6 $ 8.9 $ 10.1 $ 11.6 $ 17.7 $ 17.7 $ 3.3 $ 3.3 $ 3.3
Adjusted EBITDA margin ......... 13.7% 14.8% 14.9% 14.6% 17.5% 17.5% 16.9% 17.5% 17.5%
Depreciation and
amortization(2) ............. 1.6 1.9 2.2 2.8 4.9 4.9 1.2 0.6 0.6
Capital expenditures ........... 0.6 1.6 1.4 1.7 2.5 2.5 0.8 0.2 0.2
Ratio of earnings to fixed
charges(3) .................. 3.7x 5.0x -- 0.1x 1.5x 0.9x 1.0x 1.1x 0.6x
Net Cash Provided By (Used In):
Operating activities............ 6,333 2,154 (13,616) 2,445 12,076 870 926 --
Investing activities............ (7,349) (2,680) (1,368) (21,415) (2,502) (795) (237) --
Financing activities............ (143) (2,597) 16,875 15,431 (5,953) 2,520 (3,843) --
Certain Pro Forma Data:
Cash interest expense .......... -- -- -- -- -- $ 12.9 -- -- --
Ratio of net debt to Adjusted
EBITDA ...................... -- -- -- -- -- 5.2x -- -- --
Ratio of Adjusted EBITDA to
cash interest expense ........ -- -- -- -- -- 1.4x -- -- --
Ratio of Adjusted EBITDA less
capital expenditures to cash
interest expense ............. -- -- -- -- -- 1.2x -- -- --
Other Operating Data:
Contract awards(4) .............$ 50.4 $ 63.2 $ 77.3 $ 89.9 $ 104.2 $ 104.2 $ 40.0 $ 11.4 $ 11.7
Funded backlog at end of
period(5) ................... 36.6 39.6 49.4 59.7 62.9 62.9 80.2 55.3 55.3
Balance Sheet Data:
Cash and cash equivalents(6) ... 3.5 2.3 4.2 0.7 8.3 3.3 6.7 6.8
Working capital ................ 12.8 13.9 18.2 25.1 29.0 25.6 29.5 34.3
Total assets ................... 25.8 32.6 50.1 64.7 67.9 63.2 61.5 69.2
Total debt (including current
maturities)(7) .............. 7.2 5.3 46.0 61.0 55.8 61.0 55.0 100.0
Shareholders' equity (deficit).. 10.6 14.7 (13.7) (15.9) (13.0) (15.9) (12.9) (50.2)
</TABLE>
- -----
(1) EBITDA is defined as operating income (loss) plus depreciation and
amortization. EBITDA is a key financial measure but should not be construed
as an alternative to operating income or cash flow from operating
activities as determined in accordance with generally accepted accounting
principles. We believe EBITDA is a useful supplement to net income (loss)
and other consolidated income statement data in understanding cash flows
generated from operations that are available for taxes, debt service and
capital expenditures. However, our method of computation may or may not be
comparable to other similarly titled measures of other companies. Adjusted
EBITDA equals EBITDA plus the following other charges:
<TABLE>
Pro Forma
Quarter
Quarters Ended Ended
Years Ended December 31, March 31, March 31,
------------------------------------------------ ---------------- ---------
1994 1995 1996 1997 1998 1998 1999 1999
---- ---- ---- ---- ---- ---- ---- ----
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA............................... $ 5.2 $ 8.0 $ (11.5) $ 3.0 $ 16.6 $ 3.2 $ 2.4 $ 2.4
Adjustment for other charges:
Recapitalization costs............ -- -- 15.7 -- -- -- -- --
Product line and plant closure
costs.......................... -- -- 5.9 -- -- -- 0.9 0.9
Write-off of in-process
technology..................... -- -- -- 8.4 -- -- -- --
Abandoned acquisition costs....... -- -- -- 0.2 0.5 -- -- --
</TABLE>
32
<PAGE>
<TABLE>
Pro Forma
Quarter
Quarters Ended Ended
Years Ended December 31, March 31, March 31,
----------------------------------------------- ----------------- ---------
1994 1995 1996 1997 1998 1998 1999 1999
---- ---- ---- ---- ---- ---- ---- ----
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock compensation................ 0.4 0.9 -- -- -- -- -- --
------ ----- ------- ------ ------ ----- ----- -----
Total adjustments.............. 0.4 0.9 21.6 8.6 0.5 -- 0.9 0.9
------ ----- ------- ------ ------ ----- ----- -----
Adjusted EBITDA before
cost savings from plant
closure...................... $ 5.6 $ 8.9 $ 10.1 $ 11.6 $ 17.1 $ 3.2 $ 3.3 $ 3.3
------ ----- ------- ------ ------ ----- ----- -----
Annual cost savings from plant
closure........................ -- -- -- -- 0.6 0.1 -- --
Adjusted EBITDA................ $ 5.6 $ 8.9 $ 10.1 $ 11.6 $ 17.7 $ 3.3 $ 3.3 $ 3.3
====== ===== ======= ====== ====== ===== ===== =====
</TABLE>
The cost savings in the table above represent future cost savings
(principally the elimination of facility and compensation costs) to be
realized in connection with our decision to close our facilities in Sterling,
Virginia. We began to close the facility in March 1999, and plan to fully
close the facility by June 1999. We expect to realize $0.5 million of such
cost savings during 1999. In addition, we recorded a charge during the first
quarter of 1999 of approximately $0.9 million to cover certain other costs
associated with the plant closure. Eventually, we will begin to pass a
portion of these cost savings back to the U.S. Government through our sole
source programs. However, we believe this reduction in our costs will make us
more price competitive for future contracts.
Such future cost savings do not qualify as pro forma adjustments under
Regulation S-X promulgated under the Securities Act and constitute forward
looking statements within the meaning of the Litigation Reform Act.
Accordingly, such cost savings have been excluded from the pro forma
adjustments in "Unaudited Pro Forma Condensed Consolidated Financial
Statements." PricewaterhouseCoopers LLP does not express any opinion or other
form of assurance with respect to Adjusted EBITDA or the estimated cost
savings included therein. Actual results and cost savings may differ
materially from those reflected in Adjusted EBITDA.
(2) Reflects depreciation and amortization of plant and equipment, goodwill
and other intangible assets. Excludes $0.4 million, $0.9 million, $0.2
million and $0.2 million of amortization of deferred financing costs and
debt discounts for the years ended December 31, 1997 and 1998, and the
three months ended March 31, 1998 and 1999, respectively, as they are
recorded in interest expense.
(3) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent net income (loss) before income taxes plus fixed
charges. Fixed charges consist of (a) interest, whether expensed or
capitalized; (b) amortization of debt expense and discount or premium
relating to indebtedness, whether expensed or capitalized; and (c) that
portion of lease rental expense representative of interest (deemed to be
one-third of lease rental expense). For the year ended December 31, 1996,
earnings were insufficient to cover fixed charges by $13.2 million.
(4) Contract awards represent the total dollar value of contract awards
received during the period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(5) Contract awards are generally subject to termination for convenience by
the customer prior to shipment. The level of backlog at any given date
during the year will be materially affected by the timing of our receipt
of contract awards and the recognition of contract revenues. See "Business
-- Backlog."
(6) Cash and cash equivalents include restricted cash of $4.0 million at
December 31, 1998 and $5.6 million at March 31, 1999, which is currently
used to collateralize our outstanding letters of credit. As of March 31,
33
<PAGE>
1999, on a pro forma basis, $18.8 million of our new credit facility would
be used to provide back-to-back letters of credit for our outstanding
letters of credit, which new letters of credit would not be required to be
cash collateralized.
(7) Total debt is defined as long-term debt, including current portion, and
short-term borrowings, net of unamortized discount related to stock
warrants.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
Consolidated Financial Statements and our Unaudited Pro Forma Condensed
Consolidated Financial Statements, including the notes thereto, included
elsewhere in this prospectus.
This discussion contains forward-looking statements which involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such
differences include, but are not limited to, those discussed in "Risk Factors."
Overview
We are one of the world's leading providers of technologically advanced
signal collection and specialized electronic countermeasure products and systems
in the EW industry. We supply a complete line of integrated systems, subsystems
and products, which are used to intercept, identify, locate and analyze radar
signals for a variety of military needs, including intelligence, reconnaissance,
surveillance, precision targeting, situational awareness and threat warning. Our
products and systems are used on high profile airborne, shipboard and ground
based platforms. We have established long-term relationships with a wide variety
of customers and supply our products and systems to all of the U.S. intelligence
and military services, the major domestic prime defense contractors such as
Lockheed Martin, Raytheon and Boeing, other defense contractors worldwide and a
number of foreign governments in countries such as Japan, Norway, Sweden and
Taiwan. Our products and systems are used in the following program categories:
(1) Airborne ELINT Systems; (2) Airborne ESM Systems; (3) Ground and Range
Systems; (4) Ocean Systems; and (5) Specialized Electronic Countermeasures.
The electronic warfare market is highly fragmented, with 32 significant
industry participants, only six of whom have more than a 5% market share. In
addition, there are numerous other acquisition candidates in the EW industry, as
well as in other segments of the defense electronics industry. In response to
overall defense industry trends in the 1990s, one component of our business
strategy has been to focus on strategic acquisitions. In recent years, we have
acquired:
o the Electronic Systems division of Whittaker Corporation (1997) for a
purchase price of $19.7 million (the "Whittaker Acquisition")
o the Microwave Surveillance Systems division of the Watkins-Johnson
Company (1995) for a purchase price of $5.8 million
o Electronics Support Systems, Inc. (1994) for a purchase price, net of
cash acquired, of $2.3 million
o SCOPE, Inc. (1994) for a purchase price of $0.4 million
All of these acquisitions were accounted for under the purchase accounting
method. These acquisitions provide us with opportunities to market complementary
products, expand our installed base and achieve significant cost savings by
spreading our overhead over a larger base of contracts. Since the pricing of our
domestic sole source contracts is partially based on our costs, we expect to
pass on a portion of these cost savings to our customers over time. However, we
believe this reduction in our costs will make us more price competitive for our
future contracts.
Substantially all of our products and systems are sold under multi-year
development and production programs to agencies of the U.S. Government, to
foreign government agencies or to prime contractors or subcontractors thereof.
U.S. Government contracts are awarded either on a competitive bid basis or on a
negotiated sole source procurement basis. Contracts awarded on a competitive bid
basis, which are typically development programs, involve several
35
<PAGE>
competitors bidding on the same program with the contract usually being awarded
based upon such factors as price, technical program management capabilities and
performance. In order to further leverage our existing programs, secure new
programs and grow our business by developing next generation systems, we often
aggressively compete on development programs by pursuing a low price bidding
strategy. Accordingly, such development programs are typically unprofitable or
break-even after allocating overhead, administrative and other indirect costs.
From 1994 to 1998, the direct costs associated with a development program having
a contract value in excess of $.25 million have never exceeded 100% of total
contract revenues for such program. In addition, such development programs
generally provide future opportunities for higher margin follow-on sole source
business. Negotiated sole source procurement, which comprises most of our
domestic contracts, is used if we are deemed by the customer to have developed
proprietary equipment not available from other parties or where there is a very
stringent delivery schedule. For production contracts we deliver products based
on established technologies and designs, which are nonetheless generally
customized for our customers' specifications.
Most of the contracts that we enter into are fixed price. This means that
we are exposed to cost overruns if we encounter difficulties in meeting the
contractual delivery schedule or technical specifications for our systems or
experience variances in actual costs from our estimates. Conversely, we benefit
from any cost underruns if we experience positive variances in actual costs from
our estimates or encounter less difficulties than expected in meeting the
contractual delivery schedule or technical specifications.
Revenues for long-term contracts are accounted for under the
percentage-of-completion (cost-to-cost) method. Under this method, all contract
costs are charged to operations as incurred and revenues are recognized based on
costs incurred plus the estimated contract profit margins. These estimated
contract profit margins are determined on a contract-by-contract basis based on
our estimates of total contract revenues and cost at completion for each
contract. These estimates are reviewed and revised periodically throughout the
lives of the contracts, and adjustments to profits resulting from such revisions
are recorded in the accounting period in which the revisions are made. Losses on
contracts are recorded in full as they are identified.
Under all of our U.S. Government contracts we are allowed to charge a
portion of our costs to the customer as such costs are incurred and receive
progress payments for those billed costs. We receive the remainder of our costs
and all of our profit as we complete delivery of our products under the
contract.
Our international contracts are primarily awarded on a competitive basis
rather than sole source. We typically receive one or more advance payments from
our international customers during the initial phase of the contract, which
advances range from approximately 20% to 60% of the total contract value. The
advance payments are recorded as liabilities on our balance sheet as customer
contract advances and reduced as work is performed. We generally provide letters
of credit to guarantee our performance of the contracts. The customer may draw
down on the letters of credit if we default on the contract. As we reach
performance-based milestones negotiated in the contracts, the letters of credit
are reduced by negotiated amounts. We receive the remaining contract payments as
we meet the remaining milestones specified in the contract.
Subsequent Events
In January 1999, we announced a decision to close our facilities located in
Sterling, Virginia. We have recognized approximately $0.9 million of other costs
during the first quarter of 1999. This provision includes severance, facility
costs, closure costs and other potential contractual claims. We anticipate that
the closure of the facility and settlement of all significant claims will be
concluded during 1999. We expect to realize annual savings of approximately $0.6
million beginning in the second quarter of 1999.
We are currently in negotiations to acquire certain EW assets of
ARGOSystems, excluding cash, and to assume obligations under existing contracts
and outstanding proposals. As consideration, we expect to pay $2.0 million in
cash plus a [5%] contingent commission on two specified future contract awards
in 1999 and 2000 that have an
36
<PAGE>
aggregate contract value of approximately $76 million. We expect to sign a
purchase and sale agreement and expect the transaction to close in the second
quarter of 1999.
We incurred various costs and expenses estimated to be $21.3 million
(pre-tax) in connection with the Acquisition, including $18.0 million of total
fees and expenses. Approximately $10.9 million was due to general fees and
expenses and $7.1 million was related to fees and expenses of Rollover
Shareholders and Non-Rollover Shareholders. Of the total fees and expenses,
$10.0 million will be expensed during the second quarter of 1999 and the
remaining $8.0 million will be amortized over ten years, the term of the notes.
In addition, $2.0 million of deferred financing costs, $0.7 million of
unamortized debt discount related to stock warrants and $0.6 million of stock
compensation costs related to the Company Options will also be charged to
operations during the second quarter of 1999. While the exact timing, nature and
amount of these expenses are subject to change, we expect that a $12.8 million
pre-tax charge will be recorded in the second quarter of 1999. In addition, of
the total fees and expenses, we had recorded a $0.5 million pre-tax charge
during the fourth quarter of 1998 related to abandoned acquisition costs.
Results of Operations
The following table sets forth our results of operations based on the
percentage relationship of certain items to contract revenues during the periods
shown.
<TABLE>
Year Ended December 31, Quarter Ended March 31,
----------------------------------- -----------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Contract revenues..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and operating expenses:
Contract costs..................................... 64.9 66.7 61.0 56.7 58.7
----- ----- ----- ----- -----
Gross margin....................................... 35.1 33.3 39.0 43.3 41.3
Technology related costs:
Research and development........................... 2.5 1.3 4.3 2.9 5.9
Amortization of purchased technology............... -- 0.8 2.5 3.2 --
Write-off of in-process technology................. -- 10.6 -- -- --
Selling, general and administrative................... 20.9 20.1 20.1 26.9 21.2
Other charges:
Recapitalization costs............................. 23.3 -- -- -- --
Product line and plant closure costs............... 8.7 -- -- -- 4.9
Abandoned acquisition costs........................ -- 0.3 0.5 -- --
----- ----- ----- ----- -----
Operating income (loss)............................ (20.3) 0.2 11.6 10.3 9.3
Interest and other income............................. -- 0.1 0.3 0.1 0.5
Interest expense...................................... (1.9) (7.1) (7.6) (10.1) (9.1
----- ----- ----- ----- -----
Income (loss) before income taxes.................. (22.2) (6.8) 4.3 0.3 0.7
Provision for (benefit of) income taxes............... (5.2) (2.8) 1.7 0.1 0.3
----- ----- ----- ----- -----
Net income (loss).................................. (17.0%) (4.0%) 2.6% 0.2% 0.4%
===== ===== ===== ===== =====
</TABLE>
Quarter ended March 31, 1999 compared to quarter ended March 31, 1998
Contract Awards
Contract awards for the three months ended March 31, 1999 were $11.4
million, compared to $40.0 million for the three months ended March 31, 1998, a
decrease of $28.6 million, or 71.5%. We typically are awarded a few significant
contracts during the course of the year and the timing of these awards can cause
significant fluctuations in the results of any one quarter. This decline in
contract awards is primarily due to the higher than usual contract awards in
1998 that were related to SEPS and Ocean Systems as well as a decline in our
Airborne SIGINT systems. These decreases were only partially offset by increases
in Airborne ESM Systems and Catalog Antenna contract awards.
37
<PAGE>
During the three months ended March 31, 1998, we had completed development
of SEPS and received our first production contract awards from the U.S. Army for
$9.3 million. In addition, we were awarded our first development contracts
related to NTES from the Swedish Navy for an aggregate amount of $23.9 million.
We did not receive any comparable awards during the three months ended March 31,
1999. We are currently in negotiations with the U.S. Army for a follow-on SEPS
production award and the Australian Navy for a NTES contract award. During the
three months ended March 31, 1999, we substantially completed the development
contracts related to our new multi-channel, multi-operator SIGINT systems and
are currently in negotiations with the U.S. Navy for our first production
contract awards.
The percentage of contract awards derived from international awards was
approximately 53.0% and 27.9% of the total contract awards for the three months
ended March 31, 1998 and 1999, respectively. This percentage decrease of
international awards resulted primarily from the NTES program and the
significant awards that we received from the Swedish Navy in 1998.
Backlog
We had funded backlog at March 31, 1999 of $55.3 million compared to funded
backlog of $80.2 million at March 31, 1998. Approximately 48.3% and 50.1% of our
backlog for 1999 and 1998, respectively, was derived from domestic contracts.
The decrease in backlog from 1998 reflects the differences caused by the
fluctuations in the timing of new contract awards.
Contract Revenues
Contract revenues for the three months ended March 31, 1999 were $19.0
million compared to $19.5 million for the three months ended March 31, 1998, a
decrease of $0.5 million, or 2.3%. The slight decrease in contract revenues was
primarily due to decreased contract revenues from our Airborne SIGINT and Ground
Systems that were substantially offset by increases in Ocean Systems contract
revenues. Historically, we report our lowest quarterly revenues during the first
quarter of each year. See "--Effect of Inflation; Seasonality."
The percentage of contract revenues that were derived from sole source
contracts for the three months ended March 31, 1999 and 1998 was approximately
81.3% and 67.5%, respectively. The percentage of sole source contract revenues
declined primarily due to our focused activities on the NTES programs which had
been subject to competitive bidding. On an annual basis, we expect that the
percentage of sole source revenues will be consistent with prior years. The
percentage of contract revenues that were derived from international sales for
the three months ended March 31, 1999 and 1998 was approximately 43.3% and
38.2%, respectively.
For the three months ended March 31, 1998 and 1999, approximately 95.5% and
98.2%, respectively, of contract revenues were derived from fixed price
contracts. The remaining contracts were primarily time and material and, to a
lesser extent, cost plus contracts.
For the three months ended March 31, 1999, our largest program represented
approximately 11.1% of contract revenues and no other program represented more
than 8.6% of contract revenues for the quarter. By comparison, for the three
months ended March 31, 1998, our largest program represented approximately 10.4%
of contract revenues and no other program represented more than 10.2% of
contract revenues for the quarter. These concentration percentages are higher
during any one quarter due to the timing of manufacturing and delivery of
products under various contracts. On an annual basis, we expect that the
concentration percentages will be consistent with prior years.
38
<PAGE>
Gross Margin
Gross margin for the three months ended March 31, 1999 was $7.8 million
compared to $8.4 million for the three months ended March 31, 1998, a decrease
of $0.6 million, or 7.0%. Gross margin as a percent of contract revenues
decreased from 43.3% for the three months ended March 31, 1998 to 41.3% for the
three months ended March 31, 1999.
The higher 1998 gross margin reflects, in part, the initial cost savings
derived from the acquisition and rationalization of the Whittaker Acquisition.
We have begun to pass some of the benefit of these cost savings to the U.S.
Government in 1999.
In addition to the impact of the acquisitions, the gross margin reflects
changes in program mix. The percentage of contract revenues derived from
development programs for the three months ended March 31, 1998 and 1999 was
approximately 12.8% and 20.9%, respectively. The higher margin for the three
months ended March 31, 1998 reflects the concentration of efforts on production
programs that have higher gross margins while the gross margin for the three
months ended March 31, 1999 reflects the impact of an increase in efforts on
development programs. We anticipate that the level of effort on development
programs will increase throughout the year and that gross margin as a
percentage of contract revenues will decrease to be consistent with prior
years.
Our gross margin will continue to fluctuate in the future due to factors
inherent in the government contracting business. These factors include the
timing of the incurrence of direct costs and the leveraging of fixed overhead
costs over a greater volume of contract revenues and the mix of production and
development programs. In addition, our acquisitions may cause our gross margins
to fluctuate due to inherent differences in the cost structures of the acquired
companies and their programs and our ability to integrate these businesses.
Research and Development
We provide our customers with high-performance, cost effective products
that are based upon state-of-the-art technology. We are committed to maintaining
leading technology through a sustained investment in new product development as
well as the enhancement of existing applications. Historically, our technology
has been developed through research and development incurred in connection with
long-term development contracts, a substantial portion of which was effectively
funded by our customers, as well as through acquisitions and from internally
funded research and development.
The aggregate expense for research and development activities for the three
months ended March 31, 1998 and 1999 is summarized as follows:
<TABLE>
1998 1999
-------- ---------
(dollars in millions)
<S> <C> <C>
Research and development.................................. $ 0.6 $ 1.1
Contract-related research and development expense......... 2.7 2.8
-------- --------
Total research and development activities.............. 3.3 3.9
======== ========
Percent of contract revenues........................... 17.0% 20.5%
</TABLE>
Internally funded research and development increased from $.6 million for
the three months ended March 31, 1998 to $1.1 million for the three months ended
March 31, 1999, primarily as a result of development costs in connection with
our new NTES product. The increase in research and development expense incurred
in connection with long-term fixed price contracts, which is reflected in
contract costs, primarily relates to development of multi-channel processor
systems. We anticipate that we will continue to allocate substantial funds to
research and development activities in the near future.
39
<PAGE>
Selling, General and Administrative
Selling, general and administrative expenses for the three months ended
March 31, 1999 were $4.0 million compared to $5.2 million for the three months
ended March 31, 1998, a decrease of $1.2 million, or 23.2%. Selling, general
and administrative expenses as a percentage of contract revenues declined from
26.9% for the three months ended March 31, 1998 to 21.2% for the three months
ended March 31, 1999. The dollar and percentage decrease in selling, general
and administrative expenses is primarily attributable to higher than normal
spending levels the first three months of 1998 related to systems development
work associated with our Year 2000 compliance program.
Other Charges
In January 1999, we announced a decision to close our facilities located in
Sterling, Virginia. We have recognized approximately $0.9 million of other costs
during the first quarter of 1999. This provision includes severance, facility
costs, closure costs and other potential contractual claims. We anticipate that
the closure of the facility and settlement of all significant claims will be
concluded during 1999. We expect to realize annual savings of approximately $0.6
million beginning in the second quarter of 1999.
Interest Expense, Net of Interest and Other Income
Interest and other income increased to $0.1 million for the three months
ended March 31, 1999. This increase reflects the investment income derived from
the short-term investment of our cash balances. Interest expense for the three
months ended March 31, 1999 was $1.7 million compared to $2.0 million for the
three months ended March 31, 1998. Interest expense as a percentage of contract
revenues decreased from 10.1% for the three months ended March 31, 1998 to 9.1%
for the three months ended March 31, 1999. This decrease is primarily due to
reductions in our outstanding debt. We expect interest expense to increase
significantly as a result of the Acquisition and related financing.
Provision for (Benefit of) Income Taxes
Our provision for income taxes for the three months ended March 31, 1999
was $0.1 million compared to a provision of $0.0 million for the three months
ended March 31, 1998. Our effective tax rate was 39.2% in the three months
ended March 31, 1998 and 40.1% in the three months ended March 31, 1999. Our
effective tax rate is higher than the federal statutory rate primarily due to
state income tax provisions that exceeded the benefit recognized for research
and development tax credits. We had substantial tax credit and operating loss
carryforwards as of December 31, 1998. The benefit of these carryforwards has
not been recognized for financial statement purposes. Despite these
carryforwards, we anticipate that we will continue to have cash requirements
for our taxes due to alternative minimum tax and research and development tax
credit limitations. We do not anticipate that the limitations related to
the change of control contemplated by the Acquisition will further restrict the
utilization of these carryforwards.
1998 compared to 1997
Contract Awards
Contract awards for the year ended December 31, 1998 were $104.2 million,
compared to $89.9 million for the year ended December 31, 1997, an increase of
$14.3 million, or 15.9%. These results include the contract awards of the
Whittaker Acquisition in the fourth quarter of 1997, including acquired backlog
of $14.9 million. The contract awards related to the Whittaker Electronic
Systems division declined from $19.5 million in 1997 to $15.2 million in 1998.
This decline in contract awards was offset by increases in Ocean Systems and
Airborne ESM Systems contract awards.
As part of our business strategy, we continually invest in development
programs and proprietary research and development efforts to develop next
generation systems to grow our business. During 1998, we completed development
of SEPS and received our first production contract awards from the U.S. Army for
$9.3 million. Since
40
<PAGE>
1995, we have been developing our next generation of ESM applications based on
our patented NTES. During 1998, we were awarded our first development contracts
related to NTES from the Swedish Navy for an aggregate amount of $23.9 million.
Consistent with our investment strategy in development programs, we expect these
contracts to break even after allocating overhead, administrative and other
indirect costs.
During the last five years, we have significantly expanded our activities
in the international marketplace. A substantial portion of this growth has come
from Scandinavian countries and to a lesser extent Pacific Rim countries. The
percentage of contract awards derived from international awards was
approximately 35.6% and 41.6% of the total contract awards for 1997 and 1998,
respectively. This percentage increase of international awards resulted
primarily from the NTES program, which was partially offset by declines in our
international Airborne ESM Systems.
We anticipate that we will continue to increase our annual contract awards
principally through expansion into new market segments that result from our
acquisition strategy and to a lesser extent from growth in current market
segments. The growth in our current market segments will continue to be
dependent upon strong customer relationships and the introduction of new high
performance and cost effective products that are based on state-of-the-art
technology.
Backlog
We had funded backlog at December 31, 1998 of $62.9 million compared to
funded backlog of $59.7 million at December 31, 1997. Approximately 56.0% and
46.2% of our backlog for 1997 and 1998, respectively, was derived from domestic
contracts. Approximately 91.4% of our backlog at December 31, 1997 was realized
as contract revenues during the year ended December 31, 1998. The increase in
backlog from 1997 reflects an increase in the receipt of new contract awards.
Contract Revenues
Contract revenues for the year ended December 31, 1998 were $101.0 million
compared to $79.6 million for the year ended December 31, 1997, an increase of
$21.4 million, or 26.9%. These results include the contract revenues of the
Whittaker Acquisition. The contract revenues of the Electronic Systems division
represent approximately $18.1 million of the increase in contract revenues from
1997 to 1998. The additional increase in contract revenues was primarily due to
increased contract revenues from our Ocean Systems and Airborne ESM Systems,
partially offset by decreases in Ground and Range Systems contract revenues.
As a result of our investments in development programs, proprietary
research and development efforts and strong customer relationships, our products
are utilized in a number of mission critical programs that have generated
significant follow-on business. Typically, as the incumbent, we are awarded this
follow-on business on a sole source basis. The percentage of contract revenues
that were derived from sole source contracts for 1997 and 1998 was approximately
78.7% and 78.1%, respectively. We believe that the percentage of sole source
contracts may decline in the future as we continue to expand our activities in
the international marketplace where the majority of contracts are subject to
competitive bidding. The percentage of contract revenues that were derived from
international sales for 1997 and 1998 was approximately 27.2% and 35.5%,
respectively.
During 1997 and 1998, approximately 93.8% and 97.7%, respectively, of
contract revenues were derived from fixed price contracts. The remaining
contracts were primarily time and material and, to a lesser extent, cost plus
contracts.
We have developed a diverse program and customer base. During 1998, our
largest program represented approximately 6.6% of contract revenues and no other
program represented more than 5.6% of contract revenues for the year. By
comparison, in 1997 our largest program represented approximately 10.3% of
contract revenues and no other program represented more than 6.7% of contract
revenues for the year.
41
<PAGE>
Gross Margin
Gross margin for the year ended December 31, 1998 was $39.4 million
compared to $26.5 million for the year ended December 31, 1997, an increase of
$12.9 million, or 48.7%. Gross margin as a percent of contract revenues
increased from 33.3% in 1997 to 39.0% in 1998.
The increased 1998 gross margin reflects, in part, the initial cost savings
derived from the acquisition and rationalization of the Whittaker Acquisition.
We anticipate that some of the cost savings will be passed to the U.S.
Government in 1999.
In addition to the impact of the acquisitions, the gross margin reflects
continued improvement in the leveraging of fixed overhead costs over a greater
volume of contract revenues and changes in program mix. The percentage of
contract revenues deriving from development programs for 1997 and 1998 was
approximately 23.3% and 11.6%, respectively. We believe that the percentage of
contract revenues represented by development contracts in 1998 was unusually low
and expect such contract revenues from development contracts to return to
historical levels in future years. The increased margin in 1998 reflects not
only the decreased percentage of contract revenues derived from development
programs, which are typically unprofitable or break-even after allocating
overhead, administrative and other indirect costs, but also the absence during
1998 of increased program costs we experienced during 1997 on our two largest
development programs. These increased program costs resulted from significant
upward revisions of our cost estimates for these programs, which were partially
due to our decision to incorporate more advanced software into those systems.
These programs involved significantly more complex software development efforts
than our prior programs. The 1997 gross margin percentage was also slightly
reduced by the completion of certain lower margin ECM programs by the Electronic
Systems division during the transition period immediately following the
Whittaker Acquisition.
Our gross margin will continue to fluctuate in the future due to factors
inherent in the government contracting business. These factors include the
timing of the incurrence of direct costs and the leveraging of fixed overhead
costs over a greater volume of contract revenues and the mix of production and
development programs. In addition, our acquisitions may cause our gross margins
to fluctuate due to inherent differences in the cost structures of the acquired
companies and their programs and our ability to integrate these businesses.
Research and Development
The aggregate expense for research and development activities during 1997
and 1998 is summarized as follows:
<TABLE>
1997 1998
--------- ---------
(dollars in millions)
<S> <C> <C>
Research and development........................................... $ 1.0 $ 4.4
Amortization of purchased technology............................... 0.6 2.5
Write-off of in-process technology................................. 8.4 --
Contract-related research and development expense.................. 7.9 10.0
-------- --------
Total research and development activities ...................... $ 17.9 $ 16.9
======== ========
Percent of contract revenues ................................... 22.5% 16.7%
</TABLE>
Internally funded research and development increased from $1.0 million for
the year ended December 31, 1997 to $4.4 million for the year ended December 31,
1998, primarily as a result of development costs in connection with two new
products, SEPS and NTES. The purchased technology rights for 1997 include both
in-process technology and purchased technology acquired in connection with the
Whittaker Acquisition. We believe this to be a one-time event related to this
particular acquisition, which did not impact our cash flow from operating
activities. The increase in research and development expense incurred in
connection with long-term fixed price contracts, which is reflected in contract
costs, primarily relates to development of multi-channel processor
42
<PAGE>
systems. We anticipate that we will continue to allocate substantial funds to
research and development activities in the near future.
The SEC has recently challenged the write-off of in-process technology by
other companies. If we were required to restate our financial statements in
response to a challenge by the SEC, it would have an adverse effect on our
reported results of operations for 1998 and future periods.
Selling, General and Administrative
Selling, general and administrative expenses for the year ended December
31, 1998 were $20.3 million compared to $16.0 million for the year ended
December 31, 1997, an increase of $4.3 million, or 26.9%. Selling, general and
administrative expenses as a percentage of contract revenues remained constant
at 20.1% in 1997 and 1998. The dollar increase in selling, general and
administrative expenses is primarily attributable to the impact of the Whittaker
Acquisition in the fourth quarter of 1997 as well as the continued investment in
international marketing efforts.
Other Charges
In October 1998, we executed an asset purchase agreement to acquire the
assets of the Applied Technology Division ("ATD") of Litton Industries, Inc.
("Litton") for approximately $120.0 million. We conducted our due diligence and
financing efforts until January 1999. In January 1999, we allowed the agreement
to terminate due to changes in certain conditions. For the year ended December
31, 1998, we charged approximately $0.5 million to operations for costs incurred
in connection with our evaluation of ATD.
During 1997, we executed letters of intent to acquire the assets of two
private companies. We later terminated these letters of intent based on the
results of our due diligence. As a result, we charged approximately $0.2 million
to operations for costs incurred in connection with our evaluation of these two
companies.
Interest Expense, Net of Interest and Other Income
Interest and other income increased from $0.1 million in 1997 to $0.2
million in 1998. This increase reflects the investment income derived from the
short-term investment of our cash balances.
Interest expense for the year ended December 31, 1998 was $7.7 million
compared to $5.7 million for the year ended December 31, 1997. Interest expense
as a percentage of contract revenues increased from 7.1% in 1997 to 7.6% in
1998. This increase is primarily due to the increased debt levels resulting from
the Whittaker Acquisition and to a lesser extent the working capital required to
support our internal growth. We expect interest expense to increase
significantly as a result of the Acquisition and related financing.
Provision for (Benefit of) Income Taxes
Our provision for income taxes for the year ended December 31, 1998 was
$1.7 million compared to a benefit of $2.2 million of income tax benefits
accrued for the year ended December 31, 1997.
Our effective tax rate was 39.0% in 1998 and the effective benefit was
41.1% in 1997. For 1998, our effective tax rate was higher than the federal
statutory rate primarily due to state income tax provisions that exceeded the
benefit recognized for research and development tax credits. For 1997, our
effective tax rate with respect to the tax benefit was higher than the federal
statutory tax rate primarily due to the benefits recognized from state income
taxes and research and development tax credits.
We had substantial tax credit and operating loss carryforwards as of
December 31, 1998. The benefit of these carryforwards has not been recognized
for financial statement purposes. Despite these carryforwards, we anticipate
43
<PAGE>
that we will continue to have cash requirements for our taxes due to alternative
minimum tax and research and development tax credit limitations. We do not
anticipate that the limitations related to the change in control contemplated by
the Acquisition will further restrict the utilization of these carryforwards.
1997 compared to 1996
Contract Awards
Contract awards for the year ended December 31, 1997 were $89.9 million,
compared to $77.3 million for the year ended December 31, 1996, an increase of
$12.6 million, or 16.3%. The growth in contract awards is primarily attributable
to the awards and acquired backlog related to the Whittaker Acquisition, which
we acquired in the fourth quarter of 1997, including acquired backlog of $14.9
million. The growth is also due to increases in Ground and Range Systems and
Ocean Systems contract awards, partially offset by declines in Airborne ELINT
and ESM Systems contract awards.
During the last five years, we have significantly expanded our activities
in the international marketplace. The percentage of contract awards derived from
international customers was approximately 29.4% and 35.6% of the total contract
awards for 1996 and 1997, respectively.
Backlog
We had funded backlog at December 31, 1997 of $59.7 million compared to
$49.4 million at December 31, 1996. Approximately 67.7% and 56.0% of our backlog
for 1996 and 1997, respectively, represents domestic contracts. Approximately
92.2% of our backlog at December 31, 1996 was realized as contract revenues
during the year ended December 31, 1997. The increase in backlog from 1996
reflects an increase in the receipt of new contract awards and backlog acquired
through the Whittaker Acquisition.
Contract Revenues
Contract revenues for the year ended December 31, 1997 were $79.6 million
compared to $67.5 million for the year ended December 31, 1996, an increase of
$12.1 million, or 18.0%. These results include the contract revenues related to
the Whittaker Acquisition, representing approximately $4.3 million of the growth
from 1996 to 1997. This growth is also attributable to increases in Ground and
Range Systems and Airborne ELINT and ESM Systems contract revenues, partially
offset by a decrease in Ocean Systems contract revenues.
As a result of prior developmental efforts, we generated significant sole
source follow-on business in 1996 and 1997. The percentage of contract revenues
that were derived from sole source contracts for 1996 and 1997 was approximately
71.6% and 78.7%, respectively. The lower percentage of sole source contract
revenues in 1996 resulted mainly from our participation in a larger number of
competitive development contracts in 1996.
The percentage of contract revenues deriving from international sales for
1996 and 1997 was approximately 35.3% and 27.2%, respectively. This decrease was
due to typical fluctuations related to the timing of international contract
awards.
During 1996 and 1997, approximately 86.9% and 93.8%, respectively, of
contract revenues were derived from fixed price contracts. The remaining
contracts were primarily time and material and, to a lesser extent, cost plus
contracts. During 1997, our largest program represented approximately 10.3% of
contract revenues and no other program represented more than 6.7% of contract
revenues for the year. By comparison, in 1996 our largest program represented
approximately 12.3% of contract revenues and no other program represented more
than 7.5% of contract revenues for the year.
44
<PAGE>
Gross Margin
Gross margin for the year ended December 31, 1997 was $26.5 million
compared to $23.7 million for the year ended December 31, 1996, an increase of
$2.8 million, or 11.8%. Gross margin as a percent of contract revenues decreased
from 35.1% in 1996 to 33.3% in 1997.
Since Condor was active in acquisitions in 1994 and 1995, the 1996 and 1997
gross margins began to reflect the pass back of these consolidation benefits to
the U.S. Government. In addition to the impact of the acquisitions, the gross
margin reflects continued improvement in the leveraging of fixed overhead costs
over a greater volume of contract revenues and changes in program mix. The
percentage of contract revenues that were derived from programs with significant
development efforts for 1996 and 1997 was approximately 42.1% and 23.3%,
respectively. During 1997 and, to a lesser extent, 1996, the improvement in
gross margin due to volume increases was more than offset by increased program
costs on our two largest development programs. These increased program costs
resulted from significant upward revisions of our cost estimates for these
programs, which were partially due to our decision to incorporate more advanced
software into those systems. These programs involved significantly more complex
software development efforts than our prior programs. The 1997 gross margin
percentage was also slightly reduced by the completion of certain lower margin
ECM programs by the Electronic Systems division during the transition period
immediately following the Whittaker Acquisition.
Research and Development
The aggregate expense for research and development activities during 1996
and 1997 is summarized as follows:
<TABLE>
1996 1997
----------- -----------
(dollars in millions)
<S> <C> <C>
Research and development........................................ $ 1.7 $ 1.0
Amortization of purchased technology............................ -- 0.6
Write-off of in-process technology.............................. -- 8.4
Contract-related research and development expense............... 5.8 7.9
---------- ---------
Total research and development activities.................... $ 7.5 $ 17.9
========== =========
Percent of contract revenues................................. 11.1% 22.5%
</TABLE>
The purchased technology rights for 1997 include both in-process technology
and purchased technology acquired in connection with the Whittaker Acquisition.
We believe this to be a one-time event related to this particular acquisition,
which did not impact our cash flow from operating activities. The increase in
research and development expense incurred in connection with long-term fixed
price contracts, which is reflected in contract costs, primarily relates to
development of multi-channel processor systems. We anticipate that we will
continue to allocate substantial funds to research and development activities in
the near future.
Selling, General and Administrative
Selling, general and administrative expenses for the year ended December
31, 1997 were $16.0 million compared to $14.1 million for the year ended
December 31, 1996, an increase of $1.9 million, or 13.5%. The growth in selling,
general and administrative expenses reflects the impact of the Whittaker
Acquisition in the fourth quarter of 1997, as well as our continued investment
in international marketing efforts.
Selling, general and administrative expenses as a percentage of contract
revenues decreased from 20.9% in 1996 to 20.1% in 1997, due primarily to our
ability to achieve improved operating leverage.
45
<PAGE>
Other Charges
During 1997, we executed letters of intent to acquire the assets of two
private companies. We later terminated these letters of intent based on the
results of our due diligence. As a result, we charged approximately $0.2 million
to operations for costs incurred in connection with our evaluation of these two
companies.
During 1996 we consummated a recapitalization. The recapitalization enabled
us to accomplish the following goals:
o to obtain capital and continuing financial support for our growth and
pursuit of acquisitions
o to provide additional incentives to management and employees by
offering equity ownership and an opportunity to share in our future
appreciation
o to provide our shareholders an opportunity to liquidate a significant
portion of their investment
For the year ended December 31, 1996, we recorded a $15.7 million charge to
reflect $12.6 million of compensation related to the shareholder distributions
and $3.1 million in transaction costs related to the recapitalization.
Concurrent with the recapitalization, we exited further commercial
development of our geolocation technology to concentrate on our core
capabilities serving military markets. We incurred $5.9 million in costs during
1996 related to the exit from this commercial development. These costs included
$3.6 million related to the write-off of our acquisition of AirWave Technology,
Inc. and $2.3 million in severance, facility costs, contractual obligations and
other potential claims. The closure of these operations and settlement of all
significant claims were concluded in 1997.
Interest Expense, Net of Interest and Other Income
Interest expense for the year ended December 31, 1997 was $5.7 million
compared to $1.3 million in 1996. Interest expense as a percentage of contract
revenues increased from 1.9% in 1996 to 7.1% in 1997, primarily due to the
increased debt levels resulting from the recapitalization.
Provision for (Benefit of) Income Taxes
Income tax benefit for the year ended December 31, 1997 was $2.2 million
compared to $3.5 million for the year ended December 31, 1996.
Our effective tax rate with respect to tax benefit was 23.4% in 1996 and
41.1% in 1997. For 1997, our effective tax rate with respect to tax benefit was
higher than the federal statutory tax rate primarily due to the benefits
recognized from state income taxes and research and development tax credits. For
1996, our effective tax rate with respect to tax benefit was lower than the
federal statutory rate primarily due to non-deductible costs associated with the
recapitalization and product line closure costs that exceeded the benefits
recognized from state income taxes and research and development tax credits.
Financial Condition and Liquidity
Post-Acquisition and Financing
Following the Acquisition and the related financing, our principal sources
of liquidity are cash flow from operations and borrowings under the New Credit
Facility. Our principal uses of cash will be debt service requirements to
service our debt described below, capital expenditures, working capital
requirements and
46
<PAGE>
acquisitions. We can use up to all of our available borrowings under the New
Credit Facility to support our letter of credit obligations related to
international contracts.
On a pro forma basis, as of March 31, 1999, we had: (a) total consolidated
indebtedness of approximately $100.0 million; and (b) approximately $46.6
million of borrowings available under our new credit facility, less $18.8
million in standby letters of credit described above, subject to customary
conditions. Our significant debt service obligations following the Acquisition
could, under certain circumstances, have material consequences to our security
holders. See "Risk Factors."
The New Credit Facility includes a revolving credit facility of up to $50.0
million. Loans under the New Credit Facility initially bear interest, at
Condor's option, at the alternate base rate plus 2.25% or the reserve adjusted
LIBOR rate plus 3.50%. We pay commitment fees at a rate equal to 1.50% per annum
on the daily average unused portion of the New Credit Facility. Beginning
approximately six months after the closing date of the New Credit Facility, the
applicable margins and commitment fees will be determined based on the ratio of
consolidated net funded debt to consolidated EBITDA (as defined in the New
Credit Facility) of us and our subsidiaries.
Our obligations under the New Credit Facility are guaranteed by all of our
existing and future domestic subsidiaries and are secured by substantially all
of our assets and the assets of our subsidiary guarantors, including a pledge of
the capital stock of all existing and future subsidiaries of Condor, provided
that no more than 65% of the voting stock of any foreign subsidiary shall be
pledged. The New Credit Facility contains customary covenants and events of
default.
The notes mature in 2009. Interest on the notes is payable semi-annually in
cash. The notes contain customary covenants and events of default, including
covenants that limit our ability to incur debt, pay dividends and make certain
investments.
We anticipate that we will spend approximately $2.5-2.9 million on capital
expenditures in 1999, which is generally in line with our historical spending
levels. The New Credit Facility contains restrictions on our ability to make
capital expenditures. Based on current estimates, management believes that the
amount of capital expenditures permitted to be made under the New Credit
Facility will be adequate to grow our business according to our business
strategy and to maintain the properties and businesses of our continuing
operations.
Working capital totaled $34.3 million at March 31, 1999 on a pro forma
basis. Management believes that we will continue to require working capital
consistent with past experience and that current levels of working capital,
together with borrowings available under the New Credit Facility, will be
sufficient to meet expected liquidity needs in the near term.
We are actively considering acquisitions that complement or expand our
business or that will enable us to expand into new markets. We anticipate that
interest expense will increase substantially as a result of the Acquisition and
the related financing and as a result of the financing costs associated with
future acquisitions.
Certain of the acquisitions we are considering and may undertake would
cause us to lose our small business status under Standard Industrial
Classification Code 3812, for which we are eligible as a company with fewer than
750 employees. The U.S. Government provides certain contract set-asides for
small businesses, but we currently do not have any contract awards obtained
through set-asides. We do, however, benefit from certain financing advantages in
that we are allowed to bill the customer for 90% of our incurred costs as
progress payments, whereas larger businesses can bill only 75% of their costs.
Given our strategy of continuing to pursue acquisitions, we expect that we will
lose our small business status within the next two years. In addition,
consummation of the Acquisition may cause us to lose our small business status
if the U.S. Government determines that employees of DLJMB and its affiliates
should be included in our employment figures. The loss of this advantage will
negatively impact our liquidity and increase our working capital requirements.
Based on our estimates, our working capital
47
<PAGE>
requirements for 1998 would have increased by approximately $5.3 million if we
had not enjoyed this advantage during 1998.
We anticipate that our operating cash flow, together with borrowings under
the New Credit Facility, will be sufficient to meet our anticipated future
operating expenses, capital expenditures and debt service obligations as they
become due. However, our ability to make scheduled payments of principal of, to
pay interest on or to refinance our indebtedness and to satisfy our other debt
obligations will depend upon our future operating performance, which will be
affected by general economic, financial, competitive, legislative, regulatory,
business and other factors beyond our control. See "Risk Factors."
From time to time we will continue to explore additional auxiliary
financing methods and other means to lower our cost of capital which could
include stock issuance or debt financing and the application of the proceeds
therefrom to the repayment of bank debt or other indebtedness. In addition, in
connection with any future acquisitions, we may require additional funding which
may be provided in the form of additional debt or equity financing or a
combination thereof. There can be no assurance that any such additional
financing will be available to us on acceptable terms.
Historical
Our liquidity and working capital requirements depend on a number of
factors relative to the timing of production and deliveries under our U.S.
Government and international contracts. For domestic contracts we receive
regular progress payments based on our costs as they are incurred. For
international contracts we typically receive one or more advance payments during
the initial phase of the contract, which advances range from approximately 20%
to 60% of the total contract value. The advance payments are recorded as
liabilities on our balance sheet as customer contract advances and reduced as
work is performed. We generally provide letters of credit to guarantee our
performance of the contract. The customer may draw down on the letters of credit
if we default on the contract. We have never had a significant draw down on any
of our letters of credit. As we reach certain performance-based milestones
negotiated in the contracts, we receive payments, offset those payments against
our unbilled receivables and reduce the letters of credit by negotiated amounts.
Unbilled receivables represent the difference between cumulative revenues
recognized under the percentage-of-completion (cost-to-cost) accounting method
and the cumulative amounts billed. We receive the remaining contract payments as
we meet the remaining milestones specified in the contract.
Working capital was $29.5 million at March 31, 1999, compared to $29.0
million at December 31, 1998. The growth in working capital was primarily due to
cash generated from operating activities.
We generated $0.9 million in operating cash flow for the three months
ended March 31, 1999 and March 31, 1998. The level of our unbilled receivables
continues to moderate as it did in 1998. We anticipate that the relationship
between operating cash flow and operating results will approach historical
relationships during 1999. We anticipate that we will utilize a significant
amount of operating cash in the second quarter of 1999 due to the other charges
related to the Acquisition. These other charges will amount to approximately
$21.3 million, and will utilize approximately $19.0 million in cash flow, after
tax benefits. We generated $12.1 million in operating cash flow during 1998
compared to $2.4 million in 1997 and the utilization of $13.6 million in
operating activities in 1996. The net cash generated by operating activities
increased by $9.7 million in 1998 compared to 1997 after having increased by
$16.0 million in 1997 compared to 1996. The utilization of cash in 1996 was
principally due to the other charges related to the recapitalization and
product line closures. These other charges amounted to $21.6 million, which
utilized approximately $14.9 million in cash flow, after tax benefits. In
addition to the other charges, the operating cash flow generated in 1997 and
1996 compared to 1998 is lower primarily due to the growth in unbilled
receivables described earlier. Operating cash flow is also impacted by the
growth in financing costs from 1996 to 1998. We anticipate that the level of
unbilled receivables will continue to moderate as it did in 1998 and that the
relationship between operating cash flow and operating results will return to
historical relationships.
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We utilized $0.2 million compared to $0.8 million in investing activities
for the three months ended March 31, 1999 and March 31, 1998, respectively,
which relate primarily to capital expenditures. We anticipate that our investing
levels will significantly increase in the second quarter of 1999 as the result
of the ARGO Systems transaction described earlier. There were not any
significant capital commitments at March 31, 1999. We utilized $2.5 million in
investing activities in 1998 compared to $21.4 million in 1997 and $1.4 million
in 1996. The investing levels primarily change from year to year as the result
of spending on acquisitions. The increase in 1997 primarily relates to the
Whittaker Acquisition. Capital expenditures were approximately $1.4 million,
$1.7 million and $2.5 million in fiscal 1996, 1997 and 1998, respectively. We
continually monitor our capital spending in relation to current and anticipated
business needs. Our operations typically do not require large capital
expenditures, and we anticipate that capital spending will remain relatively
consistent except for requirements related to acquisitions.
We utilized $3.8 million in financing activities for the three months
ended March 31, 1999, while cash provided by financing activities was $2.5
million for the three months ended March 31, 1998. The utilization of cash in
the first quarter of 1999 is primarily related to increases in the restricted
cash needed to support our letter of credit obligations and the reduction in
customer advances. The cash provided by financing activities in the first
quarter of 1998 is primarily related to increases in our customer advances. We
utilized $6.0 million in financing activities in 1998, while cash provided by
financing activities was $15.4 million in 1997 and $16.9 million in 1996. The
utilization of cash in 1998 is primarily related to the retirement of long term
debt. During 1997, we repaid our cash borrowings under a revolving note
facility and we are currently using that facility solely for letters of credit.
The cash provided by financing activities in 1997 and 1996 was primarily
related to the financing of acquisitions and the recapitalization.
Effect of Inflation; Seasonality
We do not believe that inflation has had a material impact on our financial
position or results of operations.
Our operating performance frequently varies significantly from period to
period, depending on the contract type, export sales and, in particular, the
award or expiration of one or more contracts and the timing of manufacturing and
delivery of products under such contracts. As a result, period-to-period
comparisons may show substantial increases and decreases in contract revenues
which are not necessarily representative of the underlying business activity and
results for any given period, and may not be indicative of longer term results.
Our business is seasonal, in part, as a result of U.S. Government spending
patterns, with most U.S. Government contract awards being received in the third
and fourth quarters. The timing of the receipt of domestic awards has a
corresponding impact on the timing of contract performance and contract
revenues. There is not a significant seasonality trend in international contract
awards. During 1996, 1997 and 1998, an average of 61.5% of contract revenues and
65.5% of Adjusted EBITDA, before cost savings from plant closure, was generated
in the third and fourth quarters, in each case with significantly greater
portions in the fourth quarter.
Year 2000 Compliance
The year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. Thus, as the turn of
the century approaches, computer programs may be unable to distinguish between
the year 1900 and the year 2000. The inability to recognize or properly treat
the year 2000 may cause computer systems to process critical data incorrectly.
During 1997, we implemented a year 2000 compliance plan to assess our year 2000
risks, update our internal hardware and software systems and assess whether any
substantial issues exist concerning products sold to customers.
Our compliance plan is now substantially complete and cost a total of
approximately $1.7 million as of the year ended December 31, 1998. We expect to
spend an additional $0.2 million in 1999. We believe that our internal
information systems and infrastructure are currently year 2000 compliant. We
have surveyed all of our vendors regarding their compliance efforts. In addition
to these surveys, we have also received certification of year 2000
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compliance from all of our major software vendors. We have also evaluated our
systems and products, including some older systems sold by our predecessors.
This evaluation has included testing that we have performed independently or in
conjunction with our customers. Our systems and products do not operate in a
time sensitive environment; as a result, we believe that any failure of such
equipment to be year 2000 compliant will not have any material adverse effect on
the operation of such equipment for its intended purpose.
However, we are uncertain as to the extent our customers and vendors may be
affected by year 2000 issues that require commitment of significant resources
and may cause disruptions in the customers' and vendors' businesses. Moreover,
year 2000 issues present a number of risks that are beyond our reasonable
control.
We have developed contingency plans to attempt to minimize the impact on
our systems and operations in the event certain of our customers and vendors are
seriously affected by year 2000 problems or assert claims against us for damages
resulting from the failure of installed products produced by us or our
predecessors to be year 2000 compliant. There can be no assurance that such
contingency plans will successfully mitigate any adverse effects that the year
2000 issue may have on our business, financial condition or results of
operations.
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BUSINESS
Overview
We are one of the world's leading providers of technologically advanced
signal collection and specialized electronic countermeasure products and systems
in the EW industry. We supply a complete line of integrated systems, subsystems
and products, which are used to intercept, identify, locate and analyze radar
signals for a variety of military needs, including intelligence, reconnaissance,
surveillance, precision targeting, situational awareness and threat warning. Our
systems provide critical information in support of intelligence collection,
tactical operations and protection of personnel and other high value military
assets. For the year ended December 31, 1998, we generated contract revenues and
Adjusted EBITDA of $101.0 million and $17.7 million, respectively. In addition,
our funded backlog at December 31, 1998 was $62.9 million.
We have established long-term relationships with a wide variety of
customers and supply our products and systems to all of the U.S. intelligence
and military services, the major domestic prime defense contractors such as
Lockheed Martin, Raytheon and Boeing, other defense contractors worldwide and a
number of foreign governments in countries such as Japan, Norway, Sweden and
Taiwan. Our products and systems are used on high profile airborne, shipboard
and ground based platforms, including:
o the U.S. Air Force's B-52H bomber, RC-135 reconnaissance aircraft and
Special Operations C-130 aircraft
o U.S. Navy, Japanese and Norwegian P-3 aircraft
o the U.S. Army's RC-12 Guardrail reconnaissance aircraft and EH-60
Blackhawk helicopters
o the U.S. Navy's Aegis class ships and the Los Angeles class and New
Attack Submarines
o the Swedish Navy's stealth ships
o the U.S. Marine Corps' Mobile EW Support Systems
o the U.S. Army's SEPS program.
Approximately 78.1% of our contract revenues for the year ended December
31, 1998 was derived from sole source business, principally as a result of our
strategies of taking steps to retain proprietary rights to our superior products
and technologies and aggressively bidding on competitive development programs,
as well as our large installed base of products. Our plan is to further secure
our strong market positions and grow our business by developing next generation
and complementary products and systems and by selectively acquiring businesses
that will expand our capabilities.
Over the last five years, we have spent a total of approximately $53.1
million on research and development projects, including research and development
purchased through acquisitions, to maintain and enhance our competitive position
within the electronic warfare market. Approximately 59.3% of this spending was
incurred in connection with long-term development contracts, a substantial
portion of which was effectively funded by our customers. We also form strategic
alliances with other industry participants to maximize the potential for success
by sharing expertise to minimize risk and costs associated with developing new
technology. We have pursued a market-driven research and development strategy
which focuses on identifying a customer's needs and developing cost-effective
solutions that we believe will ultimately generate long-term production
contracts, derivative products, proprietary upgrades and significant recurring
high margin spare parts revenue.
In addition, we have enhanced our market position by opportunistically
acquiring and integrating four businesses during the past five years. These
acquisitions have broadened our technological capabilities and product
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offerings and have strengthened our ability to offer fully integrated electronic
warfare systems to meet the growing needs of our domestic and international
customers. For example, our most recent acquisition, of Whittaker Electronic
Systems in 1997, expanded our presence into complementary markets, including
electronic countermeasures and command and control and communications systems.
The EW Industry
Overview
The EW industry, which includes virtually all defense-related products and
systems that permit gathering, analyzing and countering electronically generated
signals, is a $4.8 billion industry. The EW industry is composed of four major
areas: SIGINT, ESM, ECM and threat warning. We primarily compete in the niche
ELINT segment, a subcategory of SIGINT, and the ESM segment of the industry with
secondary capabilities in the ECM segment. SIGINT refers to the detailed
gathering and analysis of electronic signals to assess technical capabilities
and map locations in an area of interest. ELINT systems focus on radar signal
types, providing sophisticated semi-automatic measurement, collection and
classification of signal transmission and location analysis from target radar
equipment. ESM systems focus on rapid real-time assessment of the entire radar
signal environment by gathering and analyzing target radar signals to help an
operator determine the precise nature, location and classification of all radar
signals being emitted in an area of interest. ECM systems transmit radio
frequency signals to deceive, decoy or jam signal transmissions associated with
threats.
Our management believes that EW has become a critical component of national
defense spending for military organizations worldwide. As was demonstrated in
Operation Desert Storm, the ability to understand and control the electronic
signal environment is essential to dominance of the battlespace in modern
warfare. As a result, there has been an increasing demand worldwide for EW
systems which can support intelligence collection, precision targeting, tactical
operations and the protection of personnel and other high value military assets.
In addition to this trend, older technology in the international installed base
has created incremental demand overseas for advanced and proven electronic
warfare products and systems.
According to Frost & Sullivan, a leading defense industry expert, the
worldwide electronic warfare market is projected to grow from an estimated $4.8
billion in 1998 to an estimated $6.9 billion in 2005, representing a compound
annual growth rate of 5.3%. In addition, the market niches in which we compete
(EW excluding fighter/attack and rotary-wing aircraft) are forecasted by Frost &
Sullivan to grow worldwide from an estimated $848 million in 1998 to an
estimated $1.3 billion in 2005, a compound annual growth rate of 6.8%, and
domestically from an estimated $183 million in 1998 to an estimated $321 million
in 2005, a compound annual growth rate of 8.4%.
Industry Trends
We believe that several key trends affecting the ELINT and ESM segments of
the electronics warfare market will benefit us, including:
Increasing Defense Spending on EW Modernization. Spending on electronic
warfare equipment is anticipated to grow over the next 10 years as governments
increasingly focus on installing the most advanced electronic warfare
capabilities on various military platforms. Management believes that the value
of advanced electronic warfare capabilities has been demonstrated in each of the
recent conflicts around the world, including the Persian Gulf War and the
peacekeeping operations in Bosnia and Kosovo. Based on this field experience,
governments are increasingly focusing their defense spending on electronic
warfare technology for new military platforms and upgrades of existing
platforms. Over the past two years, we have been awarded contracts on almost all
of the major new ELINT and ESM development programs.
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Emphasis on "Lifesaving" Technologies. As the overall military force
structure has decreased over the past 10 years, governments have sought to
protect their remaining platforms and reduced military forces by emphasizing
"lifesaving" technologies. We have recently developed two technologies to
address this industry trend. Our Non-Cooperative Target Recognition technology
helps prevent fratricide by identifying radar intercepts of airborne targets as
friendly or hostile. In addition, our SEPS system protects soldiers and other
high value military assets by creating an electronic umbrella over the
battlefield that pre-detonates proximity fuses on incoming artillery and mortar
rounds.
Greater Demand for Non Development Items (NDI) and Commercial Off-the-Shelf
(COTS) Solutions. As the U.S. Government has reduced its overall defense
spending in recent years, the government has focused on controlling costs
through the increasing use of NDI, which are products previously built for a
military specification which can also be used in other systems without new
engineering, and COTS, which are commercial products that can be adopted with
few if any changes, thereby reducing development costs. Our overall strategy
emphasizes low cost production, the use of existing Condor-proprietary designs
where possible, and the use of commercial components in order to maximize our
ability to win new contract awards and generate profitability. We also create
modular designs with reusable hardware and software for multiple applications.
Shift from "Black Box" Procurement to Integrated Systems. In connection
with the U.S. Government's recent emphasis on controlling program costs, the
responsibility for obtaining critical subsystems has shifted to the major
platform prime contractors. Management believes that the prime contractors have
increased the outsourcing of subsystem manufacturing and systems integration to
smaller subcontractors such as us in order to limit the prime manufacturer's
risks and costs. We have successfully addressed this industry trend by
increasing our systems integration capability through acquisitions, internal
developments and offering integrated ELINT and ESM systems to prime contractors
and government agencies.
Continuing Consolidation Among Electronic Warfare Subcontractors. Although
industry observers have concluded that defense industry consolidation among
major prime contractors, such as Lockheed Martin, Boeing and Raytheon, is
substantially complete, management believes that there is significant
consolidation opportunity in the second tier of defense contractors, such as the
electronic warfare segment of the defense electronics industry. The electronic
warfare market is fragmented, with approximately 32 significant industry
participants, only six of whom have more than a 5% market share. The top three
competitors hold a collective 30% market share. Management believes that
economies of scale and the opportunity to acquire synergistic technologies and
enter new markets will drive the consolidation trend among second and third tier
electronic warfare suppliers.
Competitive Strengths
We believe that we are well positioned to take advantage of the current
trends and expected growth in the EW industry as a result of the following
competitive strengths:
Leading Position in Niche Markets. We have successfully established strong
positions in several specialized niches in the EW industry. We are recognized
worldwide for our superior product designs and technology, quality workmanship,
responsive customer support and overall commitment to customer satisfaction. We
are the sole source supplier of turnkey systems to a number of nationally
significant ELINT and ESM programs in the U.S., including the U.S. Air Force's
RC-135 reconnaissance ELINT program, the U.S. Navy's Anti-Surface Warfare
Improvement ESM program and the New Attack Submarine ESM program. We believe we
are the world's largest supplier of broadband microwave receivers for ELINT and
ESM applications. In addition, we are the only manufacturer of SEPS, a
specialized ECM system which creates an electronic umbrella over a battlefield
to protect soldiers and military assets by predetonating proximity fuses on
incoming artillery and mortar rounds.
Superior Products and Technologies. Our ELINT, ESM and specialized ECM
systems are leading edge, innovative, reliable, cost effective and primarily
based on proprietary technology which management believes will help protect our
numerous sole source positions. Our strategy focuses on identifying customer
needs and
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developing cost-effective solutions that will generate near-term business and
position us to benefit from spares, repairs, proprietary upgrades and derivative
product opportunities over the long term. We take steps to protect our
proprietary technologies by seeking to maintain ownership of data rights for key
elements of almost all of our products and anticipating future upgrades as new
technologies become available. We also design our products to fulfill the
requirements of various platform types, which significantly decreases our costs
related to development, production and, most importantly, total life cycle
support. We have developed a number of advanced technologies to secure our
leading position within the ELINT, ESM and specialized ECM markets. Some of our
key technologies include SSP, which provides unique emitter identification
capabilities; NTES, which offers affordable, high performance ESM systems for
small to medium sized ships and submarines; Multi-Channel/Multi-Operator ELINT,
which features modular system architecture and advanced ELINT signal processing;
and SEPS, which is a unique "lifesaving" technology offering protection against
proximity-fused munitions on the battlefield.
Long-Standing Customer Relationships. We have established numerous
long-term relationships with the U.S. intelligence agencies and military
services, the domestic prime defense contractors, other defense contractors and
several foreign governments. We have been a key supplier of EW products and
systems to the U.S. Navy since 1986, including working on the EP-3
reconnaissance aircraft program. We have also developed strong relationships
with the three major domestic prime contractors, Lockheed Martin, Raytheon and
Boeing. For example, we have been involved with the U.S. Air Force's RC-135
program through Raytheon since 1988. Our other significant domestic and
international defense contractor customers include Marconi Electronic Systems,
TRW, Celsius Tech Naval Systems, Sumitomo and Racal Defense Systems. In
addition, we have developed strong relationships with a number of foreign
governments in countries such as Japan, Norway, Sweden and Taiwan. For example,
we have secured business from the government of Taiwan since our founding in
1980, and we have provided our products and systems to the government of Norway
since 1985.
Diversified Revenue Base. We have significantly expanded our sales and
marketing efforts in recent years to obtain a more balanced mix between domestic
and international business across a greater number of customers and programs.
Approximately 41.6% of our total contract awards for the year ended December 31,
1998 was derived from international programs. During 1998, we participated in
over 35 programs, of which our largest program represented approximately 6.6% of
contract revenues and no other program represented more than 5.6% of contract
revenues for the year. We believe our large installed product base of proven
equipment in use by the U.S. Government and our strong relationships with
certain foreign governments provide significant opportunities for future growth
and further diversification of our program and customer base.
Strong Historical Financial Performance and Predictable Cash Flow. We have
generated significant growth in revenue and profitability. Our contract revenues
have increased from $41.0 million in 1994 to $101.0 million in 1998, a compound
annual growth rate of 25.3%. Our Adjusted EBITDA has grown from $5.6 million in
1994 to $17.7 million in 1998, a compound annual growth rate of 33.3%. In
addition, we have increased Adjusted EBITDA margins from 13.7% in 1994 to 17.5%
in 1998 through cost reductions, productivity enhancements, leveraging of fixed
costs and successfully integrating four strategic acquisitions. Our funded
backlog has grown from $36.7 million at December 31, 1994 to $62.9 million at
December 31, 1998, a compound annual growth rate of 14.5%. Historically, we have
enjoyed predictable cash flow due to our strong funded backlog position. For
example, over the last three years approximately 90% of the backlog at the
beginning of each year became contract revenues in the following year.
Experienced Management Team. Our senior management team has extensive
experience in the defense industry, with an average tenure of over ten years at
Condor and over 24 years in the industry. Our senior management team has
successfully transformed Condor from a supplier of electronic warfare products
to a leading supplier of integrated ELINT/ESM systems. In addition, the senior
management team, led by our chief executive officer Robert Young, has
successfully grown the business through the declining defense budgets of the
1990s, secured our current strong market positions, integrated four strategic
acquisitions and positioned us for attractive, profitable internal growth for
the future.
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Acquisition History
Recognizing the inevitable consolidation of the U.S. defense supplier base,
management embarked on a strategy in the early 1990s to secure our position in
the EW market by selectively acquiring businesses that would strengthen our
market position and enable us to provide fully integrated systems to our
customers. Since that time, we have successfully acquired and integrated four
businesses. The following table sets forth certain information with respect to
our recent acquisitions.
<TABLE>
Date of Purchase
Transaction(1) Target Principal Products and Technologies Price (2)
- -------------- ----------------------------- ---------------------------------------------- -----------
(dollars in
millions)
<S> <C> <C> <C>
October 1997 Whittaker Electronic Systems SEPS and command and control and communication $ 19.7
products
May 1995 Watkins-Johnson Microwave Microwave antenna, receiver and
Surveillance processor products 5.8
April 1994 Electronic Support Systems Signal processing capabilities 2.3
March 1994 Scope, Inc. Non-Cooperative Target Recognition and 0.4
Special Signals Processing
</TABLE>
- -------------------
(1) Excludes the $3.6 million acquisition of AirWave Technology, Inc. in 1996
that had been intended to enable us to extend our geolocation technology to
commercial uses. In connection with our 1996 recapitalization, we renewed
focus on our core EW business and terminated our commercial application
efforts. See Note 18 to our Consolidated Financial Statements.
(2) The purchase price related to the acquisition of Watkins-Johnson excludes
billed receivables and accounts payable in the net amount of $1.2 million.
In connection with the purchase of Whittaker Electronic Systems, the seller
retained current liabilities of approximately $3.0 million. In addition,
approximately $4.5 million of the purchase price was allocated to an
unbilled receivable related to a specific program for which the seller had
completed substantially all of the work under the contract.
Management's proven track record of identifying high-quality acquisition
targets and successfully integrating acquired businesses has enabled us to
strengthen our market position, gain access to an existing installed product
base, improve profitability, and expand our capabilities to become a supplier of
fully integrated ELINT/ESM systems. Management believes that the following
factors will lead to numerous additional attractive acquisition opportunities:
o fragmentation of the electronic warfare supplier base
o demonstrable consolidation economics
o lack of liquidity for many small to medium size defense electronics
companies
o increasing competition for new business
o continued customer pressures for larger integrated suppliers (one
stop shopping)
o limited access to capital for development expenditures
Management has identified numerous prospective acquisition candidates and
maintains active dialogue with many of these parties.
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Business Strategy
Our principal strategy is to strengthen and expand our strong positions in
niche segments of the EW industry. We seek to achieve our objectives while
maintaining a balance between domestic and international business.
Specifically, our business strategy combines the following elements:
Continue Market-Driven Product Investment Strategy. We intend to continue
our proven strategy of aggressively bidding on development programs that provide
opportunities for sole source, follow-on production contracts or new products
and capabilities. This strategy is often coupled with alliances with other
companies in the industry to expand our access to technologies and markets. In
addition, substantially all of our products are based on a modular "open
architecture" design, which allows us to leverage our existing "standardized"
products and offer significant value to our customers. For example, we have
successfully leveraged an existing ELINT/ESM system used for the U.S. Navy's
reconnaissance aircraft fleet to win several contract awards to supply similar
ELINT/ESM systems for the New Attack Submarine and the upgrade of its existing
Los Angeles class submarines.
Capitalize on Incumbent Sole Source Position on Key Programs. Approximately
78.1% of our contract revenues for the year ended December 31, 1998 was derived
from sole source business. Our major sole source programs include:
o the U.S. Air Force's B-52H bomber, RC-135 reconnaissance aircraft and
Special Operations C-130 aircraft
o U.S. Navy, Japanese and Norwegian P-3 aircraft
o the U.S. Army's RC-12 Guardrail reconnaissance aircraft and EH-60
Blackhawk helicopters
o the U.S. Navy's Aegis class ships and the Los Angeles class and New
Attack Submarines
o the U.S. Marine Corps' Mobile EW Support Systems
o the U.S. Army's SEPS program
These programs have provided sustained production, high margin support
business, including spares, repairs, test equipment and training, and
significant upgrade and derivative product opportunities. In addition, we intend
to leverage these "core" sole source programs to offer cost-effective product
solutions for other domestic and international programs.
Broaden International Presence. The expanding global market for electronic
warfare systems offers us significant growth opportunities, and we believe our
extensive proven installed base of products and systems in the U.S. and our
strong relationships with several foreign governments and agencies have
positioned us to capitalize on existing and new opportunities. We are also able
to leverage our proven core domestic products across a number of international
programs. Our international marketing efforts are focused primarily on countries
which we believe will generate long-term business at attractive margins. From
1994 to 1998, our international contract revenues grew from $5.9 million, or
14.4% of contract revenues, to $35.8 million, or 35.5% of contract revenues,
respectively. We have also expanded the number of our major international
programs from eight in 1994 to 14 in 1998. We believe that the international
arena offers significant growth opportunities as countries continue to reduce
overall defense spending and possess older technology which will require
replacements or upgrades, each of which magnifies the importance of
sophisticated EW systems.
Pursue Additional Strategic Acquisitions. The electronic warfare market is
highly fragmented, with 32 significant industry participants, only six of whom
have more than a 5% market share. In addition, there are numerous other
acquisition candidates in the EW industry, as well as in other segments of the
defense electronics
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industry. Management believes that economies of scale and the opportunity to
acquire synergistic technologies and enter new markets will drive the
consolidation trend among second and third tier electronic warfare suppliers and
provide numerous additional attractive acquisition opportunities for us. We
pursue a targeted acquisition strategy which focuses on those companies that
offer strategic value such as economies of scale, product line extensions,
access to a large and attractive installed product base, new customer
relationships or technology/market synergies. We are continually engaged in
discussions with potential acquisition candidates and have identified a number
of potential future acquisition opportunities. We are in negotiations to
purchase certain EW assets from ARGOSystems for a purchase price of
approximately $2.0 million plus a commission on two specified future
contract awards, if they are awarded in 1999 and 2000. ARGO Systems currently
estimates that the commissions may aggregate up to $3.8 million.
Maintain and Enhance Customer Service Orientation. Responsive customer
service is critical to maintaining and developing sole source or strong
competitive positions on existing programs and positioning us for follow-on
business. We have a dedicated customer service organization which focuses
proactively on meeting our customers' needs. In addition, our marketing and
business area teams are organized around key customer groups, and we appoint
program managers to monitor the life cycle of a particular program to
completion. We also maintain a continuous improvement program focused on quality
management of the customer service organizations and processes.
Program Categories
We are one of the world's leading suppliers of ELINT and ESM products and
systems. Management believes that the reliability, superior capabilities and
cost-competitiveness of our systems and products will protect our numerous sole
source positions. We further solidify our competitive position by consistently
upgrading our product offerings and developing new, innovative, state-of-the-art
products that meet our customers' specific operational requirements.
Our products and systems are used in the following program categories:
o Airborne ELINT Systems
o Airborne ESM Systems
o Ground and Range Systems
o Ocean Systems
o Specialized ECM Systems
In addition, we provide customer support through recurring spares and
repairs work and sales of our broad line of antennas that are not related to
specific programs. Within each of these program categories, we participate on
numerous significant programs.
Our Airborne ELINT Systems are highly specialized and technologically
advanced systems designed to intercept, identify, locate and perform detailed
analysis on radar signals. These systems feature high sensitivity reception,
precision measurement and extensive signal analysis capabilities. Products
include a variety of antennas, receivers, processors and ELINT subsystems. Key
programs include the U.S. Air Force's RC-135 reconnaissance aircraft, the U.S.
Navy's EP-3 reconnaissance aircraft and the U.S. Army's RC-12 Guardrail Common
Sensor ELINT systems. For the year ended December 31, 1998, the contract
revenues for this program category were $23.2 million and funded backlog at
December 31, 1998 was $2.0 million.
Our Airborne ESM Systems perform a combination of situational awareness,
sensor cueing and threat warning functions against advanced radar systems. These
modern ESM systems provide rapid response and are
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characterized by the ability to operate instantaneously over a full 360-degree
field of view and over a wide-open range of frequencies. Our ESM systems also
incorporate many of the precision measurement capabilities of our ELINT systems
for improved performance in today's increasingly complex radar signal
environments. Key programs include the U.S. Air Force's B-52H bomber and
AC-130/MC-130 ESM programs and the U.S. Navy's P-3C ESM Upgrade program. For the
year ended December 31, 1998, the contract revenues for this program category
were $14.8 million and funded backlog at December 31, 1998 was $15.4 million.
Our Ground and Range Systems program category provides ELINT and ESM
products and systems for ground mobile and fixed platforms, as well as certain
helicopter platforms. Key programs include the U.S. Marine Corps' Mobile EW
Support System, the White Sands Missile Range Frequency Surveillance System and
Canada's TRILS light armored vehicles. For the year ended December 31, 1998, the
contract revenues for this program category were $9.6 million and funded backlog
at December 31, 1998 was $2.5 million.
Our Ocean Systems program category provides ELINT and ESM products and
systems for use on surface and subsurface vessels. Over the last two years, we
have been awarded significant roles on all of the new U.S. surface ship and
submarine ELINT and ESM development and production programs. Key programs
include the U.S. Navy's Advanced Integrated EW System for the next generation
surface ship, the New Attack Submarine and Los Angeles class submarine ESM
systems, and Seasearch, a shipboard ELINT system for our international
customers. In addition, we have recently developed the NTES for the small to
medium sized ship and submarine market for which we have already received an
initial production contract from Sweden. For the year ended December 31, 1998,
the contract revenues for this program category were $22.8 million and funded
backlog at December 31, 1998 was $32.4 million.
Our Specialized ECM Systems refer to SEPS. Other products included within
this category consist of advanced command and control and communications systems
for friendly foreign nations and Wide-Band Secure Voice Encryption equipment for
non-NATO airborne platforms. For the year ended December 31, 1998, the contract
revenues for this program category were $22.4 million and funded backlog at
December 31, 1998 was $8.0 million.
In addition, catalog antennas, spares and repairs and other products
accounted for $8.2 million of contract revenues for the year ended December 31,
1998 and funded backlog at December 31, 1998 was $2.6 million.
Overview of Key Technologies and System Products
System Product Offerings
We offer a complete line of antennas, receivers, signal processors,
high-speed digitizers, signal analysis software and integrated ELINT and ESM
systems. Our receiving systems are characterized by high sensitivity, minimum
signal distortion and high dynamic range for operation in dense signal
environments. Our products are designed with "open architecture" and maximum use
of commercial off-the-shelf components. We use the latest analog, digital and
processing technologies available today, but structure the system to allow for
future upgrades. Faster processors and new technology can be readily inserted
into our systems as they become available.
Although we increasingly provide customers with complete integrated
systems, we continue to support our core technology in antennas, receivers,
processors and digitizers through internally funded research and development.
Core products and technology give us a competitive advantage over typical "rack
and stack" system integrators which are totally dependent on outside suppliers.
Our core products, consisting of antennas, tuners, demodulators, RF switching
units, digitizers and signal processors, are a family of system building blocks.
A key to our system success is using these standardized building blocks to
create custom system configurations that exactly meet a customer's specific
requirements with minimal additional expenses.
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<PAGE>
Key Technologies
Our ongoing technology development is an enabling tool that allows us to
produce cost effective systems to meet evolving customer needs. By integrating
new developments with our existing inventory of core products we can offer
state-of-the-art systems that solve real world customer problems in the modern
EW environment. An active development and technology insertion strategy combined
with a core product base using NDI products enables us to maintain competitive
pricing and performance in the marketplace.
Recent technology developments include SSP, NTES, Multi-Channel,
Multi-Operator SIGINT Systems, Single Channel ELINT/ESM Systems and SEPS. These
new developments give us a competitive advantage in meeting present and future
requirements with state-of-the-art, yet cost effective, system solutions. SSP
and SEPS, in particular, allow us to offer technical capability not currently
available from our competitors.
The table below provides a summary of our key technologies and system
products.
<TABLE>
System Products and
Technologies What Is It? What Does It Do? Where Is It Used?
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Special Signal o SSP refers to Condor o SSP provides direct o SSP can be added to all
Processing ("SSP") developed hardware and digital detection of of our systems.
propriety software and signals without analog o SSP is an available
algorithms that allow demodulation. upgrade to all signal
"all-digital" precision o SSP provides precision processors.
processing of radar and measurement of radar
non-communication signals.
signals.
- --------------------------------------------------------------------------------------------------------------------
New Technology o NTES is a new type of o NTES provides fast o NTES is currently
ESM Systems ESM system that uses a and accurate situational being built in two
("NTES") Condor patented awareness and warning versions--a compact
"Autohet" phase for small to medium "3-box" configuration
receiver, based on sized ships and for submarines and a
internally funded submarines. full featured
research and o NTES provides configuration for
development since "wideopen" frequency shipboard installations.
1995. coverage and o NTES is our premiere
o NTES provides superior "wideopen" angular entry in the
accuracy, but costs less coverage--100% international submarine
than traditional ESM probability of intercept and small ship ESM
systems. for any signal at any marketplace.
frequency--no
"scanning" or
"switching."
- --------------------------------------------------------------------------------------------------------------------
Multi-Channel, o Multi-Channel, o Enables multiple o Three different system
Multi-Operator Multi-Operator SIGINT simultaneously-process configurations are
SIGINT Systems systems provide the multiple signals--typical currently in production
ability to process more systems have between for U.S. Navy
signals more quickly in 4-16 channels. submarine and airborne
an increasingly o Both automatic search applications.
crowded and complex (acquisition,
signal environment. recognition and library
o We have developed matching) and
proprietary system precision manual
control and display ELINT analysis
software and functions are
processing technology fully supported.
to support multiple
receiver channels and
multiple operators.
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<PAGE>
System Products and
Technologies What Is It? What Does It Do? Where Is It Used?
- --------------------------------------------------------------------------------------------------------------------
o Family of
systems--each is
comprised of building
block units, including
tuners, demodulators
and signal processors,
that can easily be
configured to match
specific customer
system requirements.
- --------------------------------------------------------------------------------------------------------------------
Single Channel o Consists of three o Used for ELINT signal o Ideally suited to
ELINT/ESM Systems modular units: an collection and analysis airborne applications
antenna/radome and for tactical such as the U.S.
assembly, tuner and situation awareness. Army's Blackhawk
signal processor. o Omni-directional helicopter and land
antenna provides high mobile applications
probability of intercept. such as Canada's
o High gain directional TRILS and the U.S.
antenna provides Marine Corps' MEWS,
excellent sensitivity where size and weight
and direction finding are critical.
accuracy. o Very competitive in the
international
marketplace; systems
have been sold for
airborne applications
in South America.
- ------------------------------------------------------ --------------------------------------------------------------
Shortstop Electronic o SEPS is a portable o SEPS predetonates o Personal units carried
Protection System system that creates an proximity fuses on by ground soldiers.
("SEPS") electronic umbrella over incoming artillery and o Can be installed in a
the battlefield. mortar rounds. variety of ground
o "Lifesaving" vehicles and fixed-site
technology. platforms.
o SEPS is our premiere
entry into the ECM
market segment.
</TABLE>
Sales & Marketing
Our sales and marketing strategy is to help maintain our core program
business, continuously introduce product upgrades, leverage new products through
existing platforms and identify and pursue new product development
opportunities. The sales and marketing team is responsible for identifying
customer needs and collaborating with the research and development department to
develop cost effective solutions that will generate near-term business as well
as position us to benefit from spares, repairs, proprietary upgrades and
derivative product opportunities over the long term. Our sales and marketing
team also assists in creating new business opportunities by working with and
educating customers on the value of our products, including communicating our
superior technology base, "open architecture" designs, cost savings potential
from cross-platform applications and total life cycle support costs.
Our sales and marketing efforts are divided between domestic and
international activities. Domestically, we have an extremely strong program base
and long history of close customer relationships. As of December 31, 1998, our
domestic sales and marketing department consists of seven in-house personnel and
is supplemented by three representatives and 13 independent consultants. Our
international sales and marketing department consists of six in-house personnel
and is supplemented by a network of 33 independent representatives and
consultants covering
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Europe, Asia, South America, the Middle East and Australia/New Zealand. Our
independent foreign sales representatives have extensive industry experience,
company specific knowledge and an established track record.
Domestic and International Customers
We have developed a high-quality, diversified customer base and continue to
capitalize on our long-term customer relationships. Our customers include all of
the U.S. intelligence agencies and military services, the major domestic prime
contractors, numerous other defense contractors worldwide and many foreign
governments. We interface with the domestic prime defense contractors primarily
through several divisions of Lockheed Martin, several divisions of Raytheon and
Boeing. Other significant domestic and international defense contractor
customers include:
o Marconi Electronic Systems
o GTE
o TRW-ASG
o Litton ATD
o Celsius Tech
o Mitsubishi Electric Company
o Racal Defense Systems
o FR Aviation-UK
Our primary international government customers consist of various agencies
within the governments of Japan, Norway, Sweden and Taiwan. We have also
established close relationships with the governments of Australia, Brazil,
Canada, Egypt, Finland, Korea and the United Kingdom, and management believes
that these relationships offer significant future potential. Over the last
decade, we have increased our international revenue base and devoted significant
resources to pursuing additional new business.
Backlog
As of December 31, 1998, we had funded backlog of approximately $62.9
million, including numerous contracts from many critical U.S. programs. Funded
backlog does not include unexercised contract options which represent the amount
of revenues which would be recognized from the performance of contract options
that may be exercised by customers under existing contracts and from purchase
orders to be issued under indefinite quantity contracts or basic ordering
agreements. Based on our past experience, a substantial portion of our backlog
at December 31, 1998 is expected to be earned as contract revenues by the end of
1999.
Research and Development
Our ELINT and ESM technology is among the most advanced, innovative and
reliable in the world. Our strategy focuses on identifying customer needs and
developing cost-effective solutions that will generate near term business as
well as position ourselves to benefit from spares, repairs, proprietary upgrades
and derivative product opportunities over the long term. We take steps to
protect our proprietary technologies by seeking to maintain ownership of data
rights for key elements of almost all of our products and anticipating future
upgrades as new technologies become available. Whenever possible, we participate
in research and development projects incurred in connection with fixed price
long-term development contracts, a substantial portion of which is effectively
funded
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<PAGE>
by our customers; however we also form strategic alliances with other industry
participants to maximize the potential for success by sharing expertise to
minimize risk and costs associated with developing new technology. We have
formed key strategic alliances with Lockheed Martin, Raytheon, AIL, Marconi
Electronic Systems, ManTech and the Southwest Research Institute.
We focus on spending development dollars efficiently to create the greatest
return for the long term by thoroughly evaluating upgrade and derivative product
potential. Management coordinates research and development efforts with our
marketing department to understand customer requirements and the potential
market demand for new products. We invest in unique "enabling" technologies to
differentiate our products and emphasize "open architecture" designs to allow
for future upgrades incorporating the latest analog, digital and processing
technologies available. Our products are also designed to fulfill the
requirements of multiple platforms which significantly decreases the costs
related to development, production and, most importantly, total life cycle
support. In addition, we maximize the use of COTS products and NDIs to
capitalize on advanced commercial technology and to minimize costs.
Intellectual Property
Our intellectual property ("IP") includes, but is not limited to:
o algorithms
o designs
o developments
o documentation
o engineering details
o ideas
o inventions
o software (both object code and source code)
o patents
o trade secrets
o trademarks
o service marks
o know-how
Our ability to compete will depend, in part, on our ability to obtain and
enforce intellectual property protection for our technology in the United States
and internationally. Although we hold several U.S. patents, we currently rely
primarily on a combination of trade secret and trademark laws and employee and
third-party nondisclosure agreements. We also limit access to and distribution
of proprietary information.
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Competition
Approximately 78.1% of our total contract revenues for the year ended
December 31, 1998 was derived from sole source business. This strong sole source
position is reflective of our leading position in the U.S. ELINT and ESM markets
for aircraft, ships, submarines and ground based platforms. With respect to the
domestic business, our primary competitors are Lockheed Martin Federal Systems,
Litton Amecom, several divisions of Raytheon, several divisions of Boeing,
Andrews SciCom and Sensys Technology. In the international market, our
competitors include all of the above domestic competitors as well as the major
international electronic warfare manufacturers, including Marconi Electronic
Systems (UK), Racal (UK), Thomson CSF (France), ELTA (Israel) and Elisra
(Israel). We often team with one or more of the above competitors on large
opportunities where product, technology or marketing synergies can improve our
competitive position. The SEPS product offerings, which are currently focused on
the domestic market and have received a great deal of support from Congress,
have no known competitors. We compete on the basis of product offerings, price,
product and systems quality, technology and ongoing customer service and
support. Many of our competitors are larger than us and have substantially
greater financial and other resources than we have.
Manufacturing and Assembly
The focus of our manufacturing operations is on assembly and test of our
ELINT and ESM systems. Depending on the product, manufacturing lead times can be
as short as three months or as long as twelve months. We take every opportunity
to outsource contract manufacturing for subassemblies. This limits the need for
capital equipment to perform these operations and also eliminates our exposure
to environmental regulations governing the processes required for such
manufacturing. Our assembly and test emphasis is placed on the integration of
subassemblies at the top assembly level and the testing and delivery of products
to our customers.
We run two full assembly and test shifts at the present time and have the
flexibility to add a third shift as the need arises.
Raw Materials
Since we outsource most of the manufacturing of subassemblies, we do not
use significant amounts of raw materials. We purchase manufactured component
parts for our assemblies from various suppliers. We are not dependent on any one
supplier and maintain back-up suppliers for all our critical components.
However, any delay in our ability to obtain necessary component parts may affect
our ability to meet customer production needs.
Government Contracts; Regulatory Matters
For the year ended December 31, 1998, approximately 64.5% of our contract
revenues resulted from contracts with the U.S. Government or prime contractors
that identified the U.S. Government as the ultimate purchaser. In addition, 3.9%
of our contract revenues in 1998 resulted from the U.S. Government's Foreign
Military Sales ("FMS") program. Our U.S. Government business is performed under
firm fixed price contracts and cost plus contracts.
Under firm fixed price contracts, we agree to perform certain work for a
fixed price and, accordingly, realize all the benefit or detriment resulting
from decreases or increases in the cost of performing the contract. Fixed price
contracts accounted for approximately 97.7% of our contract revenues in 1998.
Cost plus fixed fee contracts provide for reimbursement of costs, to the
extent that such costs are allowable, and the payment of a fixed "fee," which is
essentially the profit negotiated between the contractor and the U.S.
Government. Cost plus incentive fee and cost plus award fee contracts provide
for increases or decreases in the contract fee, within specified limits, based
upon actual results as compared to contractual targets for such factors as
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<PAGE>
cost, quality, schedule and performance. Cost plus contracts accounted for
approximately 2.3% of our contract revenues in 1998.
Under U.S. Government regulations, certain costs, including certain
financing costs, portions of research and development costs, lobbying expenses,
certain types of legal expenses and certain marketing expenses related to the
preparation of bids and proposals and FMS sales, are not allowed for pricing
purposes and calculation of contract reimbursement rates under flexibly priced
contracts. The U.S. Government also regulates the methods under which costs are
allocated to U.S. Government contracts.
U.S. Government contracts are, by their terms, subject to termination by
the U.S. Government either for its convenience or default by the contractor.
Fixed price contracts provide for payment upon termination for items delivered
to and accepted by the U.S. Government, and, if the termination is for
convenience, for payment of fair compensation of work performed plus the costs
of settling and paying claims by terminated subcontractors, other settlement
expenses, and a reasonable profit on the costs incurred. Cost plus contracts
provide that, upon termination, the contractor is entitled to reimbursement of
its allowable costs, and if the termination is for convenience, a total fee
proportionate to the percentage of the work completed under the contract. If a
contract termination is for default, however,
o the contractor is paid an amount agreed upon for completed and
partially completed products and services accepted by the U.S.
Government
o the U.S. Government is not liable for the contractor's costs with
respect to unaccepted items, and is entitled to repayment of advance
payments and progress payments, if any, related to the terminated
portion of the contract
o the contractor may be liable for excess costs incurred by the U.S.
Government in procuring undelivered items from another source
To date, none of our contracts has been terminated for default.
In addition to the right of the U.S. Government to terminate, U.S.
Government contracts are conditioned upon the continuing availability of
Congressional appropriations. Congress usually appropriates funds for a given
program on a September 30 fiscal year basis, even though contract performance
may take many years. Consequently, at the outset of a major program, the
contract is usually partially funded and additional monies are normally
committed to the contract by the procuring agency only as appropriations are
made by Congress for future fiscal years.
There are two principal contracting methods used to export defense
equipment, Direct Foreign Sales ("DFS") and FMS. In a DFS, the contractor sells
directly to the foreign country and assumes all risks in the transaction. In a
FMS sale, the sale is funded for, contracted by and made to the U.S. Government
which in turn sells the product to the foreign country. Licenses are required
from U.S. Government agencies for DFS exports from the U.S. of nearly all of our
products. Certain of our products may not be exported to certain countries.
Similar to other companies which derive a substantial portion of their
sales from contracts with the U.S. Government for defense related products, we
are subject to business risks, including changes in governmental appropriations,
national defense policies or regulations and availability of funds. Any of these
factors could materially adversely affect our business with the U.S. Government
in the future.
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<PAGE>
Employees
As of December 31, 1998, we had 506 employees, of whom 6 were executive
officers, 202 were in engineering and program office, 22 were in sales and
marketing, 156 were in manufacturing operations, 31 were in quality assurance
and 89 were in finance and administration. None of our employees are subject to
a collective bargaining agreement, and we have not experienced any material
business interruption as a result of labor disputes.
We believe that we have a good relationship with our employees.
Facilities
The following chart provides summary information on our facilities. We
lease all of our facilities.
<TABLE>
Building Lease
Facility(1) Location Description Sq. Feet Expiration
- ----------- -------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Corporate Headquarters............. San Jose, CA Corporate Headquarters, 110,500 8/2000
Engineering and Operations
Electronic Systems Division........ Simi Valley, CA Engineering and Operations 43,000 3/2005
Condor Systems East(2)............. Sterling, VA Engineering and Operations 13,400 11/1999
Storage Facility................... San Jose, CA Offsite Storage 6,100 3/1999
</TABLE>
- -------------------
(1) In addition to the facilities listed, we have three domestic sales offices
and one international sales office.
(2) In January 1999, we announced a decision to close our facilities located in
Sterling, Virginia by the end of the year.
Environmental Matters
Although our operations do not include any activities which result in
material environmental issues, all owners and operators of real property could
have liability for environmental issues at such properties, regardless of fault.
Based on current information, however, we are aware of no liabilities under
environmental laws which would be expected to have a material adverse effect on
our business, results of operations or financial condition. In the past two
years we have not incurred any material costs related to environmental
compliance.
Legal Matters
We are not a party to any material legal proceedings, other than ordinary
routine litigation incidental to our business which is not otherwise material to
our business or financial condition.
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<PAGE>
MANAGEMENT
The following table sets forth the name, age and position of each person
who is an executive officer or director of Condor.
<TABLE>
Name Age Position
- ----- --- --------
<S> <C> <C>
Robert E. Young II.................... 52 President and Chief Executive Officer, Chairman of the Board
John L. Barnum........................ 55 Senior Vice President and Chief Technical Officer
Vernon A. Dale........................ 57 Vice President, Business Development
David J. Klingler..................... 45 Vice President, Advanced Program Development
Thomas A. Michalski................... 63 Vice President, Business Operations
Gary M. Viljoen....................... 42 Chief Financial Officer
Dr. Robert J. Hermann................. 65 Director
Dr. Paul G. Kaminski.................. 56 Director
Director to be appointed by GTP....... Director
William M. Matthes.................... 38 Director
</TABLE>
Robert E. Young, II has been President and Chief Executive Officer since
1994. From 1989 to 1994 he served as President and Chief Operating Officer. From
1985 to 1988 he served as Executive Vice President and Chief Operating Officer.
He joined Condor as Vice President and Chief Financial Officer in 1985. Prior to
joining Condor, Mr. Young was the Chief Financial Officer at EM Systems with
direct responsibility for Finance, Accounting, Contracts, and Management
Information Systems. Mr. Young also worked as Director of Finance with Solfan
Systems, Manager Financial Planning and Analysis with FMC, Manager Finance and
Contracts with Ford Aerospace and Senior Financial Analyst with Bendix
Corporation.
John L. Barnum has been Senior Vice President and Chief Technical Officer
since 1989. From 1987 to 1989 he served as Senior Vice President, Engineering.
He joined Condor as Vice President, Engineering in 1983. Prior to joining
Condor, Mr. Barnum worked with Watkins-Johnson Microwave Surveillance Systems
for 15 years, during which he played a key role in the conception, detail design
and development of a wide range of highly successful and innovative microwave
receiving systems.
Vernon A. Dale has been Vice President, Business Development since 1990.
Prior to joining Condor, Mr. Dale held positions as Vice President of Business
Development, Vice President of Engineering, and General Manager at Technology
for Communications, Inc. from 1985 to 1990. Prior to that, Mr. Dale served in
the capacity of Vice President of Engineering at EM Systems from 1980 to 1985,
as Navy Business Area Manager for ARGOSystems from 1975 to 1980, and as Manager
of the Navy Surveillance Section at GTE Sylvania from 1967 to 1975.
David J. Klingler has been Vice President, Advanced Program Development
since 1992. From 1985 to 1991 he served as Director of Business Development and
Director of Systems Engineering. From 1981 to 1985, Mr. Klingler was Manager of
the Advanced ELINT Systems Department at ESL (now TRW). Prior to that, Mr.
Klingler worked for the Recon Division of Watkins-Johnson where he was Manager
of the Software Development Special Programs organization from 1977 to 1981.
Thomas A. Michalski has been Vice President, Business Operations since
1992. From 1986 to 1990, Mr. Michalski was the President and General Manager of
the Applied Technology Division of Litton Industries Inc. Prior to joining
Litton, Mr. Michalski worked for Loral from 1984 to 1986. Prior to joining
Loral-Narda Western Operations, Mr. Michalski held various positions of
responsibility at California Microwave, Inc.
Gary M. Viljoen has been Chief Financial Officer since 1989. From 1988 to
1989 he served as Controller. From 1978 to 1983 Mr. Viljoen held various
positions with Coopers & Lybrand.
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<PAGE>
Dr. Robert J. Hermann has been a Senior Partner of GTP since April 1998.
Dr. Hermann most recently served as Senior Vice President for Science and
Technology at United Technologies Corporation and has served in various other
capacities at United Technologies since 1982. Prior to joining United
Technologies, Dr. Hermann spent twenty years with the National Security Agency
and in 1977 was appointed Principal Deputy Assistant Secretary of Defense for
Communications, Command, Control and Intelligence. In 1979, he was named
Assistant Secretary of the Air Force for Research, Development and Logistics and
in parallel was Director of the National Reconnaissance Office. Dr. Hermann is a
member of the President's Foreign Intelligence Advisory Board, the Defense
Science Board and the National Academy of Engineering, and is Chairman of the
Board of both the American National Standards Institute and Draper Laboratory.
He is also a visiting scholar at Harvard University and a director of DeCrane
Aircraft Holdings.
Dr. Paul G. Kaminski has been a Senior Partner of GTP since March 1998. Dr.
Kaminski most recently served as U.S. Undersecretary of Defense for Acquisition
and Technology from 1994 to 1997. Dr. Kaminski currently serves as Chief
Executive Officer of Technovation, Inc., a consulting firm focusing on business
strategy and advanced technology. Dr. Kaminski is a former Chairman of the
Defense Science Board and is currently a member of the Senate Select Committee
on Intelligence -- Technical Advisory Group, the NRO Advisory Council and the
National Academy of Engineering. He is a Fellow of the Institute for Electrical
and Electronic Engineering and an Associate Fellow of the American Institute of
Aeronautics and Astronautics. Dr. Kaminski is a director of General Dynamics,
Dyncorp, Eagle-Picher Technologies, DeCrane Aircraft Holdings Veridian, Anteon
Corp., Software Engineering Institute and several privately held technology
companies.
Director to be appointed by GTP. Pursuant to the Investors' Agreement (as
defined), GTP will appoint a director.
William M. Matthes has been a Managing Partner with Behrman Capital where
he has worked since 1996. From 1994 to 1996, Mr. Matthes was Chief Operating
Officer of Holsted Marketing, Inc., a direct marketing company. Previously Mr.
Matthes spent seven years as a General Partner at Brentwood Associates, a
leveraged buyout and venture capital firm. Mr. Matthes is a director of several
companies, including Starwood Financial Trust.
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EXECUTIVE COMPENSATION
The aggregate remuneration of the Chief Executive Officer during 1998 and
the five other most highly compensated executive officers of Condor
(collectively the "Named Executive Officers") whose salary and bonus exceeded
$100,000 for the fiscal year ended December 31, 1998, is set forth in the
following table:
1998 Summary Compensation Table
<TABLE>
Restricted Securities All Other
Stock Underlying Compensation
Name and Principal Position Salary Bonus Award(s) Options ($)(1)
- --------------------------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Robert E. Young II.................. $ 336,538 $ 500,000 -- -- $ 5,870
John L. Barnum...................... 217,692 100,000 -- -- 14,249
Vernon A. Dale...................... 181,154 100,000 -- -- 6,000
David J. Klingler................... 181,154 100,000 -- -- 6,000
Thomas A. Michalski................. 181,154 100,000 -- -- 8,492
Gary M. Viljoen..................... 181,154 150,000 -- -- 8,653
</TABLE>
- -------------------
(1) Other compensation includes amounts paid by Condor for automobile leases
and other automobile-related expenses and imputed medical insurance
benefits provided by Condor for the benefit of the Named Executive
Officers.
Stock Options
No stock options to purchase shares of Condor's common stock were granted
in 1998 to the Named Executive Officers under the 1997 Stock Option and
Restricted Share Plan. All options under the 1997 Stock Option and Restricted
Share Plan were canceled in the Acquisition in exchange for the Option
Consideration.
New Stock Option Plan
Condor intends to implement a new stock option plan (the "Management
Incentive Compensation Plan") for Management and other Condor employees. The
Management Incentive Compensation Plan is expected to include options to
purchase up to 10.25% of the common stock of Condor on a fully diluted basis.
The options will be divided into performance options and super performance
options. Performance options shall vest uniformly over a five-year period with
20% vesting each year, based on certain EBITDA targets. Super performance
options shall vest in their entirety upon a liquidation event (the "Liquidation
Event"), including (a) a sale of Condor that achieves a minimum value per
diluted common share or (b) an initial public offering of Condor that results
in a minimum average trading price per diluted common share over the 30-day
period following the offering. The minimum common share value or price levels
necessary for the vesting of the super performance options will be based on the
period of time between the consummation of the Acquisition and the related
financing and the Liquidation Event.
Employee and Severance Benefit Agreements
We have entered into employment agreements with several members of
management, copies of which are filed as exhibits to the registration statement
of which this prospectus forms a part.
On April 6, 1999, Condor entered into an employment agreement with Robert
E. Young II (the "Young Employment Agreement"), effective as of the Effective
Time. The Young Employment Agreement is for a term of three years with automatic
one-year extensions, unless 30 days prior notice of non-renewal is given by
either Mr. Young or Condor. Under the Young Employment Agreement, Mr. Young will
receive (1) a base salary of $350,000, which is subject to annual review and
increase, but not decrease; and (2) an annual bonus of up to 200%
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of the base salary depending upon the achievement of certain annual performance
goals by both Condor and Mr. Young. The Young Employment Agreement contains a
non-competition provision until two years after termination of employment, or
one year in the case of termination for Cause (as defined therein) or
resignation for Good Reason (as defined therein). In addition, the Young
Employment Agreement contains provision preventing the solicitation of any
Condor employees, suppliers or customers until one year after termination, or
six months if terminated without Cause.
If Mr. Young terminates his employment with Good Reason (which definition
includes termination because of a Change of Control (as defined therein)), or
Condor terminates his employment without Cause, Mr. Young is entitled to the
greater of 200% times his current base salary plus his most recently paid bonus,
or $1.4 million. This severance payment will be made in a lump sum to an escrow
account and paid to Mr. Young in eight equal installments over the next eight
fiscal quarters.
Condor has entered into an employment agreement with John L. Barnum (the
"Barnum Employment Agreement"), effective as of the Effective Time and to expire
on March 31, 2005. Under the Barnum Employment Agreement, Mr. Barnum will
receive (1) a base salary of $220,000, which is subject to adjustment based on
annual merit reviews, plus any discretionary bonuses for which he may be
eligible. As of April 1, 2000 until the expiration of the Barnum Employment
Agreement, Mr. Barnum has the option of becoming a part-time employee of Condor,
working up to a maximum of 10 hours per week on average each year, at a salary
of at least $60,000 per year, subject to annual adjustment for inflation. Mr.
Barnum is prohibited from consulting with competitors of Condor until two years
after the conclusion of the Barnum Employment Agreement. As a part-time employee
of Condor, Mr. Barnum will be able to consult for companies which are not
competitors of Condor as long as such consulting does not interfere with his
employment with Condor.
If Condor terminates Mr. Barnum's full-time employment without Cause (as
defined therein) prior to March 31, 2000, Condor will pay Mr. Barnum $300,000.
If Condor terminates Mr. Barnum's part-time employment prior to the expiration
of the Barnum Employment Agreement, Mr. Barnum is entitled to receive, in a lump
sum, the amount he would have received if he had continued to consult for Condor
at the current rate for the remaining term of the Barnum Employment Agreement.
On April 6, 1999, Condor entered into an employment agreement with Vernon
A. Dale (the "Dale Employment Agreement"), effective as of the Effective Time.
The Dale Employment Agreement is for a term of two years with automatic one-year
extensions, unless 30 days prior notice of non-renewal is given by either Mr.
Dale or Condor. Under the Dale Employment Agreement, Mr. Dale will receive (1) a
base salary of $185,000, which is subject to annual review and possible
increase; and (2) an annual bonus of up to 100% of the base salary depending
upon the achievement of certain annual performance goals by both Condor and Mr.
Dale. The Dale Employment Agreement contains a non-competition provision until
two years after termination of employment, or one year in the case of
termination for Cause (as defined therein) or resignation for Good Reason (as
defined therein). In addition, the Dale Employment Agreement contains provision
preventing the solicitation of any Condor employees, suppliers or customers
until one year after termination, or six months if terminated without Cause.
If Mr. Dale terminates his employment with Good Reason (which definition
includes termination because of a Change of Control (as defined therein)), or
Condor terminates his employment without Cause, Mr. Dale is entitled to a
severance payment of $500,000. This severance payment will be made in a lump sum
to an escrow account and paid to Mr. Dale in eight equal installments over the
next eight fiscal quarters.
On April 6, 1999, Condor entered into an employment agreement with David J.
Klingler (the "Klingler Employment Agreement"), effective as of the Effective
Time. The Klingler Employment Agreement is for a term of two years with
automatic one-year extensions, unless 30 days prior notice of non-renewal is
given by either Mr. Klingler or Condor. Under the Klingler Employment Agreement,
Mr. Klingler will receive (1) a base salary of $185,000, which is subject to
annual review and possible increase; and (2) an annual bonus of up to 100% of
the
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base salary depending upon the achievement of certain annual performance goals
by both Condor and Mr. Klingler. The Klingler Employment Agreement contains a
non-competition provision until two years after termination of employment, or
one year in the case of termination for Cause (as defined therein) or
resignation for Good Reason (as defined therein). In addition, the Klingler
Employment Agreement contains provision preventing the solicitation of any
Condor employees, suppliers or customers until one year after termination, or
six months if terminated without Cause.
If Mr. Klingler terminates his employment with Good Reason (which
definition includes termination because of a Change of Control (as defined
therein)), or Condor terminates his employment without Cause, Mr. Klingler is
entitled to a severance payment of $500,000. This severance payment will be made
in a lump sum to an escrow account and paid to Mr. Klingler in eight equal
installments over the next eight fiscal quarters.
Condor has entered into an employment agreement with Thomas A. Michalski
(the "Michalski Employment Agreement"), effective as of the Effective Time and
to expire on March 31, 2003. Under the Michalski Employment Agreement, Mr.
Michalski will receive (1) a base salary of $185,000, which is subject to
adjustment based on annual merit reviews, plus any discretionary bonuses for
which he may be eligible. As of April 1, 2000 until the expiration of the
Michalski Employment Agreement, Mr. Michalski has the option of becoming a
part-time employee of Condor, working up to a maximum of 10 hours per week on
average each year, at a salary of at least $60,000 per year, subject to annual
adjustment for inflation. Mr. Michalski is prohibited from consulting with
competitors of Condor until two years after the conclusion of the Michalski
Employment Agreement. As a part-time employee of Condor, Mr. Michalski will be
able to consult for companies which are not competitors of Condor as long as
such consulting does not interfere with his employment with Condor.
If Condor terminates Mr. Michalski's full-time employment without Cause (as
defined therein) prior to March 31, 2000, Condor will pay Mr. Michalski
$300,000. If Condor terminates Mr. Michalski's part-time employment prior to the
expiration of the Michalski Employment Agreement, Mr. Michalski is entitled to
receive, in a lump sum, the amount he would have received if he had continued to
consult for Condor at the current rate for the remaining term of the Michalski
Employment Agreement.
On April 6, 1999, Condor entered into an employment agreement with Gary M.
Viljoen (the "Viljoen Employment Agreement"), effective as of the Effective
Time. The Viljoen Employment Agreement is for a term of two years with automatic
one-year extensions, unless 30 days prior notice of non-renewal is given by
either Mr. Viljoen or Condor. Under the Viljoen Employment Agreement, Mr.
Viljoen will receive (1) a base salary of $200,000, which is subject to annual
review and possible increase; and (2) an annual bonus of up to 100% of the base
salary depending upon the achievement of certain annual performance goals by
both Condor and Mr. Viljoen. The Viljoen Employment Agreement contains a
non-competition provision until two years after termination of employment, or
one year in the case of termination for Cause (as defined therein) or
resignation for Good Reason (as defined therein). In addition, the Viljoen
Employment Agreement contains provision preventing the solicitation of any
Condor employees, suppliers or customers until one year after termination, or
six months if terminated without Cause.
If Mr. Viljoen terminates his employment with Good Reason (which definition
includes termination because of a Change of Control (as defined therein)), or
Condor terminates his employment without Cause, Mr. Viljoen is entitled to a
severance payment of $500,000. This severance payment will be made in a lump sum
to an escrow account and paid to Mr. Viljoen in eight equal installments over
the next eight fiscal quarters.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of Condor common stock immediately following the
consummation of the Acquisition by (a) any person or group who beneficially owns
more than five percent of Condor common stock, (b) each of our directors and
executive officers and (c) all directors and officers as a group.
<TABLE>
Shares
Beneficially Percentage of Percentage of
Owned after the Outstanding Voting
Name of Beneficial Acquisition(1) Common Stock Securities
- ------------------ -------------- ------------ ----------
<S> <C> <C> <C> <C>
DLJ Merchant Banking Partners II, L.P. and related
investors(3)............................................ 26,948,947 52.9% 0.0%
Behrman Capital L.P. and related investors(4).............. 15,000,000 29.5% 29.5%
Non-director partners of GTP(5)............................ 1,540,930 3.0% 35.0%
Robert E. Young II......................................... 1,852,855 3.6% 3.6%
John L. Barnum............................................. 499,999 1.0% 1.0%
Vernon A. Dale............................................. 739,999 1.5% 1.5%
David J. Klingler.......................................... 615,445 1.2% 1.2%
Thomas A. Michalski........................................ 239,999 * *
Gary M. Viljoen............................................ 542,088 1.1% 1.1%
Dr. Paul G. Kaminski, a GTP partner(6)..................... 584,719 1.1% 13.3%
Dr. Robert J. Hermann, a GTP partner(6).................... 425,404 * 9.7%
Director to be appointed by GTP............................ 0.0 0.0% 0.0%
William M. Matthes......................................... 0.0 0.0% 0.0%
All directors and officers as a group (10 persons)......... 5,500,508 10.8% 31.8%
</TABLE>
- -------------------
* less than 1%.
(1) Under the SEC's rules, each person or entity is deemed to be a beneficial
owner with the power to vote and direct the disposition of these shares.
(2) Shares of common stock held by GTP partners have voting rights equal in the
aggregate to the sum of the shares held by GTP partners and DLJMB and its
related investors, or initially 11.564 votes per share. Behrman's common
stock has one vote per share. Although DLJMB's shares of common stock does
not have any voting rights, DLJMB's consent is required prior to
implementing certain decisions of our board of directors, including
decisions related to financings and acquisitions.
(3) Consists of shares held directly by DLJMB and the following related
investors: DLJ Merchant Banking Partners II-A, L.P. ("DLJMBIIA"); DLJ
Offshore Partners II, C.V. ("Offshore"); DLJ Diversified Partners, L.P.
("Diversified"); DLJ Diversified Partners-A, L.P. ("Diversified A"); DLJ
Millennium Partners, L.P. ("Millennium"); DLJ Millennium Partners-A, L.P.
("Millennium A"); DLJMB Funding II, Inc. ("Funding"); DLJ First ESC L.P.
("DLJ First ESC"); UK Investment Plan 1997 Partners, Inc. ("UK Partners");
DLJ EAB Partners, L.P. ("EAB"); and DLJ ESC II L.P. ("DLJ ESC II"). See
"Certain Relationships and Related Party Transactions" and "Plan of
Distribution." The address of each of DLJMB, DLJMBIIA, Diversified,
Diversified A, Millennium, Millennium A, Funding, DLJ First ESC, EAB and
DLJ ESC II is 277 Park Avenue, New York, New York 10172. The address of
Offshore is John B. Gorsiraweg 14, Willemstad, Curacao, Netherlands
Antilles. The address of UK Partners is 2121 Avenue of the Stars, Fox
Plaza, Suite 3000, Los Angeles, California 90067.
(4) Consists of shares held directly by Behrman Capital II, L.P. and Strategic
Entrepreneur Fund II L.P. (the "Behrman Investors"). The address of the
Behrman Investors is 126 East 56th Street, New York, New York 10022.
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(5) Consists of shares held by individual partners of Global Technology
Partners, LLC who are not directors of Condor (the "GTP Investors"). The
address of the GTP Investors is c/o Global Technology Partners, LLC, 1300 I
Street, N.W., Washington, D.C. 20005. Each GTP Investor disclaims
beneficial ownership as to the shares held by the other GTP Investors.
(6) Drs. Kaminski and Hermann are partners of GTP and directors of Condor.
Share data shown for such individuals excludes shares shown as held by the
GTP Investors, as to which Drs. Kaminski and Hermann disclaim beneficial
ownership.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Acquisition
Financial Advisory Fees and Agreements. In connection with the Merger,
Behrman Capital Management Corp. ("BCMC"), an affiliate of Behrman, received a
financial advisory fee of $2.5 million and Condor's employee stock ownership
plan received an additional payment of $0.4 million.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC"), an affiliate
of DLJMB, acted as financial advisor to WDC Acquisition Corp. and as an initial
purchaser of the old notes. WDC Acquisition Corp. paid customary fees to DLJSC
as compensation for its services as financial advisor and initial purchaser. The
aggregate amount of all fees paid to DLJSC in connection with the Acquisition
and the related financing was approximately $3.6 million plus
out-of-pocket-expenses. Condor, as successor to WDC Acquisition Corp., has
agreed to engage DLJSC as its exclusive financial advisor for a period of five
years beginning upon the closing of the Merger. Condor and its subsidiaries may
from time to time enter into financial advisory or other investment banking
relationships with DLJSC or one of its affiliates pursuant to which DLJSC or its
affiliates will receive customary fees and will be entitled to reimbursement for
all reasonable disbursements and out-of-pocket expenses incurred in connection
therewith. Condor expects that any such arrangement will include provisions for
the indemnification of DLJSC against certain liabilities, including liabilities
under the federal securities laws.
At the Effective Time, the current financial advisory agreement between
Condor and Behrman Brothers Management Corp., an affiliate of BCMC, was
terminated. Instead, Condor has agreed to engage BCMC to provide financial
advisory services in connection with each future acquisition by Condor or any of
its subsidiaries of a business, whether by merger, stock purchase, acquisition
of assets or otherwise, for a fee of 2.0% of the enterprise value of the
business being acquired up to the earlier of the eighth anniversary of the
Effective Time and the payment of $4.0 million in aggregate amount. BCMC will be
entitled to reimbursement for reasonable disbursements and out-of-pocket
expenses incurred in connection therewith. Condor expects that any such
arrangement will include provisions for the indemnification of BCMC against
certain liabilities.
Incentive Payments. Pursuant to the Merger Agreement, Condor is obligated
to make cash payments limited to a maximum aggregate amount of $7.0 million
(what we call, collectively, the "Incentive Payments") to all existing
shareholders of Condor, including employees, upon consummation of any of the
following events prior to the eighth anniversary of the closing date of the
Merger:
o an underwritten public offering of common stock (or of a security
convertible for or exchangeable into such common stock) of Condor, any
successor to Condor or any of its subsidiaries or parent company (the
"Condor Entities")
o a sale, recapitalization, merger, change in control or similar
transaction involving any Condor Entity in which any DLJ Entity (or
its permitted transferees) receives consideration (other than equity
securities in any Condor Entity) in respect of its equity securities
in such Condor Entity, which, when aggregated with all other such
consideration received by all DLJ Entities (and any permitted
transferees) in respect of their equity securities in all Condor
Entities, exceeds their aggregate purchase price for all such equity
securities
o an acquisition by any Condor Entity of ATD whether by merger or
acquisition of all or substantially all the assets of ATD, or
otherwise
o an acquisition by any Condor Entity of a business (other than ATD)
whether by merger or acquisition of all or substantially all of the
assets of such business or otherwise and the cumulative enterprise
value of all businesses (including ATD if consummated), which have
been the subject of acquisitions by Condor Entities since the
Effective Time, equals or exceeds $100 million
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The maximum aggregate amount of the Incentive Payments is $7.0 million. As
to acquisitions:
o the Incentive Payments are made only when the aggregate enterprise
value of completed acquisitions exceeds $100.0 million
o once the aggregate enterprise value of completed acquisitions exceeds
$100.0 million but is less than or equal to $200.0 million, $5.0
million of Incentive Payments will be payable in increments based on a
percentage of the amount over $100.0 million
o an additional $2.0 million becomes payable immediately when the
aggregate enterprise value of completed acquisitions exceeds $200.0
million
Investors' Agreement. Condor, DLJMB, Behrman, GTP and Management (the
"Condor Investors") entered into an investors' agreement at the Effective Time
(the "Investors' Agreement"). If DLJMB is in the future permitted to control
Condor directly by holding voting stock, DLJMB may elect to have both its shares
of Condor common stock and GTP's shares of Condor common stock converted into
shares with one vote per share.
The Investors' Agreement provides that the Condor board of directors shall
consist of five members with three of the members to be appointed by GTP, at
least two members to be partners of GTP who directly own shares of Condor, one
director to be appointed by Behrman and the final director to be Condor's chief
executive officer, who is appointed by the board of directors. As long as DLJMB
has non-voting shares and maintains at least 10% of its initial ownership stake,
Condor's board of directors cannot take certain actions without DLJMB's
approval. These actions include:
o the sale or disposal of all of Condor's assets, or a substantial part
thereof
o pledges, mortgages, or other encumbrances of Condor's assets, other
than for obtaining working capital or funds for capital improvements
o the issuance or redemption of debt or equity securities, including
options and other equity-based
compensation
o mergers, consolidations, reorganizations and acquisitions
o Condor's dissolution, sale or liquidation, or a change of control
o the filing of a bankruptcy petition or the winding-down of the
business
o a change in our independent auditors
o a change in our corporate charter
o certain extraordinary compensation actions
Shares of Condor common stock held by Management, GTP and Behrman cannot be
transferred except pursuant to the terms of the Investors' Agreement. DLJMB and
Condor have a right of first offer on any shares of Condor common stock which
GTP may propose to sell and DLJMB has a right of first offer, and to the extent
DLJMB does not exercise such right, Condor has a right of first offer, on any
shares of Condor common stock which Behrman may propose to sell. Behrman, GTP
and Management may participate in certain sales of shares of Condor common stock
by DLJMB, and DLJMB may require Behrman, GTP and Management to sell their shares
of Condor common stock should DLJMB elect to sell its shares of Condor common
stock.
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<PAGE>
The Condor Investors have certain registration rights related to their
shares of Condor common stock. DLJMB is entitled to request five demand
registrations with respect to the shares of Condor common stock it owns. These
demand registration rights are immediately exercisable subject to customary
deferral and cutback provisions. Behrman also has demand registration rights
under certain circumstances. Each Condor Investor has piggyback registration
rights, subject to customary cutback provisions.
GTP Options. Condor is expected to enter into an agreement with GTP or
certain members thereof pursuant to which Condor will grant options to GTP to
purchase an aggregate of 1,272,700 shares, representing up to 2.2% of the common
stock of Condor on a fully diluted basis, which options will vest over a
three-year period, subject to acceleration if the DLJ Entities sell any of their
shares of Condor common stock, and will be exercisable at an exercise price
equal to $1.00.
Existing Agreements, Warrants and Options Terminated. At the Effective
Time:
o The Registration Rights Agreement dated October 1996 among Condor and
the Behrman Funds relating to the Behrman Funds' rights to cause their
Condor shares to be registered in certain circumstances was terminated
o The Shareholders' Agreement dated as of October 15, 1996 among Condor,
the Behrman Funds and the parties named therein relating to certain
shareholders' rights, including rights of first offer, was terminated
o Pursuant to a Termination Agreement dated as of March 8, 1999,
warrants to purchase Class B common stock of Condor outstanding were
converted into the right to receive the Warrant Consideration
o Pursuant to Stock Option Termination Agreements, all of the Company
Options were canceled, and the holders thereof were paid the Option
Consideration
Other Transactions with Officers and Directors
Condor has entered into standard indemnity agreements with certain
directors and a number of officers.
As part of the recapitalization in 1996, Condor forgave a loan to Gary M.
Viljoen, Condor's Chief Financial Officer, in the amount of $75,000.
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<PAGE>
DESCRIPTION OF NEW CREDIT FACILITY
The New Credit Facility has been provided by a syndicate of financial
institutions (each such financial institution being a "Lender" and,
collectively, the "Lenders") led by BAC as administrative agent. The New Credit
Facility consists of a $50.0 million revolving credit facility which provides
for loans and the issuance of letters of credit and has a maturity of five years
after the closing date of the New Credit Facility (the "Closing Date").
Loans under the New Credit Facility initially bear interest, at Condor's
option, at the alternate base rate plus 2.25% or the reserve adjusted LIBOR rate
plus 3.50%. Condor pays commitment fees at a rate equal to 1.50% per annum on
the daily average unused portion of the New Credit Facility. Beginning
approximately six months after the Closing Date, the applicable margins and
commitment fees will be determined based on the ratio of consolidated net funded
debt to consolidated EBITDA of Condor and its subsidiaries.
Condor pays a letter of credit fee on the outstanding undrawn amounts of
letters of credit issued under the New Credit Facility at a rate per annum equal
to (a) the margin applicable to LIBOR loans with respect to standby and
performance letters of credit and (b) 50% of the margin applicable to LIBOR
loans with respect to trade letters of credit.
All of the domestic subsidiaries of Condor are guarantors of the New Credit
Facility. Condor's obligations under the New Credit Facility are also secured
by:
o substantially all existing and after-acquired assets of Condor and the
subsidiary guarantors, including a pledge of all of the stock of all
of Condor's existing or future subsidiaries, provided that no more
than 65% of the voting stock of any of Condor's foreign subsidiaries
shall be pledged
o a negative pledge on all of Condor's and its subsidiaries' assets, in
each case subject to certain exceptions
The New Credit Facility contains customary covenants and restrictions on
our ability to engage in certain activities, including, but not limited to:
o limitations on other indebtedness, liens and investments
o restrictions on dividends and redemptions and pre-payments of
subordinated debt
o restrictions on mergers and acquisitions and sales of assets
The New Credit Facility also contains financial covenants requiring Condor
to maintain minimum coverage of fixed charges and not exceed a maximum total
leverage ratio, senior leverage ratio or level of capital expenditures.
Borrowings and issuances of letters of credit under the New Credit Facility are
subject to conditions, including compliance with financial ratios and the
absence of any material adverse change. On a pro forma basis as of March 31,
1999, Condor's borrowing availability under the New Credit Facility is
approximately $46.6 million, less $18.8 million in outstanding letters of
credit. See "Risk Factors -- Risks relating to our debt."
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<PAGE>
DESCRIPTION OF NOTES
General
The old notes were issued, and the new notes will be issued, pursuant to an
indenture (the "indenture") dated as of April 15, 1999 among Condor, CEI
Systems, Inc. (the "Guarantor") and State Street Bank and Trust Company, as
trustee (the "trustee"). The terms of the notes include those stated in the
indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The notes are
subject to all such terms, and Holders of notes are referred to the indenture
and the Trust Indenture Act for a statement thereof. Copies of the indenture are
available as set forth below under "--Additional Information."
The terms of the new notes are identical in all material respects to the
terms of the old notes, except for certain transfer restrictions and
registration rights relating to the old notes. If we do not complete the
exchange offer by , 1999, Holders of old notes that have complied with their
obligations under the registration rights agreement will be entitled, subject to
certain exceptions, to liquidated damages in an amount equal to $0.05 per week
per $1,000 principal amount of notes held by such Holder until , 1999 and
increasing every 90 days thereafter up to a maximum amount equal to $0.25 per
week per $1,000 principal amount of notes until the registration statement is
declared effective.
The following description is a summary of the material provisions of the
indenture. It does not purport to be complete and is qualified in its entirety
by reference to the indenture, including the definitions therein of certain
terms used below. We urge you to read the indenture because it, and not this
description, defines your rights as a Holder of the notes. We have filed a copy
of the indenture as an exhibit to the registration statement of which this
prospectus forms a part.
The definitions of certain terms used in the following summary are set
forth below under "--Certain Definitions." For purposes of this summary, the
term "Condor" refers only to Condor Systems, Inc. and not to any of its
Subsidiaries.
The notes will:
o be general unsecured obligations of Condor
o rank junior in right of payment to all existing and future Senior
Indebtedness of Condor (including borrowings or letter of credit
reimbursement obligations under the New Credit Facility)
o rank equally in right of payment with any future senior subordinated
Indebtedness of Condor
o rank senior in right of payment to all future subordinated
Indebtedness of Condor
o be effectively junior to all liabilities of Condor's subsidiaries
other than the Guarantor
The notes will be unconditionally guaranteed (the "Note Guarantees") on a
senior subordinated basis by the Guarantor. The Note Guarantees will:
o be general unsecured obligations of the Guarantor
o rank junior in right of payment to all existing and future Senior
Indebtedness of the Guarantor (including the guarantee under the New
Credit Facility)
o rank equally in right of payment with any future senior subordinated
Indebtedness of the Guarantor
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o rank senior in right of payment to any future subordinated
Indebtedness of the Guarantor
On a pro forma basis after giving effect to the Acquisition and related
refinancings, as of March 31, 1999, Condor and the Guarantor had outstanding
approximately $18.8 million of Senior Indebtedness (of which substantially all
constituted contingent reimbursement obligations in respect of standby letters
of credit) and Condor's subsidiaries (other than the Guarantor) had $0.0 million
of outstanding liabilities, including trade payables (excluding guarantees of
the New Credit Facility and intercompany obligations). The indenture will permit
Condor and its Subsidiaries to incur additional Indebtedness, including Senior
Indebtedness, in the future. See "Risk Factors--Subordination" and "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
As of the date of the indenture, all of Condor's Subsidiaries will be
Restricted Subsidiaries. However, under certain circumstances, Condor will be
permitted to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to the restrictive
covenants set forth in the indenture.
Principal, Maturity and Interest
The notes will initially be limited in aggregate principal amount to $100.0
million and will mature on May 1, 2009. Interest on the notes will accrue at the
rate of 11 7/8% per annum and, subject to the subordination provision described
below, will be payable semi-annually in cash in arrears on May 1 and November 1,
commencing on November 1, 1999, to Holders of record on the immediately
preceding April 15 and October 15. Interest on the notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the date of original issuance. Interest will be computed on the basis
of a 360-day year comprised of twelve 30-day months.
Principal of, premium, if any, and interest and Liquidated Damages, if any,
on the notes will be payable at the office or agency of Condor maintained for
such purpose within the City and State of New York or, at the option of Condor,
payment of interest and Liquidated Damages may be made by check mailed to the
Holders of the notes at their respective addresses set forth in the register of
Holders of notes; provided that all payments of principal, premium, interest and
Liquidated Damages with respect to notes represented by one or more permanent
global notes will be paid by wire transfer of immediately available funds to the
account of the Depository Trust Company or any successor thereto. Until
otherwise designated by Condor, Condor's office or agency in New York will be
the office of the trustee maintained for such purpose. The notes will be issued
in denominations of $1,000 and integral multiples thereof.
Subject to the covenants described below, Condor may issue additional notes
under the indenture having the same terms in all respects as the notes, or
similar in all respects except for the payment of interest on the notes (i)
scheduled and paid prior to the date of issuance of such notes or (ii) payable
on the first Interest Payment Date following such date of issuance. The notes
offered hereby and any such additional notes would be treated as a single class
for all purposes under the indenture.
Subordination
The payment of Subordinated Note Obligations will be subordinated in right
of payment, as set forth in the indenture, to the prior payment in full in cash
or cash equivalents of all Senior Indebtedness, whether outstanding on the date
of the indenture or thereafter incurred.
Upon any distribution to creditors of Condor in a liquidation or
dissolution of Condor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to Condor or its property, an
assignment for the benefit of creditors or any marshaling of Condor's assets and
liabilities, the holders of Senior Indebtedness will be entitled to receive
payment in full in cash or cash equivalents of all Obligations due in respect of
such Senior Indebtedness (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Indebtedness) before
the Holders of notes will be entitled to receive any payment with respect to
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<PAGE>
the Subordinated Note Obligations (except that Holders of notes may receive and
retain Permitted Junior Securities and payments made from the trust described
under "--Legal Defeasance and Covenant Defeasance"). Until all Obligations with
respect to Senior Indebtedness are paid in full in cash or cash equivalents, any
distribution to which the Holders of notes would be entitled shall be made to
the holders of Senior Indebtedness (except as noted above).
Condor also may not make any payment upon or in respect of the Subordinated
Note Obligations (except in Permitted Junior Securities or from the trust
described under "--Legal Defeasance and Covenant Defeasance") until all
obligations with respect to Senior Indebtedness have been paid in full in cash
or cash equivalents if:
(1) a default in the payment of the principal (including reimbursement
obligations in respect of letters of credit) of, premium, if any, or
interest on or commitment, letter of credit or administrative fees
relating to, Designated Senior Indebtedness occurs and is continuing
beyond any applicable period of grace; or
(2) any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior
Indebtedness as to which such default relates to accelerate its
maturity and the trustee receives a notice of such default (a "Payment
Blockage Notice") from Condor or the holders of any Designated Senior
Indebtedness.
Payments on the notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such default
is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Indebtedness has been accelerated.
No new period of payment blockage may be commenced unless and until 360
days have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice. No nonpayment default that existed or was continuing on the
date of delivery of any Payment Blockage Notice to the trustee shall be, or be
made, the basis for a subsequent Payment Blockage Notice unless such default
shall have been waived or cured for a period of not less than 90 days.
"Designated Senior Indebtedness" means:
(1) any Indebtedness outstanding under the New Credit Facility; and
(2) any other Senior Indebtedness permitted under the indenture the
principal amount of which is $25.0 million or more and that has been
designated by Condor in writing to the trustee as "Designated Senior
Indebtedness."
"Permitted Junior Securities" means Equity Interests in Condor or debt
securities of Condor that are subordinated to all Senior Indebtedness (and any
debt securities issued in exchange for Senior Indebtedness) to substantially the
same extent as, or to a greater extent than, the notes are subordinated to
Senior Indebtedness.
"Senior Indebtedness" means, with respect to any Person:
(1) all Obligations of such Person outstanding under the New Credit
Facility and all Hedging Obligations payable to a lender or an
Affiliate thereof or to a Person that was a lender or an Affiliate
thereof at the time the contract was entered into under the New Credit
Facility or any of its Affiliates, including, without limitation,
interest accruing subsequent to the filing of, or which would have
accrued but for the
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filing of, a petition for bankruptcy, whether or not such interest is
an allowable claim in such bankruptcy proceeding;
(2) any other Indebtedness, unless the instrument under which such
Indebtedness is incurred expressly provides that it is subordinated in
right of payment to any other Senior Indebtedness of such Person; and
(3) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior
Indebtedness will not include:
(a) any liability for federal, state, local or other taxes;
(b) any Indebtedness of such Person (other than pursuant to the New
Credit Facility) to any of its Subsidiaries or other Affiliates;
(c) any trade payables; or
(d) any Indebtedness that is incurred in violation of the indenture.
"Subordinated Note Obligations" means all Obligations with respect to the
notes, including, without limitation, principal, premium, if any, interest and
Liquidated Damages, if any, payable pursuant to the terms of the notes
(including upon the acceleration or redemption thereof), together with and
including any amounts received or receivable upon the exercise of rights of
rescission or other rights of action (including claims for damages) or
otherwise.
The indenture will further require that Condor promptly notify holders of
Senior Indebtedness if payment of the notes is accelerated because of an Event
of Default. As a result of the subordination provisions described above, in the
event of a liquidation or insolvency, Holders of notes may recover less ratably
than creditors of Condor who are holders of Senior Indebtedness.
Note Guarantees
The Note Guarantees will be subordinated to the prior payment in full in
cash or cash equivalents of all Senior Indebtedness of the Guarantor (including
the Guarantor's guarantee of the new Credit Facility) to the same extent that
the notes are subordinated to Senior Indebtedness of Condor. The obligations of
the Guarantor under the Note Guarantees will be limited so as not to constitute
a fraudulent conveyance under applicable law.
The indenture will provide that the Guarantor may not consolidate with or
merge with or into (whether or not the Guarantor is the surviving Person)
another Person or entity whether or not affiliated with the Guarantor unless:
(1) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than
the Guarantor or Condor) unconditionally assumes all the obligations
of the Guarantor pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the trustee under the indenture,
the Note Guarantees and the registration rights agreement;
(2) immediately after giving effect to such transaction, no Default or
Event of Default exists;
(3) Condor (a) would, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur
at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the covenant described under the
caption "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock," or (b) would (together with its Restricted
Subsidiaries) have a higher Fixed Charge
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Coverage Ratio immediately after such transaction (after giving pro
forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period) than the Fixed Charge
Coverage Ratio of Condor and its Restricted Subsidiaries immediately
prior to such transaction.
The requirements of clause (3) above will not apply in the case of (x) a
consolidation with or merger into Condor or (y) a merger of any Person into the
Guarantor or the consolidation of any Person with the Guarantor if the Guarantor
is the surviving Person.
The indenture will provide that, in the event of a sale or other
disposition of all of the assets of the Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of the capital
stock of the Guarantor, the Guarantor (in the event of a sale or other
disposition, by way of such a merger, consolidation or otherwise, or a sale or
other disposition of all of the capital stock of the Guarantor) will be released
and relieved of any obligations under the Note Guarantees; provided that the Net
Proceeds of such sale or other disposition are applied in accordance with the
applicable provisions of the indenture. See "--Repurchase at the Option of
Holders--Asset Sales."
Optional Redemption
Except as provided below, the notes will not be redeemable at Condor's
option prior to May 1, 2004. Thereafter, the notes will be subject to redemption
at any time at the option of Condor, in whole or in part, upon not less than 30
nor more than 60 days' notice, in cash at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on May 1 of the years
indicated below:
Year Percentage
- ----- ----------
2004.............................................................. 105.938%
2005.............................................................. 103.958%
2006.............................................................. 101.979%
2007 and thereafter............................................... 100.000%
Notwithstanding the foregoing, on or prior to May 1, 2002, Condor may
redeem up to 35% of the aggregate principal amount of notes from time to time
originally issued under the indenture in cash at a redemption price of 111.875%
of the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the redemption date, with the net cash proceeds of
one or more Public Equity Offerings; provided that:
(1) at least 65% of the aggregate principal amount of notes from time to
time originally issued under the indenture remains outstanding
immediately after the occurrence of any such redemption; and
(2) such redemption shall occur within 90 days of the date of the closing
of any such Public Equity Offering.
Selection and Notice
If less than all of the notes are to be redeemed at any time, the trustee
will select the notes for redemption as follows:
(1) in compliance with the requirements of the principal national
securities exchange, if any, on which the notes are listed; or
(2) if the notes are not so listed, on a pro rata basis, by lot or by such
method as the trustee shall deem fair and appropriate;
provided that no notes of $1,000 or less shall be redeemed in part.
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Notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each Holder of notes to be
redeemed at its registered address. Notices of redemption may not be
conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to such note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original note. Notes called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to accrue on notes
or portions of them called for redemption.
Mandatory Redemption
Condor is not required to make mandatory redemption of, or sinking fund
payments with respect to, the notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each Holder of notes will have
the right to require Condor to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of such Holder's notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of repurchase (the
"Change of Control Payment"). Within 60 days following any Change of Control,
Condor will (or will cause the trustee to) mail a notice to each Holder
describing the transaction or transactions that constitute the Change of Control
and offering to repurchase notes on the date specified in such notice, which
date shall be no earlier than 30 days and no later than 60 days from the date
such notice is mailed (the "Change of Control Payment Date"), pursuant to the
procedures required by the indenture and described in such notice. Condor will
comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the notes as a
result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the indenture
relating to such Change of Control Offer, Condor will comply with the applicable
securities laws and regulations and shall not be deemed to have breached their
obligations described in the indenture by virtue thereof.
On the Change of Control Payment Date, Condor will, to the extent lawful:
(1) accept for payment all notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all notes or portions thereof so tendered; and
(3) deliver or cause to be delivered to the trustee the notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of notes or portions thereof being purchased by Condor.
The Paying Agent will promptly mail to each Holder of notes so tendered the
Change of Control Payment for such notes, and the trustee will promptly
authenticate and mail (or cause to be transferred by book-entry) to each Holder
a new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each such new note will be in a principal
amount of $1,000 or an integral multiple thereof.
The indenture will provide that, prior to complying with the provisions of
this covenant, but in any event within 90 days following a Change of Control,
Condor will either repay all outstanding Senior Indebtedness or
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obtain the requisite consents, if any, under all agreements governing
outstanding Senior Indebtedness to permit the repurchase of notes required by
this covenant. The indenture requires Condor to publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the indenture are applicable. Except as described
above with respect to a Change of Control, the indenture does not contain
provisions that permit the Holders of the notes to require that Condor
repurchase or redeem the notes in the event of a takeover, recapitalization or
similar transaction.
The New Credit Facility will prohibit Condor from purchasing any notes and
also will provide that certain change of control events (which may include
events not otherwise constituting a Change of Control under the indenture) with
respect to Condor would constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Indebtedness to which Condor
becomes a party may contain similar restrictions and provisions. In the event a
Change of Control occurs at a time when Condor is prohibited from purchasing
notes, Condor could seek the consent of its lenders to the purchase of notes or
could attempt to refinance the borrowings that contain such prohibition. If
Condor does not obtain such a consent or repay such borrowings, Condor will
remain prohibited from purchasing notes. In such case, Condor's failure to
purchase tendered notes would constitute an Event of Default under the
indenture, which would, in turn, constitute a default under the New Credit
Facility. In such circumstances, the subordination provisions in the indenture
would likely restrict payments to the Holders of notes.
Condor will not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by Condor and purchases
all notes validly tendered and not withdrawn under such Change of Control Offer.
"Change of Control" means the occurrence of any of the following:
(1) the sale, lease, transfer, conveyance or other disposition (other than
by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of Condor and
its Subsidiaries, taken as a whole, to any "person" or "group" (as
such terms are used in Section 13(d) of the Exchange Act), other than
the Principals and their Related Parties;
(2) the adoption of a plan for the liquidation or dissolution of Condor;
(3) the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that any "person"
or "group" (as such terms are used in Section 13(d) of the Exchange
Act), other than the Principals and their Related Parties, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act), directly or indirectly through one or
more intermediaries, of 50% or more of the voting power of the
outstanding voting stock of Condor; or
(4) the first day on which a majority of the members of the board of
directors of Condor are not Continuing Members.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of Condor and its Subsidiaries taken as a whole. Although there is
a developing body of case law interpreting the phrase "substantially all," there
is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a Holder of notes to require Condor to repurchase
such notes as a result of a sale, lease, transfer, conveyance or other
disposition of less than all of the assets of Condor and its Subsidiaries taken
as a whole to another Person or group may be uncertain.
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"Continuing Members" means, as of any date of determination, any member of
the board of directors of Condor who:
(1) was a member of such board of directors immediately after consummation
of the Acquisition and the Acquisition Financing; or
(2) was nominated for election or elected to such board of directors with
the approval of, or whose election to the board of directors was
ratified by, at least a majority of the Continuing Members who were
members of such board of directors at the time of such nomination or
election or was proposed by DLJMB.
Asset Sales
The indenture will provide that Condor will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) Condor or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the
fair market value (evidenced by a resolution of the board of directors
set forth in an Officers' Certificate delivered to the trustee) of the
assets or Equity Interests issued or sold or otherwise disposed of;
and
(2) at least 75% of the consideration therefor received by Condor or such
Restricted Subsidiary is in the form of:
(a) cash or Cash Equivalents; or
(b) property or assets that are used or useful in a Permitted
Business, or the Capital Stock of any Person engaged in a
Permitted Business if, as a result of the acquisition by Condor
or any Restricted Subsidiary thereof, such Person becomes a
Restricted Subsidiary. For the purposes of this provision, each
of the following shall be deemed to be cash:
(i) any liabilities (as shown on Condor's or such Restricted
Subsidiary's most recent balance sheet), of Condor or any
Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the
notes or any guarantee thereof) that are assumed by the
transferee of any such assets pursuant to a customary
novation agreement that releases Condor or such Restricted
Subsidiary from further liability;
(ii) any securities, notes or other obligations received by
Condor or such Restricted Subsidiary from such transferee
that are contemporaneously (subject to ordinary settlement
periods) converted by Condor or such Restricted Subsidiary
into cash or Cash Equivalents (to the extent of the cash or
Cash Equivalents received); and
(iii)any Designated Noncash Consideration received by Condor or
any of its Restricted Subsidiaries in such Asset Sale having
an aggregate fair market value, taken together with all
other Designated Noncash Consideration received pursuant to
this clause (iii) that is at that time outstanding, not to
exceed 15% of Total Assets at the time of the receipt of
such Designated Noncash Consideration (with the fair market
value of each item of Designated Noncash Consideration being
measured at the time received and without giving effect to
subsequent changes in value);
provided that the 75% limitation referred to in clause (2) above will not apply
to any Asset Sale in which the cash or Cash Equivalents portion of the
consideration received therefrom, determined in accordance with subclauses (i),
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(ii) and (iii) above, is equal to or greater than what the after-tax proceeds
would have been had such Asset Sale complied with the aforementioned 75%
limitation.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
Condor or such Restricted Subsidiary, as the case may be, shall apply such Net
Proceeds, at its option (or to the extent Condor is required to apply such Net
Proceeds pursuant to the terms of the New Credit Facility), to:
(1) repay or purchase Senior Indebtedness or Pari Passu Indebtedness of
Condor or any Indebtedness of any Restricted Subsidiary, as the case
may be, provided that if Condor shall so repay or purchase Pari Passu
Indebtedness of Condor;
(a) it will equally and ratably reduce Indebtedness under the notes
if the notes are then redeemable; or
(b) if the notes may not then be redeemed, Condor shall make an offer
(in accordance with the procedures set forth below for an Asset
Sale Offer) to all Holders of notes to purchase at a purchase
price equal to 100% of the principal amount of the notes, plus
accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of purchase, the notes that would otherwise
be redeemed; or
(2) an investment in property, the making of a capital expenditure or the
acquisition of assets that are used or useful in a Permitted Business,
or Capital Stock of any Person primarily engaged in a Permitted
Business if:
(a) as a result of the acquisition by Condor or any Restricted
Subsidiary thereof, such Person becomes a Restricted Subsidiary;
or
(b) the Investment in such Capital Stock is permitted by clause (6)
of the definition of Permitted Investments.
Pending the final application of any such Net Proceeds, Condor may
temporarily reduce Indebtedness or otherwise invest such Net Proceeds in any
manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of this paragraph will be deemed to constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0
million, Condor will be required to make an offer to all Holders of notes (an
"Asset Sale Offer") to purchase the maximum principal amount of notes that may
be purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date of purchase, in accordance
with the procedures set forth in the indenture.
To the extent that any Excess Proceeds remain after consummation of an
Asset Sale Offer, Condor may use such Excess Proceeds for any purpose not
otherwise prohibited by the indenture. If the aggregate principal amount of
notes surrendered by Holders thereof in connection with an Asset Sale Offer
exceeds the amount of Excess Proceeds, the trustee shall select the notes to be
purchased as set forth under "--Selection and Notice." Upon completion of such
offer to purchase, the amount of Excess Proceeds shall be reset at zero.
Condor will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
notes pursuant to an Asset Sale Offer. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the indenture
relating to such Asset Sale Offer, Condor will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the indenture by virtue thereof.
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Certain Covenants
Restricted Payments
The indenture will provide that Condor will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution
on account of Condor's or any of its Restricted Subsidiaries' Equity
Interests (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of Condor or dividends or
distributions payable to Condor or any Wholly Owned Restricted
Subsidiary of Condor);
(2) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of Condor, any of its Restricted Subsidiaries or any other
Affiliate of Condor (other than any such Equity Interests owned by
Condor or any Restricted Subsidiary of Condor);
(3) make any principal payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value, any Indebtedness of
Condor that is subordinated in right of payment to the notes, except
in accordance with the mandatory redemption or repayment provisions
set forth in the original documentation governing such Indebtedness
(but not pursuant to any mandatory offer to repurchase upon the
occurrence of any event); or
(4) make any Restricted Investment (all such payments and other actions
set forth in clauses (1) through (4) above being collectively referred
to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(2) Condor would, immediately after giving pro forma effect thereto as if
such Restricted Payment had been made at the beginning of the
applicable four-quarter period, have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described
under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Condor and its Restricted
Subsidiaries after the date of the indenture (excluding Restricted
Payments permitted by clauses (1) (to the extent that the declaration
of any dividend referred to therein reduces amounts available for
Restricted Payments pursuant to this clause (3)), (2) through (7),
(9), (10), (13), (14) and (16) of the next succeeding paragraph), is
less than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of Condor for the period
(taken as one accounting period) commencing July 1, 1999 to the
end of Condor's most recently ended fiscal quarter for which
internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit); plus
(b) 100% of the Qualified Proceeds received by Condor on or after the
date of the indenture from contributions to Condor's capital or
from the issue or sale on or after the date of the indenture of
Equity Interests of Condor or of Disqualified Stock or
convertible debt securities of Condor to the extent that they
have been converted into such Equity Interests
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(other than Equity Interests, Disqualified Stock or convertible
debt securities sold to a Subsidiary of Condor and other than
Disqualified Stock or convertible debt securities that have been
converted into Disqualified Stock); plus
(c) the amount equal to the net reduction in Investments in Persons
after the date of the indenture who are not Restricted
Subsidiaries (other than Permitted Investments) resulting from:
(i) Qualified Proceeds received as a dividend, repayment of a
loan or advance or other transfer of assets (valued at the
fair market value thereof) to Condor or any Restricted
Subsidiary from such Persons;
(ii) Qualified Proceeds received upon the sale or liquidation of
such Investment; and
(iii)the redesignation of Unrestricted Subsidiaries (excluding
any increase in the amount available for Restricted Payments
pursuant to clause (8) or (12) below arising from the
redesignation of such Unrestricted Subsidiary) whose assets
are used or useful in, or which is engaged in, one or more
Permitted Business as Restricted Subsidiaries (valued
(proportionate to Condor's equity interest in such
Subsidiary) at the fair market value of the net assets of
such Subsidiary at the time of such redesignation).
The foregoing provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would
have complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of
Condor in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of Condor)
of other Equity Interests of Condor (other than any Disqualified
Stock), provided that the amount of any such net cash proceeds that
are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (3)(b)
of the preceding paragraph;
(3) the defeasance, redemption, repurchase, retirement or other
acquisition of subordinated Indebtedness of Condor with the net cash
proceeds from an incurrence of, or in exchange for, Permitted
Refinancing Indebtedness;
(4) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of Condor held by any member of Condor's
(or any of its Restricted Subsidiaries') management pursuant to any
management equity subscription agreement or stock option agreement
provided that:
(a) the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed:
(i) $2.0 million in any calendar year (with unused amounts in
any calendar year being carried over to succeeding calendar
years subject to a maximum (without giving effect to the
following clause (ii)) of $4.0 million in any calendar
year); plus
(ii) the aggregate net cash proceeds received by Condor during
such calendar year from any reissuance of Equity Interests
by Condor to members of management of Condor and its
Restricted Subsidiaries (provided that the amount of any
such net cash proceeds that are used to permit an
acquisition or retirement for value
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pursuant to this clause (4) shall be excluded from clause
(3)(b) of the preceding paragraph); and
(b) no Default or Event of Default shall have occurred and be
continuing immediately after such transaction;
(5) payments and transactions in connection with the Acquisition
(including any purchase price adjustment or any other payments made
pursuant to the Merger Agreement or the financial advisory agreements
with BCMC or DLJSC or the warrant and stock option termination
agreements described under "Certain Relationships and Related Party
Transactions"), the Acquisition Financing, the Offering, the New
Credit Facility (including commitment, syndication and arrangement
fees payable thereunder) and the application of the proceeds thereof,
and the payment of fees and expenses with respect thereto; provided,
that the Qualified Proceeds of any offering of Equity Securities that
results in an "IPO" incentive payment pursuant to the Merger Agreement
shall be excluded from clause (3)(b) of the preceding paragraph to the
extent of the amount of such incentive payment;
(6) the payment of dividends by a Restricted Subsidiary on any class of
common stock of such Restricted Subsidiary if:
(a) such dividend is paid pro rata to all holders of such class of
common stock; and
(b) at least 51% of such class of common stock is held by Condor or
one or more of its Restricted Subsidiaries;
(7) the repurchase of any class of common stock of a Restricted Subsidiary
if:
(a) such repurchase is made pro rata with respect to such class of
common stock; and
(b) at least 51% of such class of common stock is held by Condor or
one or more of its Restricted Subsidiaries;
(8) any other Restricted Investment made in a Permitted Business which,
together with all other Restricted Investments made pursuant to this
clause (8) since the date of the indenture, does not exceed $15.0
million (in each case, after giving effect to all subsequent
reductions in the amount of any Restricted Investment made pursuant to
this clause (8), either as a result of (i) the repayment or
disposition thereof for cash or (ii) the redesignation of an
Unrestricted Subsidiary as a Restricted Subsidiary (valued
proportionate to Condor's equity interest in such Subsidiary at the
time of such redesignation) at the fair market value of the net assets
of such Subsidiary at the time of such redesignation), in the case of
clause (i) and (ii), not to exceed the amount of such Restricted
Investment previously made pursuant to this clause (8); provided that
no Default or Event of Default shall have occurred and be continuing
immediately after making such Restricted Investment;
(9) the declaration and payment of dividends to holders of any class or
series of Disqualified Stock of Condor or any Restricted Subsidiary
issued on or after the date of the indenture in accordance with the
covenant described under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock"; provided that no Default or Event of
Default shall have occurred and be continuing immediately after making
such Restricted Payment;
(10) repurchases of Equity Interests deemed to occur upon exercise of stock
options if such Equity Interests represent a portion of the exercise
price of such options;
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(11) the payment of dividends or distributions on Condor's common stock,
following the first public offering of Condor's common stock after the
date of the indenture, of up to 6.0% per annum of the net proceeds
received by Condor from such public offering of its common stock other
than with respect to public offerings with respect to Condor's common
stock registered on Form S-8; provided that no Default or Event of
Default shall have occurred and be continuing immediately after any
such payment of dividends or distributions;
(12) any other Restricted Payment which, together with all other Restricted
Payments made pursuant to this clause (12) since the date of the
indenture, does not exceed $1.0 million (in each case, after giving
effect to all subsequent reductions in the amount of any Restricted
Investment made pursuant to this clause 12 either as a result of (i)
the repayment or disposition thereof for cash or (ii) the
redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary
(valued proportionate to Condor's equity interest in such Subsidiary
at the time of such redesignation) at the fair market value of the net
assets of such Subsidiary at the time of such redesignation), in the
case of clause (i) and (ii), not to exceed the amount of such
Restricted Investment previously made pursuant to this clause (12);
provided that no Default or Event of Default shall have occurred and
be continuing immediately after making such Restricted Payment;
(13) the pledge by Condor of the Capital Stock of an Unrestricted
Subsidiary of Condor to secure Non-Recourse Debt of such Unrestricted
Subsidiary;
(14) the purchase, redemption or other acquisition or retirement for value
of any Equity Interests of any Restricted Subsidiary issued after the
date of the indenture, provided that the aggregate price paid for any
such repurchased, redeemed, acquired or retired Equity Interests shall
not exceed the sum of:
(a) the amount of cash and Cash Equivalents received by such
Restricted Subsidiary from the issue or sale thereof; and
(b) any accrued dividends thereon the payment of which would be
permitted pursuant to clause (9) above;
(15) any Investment in an Unrestricted Subsidiary that is funded by
Qualified Proceeds received by Condor on or after the date of the
indenture from contributions to Condor's capital or from the issue and
sale on or after the date of the indenture of Equity Interests of
Condor or of Disqualified Stock or convertible debt securities to the
extent they have been converted into such Equity Interests (other than
Equity Interests, Disqualified Stock or convertible debt securities
sold to a Subsidiary of Condor and other than Disqualified Stock or
convertible debt securities that have been converted into Disqualified
Stock) in an amount (measured at the time such Investment is made and
without giving effect to subsequent changes in value) that does not
exceed the amount of such Qualified Proceeds (excluding any such
Qualified Proceeds to the extent utilized to permit a prior
"Restricted Payment" pursuant to clause (3)(b) of the preceding
paragraph); and
(16) distributions or payments of Receivables Fees.
The board of directors of Condor may designate any Restricted Subsidiary to
be an Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such designation, all outstanding Investments by Condor and
its Restricted Subsidiaries (except to the extent repaid in cash) in the
Subsidiary so designated will be deemed to be Restricted Payments at the time of
such designation and will reduce the amount available for Restricted Payments
under the first paragraph of this covenant. All such outstanding Investments
will be deemed to constitute Restricted Investments in an amount equal to the
greater of (1) the net book value of such Investments at the time of such
designation and (2) the fair market value of such Investments at the time of
such designation. Such
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designation will only be permitted if such Restricted Investment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
The amount of (1) all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by Condor or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment and (2)
Qualified Proceeds (other than cash) shall be the fair market value on the date
of receipt thereof by Condor of such Qualified Proceeds. The fair market value
of any non-cash Restricted Payment shall be determined by the board of directors
of Condor whose resolution with respect thereto shall be delivered to the
trustee. Not later than the date of making any Restricted Payment, Condor shall
deliver to the trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed.
Incurrence of Indebtedness and Issuance of Preferred Stock
The indenture will provide that:
(1) Condor will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Indebtedness);
(2) Condor will not, and will not permit any of its Restricted
Subsidiaries to, issue any shares of Disqualified Stock; and
(3) Condor will not permit any of its Restricted Subsidiaries to issue any
shares of preferred stock;
provided that Condor or any Restricted Subsidiary may incur Indebtedness
(including Acquired Indebtedness) or issue shares of Disqualified Stock if the
Fixed Charge Coverage Ratio for Condor's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which such additional Indebtedness is incurred or such
Disqualified Stock is issued would have been at least 2.0 to 1 if such
four-quarter period ended on or prior to December 31, 2001 and 2.25 to 1
thereafter, determined on a consolidated pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred, or the Disqualified Stock had been issued, as the case may
be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Indebtedness"):
(1) the incurrence by Condor and its Restricted Subsidiaries of
Indebtedness under the New Credit Facility and the Foreign Credit
Facilities; provided that the aggregate principal amount of all
Indebtedness (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of Condor and such
Restricted Subsidiaries thereunder) then classified as having been
incurred in reliance upon this clause (1) that remains outstanding
under the New Credit Facility and the Foreign Credit Facilities after
giving effect to such incurrence does not exceed an amount equal to
$70.0 million;
(2) the incurrence by Condor and its Restricted Subsidiaries of Existing
Indebtedness;
(3) the incurrence by Condor of Indebtedness represented by the notes and
the indenture and by the Guarantor of Indebtedness represented by the
indenture and the Note Guarantees;
(4) the incurrence by Condor or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Expenditure Indebtedness, Capital
Lease Obligations or other obligations, in each case, the proceeds of
which are used solely for the purpose of financing all or any part of
the purchase price or cost of
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construction or improvement of property, plant or equipment (including
acquisitions of Capital Stock of a Person that becomes a Restricted
Subsidiary to the extent of the fair market value of the property,
plant or equipment so acquired) used in the business of Condor or such
Restricted Subsidiary, in an aggregate principal amount (or accreted
value, as applicable) not to exceed $10.0 million outstanding after
giving effect to such incurrence;
(5) Indebtedness arising from agreements of Condor or any Restricted
Subsidiary providing for indemnification, adjustment of purchase price
or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a
Subsidiary, other than guarantees of Indebtedness incurred by any
Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition;
provided that:
(a) such Indebtedness is not reflected on the balance sheet of Condor
or any Restricted Subsidiary (contingent obligations referred to
in a footnote or footnotes to financial statements and not
otherwise reflected on the balance sheet will not be deemed to be
reflected on such balance sheet for purposes of this clause (a));
and
(b) the maximum assumable liability in respect of such Indebtedness
shall at no time exceed the gross proceeds including non-cash
proceeds (the fair market value of such non-cash proceeds being
measured at the time received and without giving effect to any
subsequent changes in value) actually received by Condor and/or
such Restricted Subsidiary in connection with such disposition;
(6) the incurrence by Condor or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace
Indebtedness (other than intercompany Indebtedness) that was permitted
by the indenture to be incurred;
(7) the incurrence by Condor or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among Condor and/or any of its
Restricted Subsidiaries; provided that:
(a) if Condor is the obligor on such Indebtedness, such Indebtedness
is expressly subordinated to the prior payment in full in cash of
all Obligations with respect to the notes; and
(b) (i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other
than Condor or a Restricted Subsidiary thereof and (ii) any sale
or other transfer of any such Indebtedness to a Person that is
not either Condor or a Restricted Subsidiary thereof shall be
deemed, in each case, to constitute an incurrence of such
Indebtedness by Condor or such Restricted Subsidiary, as the case
may be, that was not permitted by this clause (7);
(8) the incurrence by Condor or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or
hedging;
(a) interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of this indenture to be
outstanding; and
(b) exchange rate risk with respect to agreements or Indebtedness of
such Person payable denominated in a currency other than U.S.
dollars;
provided that such agreements do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in foreign
currency exchange rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder;
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(9) the guarantee by Condor or any of its Restricted Subsidiaries of
Indebtedness of Condor or a Restricted Subsidiary of Condor that was
permitted to be incurred by another provision of this covenant;
(10) the incurrence by Condor or any of its Restricted Subsidiaries of
Indebtedness in connection with an acquisition in an aggregate
principal amount (or accreted value, as applicable) not to exceed
$10.0 million outstanding after giving effect to such incurrence;
(11) obligations in respect of performance and surety bonds and completion
guarantees (including related letters of credit) provided by Condor or
any Restricted Subsidiary in the ordinary course of business; and
(12) the incurrence by Condor or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) outstanding after giving effect to such
incurrence, including all Permitted Refinancing Indebtedness incurred
to refund, refinance or replace any Indebtedness incurred pursuant to
this clause (12), not to exceed $10.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (1) through (12) above
or is entitled to be incurred pursuant to the first paragraph of this covenant,
Condor shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. In addition, Condor may, at any time, change the
classification of an item of Indebtedness (or any portion thereof) to any other
clause or to the first paragraph hereof provided that Condor would be permitted
to incur such item of Indebtedness (or such portion thereof) pursuant to such
other clause or the first paragraph hereof, as the case may be, at such time of
reclassification. Accrual of interest, accretion or amortization of original
issue discount will not be deemed to be an incurrence of Indebtedness for
purposes of this covenant.
All Indebtedness under the New Credit Facility and the Foreign Credit
Facilities outstanding on April 15, 1999, the date on which notes were first
issued and authenticated under the indenture, shall be deemed to have been
incurred on such date in reliance on the first paragraph of the covenant
described under the caption "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock." As a result, Condor will be permitted to incur
significant additional secured indebtedness under clause (1) of the definition
of "Permitted Indebtedness." See "Risk Factors."
Liens
The indenture will provide that Condor will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien, other than a Permitted Lien, that secures obligations
under any Pari Passu Indebtedness or subordinated Indebtedness of Condor on any
asset or property now owned or hereafter acquired by Condor or any of its
Restricted Subsidiaries, or any income or profits therefrom or assign or convey
any right to receive income therefrom, unless the notes are equally and ratably
secured with the obligations so secured until such time as such obligations are
no longer secured by a Lien; provided that, in any case involving a Lien
securing subordinated Indebtedness of Condor, such Lien is subordinated to the
Lien securing the notes to the same extent that such subordinated Indebtedness
is subordinated to the notes.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The indenture will provide that Condor will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to:
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(1) (a) pay dividends or make any other distributions to Condor or
any of its Restricted Subsidiaries (i) on its Capital Stock or
(ii) with respect to any other interest or participation in, or
measured by, its profits; or
(b) pay any Indebtedness owed to Condor or any of its Restricted
Subsidiaries;
(2) make loans or advances to Condor or any of its Restricted Subsidiaries;
or
(3) transfer any of its properties or assets to Condor or any of its
Restricted Subsidiaries.
However, the foregoing restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the date of the indenture;
(2) the New Credit Facility as in effect as of the date of the indenture,
and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof;
(3) the indenture and the notes;
(4) applicable law and any applicable rule, regulation or order;
(5) any agreement or instrument of a Person acquired by Condor or any of
its Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent created in contemplation of such
acquisition), which encumbrance or restriction is not applicable to
any Person, or the properties or assets of any Person, other than the
Person, or the property or assets of the Person, so acquired, provided
that, in the case of Indebtedness, such Indebtedness was permitted by
the terms of the indenture to be incurred;
(6) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(7) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in
clause (5) above on the property so acquired;
(8) contracts for the sale of assets, including, without limitation,
customary restrictions with respect to a Subsidiary pursuant to an
agreement that has been entered into for the sale or disposition of
all or substantially all of the Capital Stock or assets of such
Subsidiary;
(9) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are, in the good faith judgment of Condor's board of
directors, not materially less favorable, taken as a whole, to the
Holders of the notes than those contained in the agreements governing
the Indebtedness being refinanced;
(10) secured Indebtedness otherwise permitted to be incurred pursuant to
the covenants described under "--Incurrence of Indebtedness and
Issuance of Preferred Stock" and "--Liens" that limit the right of the
debtor to dispose of the assets securing such Indebtedness;
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business;
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(12) other Indebtedness or Disqualified Stock of Restricted Subsidiaries
permitted to be incurred subsequent to the Issuance Date pursuant to
the provisions of the covenant described under "--Incurrence of
Indebtedness and Issuance of Preferred Stock";
(13) customary provisions in joint venture agreements and other similar
agreements entered into in the ordinary course of business; and
(14) restrictions created in connection with any Receivables Facility that,
in the good faith determination of the board of directors of Condor,
are necessary or advisable to effect such Receivables Facility.
Merger, Consolidation, or Sale of Assets
The indenture will provide that Condor may not consolidate or merge with or
into (whether or not Condor is the surviving corporation), or sell, assign,
transfer, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions to, another Person
unless:
(1) Condor is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than Condor) or
to which such sale, assignment, transfer, conveyance or other
disposition shall have been made is a corporation organized or
existing under the laws of the United States, any state thereof or the
District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger (if
other than Condor) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes
all the obligations of Condor under the registration rights agreement,
the notes and the indenture pursuant to a supplemental indenture in a
form reasonably satisfactory to the trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) Condor or the Person formed by or surviving any such consolidation or
merger (if other than Condor), or to which such sale, assignment,
transfer, conveyance or other disposition shall have been made
(a) will, at the time of such transaction and after giving pro forma
effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph
of the covenant described under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock" or
(b) would (together with its Restricted Subsidiaries) have a higher
Fixed Charge Coverage Ratio immediately after such transaction
(after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable four-quarter period)
than the Fixed Charge Coverage Ratio of Condor and its Restricted
Subsidiaries immediately prior to such transaction.
The foregoing clause (4) will not prohibit the Merger or:
(a) a merger between Condor and a Wholly Owned Restricted Subsidiary;
or
(b) a merger between Condor and an Affiliate incorporated solely for
the purpose of reincorporating Condor in another State of the
United States so long as, in each case, the amount of
Indebtedness of Condor and its Restricted Subsidiaries is not
increased thereby.
The indenture will provide that Condor will not lease all or substantially
all of its assets to any Person.
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Transactions with Affiliates
The indenture will provide that Condor will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate of Condor (each of the foregoing, an "Affiliate
Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to
Condor or such Restricted Subsidiary than those that would have been
obtained in a comparable transaction by Condor or such Restricted
Subsidiary with an unrelated Person; and
(2) Condor delivers to the trustee, with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $7.5 million, either:
(a) a resolution of the board of directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies
with clause (1) above and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the
board of directors; or
(b) an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national
standing.
Notwithstanding the foregoing, the following items shall not be deemed to
be Affiliate Transactions:
(1) customary directors' fees, indemnification or similar arrangements or
any employment agreement or other compensation plan or arrangement
entered into by Condor or any of its Restricted Subsidiaries in the
ordinary course of business (including ordinary course loans to
employees not to exceed (a) $5.0 million outstanding in the aggregate
at any time and (b) $2.0 million to any one employee) and consistent
with the past practice of Condor or such Restricted Subsidiary;
(2) transactions between or among Condor and/or its Restricted
Subsidiaries;
(3) payments of customary fees by Condor or any of its Restricted
Subsidiaries to DLJMB and its Affiliates made for any financial
advisory, financing, underwriting or placement services or in respect
of other investment banking activities, including, without limitation,
in connection with acquisitions or divestitures which are approved by
a majority of the board of directors in good faith;
(4) any agreement as in effect on the date of the indenture or any
amendment thereto (so long as such amendment is not disadvantageous to
the Holders of the notes in any material respect) or any transaction
contemplated thereby;
(5) payments and transactions in connection with the Acquisition
(including any purchase price adjustment or any other payments made
pursuant to the Merger Agreement or the financial advisory agreements
with BCMC or DLJSC or the warrant and stock option termination
agreements described under "Certain Relationships and Related Party
Transactions") and the Acquisition Financing, the New Credit Facility
(including commitment, syndication and arrangement fees payable
thereunder) and the Offering (including underwriting discounts and
commissions in connection therewith) and the application of the
proceeds thereof, and the payment of the fees and expenses with
respect thereto;
(6) Restricted Payments that are permitted by the provisions of the
indenture described under the caption "--Restricted Payments" and any
Permitted Investments;
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(7) payments and transactions in connection with any GTP Investment or GTP
Loan, and the payment of fees and expenses with respect thereto;
(8) any issuance of capital stock of Condor to GTP other than Disqualified
Stock; and
(9) sales of accounts receivable, or participations therein, in connection
with any Receivables Facility.
Sale and Leaseback Transactions
The indenture will provide that Condor will not, and will not permit any of
its Restricted Subsidiaries to, enter into any sale and leaseback transaction;
provided that Condor or any Restricted Subsidiary may enter into a sale and
leaseback transaction if:
(1) Condor or such Restricted Subsidiary, as the case may be, could have:
(a) incurred Indebtedness in an amount equal to the Attributable
Indebtedness relating to such sale and leaseback transaction
pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock";
and
(b) incurred a Lien to secure such Indebtedness pursuant to the
covenant described under the caption "--Liens";
(2) the gross cash proceeds of such sale and leaseback transaction are at
least equal to the fair market value (as determined in good faith by
the board of directors and set forth in an Officers' Certificate
delivered to the trustee) of the property that is the subject of such
sale and leaseback transaction; and
(3) the transfer of assets in such sale and leaseback transaction is
permitted by, and Condor applies the proceeds of such transaction in
compliance with, the covenant described under the caption "Repurchase
at the Option of Holders--Asset Sales."
No Senior Subordinated Indebtedness
The indenture will provide that Condor will not Incur any Indebtedness that
is subordinated or junior in right of payment to any Senior Indebtedness and
senior in right of payment to the notes and the Guarantor will not Incur any
Indebtedness that is subordinated or junior in right of payment to any Senior
Indebtedness and senior in right of payment to the Note Guarantees.
Reports
The indenture will provide that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any notes are outstanding, Condor will furnish to the Holders of notes:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K
if Condor were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report
thereon by Condor's certified independent accountants; and
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(2) all current reports that would be required to be filed with the
Commission on Form 8-K if Condor were required to file such reports,
in each case, within the time periods specified in the Commission's
rules and regulations.
In addition, following the consummation of the exchange offer, whether or
not required by the rules and regulations of the Commission, Condor will file a
copy of all such information and reports referred to in clauses (1) and (2)
above with the Commission for public availability within the time periods
specified in the Commission's rules and regulations (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. In addition, Condor and the
Guarantor have agreed that, for so long as any notes remain outstanding, it will
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
Events of Default and Remedies
The indenture will provide that each of the following constitutes an Event
of Default:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the notes (whether or not
prohibited by the subordination provisions of the indenture);
(2) default in payment when due of the principal of or premium, if any, on
the notes (whether or not prohibited by the subordination provisions
of the indenture);
(3) failure by Condor or any of its Restricted Subsidiaries for 30 days
after receipt of notice from the trustee or Holders of at least 25% in
principal amount of the notes then outstanding to comply with the
provisions described under the captions "Repurchase at the Option of
Holders--Change of Control--Asset Sales," "Certain
Covenants--Restricted Payments," "--Incurrence of Indebtedness and
Issuance of Preferred Stock" or "Merger, Consolidation or Sale of
Assets";
(4) failure by Condor for 60 days after notice from the trustee or the
Holders of at least 25% in principal amount of the notes then
outstanding to comply with any of its other agreements in the
indenture or the notes;
(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Condor or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by Condor or any
of its Restricted Subsidiaries), whether such Indebtedness or
guarantee now exists, or is created after the date of the indenture,
which default:
(a) is caused by a failure to pay Indebtedness at its stated final
maturity (after giving effect to any applicable grace period
provided in such Indebtedness) (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
stated final maturity and, in each case, the principal amount of
any such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated,
aggregates $10.0 million or more;
(6) failure by Condor or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $10.0 million (net of any amounts
with respect to which a reputable and creditworthy insurance company
has acknowledged liability in writing), which judgments are not paid,
discharged or stayed for a period of 60 days;
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(7) except as permitted by the indenture, the Note Guarantees are held in
any judicial proceeding to be unenforceable or invalid or cease for
any reason to be in full force and effect or the Guarantor, or any
Person acting on behalf of the Guarantor, denies or disaffirms its
obligations under the Note Guarantees; and
(8) certain events of bankruptcy or insolvency with respect to Condor or
any of its Restricted Subsidiaries that is a Significant Subsidiary.
If any Event of Default (other than an Event of Default specified in clause
(8) above with respect to certain events of bankruptcy or insolvency with
respect to Condor or any Restricted Subsidiary that is a Significant Subsidiary)
occurs and is continuing, the Holders of at least 25% in principal amount of the
then outstanding notes may direct the trustee to declare all the notes to be due
and payable immediately; provided that, so long as any Indebtedness permitted to
be incurred pursuant to the New Credit Facility shall be outstanding, such
acceleration shall not be effective until the earlier of:
(1) an acceleration of any such Indebtedness under the New Credit
Facility; or
(2) five business days after receipt by Condor and the administrative
agent under the New Credit Facility of written notice of such
acceleration.
Upon any such declaration, the notes shall become due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
specified in clause (8) above with respect to certain events of bankruptcy or
insolvency with respect to Condor or any Restricted Subsidiary that is a
Significant Subsidiary, all outstanding notes will become due and payable
without further action or notice. Holders of the notes may not enforce the
indenture or the notes except as provided in the indenture.
The Holders of a majority in aggregate principal amount of the then
outstanding notes by written notice to the trustee may on behalf of all of the
Holders rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal, interest or premium or Liquidated Damages, if
any, that has become due solely because of the acceleration) have been cured or
waived, provided that, in the event of a declaration of acceleration of the
notes because an Event of Default has occurred and is continuing as a result of
the acceleration of any Indebtedness described in clause (5) of the third
preceding paragraph, the declaration of acceleration of the notes shall be
automatically annulled if the holders of any Indebtedness described in such
clause (5) have rescinded the declaration of acceleration in respect of such
Indebtedness within 30 days of the date of such declaration and if:
(1) the annulment of the acceleration of the notes would not conflict with
any judgment or decree of a court of competent jurisdiction; and
(2) all existing Events of Default, except non-payment of principal or
interest on the notes that became due solely because of the
acceleration of the notes, have been cured or waived.
Subject to certain limitations, Holders of a majority in principal amount
of the then outstanding notes may direct the trustee in its exercise of any
trust or power. The trustee may withhold from Holders of the notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the Holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the notes.
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Condor is required to deliver to the trustee annually a statement regarding
compliance with the indenture, and Condor is required upon becoming aware of any
Default or Event of Default to deliver to the trustee a statement specifying
such Default or Event of Default.
No Personal Liability of Member, Directors, Officers, Employees and
Stockholders; Consent to Shareholder Payment
No member, director, officer, employee, incorporator or stockholder of
Condor or the Guarantor, as such, shall have any liability for any obligations
of Condor or the Guarantor under the notes or the indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of notes by accepting a note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws, and it is the view of the Commission that such a waiver is
against public policy.
The indenture and the notes provide that each Holder of a note, by
accepting such note, shall be deemed to have consented to the payment of the
Merger Consideration to certain former Condor stockholders pursuant to the
Merger Agreement (the "Shareholder Payment"). Subject to certain conditions,
creditors holding claims arising prior to the making of certain payments by a
California corporation to its shareholders are entitled under certain provisions
of the California General Corporation Law ("CGCL") to recover such amounts on
behalf of the corporation from such stockholders or the directors authorizing
such payments, if such payments were made in violation of certain financial
limitations specified in the CGCL. Consequently, to the extent all or a portion
of the Shareholder Payment was determined to have been made in violation of the
CGCL and if the debt of the Holders of notes was deemed to have arisen prior to
the Shareholder Payment, the foregoing consent would have the effect of
eliminating any right such a Holder may otherwise have pursuant to such
provisions of the CGCL to recover such portion of the Shareholder Payment from
such stockholders or the members of the Condor board of directors authorizing
the Shareholder Payment.
Legal Defeasance and Covenant Defeasance
Condor may, at its option and at any time, elect to have all of its and the
Guarantor's obligations discharged with respect to the outstanding notes, the
Note Guarantees and the indenture ("Legal Defeasance") except for:
(1) the rights of Holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest and
Liquidated Damages, if any, on such notes when such payments are due
from the trust referred to below;
(2) Condor's obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes and the maintenance of an office or agency for payment
and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and
Condor's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, Condor may, at its option and at any time, elect to have its
obligations released with respect to certain covenants that are described in the
indenture ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment with respect to the notes, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default and
Remedies" will no longer constitute an Event of Default with respect to the
notes.
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In order to exercise either Legal Defeasance or Covenant Defeasance,
(1) Condor must irrevocably deposit with the trustee, in trust, for the
benefit of the Holders of the notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest and Liquidated Damages, if
any, on the outstanding notes on the stated maturity or on the
applicable redemption date, as the case may be, and Condor must
specify whether the notes are being defeased to maturity or to a
particular redemption date;
(2) in the case of Legal Defeasance, Condor shall have delivered to the
trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that:
(a) Condor has received from, or there has been published by, the
Internal Revenue Service a ruling; or
(b) since the date of the indenture, there has been a change in the
applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm
that, subject to customary assumptions and exclusions, the
Holders of the outstanding notes will not recognize income, gain
or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, Condor shall have delivered to the
trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that, subject to customary
assumptions and exclusions, the Holders of the outstanding notes will
not recognize income, gain or loss for federal income tax purposes as
a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(4) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit)
or, insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 123rd day after
the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under, any material
agreement or instrument (other than the indenture) to which Condor or
any of its Subsidiaries is a party or by which Condor or any of its
Subsidiaries is bound;
(6) Condor must have delivered to the trustee an opinion of counsel to the
effect that, subject to customary assumptions and exclusions, after
the 123rd day following the deposit, the trust funds will not be
subject to the effect of Section 547 of the United States Bankruptcy
Code or any analogous New York State law provision or any other
applicable federal or New York bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally;
(7) Condor must deliver to the trustee an Officers' Certificate stating
that the deposit was not made by Condor with the intent of preferring
the Holders of notes over the other creditors of Condor with the
intent of defeating, hindering, delaying or defrauding creditors of
Condor or others; and
(8) Condor must deliver to the trustee an Officers' Certificate and an
opinion of counsel (which opinion may be subject to customary
assumptions and exclusions), each stating that all conditions
precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
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Transfer and Exchange
A Holder may transfer or exchange notes in accordance with the indenture.
The Registrar and the trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and Condor may require a
Holder to pay any taxes and fees required by law or permitted by the indenture.
Condor is not required to transfer or exchange any note selected for redemption.
Also, Condor is not required to transfer or exchange any note for a period of 15
days before a selection of notes to be redeemed. The registered Holder of a note
will be treated as the owner of it for all purposes.
Amendment, Supplement and Waiver
Except as provided below, the indenture, the Note Guarantees and the notes
may be amended or supplemented with the consent of the Holders of at least a
majority in principal amount of the notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, notes), and any existing default or compliance with any
provision of the indenture, the Note Guarantees or the notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting Holder):
(1) reduce the principal amount of notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes
(other than the provisions described under the caption "--Repurchase
at the Option of Holders");
(3) reduce the rate of or extend the time for payment of interest on any
note;
(4) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest or Liquidated Damages, if any, on the
notes (except a rescission of acceleration of the notes by the Holders
of at least a majority in aggregate principal amount of the notes and
a waiver of the payment default that resulted from such acceleration);
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to waivers
of past Defaults;
(7) waive a redemption payment with respect to any note (other than the
provisions described under the caption "--Repurchase at the Option of
Holders");
(8) release the Guarantor from its obligations under the Note Guarantees
or the indenture, except in accordance with the terms of the
indenture; or
(9) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, any
(1) amendment to or waiver of the covenant described under the caption
"--Repurchase at the Option of Holders--Change of Control"; and
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(2) amendment to Article 10 of the indenture (which relates to
subordination)
will require the consent of the Holders of at least two-thirds in aggregate
principal amount of the notes then outstanding if such amendment would
materially adversely affect the rights of Holders of notes.
Notwithstanding the foregoing, without the consent of any Holder of notes,
Condor, the Guarantor and the trustee may amend or supplement the indenture, the
Note Guarantees or the notes to cure any ambiguity, defect or inconsistency, to
provide for uncertificated notes in addition to or in place of certificated
notes, to provide for the assumption of Condor's or the Guarantor's obligations
to Holders of notes in the case of a merger or consolidation or sale of all or
substantially all of the assets of Condor or the Guarantor, to make any change
that would provide any additional rights or benefits to the Holders of notes or
that does not materially adversely affect the legal rights under the indenture
of any such Holder, or to comply with requirements of the Commission in order to
effect or maintain the qualification of the indenture under the Trust Indenture
Act or to provide for additional guarantees of the notes.
Concerning the Trustee
The indenture contains certain limitations on the rights of the trustee,
should it become a creditor of Condor, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur (which shall not be cured), the trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the
request of any Holder of notes, unless such Holder shall have offered to the
trustee security and indemnity satisfactory to it against any loss, liability or
expense.
Additional Information
Anyone who receives this prospectus may obtain a copy of the indenture and
Registration Rights Agreement without charge by writing to Condor at 2133
Samaritan Drive, San Jose, California 95124, Attention: Chief Financial Officer,
(408) 371-9580.
Book-Entry, Delivery and Form
The certificates representing the new notes will be issued in fully
registered form, without coupons. Except as described below, the new notes will
be deposited with, or on behalf of, The Depository Trust Company, New York, New
York ("DTC"), and registered in the name of Cede & Co. as DTC's nominee, in the
form of a global note (the "global registered note").
The Global Registered Note. Condor expects that pursuant to procedures
established by DTC (a) upon deposit of the global registered note, DTC or its
custodian will credit on its internal system interests in the global registered
note to the accounts of persons who have accounts with DTC ("Participants") and
(b) ownership of the global registered note will be shown on, and the transfer
of ownership thereof will be effected only through, records maintained by DTC or
its nominee (with respect to interests of Participants) and the records of
Participants (with respect to interests of persons other than Participants).
Ownership of beneficial interests in the global registered note will be limited
to Participants or persons who hold interests through Participants.
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So long as DTC or its nominee is the registered owner or Holder of the new
notes, DTC or such nominee will be considered the sole owner or Holder of the
new notes represented by the global registered note for all purposes under the
indenture. No beneficial owner of an interest in the global registered note will
be able to transfer such interest except in accordance with DTC's procedures, in
addition to those provided for under the indenture with respect to the new
notes.
Payments of the principal of, or premium and interest on, the global
registered note will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. None of Condor, the trustee or any paying agent under
the indenture will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the global registered note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
We expect that DTC or its nominee, upon receipt of any payment of the
principal of or premium and interest on the global registered note, will credit
Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such global
registered note as shown on the records of DTC or its nominee. We also expect
that payments by Participants to owners of beneficial interests in the global
registered note held through such Participants will be governed by standing
instructions and customary practice as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such Participants.
Transfers between Participants in DTC will be effected in accordance with
DTC rules and will be settled in immediately available funds. If a Holder
requires physical delivery of a certificated exchange note for any reason,
including to sell new notes to persons in states which require physical delivery
of the new notes or to pledge such securities, such Holder must transfer its
interest in the global registered note in accordance with the normal procedures
of DTC and with the procedures set forth in the indenture.
DTC has advised us that DTC will take any action permitted to be taken by a
Holder of new notes (including the presentation of new notes for exchange as
described below) only at the direction of one or more Participants to whose
account at DTC interests in the global registered note are credited and only in
respect of such portion of the aggregate principal amount of new notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the indenture, DTC will exchange
the global registered note for certificated new notes, which it will distribute
to its Participants.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
Participants and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interest in the global registered notes among Participants, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither Condor nor the trustee will have any
responsibility for the performance by DTC or its Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Notes. Interests in the global registered note will be
exchangeable or transferable, as the case may be, for certificated notes if
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(1) DTC (a) notifies us that it is unwilling or unable to continue as
depositary for the global registered note and we fail to appoint a
successor depositary or (b) has ceased to be a clearing agency
registered under the Exchange Act,
(2) We, at our option, notify the trustee in writing that we elect to
cause the issuance of the notes in certificated form or
(3) there shall have occurred and be continuing to occur a Default or an
Event of Default with respect to the notes.
In addition, beneficial interests in the global registered note may be
exchanged for certificated notes upon request but only upon at least 20 days'
prior written notice given to the trustee by or on behalf of DTC in accordance
with customary procedures. In all cases, certificated notes delivered in
exchange for the global registered note or beneficial interest therein will be
registered in the names, and issued in any approved denominations, requested by
or on behalf of the depositary (in accordance with its customary procedures).
Same Day Settlement And Payment
The indenture will require that payments in respect of the notes
represented by the global registered note (including principal, premium, if any,
interest and Liquidated Damages, if any) be made by wire transfer of immediately
available next day funds to the accounts specified by the Holder. With respect
to certificated notes, Condor will make all payments of principal, premium, if
any, interest and Liquidated Damages, if any, by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no such
account is specified, by mailing a check to each such Holder's registered
address. Condor expects that secondary trading in certificated notes will also
be settled in immediately available funds.
Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Accounts Receivable Subsidiary" means an Unrestricted Subsidiary of Condor
to which Condor or any of its Restricted Subsidiaries sells any of its accounts
receivable pursuant to a Receivables Facility.
"Acquired Indebtedness" means, with respect to any specified Person,
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, including, without limitation, Indebtedness incurred in
connection with, or in contemplation of, such other Person merging
with or into or becoming a Subsidiary of such specified Person; and
(2) Indebtedness secured by a Lien encumbering an asset acquired by such
specified Person at the time such asset is acquired by such specified
Person.
"Acquisition" means the acquisition of Condor by the Principals and their
Related Parties pursuant to the terms of the Merger Agreement.
"Acquisition Financing" means;
(1) the issuance and sale by Condor of the notes; and
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(2) the execution and delivery by Condor and certain of its subsidiaries
of the New Credit Facility and the borrowing of loans, if any, and
issuance of letters of credit thereunder to fund the Acquisition and
related transactions, including without limitation, the payment of
fees and expenses and the refinancing of outstanding indebtedness of
Condor and its subsidiaries.
"Affiliate" of any specified Person means any other Person which, directly
or indirectly, controls, is controlled by or is under direct or indirect common
control with, such specified Person. For purposes of this definition, "control,"
when used with respect to any Person, means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Sale" means:
(1) the sale, lease, conveyance, disposition or other transfer (a
"disposition") of any properties, assets or rights (including, without
limitation, by way of a sale and leaseback) (provided that the sale,
lease, conveyance or other disposition of all or substantially all of
the assets of Condor and its Subsidiaries taken as a whole will be
governed by the provisions of the indenture described under the
caption "--Change of Control" and/or the provisions described under
the caption "--Merger, Consolidation or Sale of Assets" and not by the
provisions of the Asset Sale covenant); and
(2) the issuance, sale or transfer by Condor or any of its Restricted
Subsidiaries of Equity Interests of any of Condor's Restricted
Subsidiaries, in the case of either clause (1) or (2), whether in a
single transaction or a series of related transactions,
(a) that have a fair market value in excess of $2.0 million; or
(b) for net proceeds in excess of $2.0 million.
Notwithstanding the foregoing, the following items shall not be deemed to
be Asset Sales:
(1) dispositions in the ordinary course of business;
(2) a disposition of assets by Condor to a Restricted Subsidiary or by a
Restricted Subsidiary to Condor or to another Restricted Subsidiary;
(3) a disposition of Equity Interests by a Restricted Subsidiary to Condor
or to another Restricted Subsidiary;
(4) the sale and leaseback of any assets within 90 days of the acquisition
thereof;
(5) foreclosures on assets;
(6) any exchange of like property pursuant to Section 1031 of the Internal
Revenue Code of 1986, as amended, for use in a Permitted Business;
(7) any sale of Equity Interests in, or Indebtedness or other securities
of, an Unrestricted Subsidiary;
(8) a Permitted Investment or a Restricted Payment that is permitted by
the covenant described under the caption "--Restricted Payments"; and
(9) sales of accounts receivable, or participations therein, in connection
with any Receivables Facility.
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"Attributable Indebtedness" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Behrman Capital" means Behrman Capital L.P. and its affiliated funds.
"Capital Expenditure Indebtedness" means Indebtedness incurred by any
Person to finance the purchase or construction or any property or assets
acquired or constructed by such Person which have a useful life or more than one
year so long as:
(1) the purchase or construction price for such property or assets is
included in "addition to property, plant or equipment" in accordance
with GAAP;
(2) the acquisition or construction of such property or assets is not part
of any acquisition of a Person or line of business; and
(3) such Indebtedness is incurred within 90 days of the acquisition or
completion of construction of such property or assets.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means;
(1) Government Securities;
(2) any certificate of deposit maturing not more than 365 days after the
date of acquisition issued by, or demand deposit or time deposit of,
an Eligible Institution or any lender under the New Credit Facility;
(3) commercial paper maturing not more than 365 days after the date of
acquisition of an issuer (other than an Affiliate of Condor) with a
rating, at the time as of which any investment therein is made, of
"A-3" (or higher) according to S&P or "P-2" (or higher) according to
Moody's or carrying an equivalent rating by a nationally recognized
rating agency if both of the two named rating agencies cease
publishing ratings of investments;
(4) any bankers acceptances of money market deposit accounts issued by an
Eligible Institution;
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(5) any fund investing exclusively in investments of the types described
in clauses (1) through (4) above; and
(6) in the case of any Subsidiary organized or having its principal place
of business outside the United States, investments denominated in the
currency of the jurisdiction in which such Subsidiary is organized or
has its principal place of business which are similar to the items
specified in clauses (1) through (5) above (including without
limitation any deposit with a bank that is a lender to any Restricted
Subsidiary).
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person and its Restricted Subsidiaries for
such period plus, to the extent deducted in computing Consolidated Net Income,
(1) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period;
(2) Fixed Charges of such Person for such period;
(3) depreciation, amortization (including amortization of goodwill and
other intangibles) and all other non-cash charges (excluding any such
non-cash charge, other than the First Quarter Plant Closing Charge, to
the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash
expense that was paid in a prior period) of such Person and its
Restricted Subsidiaries for such period;
(4) net periodic post-retirement benefits;
(5) other income or expense net as set forth on the face of such Person's
statement of operations;
(6) expenses and charges of Condor related to the Acquisition (including
any purchase price adjustment or any other payments made pursuant to
the Merger Agreement or the financial advisory agreements with BCMC or
DLJSC or the warrant and stock option termination agreements described
under "Certain Relationships and Related Party Transactions") and
Acquisition Financing, the New Credit Facility and the application of
the proceeds thereof; and
(7) any non-capitalized transaction costs incurred in connection with
actual, proposed or abandoned financings, acquisitions or divestitures
(including, but not limited to, financing and refinancing fees and
costs incurred in connection with the Acquisition and Acquisition
Financing), in each case, on a consolidated basis and determined in
accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, the Fixed Charges of, and the depreciation and amortization and
other non-cash charges of, a Restricted Subsidiary of a Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
(and in the same proportion) that Net Income of such Restricted Subsidiary was
included in calculating the Consolidated Net Income of such Person.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication,
(1) the interest expense of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance
with GAAP (including amortization of original issue discount, non-cash
interest payments, the interest component of all payments associated
with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance
financings, and net payments, if any,
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pursuant to Hedging Obligations; provided that in no event shall any
amortization of deferred financing costs be included in Consolidated
Interest Expense); and
(2) the consolidated capitalized interest of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued;
provided, however, that Receivables Fees shall be deemed not to
constitute Consolidated Interest Expense.
Notwithstanding the foregoing, the Consolidated Interest Expense with
respect to any Restricted Subsidiary that is not a Wholly Owned Restricted
Subsidiary shall be included only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that
(1) the Net Income (or loss) of any Person that is not a Restricted
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 in cash to the referent Person or a Restricted
Subsidiary thereof;
(2) the Net Income (or loss) of any Restricted Subsidiary other than a
Subsidiary organized or having its principal place of business outside
the United States shall be excluded to the extent that the declaration
or payment of dividends or similar distributions by that Restricted
Subsidiary of that Net Income (or loss) is not at the date of
determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary;
(3) the Net Income (or loss) of any Person acquired in a pooling of
interests transaction for any period prior to the date of such
acquisition shall be excluded; and
(4) the cumulative effect of a change in accounting principles shall be
excluded.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Noncash Consideration" means the fair market value of non-cash
consideration received by Condor or one of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, executed by the principal executive officer and the principal
financial officer of Condor, less the amount of cash or Cash Equivalents
received in connection with a sale of such Designated Noncash Consideration.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable), or upon the happening of any event (other than any event solely
within the control of the issuer thereof), matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, is exchangeable for
Indebtedness (except to the extent exchangeable at the option of such Person
subject to the terms of any debt instrument to which such Person is a party) or
redeemable at the option of the Holder thereof, in whole or in part, on or prior
to the date on which the notes mature; provided that any Capital Stock that
would constitute Disqualified Stock solely because the holders thereof have the
right to require Condor to repurchase such Capital Stock upon the occurrence of
a Change of Control or an Asset Sale shall not constitute Disqualified Stock if
the terms of such Capital Stock provide that Condor may not repurchase or redeem
any such Capital Stock pursuant to such provisions unless such repurchase or
redemption complies with the covenant described under the caption "--Certain
Covenants--Restricted Payments," and provided further that, if such Capital
Stock is issued to any plan for the benefit of employees of Condor or its
Subsidiaries or by any such plan to
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such employees, such Capital Stock shall not constitute Disqualified Stock
solely because it may be required to be repurchased by Condor in order to
satisfy applicable statutory or regulatory obligations.
"DLJMB" means DLJ Merchant Banking Partners II, L.P. and its Affiliates.
"Domestic Subsidiary" means a Subsidiary that is organized under the laws
of the United States or any State, district or territory thereof.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus not less than $100.0 million or its equivalent in
foreign currency, whose short-term debt is rated "A-3" or higher according to
Standard & Poor's Ratings Group ("S&P") or "P-2" or higher according to Moody's
Investor Services, Inc. ("Moody's") or carrying an equivalent rating by a
nationally recognized rating agency if both of the two named rating agencies
cease publishing ratings of investments.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of Condor and its Restricted
Subsidiaries (other than Indebtedness under the New Credit Facility) in
existence on the date of the indenture, until such amounts are repaid.
"First Quarter Plant Closing Charge" means the $0.9 million charge recorded
in connection with Condor's decision to close its facilities located in
Sterling, Virginia.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of,
(1) the Consolidated Interest Expense of such Person for such period; and
(2) all dividend payments on any series of preferred stock of such Person
(other than dividends payable solely in Equity Interests that are not
Disqualified Stock),
in each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
(exclusive of amounts attributable to discontinued operations, as determined in
accordance with GAAP, or operations and businesses disposed of prior to the
Calculation Date (as defined)) to the Fixed Charges of such Person for such
period (exclusive of amounts attributable to discontinued operations, as
determined in accordance with GAAP, or operations and businesses disposed of
prior to the Calculation Date). In the event that the referent Person or any of
its Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other
than revolving credit borrowings) or issues or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock and the use of the proceeds therefrom,
as if the same had occurred at the beginning of the applicable four-quarter
reference period. In addition, for purposes of making the computation referred
to above, the Acquisition, the Sterling Plant Closure and acquisitions that have
been made by Condor or any of its Subsidiaries, including all mergers or
consolidations and any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the
four-quarter reference period and Consolidated Cash Flow for such reference
period shall be calculated to include the Consolidated Cash Flow of the acquired
entities on a pro forma basis after giving effect to cost savings reasonably
expected to be realized in connection with such acquisition, as determined in
good
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faith by an officer of Condor (regardless of whether such cost savings could
then be reflected in pro forma financial statements under GAAP, Regulation S-X
promulgated by the Commission or any other regulation or policy of the
Commission) and without giving effect to clause (3) of the proviso set forth in
the definition of Consolidated Net Income.
"Foreign Credit Facilities" means any Indebtedness of a Restricted
Subsidiary organized or having its principal place of business outside the
United States. Indebtedness under the Foreign Credit Facilities outstanding on
the date on which the notes are first issued and authenticated under the
indenture shall be deemed to have been incurred on such date in reliance on the
first paragraph of the covenant described under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the indenture.
"GTP" means Global Technology Partners, LLC and its Affiliates.
"GTP Investment" means the sale by the Company to GTP of its common stock
and the granting by the Company to GTP of options to purchase shares of its
common stock.
"GTP Loans" means one or more loans by the Company to GTP to the extent the
proceeds are used (or deemed used) solely to finance GTP's purchase of capital
stock of the Company.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit or
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (a) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (b) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person in respect of borrowed money or evidenced by bonds, notes, debentures or
similar instruments or letters of credit (or reimbursement agreements in respect
thereof) or banker's acceptances or representing Capital Lease Obligations or
the balance deferred and unpaid of the purchase price of any property or
representing any Hedging Obligations, except any such balance that constitutes
an accrued expense, trade payable or customer contract advances, if and to the
extent any of the foregoing Indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person (whether or not such Indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
guarantee by such Person of any Indebtedness of any other Person, provided that
Indebtedness shall not include the pledge by Condor of the Capital Stock of an
Unrestricted Subsidiary of Condor to secure Non-Recourse Debt of such
Unrestricted Subsidiary.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof (together with any interest thereon that is
more than 30 days past due), in the case of any Indebtedness that does
not require current payments of interest; and
(2) the principal amount thereof, in the case of any other Indebtedness
provided that the principal amount of any Indebtedness that is
denominated in any currency other than United States dollars shall be
the amount
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thereof, as determined pursuant to the foregoing provision, converted
into United States dollars at the Spot Rate in effect on the date that
such Indebtedness was incurred (or, if such indebtedness was incurred
prior to the date of the indenture, the Spot Rate in effect on the
date of the indenture).
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees by the referent Person of, and Liens on any
assets of the referent Person securing, Indebtedness or other obligations of
other Persons), advances or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP, provided that an investment by Condor for consideration consisting of
common equity securities of Condor shall not be deemed to be an Investment
(other than for purposes of clause (3) of the definition of "Qualified
Proceeds").
If Condor or any Restricted Subsidiary of Condor sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of Condor such that, after giving effect to any such sale or disposition, such
Person is no longer a Subsidiary of Condor, Condor shall be deemed to have made
an Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of such Restricted Subsidiary not sold or
disposed of in an amount determined as provided in the final paragraph of the
covenant described under the caption "--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however:
(1) any gain (or loss), together with any related provision for taxes on
such gain (or loss), realized in connection with:
(a) any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions); or
(b) the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries;
(2) any extraordinary or nonrecurring gain (or loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain
(or loss); and
(3) in the event that Condor's consolidated financial statements are ever
restated to reverse a write-off of in-process technology recorded
prior to July 1, 1999, the amortization of purchased technology.
"Net Proceeds" means the aggregate cash proceeds received by Condor or any
of its Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of, without duplication,
(1) the direct costs relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees, and sales
commissions, recording fees, title transfer fees and appraiser fees
and cost of preparation of assets for sale) and any relocation
expenses incurred as a result thereof;
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(2) taxes paid or payable as a result thereof (after taking into account
any available tax credits or deductions and any tax sharing
arrangements);
(3) amounts required to be applied to the repayment of Indebtedness (other
than revolving credit Indebtedness incurred pursuant to the New Credit
Facility) secured by a Lien on the asset or assets that were the
subject of such Asset Sale; and
(4) any reserve established in accordance with GAAP or any amount placed
in escrow, in either case for adjustment in respect of the sale price
of such asset or assets until such time as such reserve is reversed or
such escrow arrangement is terminated, in which case Net Proceeds
shall include only the amount of the reserve so reversed or the amount
returned to Condor or its Restricted Subsidiaries from such escrow
arrangement, as the case may be.
"New Credit Facility" means that certain Credit Agreement, dated as of
April 15, 1999 among Condor, certain subsidiaries of Condor from time to time
party thereto as guarantors, various financial institutions party thereto, and
Bank of America National Trust and Savings Association as administrative agent,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and, in each case, as amended,
modified, renewed, refunded, replaced or refinanced from time to time, including
any agreement:
(1) extending or shortening the maturity of any Indebtedness incurred
thereunder or contemplated thereby;
(2) adding or deleting borrowers or guarantors thereunder;
(3) increasing the amount of Indebtedness incurred thereunder or available
to be borrowed thereunder, provided that on the date such Indebtedness
is incurred it would not be prohibited by clause (1) of the second
paragraph of the covenant described under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock"; or
(4) otherwise altering the terms and conditions thereof. Indebtedness
under the New Credit Facility outstanding on the date on which notes
are first issued and authenticated under the indenture shall be deemed
to have been incurred on such date in reliance on the first paragraph
of the covenant described under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock."
"Non-Recourse Debt" means Indebtedness,
(1) no default with respect to, which (including any rights that the
holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit (upon notice, lapse of time or
both) any holder of any other Indebtedness of Condor or any of its
Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and
(2) as to which the lenders have been notified in writing that they will
not have any recourse to the stock (other than the stock of an
Unrestricted Subsidiary pledged by Condor to secure debt of such
Unrestricted Subsidiary) or assets of Condor or any of its Restricted
Subsidiaries;
provided that in no event shall Indebtedness of any Unrestricted Subsidiary fail
to be Non-Recourse Debt solely as a result of any default provisions contained
in a guarantee thereof by Condor or any of its Restricted Subsidiaries if Condor
or such Restricted Subsidiary was otherwise permitted to incur such guarantee
pursuant to the indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
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"Offering" means the offering of the notes by Condor.
"Pari Passu Indebtedness" means Indebtedness of Condor that ranks pari
passu in right of payment to the notes.
"Permitted Business" means the manufacture, sale, distribution or service
of electronic defense products or systems or any business reasonably related,
incidental or ancillary thereto or the manufacture, sale, distribution or
service of products using similar technologies.
"Permitted Investments" means:
(1) any Investment in Condor or in a Restricted Subsidiary of Condor;
(2) any Investment in cash or Cash Equivalents;
(3) any Investment by Condor or any Restricted Subsidiary of Condor in a
Person, if as a result of such Investment,
(a) such Person becomes a Restricted Subsidiary of Condor; or
(b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, Condor or a Wholly Owned Restricted Subsidiary
of Condor;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described under the caption "--Repurchase
at the Option of Holders--Asset Sales";
(5) any Investment acquired solely in exchange for Equity Interests (other
than Disqualified Stock) of Condor;
(6) any Investment in a Person engaged in a Permitted Business (other than
an Investment in an Unrestricted Subsidiary) having an aggregate fair
market value, taken together with all other Investments made pursuant
to this clause (6) that are at that time outstanding, not to exceed
the greater of (a) $20.0 million and (b) 15% of Total Assets at the
time of such Investment (with the fair market value of each Investment
being measured at the time made and without giving effect to
subsequent changes in value);
(7) Investments relating to any special purpose Wholly Owned Subsidiary of
Condor organized in connection with a Receivables Facility that, in
the good faith determination of the board of directors of Condor, are
necessary or advisable to effect such Receivables Facility; and
(8) the GTP Loans.
"Permitted Liens" means:
(1) Liens on property of a Person existing at the time such Person is
merged into or consolidated with Condor or any Restricted Subsidiary,
provided that such Liens were not incurred in contemplation of such
merger or consolidation and do not secure any property or assets of
Condor or any Restricted Subsidiary other than the property or assets
subject to the Liens prior to such merger or consolidation;
(2) Liens existing on the date of the indenture;
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(3) Liens securing Indebtedness consisting of Capitalized Lease
Obligations, purchase money Indebtedness, mortgage financings,
industrial revenue bonds or other monetary obligations, in each case
incurred solely for the purpose of financing all or any part of the
purchase price or cost of construction or installation of assets used
in the business of Condor or its Restricted Subsidiaries, or repairs,
additions or improvements to such assets, provided that:
(a) such Liens secure Indebtedness in an amount not in excess of the
original purchase price or the original cost of any such assets
or repair, additional or improvement thereto (plus an amount
equal to the reasonable fees and expenses in connection with the
incurrence of such Indebtedness);
(b) such Liens do not extend to any other assets of Condor or its
Restricted Subsidiaries (and, in the case of repair, addition or
improvements to any such assets, such Lien extends only to the
assets (and improvements thereto or thereon) repaired, added to
or improved);
(c) the Incurrence of such Indebtedness is permitted by "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock"; and
(d) such Liens attach within 365 days of such purchase, construction,
installation, repair, addition or improvement;
(4) Liens to secure any refinancings, renewals, extensions, modification
or replacements (collectively, "refinancing") (or successive
refinancings), in whole or in part, of any Indebtedness secured by
Liens referred to in the clauses above so long as such Lien does not
extend to any other property (other than improvements thereto);
(5) Liens securing letters of credit entered into in the ordinary course
of business and consistent with past business practice;
(6) Liens on and pledges of the capital stock of any Unrestricted
Subsidiary securing Non-Recourse Debt of such Unrestricted Subsidiary;
(7) Liens securing Indebtedness (including all Obligations) under the New
Credit Facility or any Foreign Credit Facility; and
(8) other Liens securing Indebtedness that is permitted by the terms of
the indenture to be outstanding having an aggregate principal amount
at any one time outstanding not to exceed $20.0 million.
"Permitted Refinancing Indebtedness" means any Indebtedness of Condor or
any of its Restricted Subsidiaries issued within 60 days after repayment of, in
exchange for, or the net proceeds of which are used to extend, refinance, renew,
replace, defease or refund other Indebtedness of Condor or any of its Restricted
Subsidiaries; provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal
amount of (or accreted value, if applicable), plus premium, if any,
and accrued interest on the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable
expenses incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date no
earlier than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and
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(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes,
such Permitted Refinancing Indebtedness is subordinated in right of
payment to, the notes on terms at least as favorable, taken as a
whole, to the Holders of notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded.
"Principals" means DLJMB, GTP and Behrman Capital.
"Public Equity Offering" means any issuance of common stock by Condor
(other than Disqualified Stock) that is registered pursuant to the Securities
Act, other than issuances registered on Form S-8 and issuances registered on
Form S-4, excluding issuances of common stock pursuant to employee benefit plans
of Condor or otherwise as compensation to employees of Condor.
"Qualified Proceeds" means any of the following or any combination of the
following:
(1) cash;
(2) Cash Equivalents;
(3) assets (other than Investments) that are used or useful in a Permitted
Business; and
(4) the Capital Stock of any Person engaged in a Permitted Business if, in
connection with the receipt by Condor or any Restricted Subsidiary of
Condor of such Capital Stock,
(a) such Person becomes a Restricted Subsidiary of Condor or any
Restricted Subsidiary of Condor; or
(b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, Condor or any Restricted Subsidiary of Condor.
"Receivables Facility" means one or more receivables financing facilities,
as amended from time to time, pursuant to which Condor or any of its Restricted
Subsidiaries sells its accounts receivable to an Accounts Receivable Subsidiary.
"Receivables Fees" means distributions or payments made directly or by
means of discounts with respect to any participation interests issued or sold in
connection with, and other fees paid to a Person that is not a Restricted
Subsidiary in connection with, any Receivables Facility.
"Related Party" means, with respect to any Principal,
(1) any controlling stockholder or partner of such Principal on the date
of the indenture; or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding (directly or through one or more Subsidiaries) a 51% or more
controlling interest of which consist of the Principals and/or such
other Persons referred to in the immediately preceding clauses (1) or
(2).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
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"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"Spot Rate" means, for any currency, the spot rate at which such currency
is offered for sale against United States dollars as determined by reference to
the New York foreign exchange selling rates, as published in The Wall Street
Journal on such date of determination for the immediately preceding business day
or, if such rate is not available, as determined in any publicly available
source of similar market data.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Sterling Plant Closure" means Condor's closing of its facilities in
Sterling, Virginia.
"Subsidiary" means, with respect to any Person,
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by such Person or one or
more of the other Subsidiaries of that Person (or a combination
thereof); and
(2) any partnership or limited liability company,
(a) the sole general partner or the managing general partner or
managing member of which is such Person or a Subsidiary of such
Person; or
(b) the only general partners or managing members of which are such
Person or of one or more Subsidiaries of such Person (or any
combination thereof).
"Total Assets" means the total consolidated assets of Condor and its
Restricted Subsidiaries, as shown on the most recent balance sheet (excluding
the footnotes thereto) of Condor.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
board of directors as an Unrestricted Subsidiary pursuant to a board resolution,
but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with Condor or any Restricted Subsidiary of Condor unless the terms of
any such agreement, contract, arrangement or understanding are no less
favorable to Condor or such Restricted Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates of
Condor;
(3) is a Person with respect to which neither Condor nor any of its
Restricted Subsidiaries has any direct or indirect obligation,
(a) to subscribe for additional Equity Interests (other than
Investments described in clause (7) of the definition of
Permitted Investments); or
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(b) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels, of operating
results; and
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of Condor or any of its Restricted
Subsidiaries.
Any such designation by the board of directors shall be evidenced to the
trustee by filing with the trustee a certified copy of the board resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions and was permitted by the
covenant described under the caption entitled "--Certain Covenants--Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as a Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of Condor as of such date (and, if such Indebtedness is not permitted
to be incurred as of such date under the covenant described under the caption
entitled "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock," Condor shall be in default of such covenant).
The board of directors of Condor may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of
Condor of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if:
(1) such Indebtedness is permitted under the covenant described under the
caption entitled "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock"; and
(2) no Default or Event of Default would be in existence following such
designation.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying,
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal,
including payment at final maturity, in respect thereof; by
(b) the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all the outstanding Capital Stock or other ownership
interests of which (other than directors' qualifying shares) shall at the time
be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries
of such Person or by such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person.
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THE EXCHANGE OFFER
Pursuant to a registration rights agreement between Condor and the Initial
Purchasers, we agreed
(1) to file a registration statement on or prior to 90 days after the
closing of the offering of the old notes with respect to an offer to
exchange the old notes for new debt securities of Condor registered
under the Securities Act, with terms identical in all material
respects to those of the old notes and
(2) to use our reasonable best efforts to cause the registration
statement to be declared effective by the SEC on or prior to 180 days
after the closing of the old notes, April 15, 1999. In certain
circumstances, we will be required to provide a shelf registration
statement to cover resales of the old notes by the holders thereof.
The registration rights agreement provides that, in the event we fail to
satisfy our registration obligations under the registration rights agreement, we
will be required to pay liquidated damages in an amount equal to $0.05 per week
per $1,000 principal amount of notes until , 1999 and increasing every 90 days
thereafter up to a maximum amount equal to $0.25 per week per $1,000 principal
amount of notes until the registration statement is declared effective. Upon
consummation of the exchange offer or the effectiveness of a registration
statement, the provision for liquidated damages on the old notes shall cease.
The new notes have been registered under the Securities Act and certain
transfer restrictions and registration rights relating to the old notes do not
apply to the new notes. If you fail to exchange your old notes in the exchange
offer, you will be subject to certain risks. See "Risk Factors--You may suffer
consequences if you fail to exchange your old notes."
The exchange offer is not being made to, nor will we accept tenders for
exchange from, holders of old notes in any jurisdiction in which the exchange
offer or the acceptance thereof would not be in compliance with the securities
or blue sky laws of such jurisdiction. Each holder of old notes that wishes to
exchange old notes for new notes is required to make the representations
described below under "--Resale of the New Notes."
Terms of the Exchange Offer; Period for Tendering Old Notes
This prospectus and the accompanying letter of transmittal contain the
terms and conditions of the exchange offer. Upon the terms and subject to the
conditions included in this prospectus and in the accompanying letter of
transmittal (which together constitute the exchange offer), we will accept for
exchange old notes which are properly tendered on or prior to the expiration
date, unless you have withdrawn them as permitted below:
o when you tender to us old notes as provided below, our acceptance of
the old notes will constitute a binding agreement between you and us
upon the terms and subject to the conditions in this prospectus and in
the accompanying letter of transmittal.
o for each $1,000 principal amount of old notes surrendered to us
pursuant to the exchange offer, we will give you $1,000 principal
amount of new notes. Interest on each new note will accrue from the
date of issuance of the old note for which the new note is exchanged
or from the date of the last periodic payment of interest on such old
note, whichever is later. No additional interest will be paid on old
notes tendered and accepted for exchange.
o we will keep the exchange offer open for not less than 30 days (or
longer if required by applicable law) after the date that we first
mail notice of the exchange offer to the holders of the old notes. We
are sending this prospectus, together with the letter of transmittal,
on or about the date of this prospectus to all of the registered
holders of old notes at their addresses listed in the trustee's
security register with respect to old notes.
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o the exchange offer expires at 5:00 p.m., New York City time, on ,
1999; provided, however, that we, in our sole discretion, may extend
the period of time for which the exchange offer is open. The term
"expiration date" means , 1999 or, if extended by us, the latest time
and date to which the exchange offer is extended.
o as of the date of this prospectus, $100,000,000 in aggregate principal
amount of the old notes were outstanding. The exchange offer is not
conditioned upon any minimum principal amount of old notes being
tendered.
o our obligation to accept old notes for exchange pursuant to the
exchange offer is subject to certain conditions that we describe in
the section below called "--Certain Conditions to the Exchange Offer".
o we expressly reserve the right, at any time, to extend the period of
time during which the exchange offer is open, and thereby delay
acceptance of any old notes, by giving oral or written notice of such
extension to the exchange agent and notice of such extension to the
holders as described below. During any such extension, all old notes
previously tendered will remain subject to the exchange offer and may
be accepted for exchange by us. Any old notes not accepted for
exchange for any reason will be returned without expense to the
tendering holder thereof as promptly as practicable after the
expiration or termination of the exchange offer.
o we expressly reserve the right to amend or terminate the exchange
offer, and not to accept for exchange any old notes that we have not
yet accepted for exchange, upon the occurrence of any of the
conditions of the exchange offer specified below under "--Certain
Conditions to the Exchange Offer."
o we will give oral or written notice of any extension, amendment,
termination or non-acceptance described above to holders of the old
notes as promptly as practicable. If we extend the expiration date, we
will give notice by means of a press release or other public
announcement no later than 9:00 a.m., New York City Time, on the
business day after the previously scheduled expiration date. Without
limiting the manner in which we may choose to make any public
announcement and subject to applicable law, we will have no obligation
to publish, advertise or otherwise communicate any such public
announcement other than by issuing a release to the Dow Jones News
Service.
o holders of old notes do not have any appraisal or dissenters' rights
in connection with the exchange offer.
o old notes which are not tendered for exchange or are tendered but not
accepted in connection with the exchange offer will remain outstanding
and be entitled to the benefits of the indenture, but will not be
entitled to any further registration rights under the registration
rights agreement.
o we intend to conduct the exchange offer in accordance with the
applicable requirements of the Exchange Act and the rules and
regulations of the SEC thereunder.
o by executing, or otherwise becoming bound by, the letter of
transmittal, you will be making certain representations to us. See
"--Resales of the New Notes."
Important rules concerning the exchange offer
You should note that:
o we will determine all questions as to the validity, form, eligibility,
including time of receipt, and acceptance of old notes tendered for
exchange in our sole discretion, which determination shall be final
and binding.
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o we reserve the absolute right to reject any and all tenders of any
particular old notes not properly tendered or to not accept any
particular old notes which acceptance might, in our judgment or the
judgment of our counsel, be unlawful.
o we also reserve the absolute right to waive any defects or
irregularities or conditions of the exchange offer as to any
particular old notes either before or after the expiration date,
including the right to waive the ineligibility of any holder who seeks
to tender old notes in the exchange offer. Unless we agree to waive
any defect or irregularity in connection with the tender of old notes
for exchange, such waiver must be cured within such reasonable period
of time as we shall determine.
o our interpretation of the terms and conditions of the exchange offer
as to any particular old notes either before or after the expiration
date, including the letter of transmittal and the instructions
thereto, shall be final and binding on all parties.
o Neither Condor, the exchange agent nor any other person shall be under
any duty to give notification of any defect or irregularity with
respect to any tender of old notes for exchange, nor shall any of them
incur any liability for failure to give such notification.
Procedures for Tendering Old Notes
What to submit and how
If you, as the registered holder of an old note, wish to tender your old
notes for exchange pursuant to the exchange offer, you must transmit a properly
completed and duly executed letter of transmittal, including all other documents
required by such letter of transmittal, to State Street Bank and Trust Company
at the address set forth below under "Exchange Agent" on or prior to the
expiration date.
In addition,
(1) certificates for such old notes must be received by the exchange
agent along with the letter of transmittal, or
(2) a timely confirmation of a book-entry transfer (what we call a
"book-entry confirmation") of such old notes, if such procedure is
available, into the exchange agent's account at DTC pursuant to the
procedure for book-entry transfer described below, must be received
by the exchange agent prior to the expiration date or
(3) you must comply with the guaranteed delivery procedures described
below.
The method of delivery of old notes, letters of transmittal and all other
required documents is at the your election and risk. If such delivery is by
mail, we recommend that registered mail, properly insured, with return receipt
requested, be used. In all cases, sufficient time should be allowed to assure
timely delivery. No letters of transmittal or old notes should be sent to
Condor.
How to sign your letter of transmittal and other documents
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the old notes surrendered for exchange
pursuant thereto are tendered
(1) by a registered holder of the old notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal or
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(2) for the account of an Eligible Institution (as defined below).
If signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantees must be by certain
eligible institutions that is:
o a member of or participant in the Securities Transfer Agents Medallio
Program or the New York Stock Exchange Medallion Signature Program, or
o an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act (an "Eligible Institution").
If old notes are registered in the name of a person other than the person
signing the letter of transmittal, the old notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by us in our sole
discretion, duly executed by the registered holder with the signature thereon
guaranteed by an Eligible Institution.
If the letter of transmittal is signed by a person or persons other than
the registered holder or holders of old notes, such old notes must be endorsed
or accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered holder or holders that appear on the old
notes.
If the letter of transmittal or any old notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers or corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing and, unless waived by
Condor, proper evidence satisfactory to Condor of its authority to so act must
be submitted.
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date, all old notes properly
tendered and will issue the new notes promptly after acceptance of the old
notes. See "--Certain Conditions to the Exchange Offer" below. For purposes of
the exchange offer, we shall be deemed to have accepted properly tendered old
notes for exchange when, as and if we have given oral or written notice thereof
to the Exchange Agent.
In all cases, we will only issue new notes in exchange for old notes that
are accepted for exchange after timely receipt by the exchange agent of:
o certificates for such old notes or
o a timely book-entry confirmation of such old notes into the
exchange agent's account at DTC pursuant to the book-entry
transfer procedures described below, and
o a properly completed and duly executed letter of transmittal and
all other required documents.
If we do not accept any tendered old notes for any reason included in the
terms and conditions of the exchange offer or if you submit certificates
representing old notes in a greater principal amount than you wish to exchange,
we will return such unaccepted or non-exchanged old notes without expense to the
tendering holder or, in the case of old notes tendered by book-entry transfer
into the exchange agent's account at DTC pursuant to the book-entry transfer
procedures described below, such non-exchanged old notes will be credited to an
account maintained with DTC as promptly as practicable after the expiration or
termination of the exchange offer.
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Book-Entry Transfer
The exchange agent will make a request to establish an account with respect
to the old notes at DTC for purposes of the exchange offer promptly after the
date of this prospectus. Any financial institution that is a Participant in
DTC's systems may make book-entry delivery of old notes by causing DTC to
transfer such old notes into the exchange agent's account in accordance with
DTC's Automated Tender Offer Program ("ATOP") procedures for transfer. However,
the exchange for the old notes so tendered will only be made after timely
confirmation of such book-entry transfer of old notes into the exchange agent's
account, and timely receipt by the exchange agent of an Agent's Message (as such
term is defined in the next sentence) and any other documents required by the
letter of transmittal. The term "Agent's Message" means a message, transmitted
by DTC and received by the exchange agent and forming a part of a Book-Entry
Confirmation, which states that DTC has received an express acknowledgment from
a Participant tendering old notes that are the subject of such Book-Entry
Confirmation that such Participant has received and agrees to be bound by the
terms of the letter of transmittal, and that we may enforce such agreement
against such Participant. Although delivery of old notes may be effected through
book-entry transfer into the exchange agent's account at DTC, the letter of
transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees and any other required documents, must in any
case be delivered to and received by the exchange agent at its address set forth
under "--Exchange Agent" on or prior to the expiration date, or the guaranteed
delivery procedure set forth below must be complied with.
Delivery of documents to DTC in accordance with its procedures does not
constitute delivery to the exchange agent.
Guaranteed Delivery Procedures
If you are a registered holder of old notes and you want to tender such old
notes but your old notes are not immediately available, or time will not permit
your old notes or other required documents to reach the exchange agent before
the expiration date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if
(1) the tender is made through an Eligible Institution,
(2) prior to the expiration date, the exchange agent receives from such
Eligible Institution a properly completed and duly executed letter of
transmittal (or a facsimile thereof) and notice of guaranteed
delivery, substantially in the form provided by us (by facsimile
transmission, mail or hand delivery), stating:
o the name and address of the holder of old notes
o the amount of old notes tendered
o the tender is being made by delivering such notice and
guaranteeing that within five New York Stock Exchange trading
days after the date of execution of the notice of guaranteed
delivery, the certificates of all physically tendered old
notes, in proper form for transfer, or a book-entry
confirmation, as the case may be, and any other documents
required by the letter of transmittal will be deposited by
that Eligible Institution with the exchange agent and
(3) the certificates for all physically tendered old notes, in proper
form for transfer, or a book-entry confirmation, as the case may be,
and all other documents required by the letter of transmittal, are
received by the exchange agent within five New York Stock Exchange
trading days after the date of execution of the notice of guaranteed
delivery.
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Withdrawal Rights
You can withdraw your tender of old notes at any time prior to the
expiration date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at one of the addresses listed below under
"--Exchange Agent." Any such notice of withdrawal must specify:
o the name of the person having tendered the old notes to be withdrawn.
o the old notes to be withdrawn (including the principal amount of such
old notes).
o if certificates for old notes have been delivered to the exchange
agent, the name in which such old notes are registered, if different
from that of the withdrawing holder.
o if certificates for old notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of such
certificates, you must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution
unless you are an Eligible Institution.
o if old notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must
specify the name and number of the account at DTC to be credited with
the withdrawn old notes and otherwise comply with the procedures of
such facility.
Please note that all questions as to the validity, form and eligibility
(including time of receipt) of such notices of withdrawal will be determined by
us, and our determination shall be final and binding on all parties. Any old
notes so withdrawn will be deemed not to have been validly tendered for exchange
for purposes of the exchange offer.
If you have properly withdrawn old notes and wish to re-tender them, you
may do so by following one of the procedures described under "--Procedures for
Tendering Old Notes" above at any time on or prior to the expiration date.
Certain Conditions to the Exchange Offer
Notwithstanding any other provisions of the exchange offer, we will not be
required to accept for exchange, or to issue new notes in exchange for, any old
notes and may terminate or amend the exchange offer, if at any time before the
acceptance of such old notes for exchange or the exchange of the new notes for
such old notes, such acceptance or issuance would violate applicable law or any
interpretation of the staff of the SEC.
The foregoing condition is for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to such condition. Our failure at
any time to exercise the foregoing rights shall not be deemed a waiver by us of
any such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, we will not accept for exchange any old notes tendered, and no
new notes will be issued in exchange for any such old notes, if at such time any
stop order shall be threatened or in effect with respect to the exchange offer
of which this prospectus constitutes a part or the qualification of the
indenture under the Trust Indenture Act.
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Exchange Agent
State Street Bank and Trust Company has been appointed as the exchange
agent for the exchange offer. All executed letters of transmittal should be
directed to the exchange agent at one of the addresses set forth below.
Questions and requests for assistance, requests for additional copies of this
prospectus or of the letter of transmittal and requests for notices of
guaranteed delivery should be directed to the exchange agent, addressed as
follows:
Deliver To:
By Overnight Courier or Hand: By Registered or Certified Mail:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust Department
Two International Place P.O. Box 778
Boston, Massachusetts 02102-0078 Boston, Massachusetts 02102-0078
Fourth Floor Fourth Floor
Attn: Kellie Mullen Attn: Kellie Mullen
Telephone: (617) 664-5587 Telephone: (617) 664-5587
Facsimile: (617) 664-5290 Facsimile: (617) 664-5290
Delivery to an address other than as listed above or transmission of
instructions via facsimile other than as listed above does not constitute a
valid delivery.
Fees and Expenses
The principal solicitation is being made by mail; however, additional
solicitation may be made by telegraph, telephone or in person by our officers,
regular employees and affiliates. We will not pay any additional compensation to
any such officers and employees who engage in soliciting tenders. We will not
make any payment to brokers, dealers, or others soliciting acceptances of the
exchange offer. However, we will pay the exchange agent reasonable and customary
fees for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith.
The estimated cash expenses to be incurred in connection with the exchange
offer will be paid by us and are estimated in the aggregate to be $ .
Transfer Taxes
Holders who tender their old notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
us to register new notes in the name of, or request that old notes not tendered
or not accepted in the exchange offer be returned to, a person other than the
registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
Resale of the New Notes
Under existing interpretations of the staff of the SEC contained in several
no-action letters to third parties, the new notes would in general be freely
transferable after the exchange offer without further registration under the
Securities Act. However, any purchaser of old notes who is an "affiliate" of
Condor or who intends to participate in the exchange offer for the purpose of
distributing the new notes
(1) will not be able to rely on the interpretation of the staff of the
SEC,
(2) will not be able to tender its old notes in the exchange offer and
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(3) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or
transfer of the notes unless such sale or transfer is made pursuant
to an exemption from such requirements.
By executing, or otherwise becoming bound by, the letter of transmittal,
each holder of the old notes (other than certain specified holders) will
represent that:
(1) it is not our "affiliate";
(2) any new notes to be received by it were acquired in the ordinary
course of its business; and
(3) it has no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the new
notes.
In addition, in connection with any resales of new notes, any broker-dealer
participating in the exchange offer who acquired notes for its own account as a
result of market-making or other trading activities must deliver a prospectus
meeting the requirements of the Securities Act. The SEC has taken the position
that participating broker-dealers may fulfill their prospectus delivery
requirements with respect to the new notes (other than a resale of an unsold
allotment from the original sale of the old notes) with this prospectus. Under
the registration rights agreement, we are required to allow participating
broker-dealers and other persons, if any, subject to similar prospectus delivery
requirements to use this prospectus as it may be amended or supplemented from
time to time, in connection with the resale of such new notes.
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CERTAIN UNITED STATES TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of old notes for new notes pursuant to the exchange offer will
not result in any United States federal income tax consequences to holders. When
a holder exchanges an old note for a new note pursuant to the exchange offer,
the holder will have the same adjusted basis and holding period in the new note
as in the old note immediately before the exchange.
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of new notes received in exchange for old notes where
such old notes were acquired as a result of market-making activities or other
trading activities. We have agreed that we will make this prospectus, as amended
or supplemented, available to any participating broker-dealer for use in
connection with any such resale and participating broker-dealers shall be
authorized to deliver this prospectus for a period not exceeding 90 days after
the exchange offer expiration date.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the new notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such new notes. Any broker-dealer that
resells new notes that were received by it for its own account pursuant to the
exchange offer and any broker or dealer that participates in a distribution of
such new notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of new notes and any commission
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The letter of transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 90 days after the exchange offer expiration date, we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any Participating Broker-Dealer that requests
such documents in the letter of transmittal. See "The Exchange Offer." We have
agreed to pay all expenses incident to the exchange offer and will indemnify
holders of the old notes (including any broker-dealers) against certain
liabilities, including certain liabilities under the Securities Act.
LEGAL MATTERS
The validity of the notes offered hereby will be passed upon for Condor and
CEI by Davis Polk & Wardwell, New York, New York.
EXPERTS
The consolidated balance sheets of Condor Systems, Inc. as of December 31,
1997 and 1998 and the consolidated statements of operations, cash flows and
shareholders' equity (deficit) for each of the three years in the period ended
December 31, 1998, included in the prospectus, have been included herein in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given authority of that firm as experts in accounting and auditing.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to our offering of the new notes. This prospectus
does not contain all the information included in the registration statement and
the related exhibits and schedules. You will find additional information about
us and the new notes in the registration statement. The registration statement
and the related exhibits and schedules may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the public reference
facilities of the SEC's Regional Offices: New York Regional Office, Seven World
Trade Center, Suite 1300, New York, New York 10048; and Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of
this material may also be obtained from the Public Reference Section of the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The SEC
also maintains a site on the World Wide Web (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants, including Condor, that file electronically with the SEC. Statements
made in this prospectus about legal documents may not necessarily be complete
and you should read the documents which are filed as exhibits or schedules to
the registration statement or otherwise filed with the SEC.
We are required under the indenture governing the notes to furnish the
holders of notes with all quarterly and annual financial information that would
be required to be contained in a filing with the SEC on forms 10-Q and 10- K if
Condor were required to file such Forms, including, without limitation, (a)
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by Condor's certified independent accountants, and (b) all current reports that
would be required to be filed with the SEC on Form 8-K if Condor were required
to file such reports, in each case, within the time periods specified in the
SEC's rules and regulations. In addition, we and CEI Systems, Inc. have agreed
that, for so long as any notes remain outstanding, we and CEI Systems, Inc. will
furnish to the holders of the notes and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act during any period in which Condor or
CEI Systems, Inc., respectively, is not subject to Section 13 or 15(d) of the
Exchange Act.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements have been derived by the application of pro forma adjustments to
Condor's historical consolidated financial data included elsewhere herein. The
pro forma condensed consolidated statement of operations for the year ending
December 31, 1998 and the three months ending March 31, 1999, gives effect to
the Acquisition and related financing as if they had occurred on January 1,
1998. The pro forma condensed consolidated balance sheet gives effect to the
Acquisition and related financing as if they had occurred as of March 31, 1999.
The pro forma adjustments described in the accompanying notes are based upon
available information and certain assumptions that Condor believes are
reasonable. In the opinion of management, all adjustments necessary to fairly
present the pro forma information have been made. The unaudited pro forma
condensed consolidated financial statements are provided for informational
purposes only and are not necessarily indicative of the results that would have
been reported had such events actually occurred on the dates specified, nor are
they necessarily indicative of Condor's future results if the Acquisition and
related financings are completed. Condor cannot predict whether the consummation
of the Acquisition and related financings will conform to the assumptions used
in preparation of the unaudited pro forma consolidated statement of operations
and balance sheet information. The unaudited pro forma condensed consolidated
financial statements should be read in conjunction with "Selected Historical and
Unaudited Pro Forma Consolidated Financial Data" and the related notes thereto
and the consolidated financial statements and the notes thereto included
elsewhere in this prospectus.
It is expected that the Acquisition will be accounted for as a
recapitalization under generally accepted accounting principles for financial
reporting purposes. Under recapitalization accounting, the historical values of
assets and liabilities will continue to be reported by Condor.
P-1
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CONDOR SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1999
(dollars in thousands)
<TABLE>
Pro Forma Pro
Amount Adjustments Forma
-------- ----------- ------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and restricted cash ...................... $ 6,725 $ 41 (a) $ 6,766
Other current assets ............................................ 44,611 2,300 (b) 46,911
--------- -------- ---------
Total current assets ......................................... 51,336 2,341 53,677
Property and equipment, net ........................................ 4,630 4,630
Deferred income taxes .............................................. 2,268 2,268
Other assets, net .................................................. 3,222 5,398 (c) 8,620
--------- -------- ---------
Total assets ................................................. $ 61,456 $ 7,739 $ 69,195
LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities:
Current portion of long-term debt ............................... $ 2,550 $ (2,550) (d) $ --
Accounts payable and other current liabilities .................. 19,326 63 (e) 19,389
--------- -------- ---------
Total current liabilities .................................... 21,876 (2,487) 19,389
Long-term debt, less current portion ............................... 47,480 52,520 (d) 100,000
Subordinated notes ................................................. 5,000 (5,000) (d) --
--------- -------- ---------
Total liabilities ............................................ 74,356 45,033 119,389
--------- -------- ---------
Total shareholders' deficit ................................ (12,900) (37,294) (b) (50,194)
--------- -------- ---------
Total liabilities and shareholders' deficit ................ $ 61,456 $ 7,739 $ 69,195
========= ========= =========
</TABLE>
See accompanying notes to the unaudited pro forma
condensed consolidated financial statements.
P-2
<PAGE>
CONDOR SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
and the three months ended March 31, 1999
(dollars in thousands)
<TABLE>
Year Ended December 31, 1998 Three Months Ended March 31, 1999
-------------------------------------- ----------------------------------------
Pro Forma Pro Forma
Actual Adjustments(1) Pro Forma Actual Adjustments(1) Pro Forma
------ -------------- --------- ------ -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Contract revenues ......................... $ 101,042 $ 101,042 $ 19,008 $ 19,008
--------- --------- --------- ---------
Costs and operating expenses:
Contract costs ......................... 61,660 61,660 11,161 11,161
Technology related costs:
Research and development ............ 4,360 4,360 1,121 1,121
Amortization of purchased
technology .......................... 2,489 2,489 -- --
Selling, general and administrative .... 20,341 20,341 4,027 4,027
Other charges:
Product line and plant closure costs -- -- 925 925
Abandoned acquisitions costs ........ 513 513 -- --
--------- --------- --------- ---------
89,363 89,363 17,234 17,234
--------- --------- --------- ---------
Operating income .................... 11,679 11,679 1,774 1,774
Interest and other income ................. 237 237 92 92
Interest expense .......................... $ (7,654) $ (6,014)(g) (13,668) (1,739) $ (1,678) (g) (3,417)
--------- --------- ------- ------ --------- ------
Income (loss) before income taxes ... 4,262 (6,014) (1,752) 127 (1,678) (1,551)
Provision for (benefit of) income taxes ... 1,662 (2,363)(h) (701) 51 (671) (h) (620)
--------- --------- ------- ------ --------- ------
Net income (loss) ................... $ 2,600 $ (3,651) $ (1,051) $ 76 $ (1,007) $ (931)
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to the unaudited pro forma
condensed consolidated financial statements.
P-3
<PAGE>
NOTES TO CONDOR SYSTEMS UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(a) The following table sets forth the estimated sources and uses of funds for
the Acquisition and the related financing on a pro forma basis as if such
transactions had occurred on March 31, 1999:
Sources
Notes........................................................... $ 100,000
New equity investment(1)........................................ 44,500
Rollover management equity(2)................................... 6,408
------------
Total Sources................................................ $ 150,908
------------
Uses
Acquisition Consideration....................................... $ 79,050
Rollover management equity(2)................................... 6,408
Refinance existing debt(3)...................................... 55,700
Estimated transaction fees and expenses(4)...................... 9,709
------------
Total Uses................................................... $ 150,867
------------
Net effect on cash.............................................. $ 41
============
- -------------------
(1) Includes $18,222 to be paid under the Equity Commitment Letter to
Merger Sub and $26,278 to be paid under the Stock Purchase Agreements
to certain of our current stockholders.
(2) Rollover management equity consists of the outstanding shares of Class
B and certain shares of Class A common stock held by the Rollover
Shareholders which will be converted into and become 6,407,891 shares
of common stock of Condor upon consummation of the Acquisition.
(3) Includes the repayment of $50,700 of indebtedness outstanding under
the Note and Warrant Purchase Agreement dated as of November 15, 1996
and related notes among Condor, Nomura Holding America Inc., Antares
Leveraged Capital Corp. and First Union Bank of Connecticut (shown net
of $670 of unamortized debt discount related to stock warrants on the
March 31, 1999 balance sheet) and $5,000 of Condor's subordinated
notes due December 2004.
(4) Includes estimated transaction fees and expenses of $10,872 less $733
of transaction fees and expenses and $513 of abandoned acquisition
costs paid prior to March 31, 1999.
P-4
<PAGE>
NOTES TO CONDOR SYSTEMS UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(b) The pro forma adjustment reflects the net effect of the items set forth
below:
Equity investments (1)........................................ $ 50,908
Noncash consideration from terminated stock options (2)....... 625
Payments to equity holders (3)................................ (78,329)
Transaction fees and expenses (4)............................. (12,798)
Tax benefit related to transaction fees and expenses (5)...... 2,300
------------
Net equity adjustment......................................... $ (37,294)
============
- -------------------
(1) Includes $18,222 to be paid under the Equity Commitment Letter to
Merger Sub; $26,278 to be paid under the Stock Purchase Agreements to
certain shareholders; and rollover management equity converting to
$6,408 of common stock upon consummation of the Merger.
(2) Represents the excess of the purchase price over the exercise price of
the stock options.
(3) Includes net payments and advances to equity holders of $71,921 and
rollover management equity of $6,408.
(4) The total fees and expenses of $21,280 consist of: (1) general fees
and expenses of $10,872; (2) fees and expenses to rollover and
non-rollover shareholders of $7,128; (3) deferred financing costs of
$1,985; (4) unamortized portion of debt discount related to stock
warrants of $670; and (5) stock compensation costs of $625 related to
the Company Options. Of the total fees and expenses, $513 related to
abandoned acquisition costs was charged to operations in the fourth
quarter of 1998, $7,969 will be capitalized and amortized over ten
years, the term of the notes, and the remaining portion of $12,798
will be charged to operations in the quarter during which the
acquisition is consummated.
(5) The income tax benefit is calculated based on a statutory tax rate of
40%.
(c) The pro forma adjustment reflects deferred financing and certain other
debt-related transaction costs of $7,969 associated with the notes, the
write-off of unamortized deferred financing fees of $1,985 associated with
Condor's existing long-term debt and the write-off of transaction fees and
expenses paid prior to March 31, 1999 of $586.
(d) The pro forma adjustment reflects: the issuance of $100,000 aggregate
principal amount of notes; the repayment of $50,700 of existing notes; the
repayment of the existing subordinated notes of $5,000 and the write-off of
the unauthorized portion of debt discount related to stock warrants of
$670.
(e) The pro forma adjustment reflects the accrual of the remaining unpaid
transaction fees and expenses of $63.
(f) The pro forma adjustments exclude a charge of $12,798 related to the
Acquisition which will be recorded in the quarter during which the
Acquisition is consummated, in the second quarter 1999.
(g) The pro forma adjustment to interest expense reflects (1) the elimination
of historical interest expense, line of credit fees and amortization of
deferred financing fees under existing borrowings, (2) the incurrence of
interest expense of $11,875 related to the issuance of $100,000 aggregate
principal amount of senior subordinated notes at an interest rate of
11.875%, (3) the incurrence of financing costs of $990 related to $19,500
of back-to-back standby letters of credit and the commitment fees related
to unused commitments under the New Credit Facility and (4) amortization of
deferred financing fees of $803 and $200 during the years ended December
31, 1998 and the three months ended March 31, 1999.
P-5
<PAGE>
Following is a summary of the net change:
December 31, March 31,
1998 1999
------------ ---------
Interest expense and amortization of deferred
financing fees -- new debt...................... $ 13,668 $ 3,417
Interest expense and amortization of deferred
financing fees -- old debt...................... (7,654) (1,739)
---------- ----------
Net interest expense adjustment.................. $ 6,014 $ 1,678
========== ==========
(h) The pro forma adjustment related to income taxes is calculated based on a
statutory tax rate of 40%.
P-6
<PAGE>
CONDOR SYSTEMS, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Report of Independent Accountants...........................................F-2
Consolidated Balance Sheets as of December 31, 1997
and 1998 and March 31, 1999..............................................F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998 and
the three months ended March 31, 1998 and 1999...........................F-4
Consolidated Statements of Shareholders' Equity (Deficit)
for the years ended December 31, 1996,
1997 and 1998 and the three months ended March 31, 1999..................F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998 and
the three months ended March 31, 1998 and 1999...........................F-6
Notes to Consolidated Financial Statements..................................F-7
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors
and Shareholders of
Condor Systems, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, shareholders' equity (deficit)
and cash flows present fairly, in all material respects, the financial position
of Condor Systems, Inc. and its subsidiaries at December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
February 19, 1999, except as to
Notes 19 and 20 for which the date is
April 8, 1999
F-2
<PAGE>
CONDOR SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
December 31 March
----------------------- ---------
1997 1998 1999
--------- -------- ---------
ASSETS (unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................................... $ 679 $ 4,300 $ 1,146
Restricted cash......................................................... 3,975 5,579
Contracts receivable.................................................... 43,486 42,853 37,728
Inventories............................................................. 2,485 1,772 2,310
Deferred income taxes................................................... 3,297 3,910 3,910
Other current assets.................................................... 1,048 629 663
--------- -------- ---------
Total current assets................................................. 50,995 57,439 51,336
Property and equipment, net................................................ 4,890 5,021 4,630
Purchased technology rights, net of accumulated amortization of $618 in
1997 and $3,107 in 1998................................................. 2,489 -- --
Deferred income taxes...................................................... 3,162 2,268 2,268
Other assets, net.......................................................... 3,212 3,195 3,222
--------- -------- ---------
Total assets......................................................... $ 64,748 $ 67,923 $ 61,456
========= ======== =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt....................................... $ 6,220 $ 3,400 $ 2,550
Accounts payable........................................................ 9,454 11,405 8,912
Accrued expenses........................................................ 8,863 8,575 7,715
Income taxes payable.................................................... 821 1,143 144
Customer contract advances.............................................. 552 3,944 2,555
--------- -------- ---------
Total current liabilities............................................ 25,910 28,467 21,876
Long-term debt, less current portion....................................... 49,743 47,432 47,480
Subordinated notes......................................................... 5,000 5,000 5,000
--------- -------- ---------
Total liabilities.................................................... 80,653 80,899 74,356
--------- -------- ---------
Commitments and contingencies (Notes 11 and 14)
Preferred stock, par value $0.001:
Authorized: 30,000 shares;
Series A: Designated 22,000 shares
Issued and outstanding shares: 11,000 in 1997 and 1998 (Aggregate
liquidation value: $12,000 in 1997 and 1998)....................... 12,000 12,000 12,000
Common stock, par value $0.001:
Authorized: 170,000 shares;
Class A: Designated 10,000 shares
Issued and outstanding shares: 6,000 in 1997 and 6,125 in 1998
(Aggregate liquidation value: $13,086 in 1997 and $13,411 in 1998). 13,086 13,411 13,411
Class B: Designated 150,000 shares
Issued and outstanding shares: 45,000 in 1997 and 1998............... 1,857 1,999 1,999
Deferred stock compensation (138) (138)
Retained earnings (accumulated deficit).................................... (429) 2,171 2,247
Distribution in excess of net book value (Note 1).......................... (42,419) (42,419) (42,419)
--------- -------- ---------
Total shareholders' deficit.......................................... (15,905) (12,976) (12,900)
--------- -------- ---------
Total liabilities and shareholders' deficit.......................... $ 64,748 $ 67,923 $ 61,456
========= ======== =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
<PAGE>
CONDOR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
Three-Months-Ended
Year Ended December 31, March 31,
---------------------------------- ---------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Contract revenues...................................... $ 67,506 $ 79,630 $101,042 $ 19,462 $ 19,008
-------- -------- -------- -------- --------
Costs and operating expenses:
Contract costs...................................... 43,817 53,143 61,660 11,028 11,161
Technology related costs:
Research and development......................... 1,696 1,039 4,360 563 1,121
Amortization of purchased technology............. 618 2,489 635 --
Write-off of in-process technology............... 8,421
Selling, general and administrative................. 14,108 16,037 20,341 5,241 4,027
Other charges:
Recapitalization costs........................... 15,700 -- -- -- --
Product line and plant closure costs............. 5,896 -- -- -- 925
Abandoned acquisitions costs..................... -- 185 513 -- --
-------- -------- -------- -------- --------
81,217 79,443 89,363 17,967 17,234
--------- -------- -------- -------- --------
Operating income (loss)........................ (13,711) 187 11,679 1,995 1,774
Interest and other income.............................. 48 94 237 24 92
Interest expense....................................... (1,287) (5,688) (7,654) (1,968) (1,739)
-------- -------- -------- -------- --------
Income (loss) before income taxes.............. (14,950) (5,407) 4,262 51 127
Provision for (benefit of) income taxes................ (3,493) (2,221) 1,662 20 51
-------- -------- -------- --------- --------
Net income (loss).............................. $(11,457) $ (3,186) $ 2,600 $ 31 $ 76
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE>
CONDOR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(in thousands, except per share amounts)
<TABLE>
Retained
Preferred Stock Common Stock Notes Deferred Earnings Distribu-
---------------- ----------------- Receiv- Stock (Accumu- tion in
able for Compensa- lated Excess of
Shares Amount Shares Amount Stock tion Deficit) Net Value Total
------- ------- ------- -------- --------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1996............... 7,413 $ 11,038 $ (2,663) $ 6,296 $ 14,671
Issuance of common stock............. 1,416 3,815 (1,302) 2,513
Repurchase of common stock........... (336) (362) (362)
Issuance of Series A preferred stock. 11,000 $12,000 12,000
Issuance of Series A common stock.... 6,000 13,086 13,086
Issuance of Series B common stock.... 45,000 900 900
Reorganization and distributions
to shareholders.................... (8,493) (14,512) 830 7,918 $(42,419) (48,183)
Payment on notes receivable.......... 3,135 3,135
Income tax benefit from common
stock transactions................. 21 21
Net loss............................. (11,457) (11,457)
------- ------- ------- -------- -------- -------- ------- -------- --------
Balances, December 31, 1996............. 11,000 12,000 51,000 13,986 -- -- 2,757 (42,419) (13,676)
Issuance of warrants................. 957 957
Net loss............................. (3,186) (3,186)
------- ------- ------- -------- -------- -------- ------- -------- --------
Balances, December 31, 1997............. 11,000 12,000 51,000 14,943 -- -- (429) (42,419) (15,905)
Issuance of Class A common stock..... 125 325 325
Deferred stock compensation.......... 142 $ (142) --
Amortization of deferred stock
compensation....................... 4 4
Net income........................... 2,600 2,600
------- ------- ------- -------- -------- -------- ------- -------- --------
Balances, December 31, 1998............. 11,000 12,000 51,125 15,410 -- (138) 2,171 (42,419) (12,976)
Net income........................... -- -- -- -- -- -- 76 76
------- ------- ------- -------- -------- -------- ------- -------- --------
Balances, March 31, 1999 (unaudited)....$ 11,00 $12,000 $51,125 $ 15,410 $ -- $ (138) $ 2,247 $(42,419) $(12,900)
======= ======= ======= ======== ======== ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE>
CONDOR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share amounts)
<TABLE>
Three Months Ended
Year Ended December 31 March 31,
-------------------------------- --------------------
1996 1997 1998 1998 1999
-------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $(11,457) $ (3,186) $ 2,600 $ 31 $ 76
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization................... 2,199 2,538 3,291 799 868
Amortization of purchased technology............ -- 618 2,489 635 --
Write-off of in-process technology.............. -- 8,421 -- -- --
Loss on disposal of property and equipment...... -- 193 -- -- --
Non-cash compensation charge related to common
stock......................................... 3,333 -- -- -- --
Deferred taxes.................................. (1,369) (3,024) 281 (111) --
Changes in assets and liabilities:
Contracts receivable.......................... (10,595) (5,670) 633 4,105 5,125
Inventories................................... 712 (58) 713 (651) (538)
Other assets.................................. 130 (439) (241) 283 (253)
Accounts payable.............................. 3,491 (1,006) 1,951 (2,565) (2,493)
Accrued expenses.............................. 3,547 1,014 37 (745) (860)
Income taxes payable and receivable........... (3,607) 3,044 322 (911) (999)
-------- --------- -------- -------- ---------
Net cash provided by (used in) operating
activities................................. (13,616) 2,445 12,076 870 926
-------- --------- -------- -------- ---------
Cash flows from investing activities:
Acquisition........................................ -- (19,673) -- -- --
Additions to property and equipment................ (1,420) (1,744) (2,503) (795) (237)
Proceeds from sale of property and equipment....... 52 2 1 -- --
-------- --------- -------- -------- ---------
Net cash used in investing activities........... (1,368) (21,415) (2,502) (795) (237)
-------- --------- -------- -------- ---------
Cash flows from financing activities:
Proceeds from sale of preferred stock.............. 5,539 -- -- -- --
Proceeds from sale of common stock................. 80 -- -- -- --
Distributions to shareholders...................... (33,031) -- -- -- --
Proceeds from sale of Class A common stock......... 9,034 -- -- -- --
Proceeds from notes receivable..................... 3,135 -- -- -- --
Net proceeds from long-term debt................... 40,187 24,000 -- -- --
Payments of debt issuance costs.................... (2,500) (760) -- -- --
Payments on long-term debt......................... (3,548) (5,125) (5,370) (6) (850)
Payments on subordinated debt...................... (3,900)
Proceeds from revolving line of credit and
revolving notes.................................... 21,322 -- 2,000 2,000 --
Payments on revolving line of credit............... (18,322) (3,000) (2,000) (2,000) --
Increase in restricted cash........................ -- -- (3,975) -- (1,604)
Increase (decrease) in customer contract advances.. (1,121) 316 3,392 2,526 (1,389)
-------- --------- -------- -------- ---------
Net cash provided by (used in) financing
activities.................................. 16,875 15,431 (5,953) 2,520 (3,843)
-------- --------- -------- -------- ---------
Net increase (decrease) in cash and cash equivalents.. 1,891 (3,539) 3,621 2,595 (3,154)
Cash and cash equivalents, beginning of year.......... 2,327 4,218 679 679 4,300
-------- --------- -------- -------- ---------
Cash and cash equivalents, end of year................ $ 4,218 $ 679 $ $ 3,274 $ 1,146
======== ========= ======== ======== =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest...................................... $ 907 $ 4,349 $ 6,733 $ 2,143 $ 1,875
Income taxes paid (refunded).................. $ 1,586 $ (2,237) $ 949 -- --
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
<PAGE>
CONDOR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
Note 1. Description of Business:
Condor Systems, Inc. (the Company) is a leading provider of
technologically advanced signal collection and specialized electronic
countermeasure products and systems in the electronic warfare industry. The
Company supplies a complete line of integrated systems, subsystems and
products that are used to intercept, identify, locate and analyze radar
signals for a variety of military needs, including intelligence,
reconnaissance, surveillance, precision targeting, situational awareness and
threat warning.
The Company operates in a single industry segment encompassing the
electronic intelligence, electronic support measures, and specialized
electronic countermeasures market niches in the electronic warfare industry.
This industry is closely tied to the military defense budgets of the U.S.
Government and its allies. Any significant changes in the funding of certain
programs, platforms or the overall level of the military defense budgets could
impact the Company. In addition, the international markets are subject to
additional risks including political instability, restrictive trade policies
and U.S. export laws and regulations.
1996 Recapitalization:
In November 1996, the Company consummated a recapitalization and merger
of the Company (the 1996 Recapitalization). In connection with the 1996
Recapitalization, the Company entered into a new senior secured credit
facility of up to $75,000 and issued $5,000 in subordinated notes payable,
11,000 shares of Series A preferred stock, 6,000 shares of Class A common
stock and 45,000 shares of Class B common stock. Utilizing $38,000 from its
new senior secured credit facility and the proceeds from the issuance of the
subordinated notes payable and new series of stock, the Company retired all of
the existing long-term debt, subordinated notes payable and common stock of
the Company, including all outstanding stock options.
The transaction has been accounted for as a recapitalization, and
accordingly, no change in the accounting basis of the Company's assets has
been made in the accompanying financial statements. The amount of cash paid
and securities issued to the shareholders of the Company exceeded the
Company's net assets on the date of the transaction and has been recorded in
the equity section as distributions in excess of net book value.
Note 2. Summary of Significant Accounting Policies:
Basis of Consolidation:
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All inter-company
transactions and balances have been eliminated in consolidation.
Fair Value of Financial Instruments:
Carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents, contracts receivable, accounts payable
and accrued expenses approximate fair value. Based on borrowing rates
currently available to the Company for loans with similar terms, the carrying
value of its debt obligations approximates fair value.
F-7
<PAGE>
CONDOR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(in thousands, except per share amounts)
Cash and Cash Equivalents:
Cash and cash equivalents include all highly liquid investments with an
original maturity of three months or less at the date of purchase.
Substantially all of the Company's cash and cash equivalents are deposited
with a single bank.
Inventories:
Inventoried costs related to government and commercial long-term
contracts are composed of the direct costs of manufacturing and engineering,
tooling and allocated overhead cost. These overhead costs include general and
administrative expenses that are allowable in accordance with government
procurement practices. Inventories are stated at the lower of average cost or
market.
Property and Equipment:
Property and equipment are stated at cost and are depreciated on a
straight-line basis over their expected useful lives of 3-5 years. Leasehold
improvements are amortized on a straight-line basis over the estimated useful
life of the asset or the lease term, if shorter.
Purchased Technology Rights:
Purchased technology rights for which technological feasibility has not
been established and that have no alternative future use are charged to
operations when acquired. Purchased technology rights for which technological
feasibility has been established are amortized to operations over the
estimated useful life of the product or the related programs.
Other Assets:
Other assets include approximately $2,883 and $2,548 of deferred
financing costs as of December 31, 1997 and 1998, respectively. These costs
are being amortized on an effective interest rate basis over the term of the
related notes.
Accounting for the Impairment of Long Lived Assets:
Long lived assets and certain intangible assets are reviewed for
impairment when events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. In the event that the sum of the
expected undiscounted future cash flows resulting from the use of the asset is
less than the carrying amount of the asset, an impairment loss equal to the
excess of the asset's carrying value over its fair value is recorded.
Comprehensive Income:
The Company has adopted the Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130) effective December 31,
1998. SFAS 130 establishes standards for reporting and display of
comprehensive income and its components for general-purpose financial
statements. Comprehensive income is defined as net income plus all revenues,
expenses, gains and losses that are excluded from net income in accordance
with generally accepted accounting principles. For the years ended December
31, 1996, 1997 and 1998, there are no material differences between
comprehensive income and net income.
F-8
<PAGE>
CONDOR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(in thousands, except per share amounts)
Contracts and Contract Revenue Recognition:
Most of the contracts that the Company enters into are fixed price. This
means the Company is exposed to cost overruns if it encounter difficulties in
meeting the contractual delivery schedule or technical specifications for its
systems, or experiences variances in its actual costs from its estimates.
Conversely, the Company benefits from any cost under runs if it experiences
positive variances in its actual costs from its estimates or encounters less
difficulties than expected in meeting the contractual delivery schedule or
technical specifications.
Revenues for long-term contracts are accounted for under the
percentage-of-completion (cost-to-cost) method. Under this method, all
contract costs are charged to operations as incurred and revenues are
recognized based on costs incurred plus the estimated contract profit margins.
These estimated contract profit margins are determined on a contract by
contract basis based on the Company's estimates of total revenue and cost at
completion for each contract. These estimates are reviewed and revised
periodically throughout the lives of the contracts, and adjustments to profits
resulting from such revisions are recorded in the accounting period in which
the revisions are made. Losses on contracts are recorded in full as they are
identified.
Research and Development:
Research and development expenditures are charged to operations as
incurred.
Income Taxes:
Income taxes are recorded using the liability method. Under this method,
deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions may 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 reporting period. Actual results could differ from
those estimates.
Unaudited Interim Financial Information
The accompanying interim consolidated balance sheet as of March 31, 1999
and the consolidated statements of operations and cash flows for the three
months ended March 31, 1998 and 1999 together with the related notes are
unaudited but include all adjustments, consisting of only normal recurring
adjustments, which the Company considers necessary to present fairly, in all
material respects, the consolidated financial position as of March 31, 1999 and
the results of operations, cash flows and shareholders' equity (deficit) for
the three months ended March 31, 1998 and 1999. Results for the three months
ended March 31, 1999 are not necessarily indicative of the results for the
entire year or for any other future period.
Reclassifications:
Certain reclassifications have been made to prior year financial
statements to conform to current year classifications.
Note 3. Acquisitions:
In September 1997, the Company acquired the assets of the Electronic
Systems Division of Whittaker Corporation ("ESD"). Bank financing was used to
acquire the ESD. The acquisition has been accounted for under the purchase
method and the ESD's operating results have been included in the Company's
financial statements since the fourth quarter of 1997. The purchase price was
allocated based on the estimated fair value of the ESD's tangible assets, net
of assumed liabilities. The net assets purchased comprised:
F-9
<PAGE>
CONDOR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(in thousands, except per share amounts)
Purchased technology rights....................................... $ 3,107
In-process technology............................................. 8,421
Contracts receivable.............................................. 6,513
Inventories....................................................... 971
Other current assets.............................................. 628
Property and equipment, net....................................... 1,436
Accounts payable.................................................. (567)
Accrued expenses.................................................. (836)
----------
$ 19,673
==========
The amounts allocated to purchased technology and in-process technology
were determined through valuation techniques commonly used in the
high-technology industry. The technological feasibility of the in-process
technology had not been established and there were not any other alternative
future uses. Accordingly, the entire $8,421 was charged to operations in 1997.
The amounts allocated to purchased technology rights have been amortized on a
straight-line basis over 15 months, the estimated useful life of the products
or the related programs.
Following is the unaudited pro forma results of operations assuming that
the acquisition of ESD had occurred on January 1, 1996 after giving effect to
adjustments for amortization of purchased technology and imputed interest
expense and excluding the write-off of in-process technology:
1996 1997
---------------------- ---------------------
Actual Pro Forma Actual Pro Forma
---------- --------- --------- ---------
Contract revenues...........$ 67,506 $ 90,649 $ 79,630 $ 90,498
Operating income (loss)..... (13,711) (22,612) 187 1,347
Net income (loss)........... (11,457) (16,798) (3,186) (2,490)
Note 4. Contracts Receivable:
Contracts receivable are summarized as follows:
December 31,
------------------
1997 1998
------- --------
Prime U.S. Government contractors and foreign governments.. $ 8,463 $ 4,814
U.S. Government............................................ 8,545 11,002
Unreimbursed costs and accrued profits to be billed........ 26,478 27,037
-------- --------
$ 43,486 $ 42,853
======== ========
Unreimbursed costs and accrued profits to be billed represent revenues
recognized for which billings have not been presented. Substantially all
amounts, billed and unbilled, are expected to be collected within one year,
including contract retentions.
F-10
<PAGE>
CONDOR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(in thousands, except per share amounts)
Note 5. Inventories:
Inventories are summarized as follows:
December 31,
----------------------
1997 1998
-------- --------
Raw materials.......................................... $ 519 $ 501
Work in progress....................................... 1,966 1,271
-------- --------
$ 2,485 $ 1,772
======== ========
Note 6. Property and Equipment:
Property and equipment are summarized as follows:
December 31,
----------------------
1997 1998
--------- ---------
Manufacturing and office equipment..................... $ 10,992 $ 12,333
Test equipment......................................... 7,116 7,389
Leasehold improvements................................. 1,071 1,771
--------- ---------
19,179 21,493
Less accumulated depreciation and amortization......... (14,289) (16,472)
--------- ---------
$ 4,890 $ 5,021
========= =========
Note 7. Revolving Note Agreement:
During 1997, the Company entered into a new revolving note facility. This
revolving note facility has a total capacity of $18,100 and expires in
September 2002. This revolving note facility replaced the revolving note
facility that was entered into in connection with the Recapitalization, and
may be used for either cash borrowings or standby letter of credit
commitments. Outstanding standby letters of credit reduce the Company's
ability to draw down the revolving note facility.
Borrowings under the revolving note facility bear interest at prime plus
1.25% (9.75% and 9.00% at December 31, 1997 and 1998, respectively), and the
unused portion of the credit facility bears interest of 0.35% per annum.
Interest on the revolving notes is payable monthly.
Outstanding letters of credit relate to staged standby letter of credit
commitments for several of the Company's contracts in favor of the customers.
Increases to the standby letter of credit commitments correspond to advance
payments paid to the Company by certain foreign customers and decreases
correspond to the completion of contractual milestones. Upon completion of the
contracts, the requirement to maintain the standby letter of credit
commitments will terminate. As of December 31, 1997 and 1998, outstanding
letters of credit amounted to $11,249 and $21,713, respectively. Outstanding
standby letters of credit bear interest at 2.5% per annum.
As of December 31, 1998, the outstanding standby letters of credit
exceeded the capacity of the Company's revolving credit facility. As a result,
the Company is required to maintain restricted cash balances with the lenders.
These restricted cash balances aggregated $3,975 at December 31, 1998.
F-11
<PAGE>
CONDOR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(in thousands, except per share amounts)
Under the terms of the revolving note facility, the Company is required
to maintain certain levels of cash availability, as defined therein. This
requirement was approximately $1,000 at December 31, 1997 and 1998.
Note 8. Accrued Expenses:
Accrued expenses are summarized as follows:
December 31,
----------------------
1997 1998
--------- ---------
Accrued salaries and employee benefits................. $ 5,123 $ 4,932
Accrued interest....................................... 1,022 1,018
Other accruals......................................... 2,718 2,625
--------- ---------
$ 8,863 $ 8,575
========= =========
Note 9. Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
December 31
Total -------------------------
Facility 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Senior secured Term A Notes bearing interest at prime plus 1.25%
(9.00% at December 31, 1998), payable through September 2002......... $ 17,000 $ 17,000 $ 16,150
Senior secured Term B Notes bearing interest at prime plus 1.25%
(9.00% at December 31, 1998), payable through September 2002......... 13,000 13,000 13,000
Senior secured Acquisition Notes bearing interest at prime plus 1.75%
(9.50% at December 31, 1998), payable through September 2002......... 27,000 26,900 22,400
Capital lease obligations through June 1998 bearing interest at 6.5%.... 20
---------- ---------- ----------
$ 57,000 56,920 51,550
==========
Less: Unamortized discount related to stock warrants.................... (957) (718)
Current portion...................................................... (6,220) (3,400)
---------- ----------
$ 49,743 $ 47,432
========== ==========
</TABLE>
Aggregate payments on long-term debt at December 31, 1998 are as follows:
1999..................................... $ 3,400
2000..................................... 9,270
2001..................................... 16,620
2002..................................... 22,260
--------
$ 51,550
========
Substantially all of the Company's assets are pledged as collateral for
the senior secured credit facility. The Company is required to maintain
certain financial leverage and interest coverage ratios as well as comply with
certain other covenants. These covenants include requirements for minimum
levels of working capital, EBITDA and net worth, as defined therein. These
covenants also restrict dividends and capital expenditures.
F-12
<PAGE>
CONDOR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(in thousands, except per share amounts)
Note 10. Subordinated Notes:
In connection with the 1996 Recapitalization, the Company issued $5,000
of subordinated notes. These notes bear interest at 10% per annum and require
annual interest payments. The outstanding principal and any accrued interest
are due in November 2004. These notes are subordinated and junior to the
senior secured credit facilities. In the event of certain defaults under the
senior secured credit facilities, the Company may not be permitted to pay
principal or interest on the subordinated notes. Additionally, except as it
relates to certain permitted transfers, any holders of the subordinated notes
are restricted from transferring the notes.
Note 11. Commitments:
Operating Leases:
The Company leases its manufacturing and office facilities under
non-cancelable operating leases, which expire between November 1999 and March
2005.
The future minimum lease payments under operating lease obligations at
December 31, 1998 are:
1999.............................................$ 1,954
2000............................................. 1,364
2001............................................. 640
2002............................................. 616
2003............................................. 521
Thereafter....................................... 530
--------
$ 5,625
========
Rental expense under all operating leases for the years ended December
31, 1996, 1997 and 1998 was $1,256, $1,350 and $1,714, respectively.
Note 12. Shareholders' Equity (Deficit):
Capital Stock:
The following table summarizes the voting percentage, liquidation
preference and percentage of equity ownership for each class or series of
capital stock as of December 31, 1998:
<TABLE>
Voting Liquidation Equity
Class or Series of Stock Percentage Preference Ownership
- -------------------------------------------------- ---------- ------------ ---------
<S> <C> <C> <C>
Series A preferred stock.......................... 55.0% 12,000 50.6%
Class A common stock.............................. 30.0% 13,411 28.2%
Class B common stock.............................. 15.0% -- 21.2%
</TABLE>
The rights, preferences and terms of the Company's capital stock are as
follows:
Governance and Voting Rights:
The series of preferred stock and classes of common stock vote together
on all matters, except for directors and as required by law. Each of the
series and classes of stock are entitled to their respective total voting
power that is summarized in the preceding table. Within each series and
class of stock, the individual
F-13
<PAGE>
CONDOR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(in thousands, except per share amounts)
shareholders are entitled to a proportionate share of the voting power
based upon the number of shares held. With respect to directors, the
Series A preferred stock has the right to elect three directors and the
Class A common stock has the right to elect one director. All other
directors are to be elected by all of the series of preferred and classes
of common stock voting together.
Conversion Rights:
All series of preferred stock and classes of common stock are required to
convert into Class B common stock (which will then be titled common
stock) in the event of an underwritten public offering under the
Securities Act of 1933, as amended, that has aggregate proceeds that
equals or exceeds $20,000. The number of common stock shares that each of
the series and classes of stock will convert into is based upon a
formula. This formula states that each series and class of stock is
entitled to their proportionate share of the common stock based upon: i)
their then outstanding liquidation preference and ii) their equity
ownership interest in excess of the then outstanding liquidation
preference. The proportionate share of equity ownership will be adjusted
to reflect the issuance of any additional Class A or Class B common
stock; however, there will be no adjustment to reflect the issuance of
any additional Series A preferred stock.
Liquidation:
In the event of a liquidation or merger that involves a change in control
of the Company, the Series A preferred stock and Class A common stock
will be entitled to receive all of the proceeds from the liquidation or
merger until the Series A preferred stock and Class A common stock have
received an amount equal to their then outstanding liquidation
preference. These proceeds will be shared between the Series A preferred
stock and Class A common stock in proportion to their then outstanding
liquidation preference. Any proceeds received in excess of the
liquidation preferences of Series A preferred stock and Class A common
stock will then be distributed to all series and classes of stock based
upon their respective equity ownership interest.
Dividends:
The Company's senior secured credit facility restricts dividends and other
distributions to shareholders. In the event that such dividends or
distributions do occur, they shall be paid only to the Series A preferred
stock and Class A common stock so long as these classes of stock remain
outstanding. Any such dividend or distributions shall be allocated
between the two classes in proportion to their respective then
outstanding liquidation preferences and shall reduce the outstanding
liquidation preference.
Repurchase and Transfer Rights:
In the event that an employee terminates, whether voluntarily or otherwise,
or upon disability or death, the Company has the right to repurchase any
or all shares of all classes of stock held by that employee. The purchase
price for all vested shares shall be the fair market value on the date of
termination. The purchase price for all unvested shares related to
certain restricted stock grants of Class B Common Shares shall be the
original issuance price. At December 31, 1997 and 1998, there were
approximately 35,250 and 26,250 shares of Class B Common Shares
outstanding that were not vested. Additionally, except as it relates to
certain permitted transfers, any holders of stock are restricted from
transferring any interest in such stock without the consent of the Board
of Directors. Commencing 18 months after the Recapitalization, holders of
the Series A preferred stock have the right to compel certain management
shareholders to sell their stock to a third party.
F-14
<PAGE>
CONDOR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(in thousands, except per share amounts)
Registration Rights:
Commencing 180 days after an initial public offering of the Company's
stock, the holders of Series A preferred stock have the right to cause
the Company to register their shares under the Securities Act, subject to
certain limitations. The holders of Class A common stock and certain
other shareholders have "piggyback" rights on registered offerings of the
Company, subject to certain limitations.
Warrants:
The Company has granted the lenders that provided the senior secured
financing warrants to purchase 19,149 shares of Class B common stock. The
warrants are exercisable at a purchase price of $0.000667 per share at any
time prior to the earlier of an initial public offering or November 21, 2006.
The warrants issued had a fair value of approximately $957 at the time of
issuance based on a calculation using the Black Scholes valuation method. The
fair value of these warrants has been recorded as additional consideration for
Class B Common Stock and a discount on the long-term debt. This discount is
being amortized to interest expense on an effective interest rate basis over
the term of the long-term debt.
Stock Option Plans:
In October 1993, the Company established the 1993 Non-Qualified Stock
Option Plan (the "1993 Plan"). Options generally vested over a period of four
to a maximum of ten years. Options expired, if not exercised, within a maximum
of ten years from the date of grant. In November 1996, the 1993 Plan was
terminated and all of the Company's outstanding options were canceled as part
of the Recapitalization. A summary of transactions relating to this option
plan for the year ended December 31, 1996 is set forth below:
<TABLE>
Stock Option Outstanding Weighted
--------------------------------------------------- Average
Available Price Per Exercise
For Grant Shares Share Amount Price
--------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1995............ 325 2,660 $1.04-$3.45 $ 6,111 $ 2.30
Authorized.......................... 573
Granted............................. (426) 426 $3.36-$4.70 1,929 $ 4.53
Exercised........................... (902) $1.04-$4.70 (1,400) $ 1.55
Terminated.......................... (472) (2,184) $1.04-$4.70 (6,640) $ 3.04
--------- --------- ---------
Balances, December 31, 1996............ -- -- $ --
========= ========= =========
</TABLE>
In May 1997, the Company established the 1997 Stock Option and
Restricted Share Plan (the "1997 Plan"). Under the terms of the 1997 Plan, the
Company may grant stock options, stock appreciation rights or restricted
shares of the Company's Class B common stock at prices determined by the Board
of Directors, as of the date of grant. Options under the 1997 Plan generally
vest over a period of five years. Options expire, if not exercised, within a
maximum of ten years from the date of grant.
F-15
<PAGE>
CONDOR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(in thousands, except per share amounts)
A summary of transactions relating to the 1997 Plan is set forth below:
<TABLE>
Stock Options Outstanding
-------------------------------- Weighted
Available Average
For Price Per Exercise
Grant Shares Share Amount Price
--------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Authorized......................... 4,800
Granted............................ (3,233) 3,233 $ 0.02 $ 65 $ 0.02
--------- -------- --------
Balances, December 31, 1997........ 1,567 3,233 $ 0.02 $ 65 $ 0.02
Terminated......................... 320 (320) $ .02-.05 $ (7) $ 0.02
Granted............................ (1,887) 1,887 $ .02-.05 $ 81 $ 0.04
--------- -------- --------
Balances, December 31, 1998........ -- 4,800 $ .02-.05 $ 139 $ 0.03
========= ======== ========
</TABLE>
A summary of the stock options outstanding at December 31, 1998 follows:
<TABLE>
Stock Option Outstanding Stock Opinions Exercisable
-------------------------------------------------------- ------------------------------------
Weighted Average
Range of Exercise Remaining Weighted Average Weighted Average
Price Number of Shares Contractual Life Exercise Price Number of Shares Exercise Price
- ----------------- --------------- ----------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 0.02 3,398 8.9 $ 0.02 600 $ 0.02
$ 0.05 1,402 9.8 $ 0.05 -- --
</TABLE>
Statement of Financial Accounting Standards No. 123 (SFAS No. 123),
"Accounting for Stock-Based Compensation" requires the measurement of the fair
value of stock-based compensation to be included in the statement of
operations or disclosed in the notes to financial statements. The Company has
elected the disclosure-only alternative under SFAS No. 123 and will continue
to account for stock-based compensation for employees under APB Opinion No.
25.
The Company has recognized compensation cost of $9,928 in 1996 and $4 in
1998 related to the Company's stock option plans. The stock compensation costs
recognized in 1996 relate to the reacquisition of certain shares and the
termination of the 1993 Plan as a part of the 1996 Recapitalization. The stock
compensation costs recognized in 1998 relate to certain stock options that were
issued during the last six months of 1998 with exercise prices that were lower
than fair market value based on the terms of the proposed 1999 Recapitalization
that is described in Note 19. The Company has recorded deferred stock
compensation cost of approximately $142 as a reduction of shareholders' equity
(deficit) and will recognize the unamortized portion of $138 at December 31,
1998 ratably over the remaining vesting period.
SFAS 123 requires pro forma information regarding net income. This
information is required to be determined as if the Company had accounted for its
employee stock options based on its fair value accounting provisions. The fair
value of stock options granted in 1996, 1997 and 1998 reported in the pro forma
information below has been estimated at the date of grant using a Black Scholes
option pricing model with the following weighted average assumptions:
1996 1997 1998
------- ------- -------
Fair value of stock options granted............. $1.17 $0.01 $0.11
Assumption utilized in determination
F-16
<PAGE>
CONDOR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(in thousands, except per share amounts)
1996 1997 1998
------- ------- -------
Expected life (in years).................... 5.0 5.0 5.0
Risk free interest rates.................... 6.21% 5.71% 4.54%
Volatility.................................. -- -- --
Dividend yield.............................. $ 0.0 $ 0.0 $ 0.0
For purposes of the pro forma disclosures, the estimated fair value of the
stock options is amortized to expense over the option's vesting periods. The
Company's pro forma information follows:
1996 1997 1998
------- -------- ------
Net income (loss), as reported.............. $ (11,457) $ (3,186) $ 2,600
Net income (loss), pro forma................ (11,495) (3,188) 2,592
Note 13. Employee Benefit Plans:
The Company has established an Employee Stock Ownership Plan ("ESOP") for
all eligible employees. The Company contributed $300 and $325 to the ESOP for
the years eectively.
The Company has established a 401(k) Deferred Compensation Plan (the
"401K Plan") for all qualifying employees. The 401K Plan qualifies under
Sections 401(a) and 401(k) of the Internal Revenue Code. The 401K Plan is a
defined contribution plan funded by pretax contributions on a percentage
formula basis made by participating employees. In 1994, the 401K Plan was
amended to allow for employer contributions. The Company contributed $300,
$325 and $850 to the 401K Plan for the years ended December 31, 1996, 1997 and
1998, respectively. The 401K Plan is subject to the Employee Retirement Income
Security Act of 1974 (ERISA).
If the 1999 Recapitalization is completed, the ESOP intends to sell its
shares of Class A common stock. The Company will then take the steps necessary
to merge the ESOP into the Company's 401K Plan. See Note 19 for information
regarding the 1999 Recapitalization.
One executive of the Company has a five year employment agreement that
provides for salary and benefits that he would become entitled to upon his
death, disability or involuntary termination, or merger, as defined.
Note 14. Contingencies:
As a government contractor, the Company is subject to government
oversight. The Government routinely audits and reviews the Company's business
and accounting practices and its proposals, contract performance and cost
accounting. If it is determined that the Company did not comply with the U. S.
Government procurement regulations and practices, the Company could be subject
to claims, fines or suspension from eligibility to bid on new government
contracts. Historically, the Company has been in compliance with the U.S.
Government procurement regulations and practices, successfully defended its
actions or settled any claims, fines or inquiries without material adverse
effect to its financial results or condition. The Company believes there are
no pending audits or reviews that are likely to have a material adverse effect
upon its financial results or condition.
The Company is also involved in other routine legal and administrative
proceedings that arise from the normal conduct of business. Management
believes that the ultimate disposition of these matters will not have a
material adverse effect on the financial results or condition of the Company.
F-17
<PAGE>
CONDOR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(in thousands, except per share amounts)
Note 15. Income Taxes:
The provision for (benefit of) income taxes for the years ended December
31, 1996, 1997 and 1998 comprise:
Current:
1996 1997 1998
------- ------- -------
Federal................................... $(2,087) $ 803 $ 872
State..................................... 399
------- ------- -------
(2,087) 803 1,271
------- ------- -------
Deferred:
Federal................................... (964) (2,494) 281
State..................................... (442) (530) 110
------- ------- -------
(1,406) (3,024) 391
------- ------- -------
$(3,493) $(2,221) $ 1,662
======= ======= ========
Deferred tax assets and liabilities for the years ended December 31, 1996,
1997 and 1998 comprise:
1996 1997 1998
------- ------- -------
Deferred Tax Liabilities
State taxes.............................. $ (225) $ (844) $ (506)
------- ------- -------
(225) (844) (506)
Deferred Tax Assets
Depreciable and amortizable assets....... 257 4,181 3,103
Credit and loss carryforward............. 190 1,294 2,162
Contract and inventory related costs..... 700 1,901 2,331
Accrued expenses......................... 2,705 1,221 1,250
------- ------- -------
3,852 8,597 8,846
Valuation allowance......................... (190) (1,294) (2,162)
------- ------- -------
Net deferred tax assets..................... $ 3,437 $ 6,459 $ 6,178
======= ======= ========
The provision for income taxes differs from the amount of income tax
determined by applying the applicable statutory federal tax to the income (loss)
before income taxes as a result of the following differences for the years ended
December 31, 1996, 1997 and 1998:
1996 1997 1998
------- ------- -------
Income tax (benefit) at U.S. statutory rates.. $(5,083) $(1,838) $ 1,449
State taxes, net of federal benefit........... (292) (350) 336
Research and development credits.............. (111) (33) (123)
1996 Recapitalization expenses................ 1,054
Product line and plant closure costs.......... 939
------- ------- -------
Income tax at effective rates................. $(3,493) $(2,221) $ 1,662
======= ======= =======
The Company has approximately $890 of federal tax credit carry forwards,
$1,140 of state tax credit carry forwards and $1,930 of state net operating
loss carry forwards at December 31, 1998. These carry forwards expire
F-18
<PAGE>
CONDOR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(in thousands, except per share amounts)
in varying amounts through 2013. The Company has not recognized the benefits of
these carry forwards for financial statement purposes because the Company
anticipates that it will continue to be limited on the use of these carry
forwards due to alternative minimum tax and research and development credit
limitations. The Company does not believe that the future utilization of these
carry forwards will be limited further due to the change in control as defined
in the Internal Revenue Code that will result from the potential 1999
Recapitalization described in Note 19.
The Company's federal tax returns for the years 1994 and 1995 are presently
under examination by the Internal Revenue Service. While the Company has not
received any final proposed adjustments, the Company believes that adequate
provisions have been provided for any adjustments that may result from the years
under examination.
Note 16. Segment Information:
The Company has adopted the Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS
131) effective December 31, 1998. SFAS 131 establishes standards for disclosure
about operating segments and related disclosures about products and services,
geographic areas and major customers. Comparative information has been provided
for prior years.
The Company operates in one business segment. The Company designs,
develops, manufactures and markets technologically advanced signal collection
and specialized electronic counter measure products and systems in the
electronic warfare industry. The Company supplies a complete line of integrated
systems, subsystems and products that are used to intercept, identify, locate
and analyze radar signals for a variety of military needs, including
intelligence, reconnaissance, surveillance, situational awareness and threat
warning. The Company's systems, sub systems and products are used on various
platforms including personnel, airborne, shipboard, ground vehicles and fixed
sites by the military and intelligence communities of the United States and its
allies.
The Company sells its products and systems directly to various agencies of
the U.S. Government, prime contractors and foreign governments. The Company's
principal markets are in the United States, Europe and the Pacific Rim with the
United States, Scandinavian countries and the Pacific Rim, to a lesser extent,
being the prime markets served. Following is a summary of the geographic
information related to contract revenues and information related to significant
customers for the years ended December 31, 1996, 1997 and 1998:
1996 1997 1998
-------- -------- --------
Revenues
Domestic.................................. $ 43,695 $ 57,986 $ 65,219
International............................. 23,811 21,644 35,823
-------- -------- --------
$ 67,506 $ 79,630 $101,042
======== ======== ========
Significant Customers
Customer A................................ $ 33,658 $ 38,287 $ 49,609
Customer B................................ 8,339 3,851 1,482
Customer C................................ 4,802 14,143 6,900
The Company's assets are located in the United States. The Company does not
segregate information related to operating income generated by its export sales.
F-19
<PAGE>
CONDOR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(in thousands, except per share amounts)
Note 17. Non-cash Investing and Financing Activities:
The following is a summary of non-cash investing and financing activities
for the years ended December 31, 1996, 1997 and 1998:
<TABLE>
1996 1997 1998
------- -------- ------
<S> <C> <C> <C>
Issuance of warrants in connection with the issuance of Acquisition Notes...... $ 957
Net payments of full recourse notes settled by exchange of common stock........ $ 830
Common stock redeemed with notes payable....................................... 5,000
Issuance of Class A common stock in exchange for common stock.................. 4,052
Issuance of Series A preferred stock in exchange for common stock.............. 6,461
Payment for exercise of stock options by exchange of common stock.............. 27
Issuance of common stock in exchange for notes receivable...................... 1,302
Income tax benefit from common stock transactions.............................. 21
Contribution of Class A common stock to ESOP................................... $ 325
</TABLE>
Note 18. Other Charges:
Recapitalization Expenses:
In November 1996, the Company consummated the 1996 Recapitalization. In
connection with this Recapitalization, the Company recognized approximately
$15,700 in Recapitalization related expenses. These expenses included
approximately $12,600 of employee compensation related to the repurchase of
vested and unvested stock options and the issuance of Class B common stock,
and $3,100 of transaction related costs.
Product Line and Plant Closure Costs:
In August 1996, in conjunction with the proposed 1996 Recapitalization,
the Company exited further development of the commercial application of its
geo-location technology to concentrate on its growth through acquisition
strategy for its core product lines. The Company recognized $5,896 in product
line closure costs. This provision included approximately $3,600 related to
the write-off of certain technologies acquired from Airwave Technology, Inc.
and $2,296 in severance, facility costs, contractual obligations and other
potential claims. The closure of these operations and settlement of all
significant claims were concluded in 1997.
Abandoned Acquisition Costs:
During 1997, the Company executed letters of intent to acquire the assets
of two private companies. The Company later terminated these letters of intent
due to its due diligence findings and wrote-off approximately $185 of costs
incurred in connection with its evaluation of these companies.
In October 1998, the Company executed an asset purchase agreement to
acquire the assets of the Applied Technology Division ("ATD") of Litton
Industries, Inc. ("Litton") for approximately $120,000. The Company conducted
its due diligence and financing efforts until January 1999. In January 1999,
the Company allowed the agreement to terminate due to changes in certain
conditions. The Company has charged approximately $513 to operations for costs
incurred in connection with its evaluation of ATD.
F-20
<PAGE>
CONDOR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(in thousands, except per share amounts)
Note 19. Subsequent Events:
In January 1999, the Company announced its decision to close its
facilities located in Sterling, Virginia. The Company will record a charge to
the first quarter of 1999 of approximately $925 for plant closure costs. This
provision includes severance, facility costs, closure costs and other
potential contractual claims. The Company anticipates that the closure of the
facility and settlement of all significant claims will be concluded during
1999.
The Company is currently in negotiations to acquire certain assets from
ARGOSystems, Inc., a subsidiary of The Boeing Company. Under the terms of the
negotiations, the Company intends to acquire the electronic warfare assets of
ARGOSystems, Inc., excluding cash and billed and unbilled receivables, and
assume obligations under existing contracts and outstanding proposals. As
consideration the Company expects to pay $2,500 in cash and a contingent
commission on certain specified future contract awards in 1999 and 2000.
On or about March 8, 1999, the Company, the ESOP, Behrman Capital (the
majority shareholder), certain executives and key employees, Donaldson, Lufkin
and Jenrette Merchant Banking Partners II, Inc. ("DLJMB"), and Global
Technology Partners LLC ("GTP") will enter into certain agreements to effect a
recapitalization of the Company ("the 1999 Recapitalization"). The closing of
the 1999 Recapitalization is subject to certain conditions, including the
issuance of $100,000 of senior subordinated notes (the "Notes") and the
closing of a $40,000 revolving senior credit facility. The proceeds of the
1999 Recapitalization will be used to retire all existing long-term debt,
subordinated notes payable and capital stock of the Company. Upon completion
of the 1999 Recapitalization, DLJMB will own a majority interest in the
Company while Behrman Capital, GTP and certain executives and employees will
own the remaining interest. There are no assurances that the 1999
Recapitalization will be consummated. However, if the 1999 Recapitalization is
completed, the Company intends to account for this transaction as a
recapitalization and the historical accounting basis of the Company's assets
and liabilities will not be adjusted.
Note 20. Condensed Consolidating Financial Information:
In contemplation of the offering of the Notes, the following summarized
condensed consolidating financial information is presented for the Company,
segregating CEI Systems, Inc., the subsidiary which will guarantee the Notes
(the "Guarantor"). The accompanying financial information in the "Guarantor
Subsidiary" column reflects the financial position, results of operations and
cash flows for the Guarantor. The Guarantor is a wholly-owned subsidiary of
the Company and the guarantees will be full and unconditional. Separate
financial statements of the Guarantor are not presented because management
believes that such financial statements would not be material to investors.
The financial information related to non-guarantor subsidiaries is not
presented as they are collectively immaterial.
F-21
<PAGE>
CONDOR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(in thousands, except per share amounts)
The investments in the Guarantor in the following condensed consolidating
financial information are accounted for under the equity method of accounting.
The consolidating eliminations include the elimination of the investment in the
Guarantor and elimination of intercompany accounts.
Condensed Balance Sheets
<TABLE>
December 31, 1998
---------------------------------------------------------
Parent Guarantor Consolidating Consolidated
Company Subsidiary Eliminations Total
----------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
Assets
Current assets
Cash, cash equivalents and restricted cash.............. $ 8,133 $ 142 $ -- $ 8,275
Other current assets.................................... 42,989 6,175 -- 49,164
Intercompany receivable................................. -- 11,895 (11,895) --
----------- ----------- ---------- ----------
Total current assets................................ 51,122 18,212 (11,895) 57,439
Property and equipment, net............................. 3,512 1,509 -- 5,021
Investment in subsidiary................................ 19,673 -- (19,673) --
Other assets, net....................................... 5,365 98 -- 5,463
----------- ----------- ---------- ----------
Total assets......................................... $ 79,672 $ 19,819 $ (31,568) $ 67,923
=========== =========== ========== ==========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Accounts payable and other current liabilities.......... $ 20,464 $ 4,603 $ -- $ 25,067
Intercompany payable.................................... 11,895 -- (11,895) --
Current portion of long-term debt....................... 3,400 -- -- 3,400
----------- ----------- ---------- ----------
Total current liabilities............................ 35,759 4,603 (11,895) 28,467
Long-term debt, less current portion....................... 52,432 -- -- 52,432
----------- ----------- ---------- ----------
Total liabilities.................................... 88,191 4,603 (11,895) 80,899
----------- ----------- ---------- ----------
Total shareholders' equity (deficit)................. (8,519) 15,216 19,673 (12,976)
----------- ----------- ---------- ----------
Total liabilities and shareholders' equity (deficit). $ 79,672 $ 19,819 $ (31,568) $ 67,923
=========== =========== ========== ==========
</TABLE>
F-22
<PAGE>
CONDOR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(in thousands, except per share amounts)
Condensed Balance Sheets (Continued)
<TABLE>
December 31, 1997
--------------------------------------------------
Parent Guarantor Consolidating Consolidated
Company Subsidiary Eliminations Total
------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents ............................. $ 397 $ 282 $ -- $ 679
Other current assets .................................. 41,203 9,113 -- 50,316
Intercompany receivable ............................... 3,047 4,024 (7,071) --
-------- -------- -------- --------
Total current assets .............................. 44,647 13,419 (7,071) 50,995
Property and equipment, net .............................. 3,753 1,137 -- 4,890
Investment in subsidiary ................................. 19,673 -- (19,673) --
Other assets, net ........................................ 5,920 2,943 -- 8,863
-------- -------- -------- --------
Total assets....................................... $ 73,993 $ 17,499 $(26,744) $ 64,748
======== ======== ======== ========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Accounts payable and other current liabilities ........ $ 16,681 $ 3,009 $ -- $ 19,690
Intercompany payable .................................. 7,071 -- (7,071) --
Current portion of long-term debt ..................... 6,220 -- -- 6,220
-------- -------- -------- --------
Total current liabilities .......................... 29,972 3,009 (7,071) 25,910
Long-term debt, less current portion ..................... 54,743 -- -- 54,743
-------- -------- -------- --------
Total liabilities .................................. 84,715 3,009 (7,071) 80,653
-------- -------- -------- --------
Total shareholders' equity (deficit) ............... (10,722) 14,490 (19,673) (15,905)
-------- -------- -------- --------
Total liabilities and shareholders' equity (deficit) $ 73,993 $ 17,499 $(26,744) $ 64,748
======== ======== ======== ========
</TABLE>
F-23
<PAGE>
CONDOR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(in thousands, except per share amounts)
Condensed Statements of Operations
<TABLE>
December 31, 1997
-----------------------------------------
Parent Guarantor Consolidated
Company Subsidiary Total
---------- ------------- -------------
<S> <C> <C> <C>
Contract revenues..................................................... $ 78,687 $ 22,355 $ 101,042
Contract costs........................................................ 48,490 13,170 61,660
Technology related costs:
Research and development........................................... 3,782 578 4,360
Amortization of purchased technology............................... -- 2,489 2,489
Selling, general and administrative................................... 15,436 4,905 20,341
Other charges:
Abandoned acquisitions costs....................................... 513 -- 513
--------- --------- --------
Operating income................................................ 10,466 1,213 11,679
Interest and other income............................................. 237 -- 237
Interest expense...................................................... (7,654) -- (7,654)
--------- --------- --------
Income before income taxes......................................... 3,049 1,213 4,262
Provision for income taxes............................................ 1,175 487 1,662
--------- --------- --------
Net income......................................................... $ 1,874 $ 726 $ 2,600
========= ========= ========
</TABLE>
<TABLE>
December 31, 1997
---------------------------------------
Parent Guarantor Consolidated
Company Subsidiary Total
------- ---------- ------------
<S> <C> <C> <C>
Contract revenues..................................................... $ 75,329 $ 4,301 $ 79,630
Contract costs........................................................ 50,336 2,807 53,143
Technology related costs:
Research and development........................................... 856 183 1,039
Amortization of purchased technology............................... -- 618 618
Write-off of in process technology................................. -- 8,421 8,421
Selling, general and administrative................................... 14,969 1,068 16,037
Other charges:
Abandoned acquisitions costs....................................... 185 -- 185
--------- --------- --------
Operating income (loss)......................................... 8,983 (8,796) 187
Interest and other income............................................. 94 -- 94
Interest expense...................................................... (5,688) -- (5,688)
--------- --------- --------
Income (loss) before income taxes.................................. 3,389 (8,796) (5,407)
Provision (benefit for) for income taxes.............................. 1,392 (3,613) (2,221)
--------- --------- --------
Net income (loss).................................................. $ 1,997 $ (5,183) $ (3,186)
========= ========== =========
</TABLE>
- -------------------
(1) For the period from October 1, 1997 (date of acquisition) to December 31,
1997.
F-24
<PAGE>
CONDOR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(in thousands, except per share amounts)
Condensed Statements of Cash Flows
<TABLE>
December 31, 1998
---------------------------------------
Parent Guarantor Consolidated
Company Subsidiary Total
------- ---------- ------------
<S> <C> <C> <C>
Net income............................................................ $ 1,874 $ 726 $ 2,600
Adjustments to reconcile net income to net cash provided by
operating activities............................................... 1,717 7,759 9,476
--------- --------- --------
Net cash provided by operating activities............................. 3,591 8,485 12,076
--------- --------- --------
Net cash provided by (used in) investing activities................... 6,123 (8,625) (2,502)
--------- --------- --------
Net cash used in financing activities................................. (5,953) -- (5,953)
--------- --------- --------
Net increase (decrease) in cash....................................... 3,761 (140) 3,621
Cash, beginning of year............................................... 397 282 679
--------- --------- --------
Cash, end of year..................................................... $ 4,158 $ 142 $ 4,300
========= ========= ========
</TABLE>
<TABLE>
December 31, 1997
---------------------------------------
Parent Guarantor Consolidated
Company Subsidiary Total
------- ---------- ------------
<S> <C> <C> <C>
Net income............................................................ $ 5,234 $ (8,420) $ (3,186)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities..................................... (3,882) 9,513 5,631
--------- --------- --------
Net cash provided by operating activities............................. 1,352 1,093 2,445
--------- --------- --------
Net cash used in investing activities................................. (20,604) (811) (21,415)
--------- --------- --------
Net cash provided by financing activities............................. 15,431 -- 15,431
--------- --------- --------
Net increase (decrease) in cash....................................... (3,821) 282 (3,539)
Cash, beginning of period............................................. 4,218 -- 4,218
--------- --------- --------
Cash, end of period................................................... $ 397 $ 282 $ 679
========= ========= ========
</TABLE>
- -------------------
(1) For the period from October 1, 1997 (date of acquisition) to December 31,
1997.
F-25
<PAGE>
================================================================================
Offer to Exchange
All Outstanding
11 7/8% Series A Senior Subordinated Notes due 2009
for
11 7/8% Series B Senior Subordinated Notes due 2009
Condor Systems, Inc.
-----------------------
PROSPECTUS
-----------------------
, 1999
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained
- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
[ALTERNATE FRONT COVER FOR MARKET-MAKING PROSPECTUS]
SUBJECT TO COMPLETION, DATED MAY __, 1999
Condor Systems, Inc.
$100,000,000
11 7/8% Senior Subordinated Notes due 2009
PROSPECTUS
- --------------------------------------------------------------------------------
<TABLE>
The Company: The Notes:
<S> <C> <C> <C>
o We are one of the world's leading o Interest Payments: semi-annually in
providers of technologically advanced cash in arrears on May 1 and
signal collection and specialized November 1, commencing on
electronic countermeasure products and November 1, 1999.
systems in the electronic warfare
industry. o Redemption: the senior subordinated
notes will be redeemable on or after
o Condor Systems, Inc. May 1, 2004. Up to 35% of the senior
2133 Samaritan Drive subordinated notes will be redeemable
San Jose, CA 95124 prior to May 1, 2002, with the net
(408) 371-9580 proceeds of a public equity offering.
o We were acquired in April 1999 by a o Ranking of Senior Subordinated Notes:
group of investors including DLJ general unsecured obligations, junior to
Merchant Banking Partners II, L.P. and senior obligations and secured
certain members of management. obligations, including any borrowings
and reimbursement obligations with
The Original Offering: respect to letters of credit under our
new credit facility.
o We issued the notes in _________,
1999, in an exchange offer registered The Guarantees:
under the Securities Act of 1933
pursuant to which the notes were o Guarantees: unconditionally
exchanged for otherwise identical notes guaranteed on a senior subordinated
originally issued in a private offering on basis by CEI Systems, Inc., our only
April 15, 1999. material subsidiary. The guarantees
will be general unsecured obligations
o We used the net proceeds of the private of CEI Systems, Inc.
offering, together with an equity
investment of $50.9 million, to fund the
acquisition, to repay existing
indebtedness and to pay fees and
expenses related to the acquisition. The
remaining net proceeds were used for
general corporate purposes and initially
were temporarily invested in short-term
securities.
</TABLE>
This investment involves risk. See Risk Factors beginning on page 14.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
This prospectus will be used by Donaldson, Lufkin & Jenrette Securities
Corporation in connection with offers and sales in market-making transactions at
negotiated prices related to prevailing market prices. There is currently no
public market for the notes. We do not intend to list the notes on any
securities exchange or to seek admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. Donaldson, Lufkin
& Jenrette Securities Corporation has advised us that it is currently making a
market in the notes; however, it is not obligated to do so and may stop at any
time. Donaldson, Lufkin & Jenrette Securities Corporation may act as principal
or agent in any such transaction. We will not receive the proceedsof the sale of
the notes but will bear the expenses of registration.
- -------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette
The date of this Prospectus is , 1999.
<PAGE>
[ALTERNATE SECTIONS FOR MARKET-MAKING PROSPECTUS]
No public trading market for the notes exists
There is no existing trading market for the notes, and we cannot assure you
about the future development of a market for the notes or your ability to sell
the notes or the price at which you may be able to sell your notes. If such
market were to develop, the notes could trade at prices that may be higher or
lower than the initial offering price of the notes depending on many factors,
including prevailing interest rates, our operating results and the market for
similar securities. Although it is not obligated to do so, Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJSC") intends to make a market in the notes.
Any such market-making activity may be discontinued at any time, for any reason,
without notice at the sole discretion of DLJSC. We do not intend to list the
notes on any securities exchange or to seek admission thereof to trading in the
National Association of Securities Dealers Automated Quotation System. No
assurance can be given as to the liquidity of or the trading market for the
notes.
DLJSC may be deemed to be our "affiliate" (as defined the Securities Act)
and, as such, may be required to deliver a prospectus in connection with its
market-making activities in the notes. Pursuant to the registration rights
agreement that we signed with DLJSC in connection with the initial sale of the
new notes, we have agreed to use our best efforts to file and maintain a
registration statement that would allow DLJSC to engage in market-making
transactions in the notes for a period ending no sooner than the date on which
DLJSC is no longer deemed to be such an "affiliate." We have agreed to bear
substantially all the costs and expenses related to registration.
USE OF PROCEEDS
This prospectus is delivered in connection with the sale of the notes by
DLJSC in market-making transactions. We will not receive any of the proceeds
from such transactions.
PLAN OF DISTRIBUTION
This prospectus is to be used by DLJSC in connection with offers and sales
of the new notes in market-making transactions effected from time to time. DLJSC
may act as a principal or agent in such transactions, including as agent for the
counterparty when acting as principal or as agent for both counterparties, and
may receive compensation in the form of discounts and commissions, including
from both counterparties when it acts as agent for both. Such sales will be made
at prevailing market prices at the time of sale, at prices related thereto or at
negotiated prices.
DLJ Merchant Banking, an affiliate of DLJSC, and certain of its affiliates
beneficially own approximately 52.9% of the common stock of Condor. DLJSC acted
as financial advisor to WDC Acquisition Corp., a predecessor to Condor in the
Acquisition, and as an initial purchaser of the old notes. WDC Acquisition Corp.
paid customary fees to DLJSC as compensation for its services as financial
advisor and initial purchaser. The aggregate amount of all fees paid to DLJSC in
connection with the Acquisition and the related financing was approximately $3.6
million plus out-of-pocket-expenses. Condor, as successor to WDC Acquisition
Corp., has agreed to engage DLJSC as its exclusive financial advisor for a
period of five years beginning upon the closing of the Merger. Condor and its
subsidiaries may from time to time enter into financial advisory or other
investment banking relationships with DLJSC or one of its affiliates pursuant to
which DLJSC or its affiliates will receive customary fees and will be entitled
to reimbursement for all reasonable disbursements and out-of-pocket expenses
incurred in connection therewith. Condor expects that any such arrangement will
include provisions for the indemnification of DLJSC against certain liabilities,
including liabilities under the federal securities laws. See "Certain
Relationships and Related Party Transactions."
<PAGE>
DLJSC has informed Condor that it does not intend to confirm sales of the
new notes to any accounts over which it exercises discretionary authority
without the prior specific written approval of such transactions by the
customer.
Condor has been advised by DLJSC that, subject to applicable laws and
regulations, DLJSC currently intends to make a market in the new notes following
completion of the exchange offer. However, DLJSC is not obligated to do so and
any such market-making may be interrupted or discontinued at any time without
notice. In addition, such market-making activity will be subject to the limits
imposed by the Securities Act and the Exchange Act. There can be no assurance
that an active trading market will develop or be sustained. See "Risk
Factors--No public market for the new notes exists."
DLJSC and Condor have entered into the Registration Rights Agreement with
respect to the use by DLJSC of this prospectus. Pursuant to such agreement,
Condor agreed to bear all registration expenses incurred under such agreement,
and Condor agreed to indemnify DLJSC against certain liabilities, including
liabilities under the Securities Act.
<PAGE>
[BACK COVER FOR MARKET-MAKING PROSPECTUS]
================================================================================
11 7/8% Series B Senior Subordinated Notes due 2009
Condor Systems, Inc.
-----------------------
PROSPECTUS
-----------------------
Donaldson, Lufkin & Jenrette
, 1999
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of the company
have not changed since the date hereof.
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all estimated expenses incurred or
expected to be incurred by the Registrants in connection with the issuance and
distribution of the securities being registered hereby, other than underwriting
discounts and commissions.
Item Amount
- ----- --------
SEC Registration Fee................................................... 27,800
Printing and Engraving Costs........................................... *
Trustee Fees........................................................... *
Legal Fees and Expenses................................................ *
Accounting Fees and Expenses........................................... *
Miscellaneous.......................................................... *
------
Total............................................................... *
======
- -------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 204 of the General Corporation Law of the State of California
("California Law") authorizes a corporation to adopt a provision in its articles
of incorporation eliminating the personal liability of directors to corporation
and their shareholders for monetary damages for breach of alleged breach of
directors' duties. Following the adoption of such a provision by a California
corporation, its directors are not liable to corporations and their shareholders
for monetary damages for conduct constituting negligence or gross negligence in
the exercise of their fiduciary duties, but directors remain subject to
equitable remedies such as injunction or rescission. Under California Law,
directors remain liable, even for monetary damages, for (1) acts or omissions
not in good faith or involving intentional misconduct, knowing violations of the
law, reckless disregard for the best interests of a corporation or its
shareholders or that constitute such a pattern of inattention that there is an
abdication of the director's duty, (2) illegal payments of dividends and (3)
approval of any transaction from which a director derives an improper personal
benefit. The adoption of this provision in the articles of incorporation also
does not limit directors' liability for violations of the federal securities
laws.
Section 317 of California Law makes provision for the indemnification of
officers, directors and other corporate agents in terms sufficiently broad to
indemnify such persons, under certain circumstances, for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended. Indemnification under Section 317 is not exclusive of other
indemnifications authorized in a corporation's articles of incorporation.
Condor has adopted provisions in its Articles of Incorporation which
eliminate the personal liability of its directors to the fullest extent
permissible under California Law and indemnify its officers, directors and other
agents to the fullest extent permissible under California Law.
Condor provides insurance from commercial carriers against certain
liabilities incurred by the directors and officers of Condor.
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In November 1996, the Registrant consummated a recapitalization and
merger. In connection with the 1996 recapitalization, the Registrant sold 11
million shares of Series A preferred stock and 6 million shares of Class A
common stock and 45 million shares of Class B common stock in a private
placement in reliance on Section 4(2) under the Securities Act, to Behrman
Capital L.P. and its affiliates, an employee savings plan and certain existing
shareholders for approximately $26.0 million. In connection with the
recapitalization, the Registrant also granted the lenders under the Note and
Warrant Purchase Agreement dated as of November 15, 1996 among Condor, Nomura
Holding America Inc., Antares Leveraged Capital Corp. and First Union Bank of
Connecticut warrants to purchase 19,149 shares of Class B common stock. On
April 1999, the Registrant consummated a recapitalization and merger. In
connection with the 1999 recapitalization, the Registrant (a) sold 26,277,709
shares of common stock in a private consummated as part of the Acquisition
placement in reliance on Section 4(2) under the Securities Act, to DLJ Merchant
Banking Partners II, L.P. and its affiliates, (b) repurchased all of its Series
A preferred stock, some of its Class A common stock, outstanding warrants to
purchase its Class B common stock, and (c) converted its remaining Class A
common stock and Class B common stock into common stock. On April 15, 1999, the
Registrant sold $100,000,000 in aggregate principal amount of its 11 7/8% notes
due 2009 (the "old notes") to Donaldson, Lufkin & Jenrette Securities
Corporation and NationsBanc Montgomery Securities LLC (the "initial
purchasers") in a private placement in reliance on Section 4(2) under the
Securities Act, at an offering price of $970 per $1,000 principal amount at
maturity. The old notes were immediately resold by the initial purchasers in
transactions not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
Exhibit
Number
-------
1.1* Registration Rights Agreement, dated as of April 15, 1999,
between Condor and Donaldson, Lufkin & Jenrette Securities
Corporation and NationsBanc Montgomery Securities LLC, as Initial
Purchasers.
2.1* Agreement and Plan of Merger, dated as of March 8, 1999, among
Condor, WDC Acquisition Corp. and certain Condor shareholders
listed therein.
2.2* Equity Commitment Letter, dated as of March 8, 1999, among the
DLJMB Investors (as defined therein), the Behrman Investors (as
defined therein), the GTP Investors (as defined therein), WDC
Acquisition Corp. and WDC Stock Acquisition Corp.
2.3* Stock Purchase and Consent Agreement, dated as of March 8, 1999,
among Condor, WDC Stock Acquisition Corp. and certain Condor
shareholders named therein.
2.4* ESOP Stock Purchase Agreement, dated as of March 8, 1999, among
Condor, WDC Stock Acquisition Corp. and Wells Fargo Bank, N.A.,
as Trustee under the Condor Employee Stock ownership Trust.
3.1.1* Certificate of Incorporation of Condor Systems, Inc.
3.1.2* By laws of Condor Systems, Inc.
3.1.3* Certificate of Incorporation of CEI Systems, Inc.
3.1.4* By laws of CEI Systems, Inc.
4.1* Investors' Agreement, dated as of April 15, 1999, among
Condor and the shareholders named therein.
4.2* Indenture, dated as of April 15, 1999 among Condor, CEI Systems,
Inc. and the Trustee.
4.3* Form of new note (included in Exhibit 4.2)
5.1* Opinion of Davis Polk & Wardwell with respect to the new notes.
10.2.1* Employment Agreement of Robert E. Young II
10.2.2* Employment Agreement of John L. Barnum
10.2.3* Employment Agreement of Vernon A. Dale
10.2.4* Employment Agreement of David J. Klingler
<PAGE>
10.2.5* Employment Agreement of Thomas A. Michalski
10.2.6* Employment Agreement of Gary M. Viljoen
10.3* Credit Agreement, dates as of April 15, 1999, among Condor
and a syndicate of banks and other financial institutions led
by Bank of America National Trust and Savings Association, as
Administrative Agent.
10.5* Purchase Agreement between Condor and Donaldson, Lufkin &
Jenrette Securities Corporation and NationsBanc Montgomery
Securities LLC, as Initial Purchasers.
12.1* Computation of Ratio of Earnings to Fixed Charges
21.1* Subsidiaries of Condor
23.1* Consent of Davis Polk & Wardwell (contained in their opinion
filed as Exhibit 5.1).
23.2* Consent of PricewaterhouseCoopers LLP.
24.1* Power of Attorney (Included in Part II of this Registration
Statement under the caption "Signatures").
25.1* Statement of Eligibility of State Street Bank and Trust
Company on Form T-1.
27.1* Financial Data Schedule for Condor Systems, Inc.
27.2* Financial Data Schedule for CEI Systems, Inc.
99.1** Form of Letter of Transmittal
99.2** Form of Notice of Guaranteed Delivery
99.3** Form of Letter to Clients
99.4** Form of Letter to Nominees
99.5** Form of Instructions to Registered Holder and/or Book-Entry
Transfer Participant from Owner
- -------------------
* Filed herewith
** To be filed by amendment
(b) Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts.
Schedules not listed above have been omitted because the
information required to be set forth therein is not applicable or
is shown on the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of
the Registration Statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the Registration
Statement.
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
<PAGE>
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions
described in Item 510 of Regulation S-K, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Jose, State of California, on May
20, 1999.
CONDOR SYSTEMS, INC.
By: /s/ GARY M. VILJOEN
-----------------------
Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gary M. Viljoen as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign the Registration Statement filed herewith and any
and all amendments to said Registration Statement (including post-effective
amendments and related registration statements (or amendments thereto) filed
pursuant to Rule 462 promulgated under the Securities Act of 1933), and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming that all said
attorneys-in-fact and agents, or their substitute or substitutes may lawfully do
or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ ROBERT E. YOUNG II President and Chief Executive Officer May 20, 1999
- --------------------------------------- (Principal Executive Officer)
Robert E. Young II
/s/ GARY M. VILJOEN Chief Financial Officer (Principal May 20, 1999
- --------------------------------------- Financial Officer)
Gary M. Viljoen
/s/ JOHN L. TAFT Vice President, Finance and
- --------------------------------------- Administration (Principal Accounting May 20, 1999
John L. Taft Officer)
/s/ DR. ROBERT J. HERMANN Director May 20, 1999
- ---------------------------------------
Dr. Robert J. Hermann
/s/ DR. PAUL G. KAMINSKI Director May 20, 1999
- ---------------------------------------
Dr. Paul G. Kaminski
/s/ WILLIAM M. MATTHES Director May 20, 1999
- ---------------------------------------
William M. Matthes
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Jose, State of California, on May
20, 1999.
CEI SYSTEMS, INC.
By: /s/ GARY M. VILJOEN
----------------------
Secretary
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gary M. Viljoen as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign the Registration Statement filed herewith and any
and all amendments to said Registration Statement (including post-effective
amendments and related registration statements (or amendments thereto) filed
pursuant to Rule 462 promulgated under the Securities Act of 1933), and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming that all said
attorneys-in-fact and agents, or their substitute or substitutes may lawfully do
or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
behalf of the Co-Registrant and in the capacities and on the dates indicated.
<TABLE>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ ROBERT E. YOUNG II President and Director (Principal May 20, 1999
- --------------------------------------- Executive Officer)
Robert E. Young II
/s/ GARY M. VILJOEN Secretary (Principal Financial Officer) May 20, 1999
- ---------------------------------------
Gary M. Viljoen
/s/ JOHN L. TAFT Vice President (Principal Accounting
- --------------------------------------- Officer) May 20, 1999
John L. Taft
</TABLE>
<PAGE>
Index to Exhibits
Exhibit
Number Description
------- -----------
1.1* Registration Rights Agreement, dated as of April 15, 1999,
between Condor and Donaldson, Lufkin & Jenrette Securities
Corporation and NationsBanc Montgomery Securities LLC, as Initial
Purchasers.
2.1* Agreement and Plan of Merger, dated as of March 8, 1999, among
Condor, WDC Acquisition Corp. and certain Condor shareholders
listed therein.
2.2* Equity Commitment Letter, dated as of March 8, 1999, among the
DLJMB Investors (as defined therein), the Behrman Investors (as
defined therein), the GTP Investors (as defined therein), WDC
Acquisition Corp. and WDC Stock Acquisition Corp.
2.3* Stock Purchase and Consent Agreement, dated as of March 8, 1999,
among Condor, WDC Stock Acquisition Corp. and certain Condor
shareholders named therein.
2.4* ESOP Stock Purchase Agreement, dated as of March 8, 1999, among
Condor, WDC Stock Acquisition Corp. and Wells Fargo Bank, N.A.,
as Trustee under the Condor Employee Stock ownership Trust.
3.1.1* Certificate of Incorporation of Condor Systems, Inc.
3.1.2* By laws of Condor Systems, Inc.
3.1.3* Certificate of Incorporation of CEI Systems, Inc.
3.1.4* By laws of CEI Systems, Inc.
4.1* Investors' Agreement, dated as of April 15, 1999, among
Condor and the shareholders named therein.
4.2* Indenture, dated as of April 15, 1999 among Condor, CEI Systems,
Inc. and the Trustee.
4.3* Form of new note (included in Exhibit 4.2)
5.1* Opinion of Davis Polk & Wardwell with respect to the new notes.
10.2.1* Employment Agreement of Robert E. Young II
10.2.2* Employment Agreement of John L. Barnum
10.2.3* Employment Agreement of Vernon A. Dale
10.2.4* Employment Agreement of David J. Klingler
10.2.5* Employment Agreement of Thomas A. Michalski
10.2.6* Employment Agreement of Gary M. Viljoen
10.3* Credit Agreement, dates as of April 15, 1999, among Condor
and a syndicate of banks and other financial institutions led
by Bank of America National Trust and Savings Association, as
Administrative Agent.
10.5* Purchase Agreement between Condor and Donaldson, Lufkin &
Jenrette Securities Corporation and NationsBanc Montgomery
Securities LLC, as Initial Purchasers.
12.1* Computation of Ratio of Earnings to Fixed Charges
21.1* Subsidiaries of Condor
23.1* Consent of Davis Polk & Wardwell (contained in their opinion
filed as Exhibit 5.1).
23.2* Consent of PricewaterhouseCoopers LLP.
24.1* Power of Attorney (Included in Part II of this Registration
Statement under the caption "Signatures").
25.1* Statement of Eligibility of State Street Bank and Trust
Company on Form T-1.
27.1* Financial Data Schedule for Condor Systems, Inc.
27.2* Financial Data Schedule for CEI Systems, Inc.
99.1** Form of Letter of Transmittal
99.2** Form of Notice of Guaranteed Delivery
99.3** Form of Letter to Clients
99.4** Form of Letter to Nominees
99.5** Form of Instructions to Registered Holder and/or Book-Entry
Transfer Participant from Owner
- -------------------
* Filed herewith
** To be filed by amendment
Exhibit 1.1
A/B EXCHANGE
REGISTRATION RIGHTS AGREEMENT
Dated as of April 15, 1999
by and among
CONDOR SYSTEMS, INC.
CEI SYSTEMS, INC.
and
Donaldson Lufkin & Jenrette Securities Corporation
and
NationsBanc Montgomery Securities LLC
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
entered into as of April 15, 1999, by and among Condor Systems, Inc., a
California corporation (the "Company"), CEI Systems, Inc., a Delaware
corporation (the "Guarantor"), Donaldson Lufkin & Jenrette Securities
Corporation and NationsBanc Montgomery Securities LLC (each an "Initial
Purchaser" and, collectively, the "Initial Purchasers"), each of whom has agreed
to purchase the Company's 11 7/8% Series A Senior Subordinated Notes due 2009
(the "Series A Notes") pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated April
8, 1999 (the "Purchase Agreement"), among the Company, the Guarantor and the
Initial Purchasers. In order to induce the Initial Purchasers to purchase the
Series A Notes, the Company has agreed to provide the registration rights set
forth in this Agreement. The execution and delivery of this Agreement is a
condition to the obligations of the Initial Purchasers set forth in Section 3 of
the Purchase Agreement. Capitalized terms used herein and not otherwise defined
shall have the meaning assigned to them in the Indenture, dated April 15, 1999,
among the Company, the Guarantor and State Street Bank and Trust Company, as
Trustee, relating to the Series A Notes and the Series B Notes (the
"Indenture").
The parties hereby agree as follows:
Section 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
Affiliate: As defined in Rule 144 of the Act.
Affiliated Market Maker: A Broker-Dealer who is (or that, in the
reasonable judgment of such Broker-Dealer or its counsel, may be) (i) deemed to
be an Affiliate of the Company or (ii) otherwise required to deliver a
prospectus in connection with sales or market-making activities involving
securities of the Company.
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
Business Day: Any day other than a Saturday, a Sunday or a day on which
banking institutions in the City of New York are authorized by law, regulation
or executive order to remain closed.
Certificated Securities: Definitive Notes, as defined in the Indenture.
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement effective continuously
and the keeping of the Exchange Offer open for a period not less than the period
required pursuant to Section 3(b) hereof and (c) the delivery by the Company to
the Registrar under the Indenture of Series B Notes in the same aggregate
principal amount as the aggregate principal amount of Series A Notes tendered by
Holders thereof pursuant to the Exchange Offer.
<PAGE>
Consummation Date: The date on which the Exchange Offer is consummated.
Consummation Deadline: As defined in Section 3(b) hereof.
Effectiveness Deadline: As defined in Section 3(a) and 4(a) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The exchange and issuance by the Company of a principal
amount of Series B Notes (which shall be registered pursuant to the Exchange
Offer Registration Statement) equal to the outstanding principal amount of
Series A Notes that are tendered by such Holders in connection with such
exchange and issuance.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers
propose to sell the Series A Notes to certain "qualified institutional buyers,"
as such term is defined in Rule 144A under the Act and pursuant to Regulation S
under the Act.
Filing Trigger Date: As defined in Section 4(a) hereof.
Filing Deadline: As defined in Sections 3(a) and 4(a) hereof.
Holders: As defined in Section 2 hereof.
Prospectus: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such prospectus.
Recommencement Date: As defined in Section 6(d) hereof.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company and
the Guarantor relating to (a) an offering of Series B Notes pursuant to an
Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, in each case, (i) that
is filed pursuant to the provisions of this Agreement and (ii) including the
Prospectus included therein, all amendments and supplements to such registration
statement (including post-effective amendments) and all exhibits and material
incorporated by reference therein.
Regulation S: Regulation S promulgated under the Act.
Rule 144: Rule 144 promulgated under the Act.
Series B Notes: The Company's 11 7/8% Series B Senior Notes due 2009 to
be issued pursuant to the Indenture: (i) in the Exchange Offer or (ii) as
contemplated by Section 6(b) hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
Suspension Notice: As defined in Section 6(d) hereof.
2
<PAGE>
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
Transfer Restricted Securities: Each (i) Series A Note, until the
earliest to occur of (a) the date on which such Series A Note is exchanged in
the Exchange Offer for a Series B Note which is entitled to be resold to the
public by the Holder thereof without complying with the prospectus delivery
requirements of the Act, (b) the date on which such Series A Note has been
disposed of in accordance with a Shelf Registration Statement (and the
purchasers thereof have been issued Series B Notes), and (c) the date on which
such Series A Note is distributed to the public pursuant to Rule 144 under the
Act (and purchasers thereof have been issued Series B Notes) and (ii) Series B
Note issued to a Broker-Dealer until the date on which such Series B Note is
disposed of by such Broker-Dealer pursuant to the "Plan of Distribution"
contemplated by the Exchange Offer Registration Statement (including the
delivery of the Prospectus contained therein).
Section 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person is the holder of record of Transfer
Restricted Securities.
Section 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company and the Guarantor shall (i) cause the Exchange Offer
Registration Statement to be filed with the Commission as soon as practicable
after the Closing Date, but in no event later than 90 days after the Closing
Date (such 90th day being the "Filing Deadline"), (ii) use their reasonable best
efforts to cause such Exchange Offer Registration Statement to become effective
at the earliest possible time, but in no event later than 180 days after the
Closing Date (such 180th day being the "Effectiveness Deadline"), (iii) in
connection with the foregoing, (A) file all pre-effective amendments to such
Exchange Offer Registration Statement as may be necessary in order to cause it
to become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Act and
(C) cause all necessary filings, if any, in connection with the registration and
qualification of the Series B Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer, and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and, within the time period contemplated by Section 3(b) hereof,
Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate
form permitting (i) registration of the Series B Notes to be offered in exchange
for the Series A Notes that are Transfer Restricted Securities and (ii) resales
of Series B Notes by Broker-Dealers that tendered into the Exchange Offer Series
A Notes that such Broker-Dealer acquired for its own account as a result of
market-making activities or other trading activities (other than Series A Notes
acquired directly from the Company or any of its Affiliates) as contemplated by
Section 3(c) below.
(b) The Company and the Guarantor shall use their respective reasonable
best efforts to cause the Exchange Offer Registration Statement to be effective
continuously, and shall keep the Exchange Offer open for a period of not less
than the minimum period required under applicable federal and state securities
laws to Consummate the Exchange Offer; provided, however, that in no event shall
such period be less than 20 Business Days. The Company and the Guarantor shall
cause the Exchange Offer to comply with all applicable federal and state
securities laws. No securities other than the Series B Notes shall be included
in the Exchange Offer Registration Statement. The Company and the Guarantor
shall use their reasonable best efforts to cause the Exchange Offer to be
Consummated within 30 Business
3
<PAGE>
Days after the Exchange Offer Registration Statement has become effective, but
in no event later than 40 Business Days thereafter (such 40th day being the
"Consummation Deadline").
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Securities that
were acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any Affiliate of the Company), may exchange such
Transfer Restricted Securities pursuant to the Exchange Offer. Such "Plan of
Distribution" section shall also contain all other information with respect to
such sales by such Broker-Dealers that the Commission may require in order to
permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Transfer Restricted
Securities held by any such Broker-Dealer, except to the extent required by the
Commission.
Because such Broker-Dealer may be deemed to be an "underwriter" within
the meaning of the Act and must, therefore, deliver a prospectus meeting the
requirements of the Act in connection with its initial sale of any Series B
Notes received by such Broker-Dealer in the Exchange Offer, the Company and the
Guarantor shall permit the use of the Prospectus contained in the Exchange Offer
Registration Statement by such Broker-Dealer to satisfy such prospectus delivery
requirement for a period of 90 days following the Consummation Date. To the
extent necessary to ensure that the Prospectus contained in the Exchange Offer
Registration Statement is available for sales of Series B Notes by
Broker-Dealers, the Company and the Guarantor agree to use their respective best
efforts to keep the Exchange Offer Registration Statement continuously
effective, supplemented, amended and current as required by and subject to the
provisions of Section 6(a) and (c) hereof and in conformity with the
requirements of this Agreement, the Act and the policies, rules and regulations
of the Commission as announced from time to time, for a period of 90 days from
the Consummation Deadline or such shorter period as will terminate when no
Transfer Restricted Securities are outstanding. The Company and the Guarantor
shall provide sufficient copies of the latest version of such Prospectus to such
Broker-Dealers, promptly upon request, at any time during such period.
Section 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not permitted by
applicable law (after the Company and the Guarantor have complied with the
procedures set forth in Section 6(a)(i) below) or (ii) if any Holder shall
notify the Company within 20 Business Days following the consummation of the
Exchange Offer that (A) based on an opinion of counsel, such Holder was
prohibited by law or Commission policy from participating in the Exchange Offer
or (B) such Holder is a Broker-Dealer and holds Series A Notes acquired directly
from the Company or any of its Affiliates, then the Company and the Guarantor
shall:
(x) cause to be filed, on or prior to the date (the "Filing
Deadline") that is 90 days after the date (the "Filing Trigger Date")
that is the earlier of (i) the date on which the Company determines
that the Exchange Offer Registration Statement cannot be filed as a
result of Section 4(a)(i) above and (ii) the date on which the Company
receives the notice specified in Section 4(a)(ii) above, a shelf
registration statement pursuant to Rule 415 under the Act (which may be
an amendment to the Exchange Offer Registration Statement) (the "Shelf
Registration Statement"), relating to all Transfer Restricted
Securities, and
(y) shall use their respective reasonable best efforts to
cause such Shelf Registration Statement to become effective on or prior
to 180 days after the Filing Trigger Date for the Shelf Registration
Statement (such 180th day the "Effectiveness Deadline").
4
<PAGE>
If, after the Company has filed an Exchange Offer Registration
Statement that satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer is not permitted under applicable federal law (i.e.,
Section 4(a)(i) above), then the filing of the Exchange Offer Registration
Statement shall be deemed to satisfy the requirements of clause (x) above;
provided that, in such event, the Company shall remain obligated to meet the
Effectiveness Deadline set forth in clause (y).
To the extent necessary to ensure that the Shelf Registration Statement
is available for sales of Transfer Restricted Securities by the Holders thereof
entitled to the benefit of this Section 4(a) and the other securities required
to be registered therein pursuant to Section 6(b)(ii) hereof, the Company and
the Guarantor shall use their respective best efforts to keep any Shelf
Registration Statement required by this Section 4(a) continuously effective,
supplemented, amended and current as required by and subject to the provisions
of Sections 6(b) and (c) hereof and in conformity with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, until the later of (a) the date on which each of
the Initial Purchasers is no longer deemed to be an Affiliate of the Company,
and (b) the earlier of the second anniversary of the Closing Date (as such date
may be extended pursuant to Section 6(d) hereof) and such earlier date when no
Transfer Restricted Securities covered by such Shelf Registration Statement
remain outstanding
(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder may include any of its Transfer
Restricted Securities in any Shelf Registration Statement pursuant to this
Agreement unless and until such Holder furnishes to the Company in writing,
within 20 days after receipt of a request therefor, the information specified in
Item 507 or 508 of Regulation S-K, as applicable, of the Act for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. No Holder shall be entitled to liquidated damages
pursuant to Section 5 hereof unless and until such Holder shall have provided
all such information. Each selling Holder agrees to promptly furnish additional
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
(c) Expiration of Rights. Holders that do not give the written notice
within the 20 Business Day period set forth in Section 4(a) hereof, if required
to be given, will no longer have any registration rights pursuant to this
Section 4 and will not be entitled to any liquidated damages pursuant to Section
5 hereof in respect of the Company's and the Guarantor's obligations with
respect to the Shelf Registration Statement. Notwithstanding the foregoing, no
Affiliate of the Company shall be required to give such written notice or
deliver an opinion in order to maintain its registration rights pursuant to this
Section 4.
Section 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the applicable Filing Deadline, (ii)
any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated on or prior to the Consummation Deadline
or (iv) any Registration Statement required by this Agreement is filed and
declared effective but shall thereafter cease to be effective or fail to be
usable in connection with resales of Transfer Restricted Securities during the
respective periods specified in Section 3 or Section 4, as applicable, without
being succeeded immediately by a post-effective amendment to such Registration
Statement that cures such failure and that is itself declared effective with 10
Business Days of filing such post-effective amendment to such Registration
Statement (each such event referred to in clauses (i) through (iv), a
"Registration Default"), then the Company and the Guarantor hereby jointly and
severally agree to pay to each Holder affected thereby liquidated damages in an
amount equal to $.05 per week per $1,000 in principal amount of Transfer
Restricted Securities held by such Holder for each week or portion thereof that
the Registration Default continues
5
<PAGE>
for the first 90-day period immediately following the occurrence of such
Registration Default. The amount of the liquidated damages shall increase by an
additional $.05 per week per $1,000 in principal amount of Transfer Restricted
Securities with respect to each subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum amount of liquidated damages of $.25
per week per $1,000 in principal amount of Transfer Restricted Securities;
provided that the Company and the Guarantor shall in no event be required to pay
liquidated damages for more than one Registration Default at any given time.
Notwithstanding anything to the contrary set forth herein, (1) upon filing of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (i) above, (2) upon the effectiveness of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (ii) above, (3) upon Consummation of the
Exchange Offer, in the case of (iii) above, or (4) upon the filing of a
post-effective amendment to the Registration Statement or an additional
Registration Statement that causes the Exchange Offer Registration Statement
(and/or, if applicable, the Shelf Registration Statement) to again be declared
effective or made usable in the case of (iv) above, or (5) if sooner, upon the
first date on which no Transfer Restricted Securities remain outstanding, in the
case of clauses (i) through (iv) above, the liquidated damages payable with
respect to the Transfer Restricted Securities as a result of such clause (i),
(ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. Notwithstanding the fact that any securities for which liquidated damages
are due cease to be Transfer Restricted Securities, all obligations of the
Company and the Guarantor to pay liquidated damages with respect to securities
that accrued prior to the time such securities ceased to be Transfer Restricted
Securities shall survive until such time as such obligations with respect to
such securities shall have been satisfied in full.
Section 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company and the Guarantor shall (x) comply with all
applicable provisions of Section 6(c) below, (y) use their respective best
efforts to effect such exchange and to permit the resale of Series B Notes by
Broker-Dealers that tendered in the Exchange Offer Series A Notes that such
Broker-Dealer acquired for its own account as a result of its market-making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its Affiliates) being sold in accordance
with the intended method or methods of distribution thereof, and (z) comply with
all of the following provisions:
(i) If, following the date hereof there has been announced a change
in Commission policy with respect to exchange offers, such as the
Exchange Offer, that in the reasonable opinion of counsel to the Company
raises a substantial question as to whether the Exchange Offer is
permitted by applicable federal law, the Company and the Guarantor
hereby agree to seek a no-action letter or other favorable decision from
the Commission allowing the Company and the Guarantor to Consummate an
Exchange Offer for such Transfer Restricted Securities. The Company and
the Guarantor hereby agree to use its reasonable best efforts in
pursuing the issuance of such a decision to the Commission staff level.
(ii) As a condition to its participation in the Exchange Offer, each
Holder (including, without limitation, any Holder who is a Broker
Dealer) shall furnish, upon the request of the Company, prior to the
Consummation of the Exchange Offer, a written representation to the
Company and the Guarantor (which may be contained in the letter of
transmittal contemplated by the Exchange Offer Registration Statement)
to the effect that, at the time of Consummation of the Exchange Offer,
(A) any Series B Notes received by such Holder will be acquired in the
ordinary course of its business, (B) such Holder will have no
arrangement or understanding with any
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person to participate in the distribution of the Series A Notes or the
Series B Notes within the meaning of the Act, (C) if the Holder is not a
Broker-Dealer or is a Broker-Dealer but will not receive Series B Notes
for its own account in exchange for Series A Notes, neither the Holder
nor any such other Person is engaged in or intends to participate in a
distribution of the Series B Notes, and (D) that such Holder is not an
Affiliate of the Company. If the Holder is a Broker-Dealer that will
receive Series B Notes for its own account in exchange for Series A
Notes, it will represent that the Series A Notes to be exchanged for the
Series B Notes were acquired by it as a result of market-making
activities or other trading activities, and will acknowledge that it
will deliver a prospectus meeting the requirements of the Act in
connection with any resale of such Series B Notes. It is understood
that, by acknowledging that it will deliver, and by delivering, a
prospectus meeting the requirements of the Act in connection with any
resale of such Series B Notes, the Holder is not admitting that it is an
"underwriter" within the meaning of the Act.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and the Guarantor shall provide a supplemental
letter to the Commission (A) stating that the Company and the Guarantor
are registering the Exchange Offer in reliance on the position of the
Commission enunciated in Exxon Capital Holdings Corporation (available
May 13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991) as
interpreted in the Commission's letter to Shearman & Sterling dated July
2, 1993, and, if applicable, any no-action letter obtained pursuant to
clause (i) above, (B) including a representation that neither the
Company nor the Guarantor has entered into any arrangement or
understanding with any Person to distribute the Series B Notes to be
received in the Exchange Offer and that, to the best of the Company's
and the Guarantor's information and belief, each Holder participating in
the Exchange Offer is acquiring the Series B Notes in its ordinary
course of business and has no arrangement or understanding with any
Person to participate in the distribution of the Series B Notes received
in the Exchange Offer and (C) any other undertaking or representation
required by the Commission as set forth in any no-action letter obtained
pursuant to clause (i) above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company and the Guarantor shall:
(i) comply with all the provisions of Section 6(c) below and use its
best efforts to effect such registration to permit the sale of the
Transfer Restricted Securities being sold in accordance with the
intended method or methods of distribution thereof (as indicated in the
information furnished to the Company pursuant to Section 4(b) hereof),
and pursuant thereto the Company and the Guarantor will prepare and file
with the Commission a Registration Statement relating to the
registration on any appropriate form under the Act, which form shall be
available for the sale of the Transfer Restricted Securities in
accordance with the intended method or methods of distribution thereof
within the time periods and otherwise in accordance with the provisions
hereof, and
(ii) issue, upon the request of any Holder or purchaser of Series A
Notes covered by any Shelf Registration Statement contemplated by this
Agreement, Series B Notes having an aggregate principal amount equal to
the aggregate principal amount of Series A Notes sold pursuant to the
Shelf Registration Statement and surrendered to the Company for
cancellation; the Company shall register Series B Notes on the Shelf
Registration Statement for this purpose and issue the Series B Notes to
the purchaser(s) of securities subject to the Shelf Registration
Statement in the names as such purchaser(s) shall designate.
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(c) General Provisions. In connection with any Registration Statement
and any related Prospectus required by this Agreement, the Company and the
Guarantorshall:
(i) use their respective reasonable best efforts to keep such
Registration Statement continuously effective and provide all requisite
financial statements for the period specified in Section 3 or 4 of this
Agreement, as applicable. Upon the occurrence of any event that would
cause any such Registration Statement or the Prospectus contained
therein (A) to contain an untrue statement of material fact or omit to
state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading or
(B) not to be effective and usable for resale of Transfer Restricted
Securities during the period required by this Agreement, the Company and
the Guarantor shall file promptly an appropriate amendment to such
Registration Statement or a supplement to the Prospectus, as applicable,
curing such defect, and, if Commission review is required, use their
respective best efforts to cause such amendment to be declared effective
as soon as practicable.
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as
may be necessary to keep such Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, as the case may
be; cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424
under the Act, and to comply fully with Rules 424, 430A and 462, as
applicable, under the Act in a timely manner; and comply with the
provisions of the Act with respect to the disposition of all securities
covered by such Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the
sellers thereof set forth in such Registration Statement or supplement
to the Prospectus;
(iii) advise each Holder whose Transfer Restricted Securities have
been included in a Shelf Registration Statement (in the case of the
Shelf Registration Statement) and each Affiliated Market Maker promptly
and, if requested by such Person, confirm such advice in writing, (A)
when the Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to any applicable
Registration Statement or any post-effective amendment thereto, when the
same has become effective, (B) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements to
the Prospectus or for additional information relating thereto, (C) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Act or of the
suspension by any state securities commission of the qualification of
the Transfer Restricted Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for any of the
preceding purposes, (D) of the existence of any fact or the happening of
any event that makes any statement of a material fact made in the
Registration Statement, the Prospectus, any amendment or supplement
thereto or any document incorporated by reference therein untrue, or
that requires the making of any additions to or changes in the
Registration Statement in order to make the statements therein not
misleading, or that requires the making of any additions to or changes
in the Prospectus in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. If at
any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities
commission or other regulatory authority shall issue an order suspending
the qualification or exemption from qualification of the Transfer
Restricted Securities under state securities or Blue Sky laws, the
Company and the Guarantor shall use their respective best efforts to
obtain the withdrawal or lifting of such order at the earliest possible
time;
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(iv) subject to Section 6(c)(i), if any fact or event contemplated
by Section 6(c)(iii)(D) above shall exist or have occurred, prepare a
supplement or post-effective amendment to the Registration Statement or
related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(v) furnish to each Holder whose Transfer Restricted Securities have
been included in a Shelf Registration Statement (in the case of the
Shelf Registration Statement) and each Affiliated Market Maker in
connection with such sale, if any, before filing with the Commission,
copies of any Registration Statement or any Prospectus included therein
or any amendments or supplements to any such Registration Statement or
Prospectus (including all documents incorporated by reference after the
initial filing of such Registration Statement), which documents will be
subject to the review and comment of such Persons, if any, for a period
of at least five Business Days, and the Company will not file any such
Registration Statement or Prospectus or any amendment or supplement to
any such Registration Statement or Prospectus (including all such
documents incorporated by reference) to which such Persons shall
reasonably object within five Business Days after the receipt thereof.
Such Persons shall be deemed to have reasonably objected to such filing
if such Registration Statement, amendment, Prospectus or supplement, as
applicable, as proposed to be filed, contains an untrue statement of a
material fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, or fails to comply with the applicable
requirements of the Act;
(vi) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to each Holder whose Transfer Restricted
Securities have been included in a Shelf Registration Statement (in the
case of the Shelf Registration Statement) and each Affiliated Market
Maker in connection with such exchange or sale, if any, make the
Company's and the Guarantor's representatives available for discussion
of such document and other customary due diligence matters, and include
such information in such document prior to the filing thereof as such
Persons may reasonably request;
(vii) make available, at reasonable times, for inspection by each
Holder whose Transfer Restricted Securities have been included in a
Shelf Registration Statement (in the case of the Shelf Registration
Statement) and each Affiliated Market Maker and any attorney or
accountant retained by such Persons, all financial and other records,
pertinent corporate documents of the Company and the Guarantor and cause
the Company's and the Guarantor's officers, directors and employees to
supply all information reasonably requested by any such Persons,
attorney or accountant in connection with such Registration Statement or
any post-effective amendment thereto subsequent to the filing thereof
and prior to its effectiveness;
(viii) if requested by any Holder whose Transfer Restricted
Securities have been included in a Shelf Registration Statement (in the
case of the Shelf Registration Statement) or any Affiliated Market
Maker, promptly include in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such Persons may reasonably request to have included
therein, including, without limitation, information relating to the
"Plan of Distribution" of the Transfer Restricted Securities and the use
of the Registration Statement or Prospectus for market-making
activities; and make all required filings of such Prospectus supplement
or post-effective amendment as soon as practicable after the Company is
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<PAGE>
notified of the matters to be included in such Prospectus supplement or
post-effective amendment;
(ix) furnish to each Holder whose Transfer Restricted Securities
have been included in a Shelf Registration Statement (in the case of the
Shelf Registration Statement) in connection with such exchange or sale
and each Affiliated Market Maker, without charge, at least one copy of
the Registration Statement, as first filed with the Commission, and of
each amendment thereto, including all documents incorporated by
reference therein and all exhibits (including exhibits incorporated
therein by reference);
(x) deliver to each Holder whose Transfer Restricted Securities have
been included in a Shelf Registration Statement (in the case of the
Shelf Registration Statement) and each Affiliated Market Maker, without
charge, as many copies of the Prospectus (including each preliminary
prospectus) and any amendment or supplement thereto as such Persons
reasonably may request; the Company and the Guarantor hereby consent to
the use (in accordance with law and subject to Section 6(d) hereof) of
the Prospectus and any amendment or supplement thereto by each selling
Person in connection with the offering and the sale of the Transfer
Restricted Securities covered by the Prospectus or any amendment or
supplement thereto and all market-making activities of such Affiliated
Market Maker, as the case may be;
(xi) upon the request of any Holder, in the light of the
circumstances under which they were made, or either Initial Purchaser,
enter into such agreements (including underwriting agreements) and make
such representations and warranties and take all such other actions in
connection therewith in order to expedite or facilitate the disposition
of the Transfer Restricted Securities pursuant to any applicable
Registration Statement contemplated by this Agreement as may be
reasonably requested by any Holder in connection with any sale or resale
pursuant to any applicable Registration Statement. In such connection,
and also in connection with market-making activities by any Affiliated
Market Maker, the Company and the Guarantor shall:
(A) upon request of any Person, furnish (or in the case of
paragraphs (2) and (3), use its reasonable best efforts to cause to
be furnished) to each Person, upon Consummation of the Exchange
Offer or upon the effectiveness of the Shelf Registration Statement,
as the case may be:
(1) a certificate, dated such date, signed on behalf of the
Company and the Guarantor by (x) the president or any vice
president and (y) a principal financial or accounting officer of
the Company and the Guarantor, confirming, as of the date
thereof, the matters set forth in Sections 6(dd), 9(a) and 9(b)
of the Purchase Agreement and such other similar matters as such
Person may reasonably request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for the
Company and the Guarantor covering matters similar to those set
forth in Sections 9(e), (f) and (g) of the Purchase Agreement
and such other matter as such Person may reasonably request, and
in any event including a statement to the effect that such
counsel has participated in conferences with officers and other
representatives of the Company and the Guarantor,
representatives of the independent public accountants for the
Company and the Guarantor and have considered the matters
required to be stated therein and the statements contained
therein, although such counsel has not independently
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verified the accuracy, completeness or fairness of such
statements; and that such counsel advises that, on the basis of
the foregoing, no facts came to such counsel's attention that
caused such counsel to believe that the applicable Registration
Statement, at the time such Registration Statement or any
post-effective amendment thereto became effective and, in the
case of the Exchange Offer Registration Statement, as of the
date of Consummation of the Exchange Offer, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus
contained in such Registration Statement as of its date and, in
the case of the opinion dated the date of Consummation of the
Exchange Offer, as of the date of Consummation, contained an
untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made,
not misleading. Without limiting the foregoing, such counsel may
state further that such counsel assumes no responsibility for,
and has not independently verified, the accuracy, completeness
or fairness of the financial statements, notes and schedules and
other financial data included in any Registration Statement
contemplated by this Agreement or the related Prospectus; and
(3) a customary comfort letter, dated the date of
Consummation of the Exchange Offer, or as of the date of
effectiveness of the Shelf Registration Statement, as the case
may be, from the Company's independent accountants, in the
customary form and covering matters of the type customarily
covered in comfort letters to underwriters in connection with
underwritten offerings, and affirming the matters set forth in
the comfort letters delivered pursuant to Section 9(j) of the
Purchase Agreement; and
(B) deliver such other documents and certificates as may be
reasonably requested by such Persons to evidence compliance with the
matters covered in clause (A) above and with any customary
conditions contained in the any agreement entered into by the
Company and the Guarantor pursuant to this clause (xi);
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders and their counsel in
connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders may request and do any and all
other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Transfer Restricted Securities covered by the
applicable Registration Statement; provided, however, that neither the
Company nor the Guarantor shall be required to register or qualify as a
foreign corporation where it is not now so qualified or to take any
action that would subject it to the service of process in suits or to
taxation, other than as to matters and transactions relating to the
Registration Statement, in any jurisdiction where it is not now so
subject;
(xiii) in connection with any sale of Transfer Restricted Securities
that will result in such securities no longer being Transfer Restricted
Securities, cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Transfer
Restricted Securities to be sold and not bearing any restrictive
legends; and to register such Transfer Restricted Securities in such
denominations and such names as the selling Holders may request at least
two Business Days prior to such sale of Transfer Restricted Securities;
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<PAGE>
(xiv) use their respective reasonable best efforts to cause the
disposition of the Transfer Restricted Securities covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof to consummate the disposition of such Transfer
Restricted Securities, subject to the proviso contained in clause (xii)
above;
(xv) provide a CUSIP number for all Transfer Restricted Securities
not later than the effective date of a Registration Statement covering
such Transfer Restricted Securities and provide the Trustee under the
Indenture with printed certificates for the Transfer Restricted
Securities which are in a form eligible for deposit with The Depository
Trust Company;
(xvi) otherwise use their respective reasonable best efforts to
comply with all applicable rules and regulations of the Commission, and
make generally available to its security holders with regard to any
applicable Registration Statement, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158
under the Act (which need not be audited) covering a twelve-month period
beginning after the effective date of the Registration Statement (as
such term is defined in paragraph (c) of Rule 158 under the Act);
(xvii) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement and, in connection therewith, cooperate with the Trustee
and the Holders to effect such changes to the Indenture as may be
required for such Indenture to be so qualified in accordance with the
terms of the TIA; and execute and use its best efforts to cause the
Trustee to execute, all documents that may be required to effect such
changes and all other forms and documents required to be filed with the
Commission to enable such Indenture to be so qualified in a timely
manner; and
(xviii) provide promptly to each Holder and Affiliated Market Maker,
upon request, each document filed with the Commission pursuant to the
requirements of Section 13 or Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security and each Affiliated Market Maker agrees that, upon
receipt of the notice referred to in Section 6(c)(iii)(C) or any notice from the
Company of the existence of any fact of the kind described in Section
6(c)(iii)(D) hereof (in each case, a "Suspension Notice"), such Person will
forthwith discontinue disposition of Transfer Restricted Securities pursuant to
the applicable Registration Statement until (i) such Person has received copies
of the supplemented or amended Prospectus contemplated by Section 6(c)(iv)
hereof, or (ii) such Person is advised in writing by the Company that the use of
the Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus (in
each case, the "Recommencement Date"). Each Person receiving a Suspension Notice
hereby agrees that it will either (i) destroy any Prospectuses, other than
permanent file copies, then in such Person's possession which have been replaced
by the Company with more recently dated Prospectuses or (ii) deliver to the
Company (at the Company's expense) all copies, other than permanent file copies,
then in such Person's possession of the Prospectus covering such Transfer
Restricted Securities that was current at the time of receipt of the Suspension
Notice. The time period regarding the effectiveness of such Registration
Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended
by a number of days equal to the number of days in the period from and including
the date of delivery of the Suspension Notice to the Recommencement Date.
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Section 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the Guarantor's
performance of or compliance with this Agreement will be borne by the Company,
regardless of whether a Registration Statement becomes effective, including
without limitation: (i) all registration and filing fees and expenses; (ii) all
fees and expenses of compliance with federal securities and state Blue Sky or
securities laws; (iii) all expenses of printing (including printing certificates
for the Series B Notes to be issued in the Exchange Offer and printing of
Prospectuses whether for exchanges, sales, market-making or otherwise),
messenger and delivery services and telephone; (iv) all fees and disbursements
of counsel for the Company and the Guarantor; (v) all application and filing
fees in connection with listing the Series B Notes on a national securities
exchange or automated quotation system pursuant to the requirements hereof; and
(vi) all fees and disbursements of independent certified public accountants of
the Company and the Guarantor (including the expenses of any special audit and
comfort letters required by or incident to such performance).
The Company will, in any event, bear its and the Guarantor's internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Guarantor.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Guarantor
will reimburse the Initial Purchasers and the Holders who are tendering Series A
Notes into in the Exchange Offer and/or selling or reselling Series A Notes or
Series B Notes pursuant to the "Plan of Distribution" contained in the Exchange
Offer Registration Statement or the Shelf Registration Statement, as applicable,
for the reasonable fees and disbursements of not more than one counsel, who
shall be Weil, Gotshal & Manges LLP, unless another firm shall be chosen by the
Holders of a majority in principal amount of the Transfer Restricted Securities
for whose benefit such Registration Statement is being prepared.
Section 8. INDEMNIFICATION
(a) The Company and the Guarantor, jointly and severally, agree to
indemnify and hold harmless each Holder, its directors, officers and each
Person, if any, who controls such Holder (within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act), from and against any and all losses,
claims, damages, liabilities, judgments, (including without limitation, any
legal or other expenses incurred in connection with investigating or defending
any matter, including any action that could give rise to any such losses,
claims, damages, liabilities or judgments) caused by any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement, preliminary prospectus or Prospectus (or any amendment or supplement
thereto) provided by the Company to any Holder or any prospective purchaser of
Series B Notes or registered Series A Notes, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or judgments are caused by an untrue
statement or omission or alleged untrue statement or omission that is based upon
information relating to any of the Holders furnished in writing to the Company
by any of the Holders.
(b) Each Holder agrees, severally and not jointly, to indemnify and hold
harmless the Company and the Guarantor and its directors and officers, and each
person, if any, who controls (within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act) the Company or the Guarantor , to the same
extent as the foregoing indemnity from the Company and the Guarantor set forth
in Section 8(a) above, but only with reference to information relating to such
Holder furnished in writing to the Company
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by such Holder expressly for use in any Registration Statement. In no event
shall any Holder, its directors, officers or any Person who controls such Holder
be liable or responsible for any amount in excess of the amount by which the
total amount received by such Holder with respect to its sale of Transfer
Restricted Securities pursuant to a Registration Statement exceeds (i) the
amount paid by such Holder for such Transfer Restricted Securities and (ii) the
amount of any damages that such Holder, its directors, officers or any Person
who controls such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying person") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), a Holder shall not be required to assume the
defense of such action pursuant to this Section 8(c), but may employ separate
counsel and participate in the defense thereof, but the fees and expenses of
such counsel, except as provided below, shall be at the expense of the Holder).
Any indemnified party shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the indemnifying party, (ii) the indemnifying party shall have failed to assume
the defense of such action or employ counsel reasonably satisfactory to the
indemnified party or (iii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all indemnified parties and all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by a majority of the
Holders, in the case of the parties indemnified pursuant to Section 8(a), and by
the Company and the Guarantor, in the case of parties indemnified pursuant to
Section 8(b). The indemnifying party shall indemnify and hold harmless the
indemnified party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action (i) effected
with its written consent or (ii) effected without its written consent if the
settlement is entered into more than 20 Business Days after the indemnifying
party shall have received a request from the indemnified party for reimbursement
for the fees and expenses of counsel (in any case where such fees and expenses
are at the expense of the indemnifying party) and, prior to the date of such
settlement, the indemnifying party shall have failed to comply with such
reimbursement request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this Section
8 is unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
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amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Guarantor, on the one hand, and the Holders, on the other hand, from their sale
of Transfer Restricted Securities or (ii) if the allocation provided by clause
8(d)(i) is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause 8(d)(i) above
but also the relative fault of the Company and the Guarantor, on the one hand,
and of the Holder, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The relative
fault of the Company and the Guarantor, on the one hand, and of the Holder, on
the other hand, shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company and the Guarantor, on the one hand, or by the Holder, on the other hand,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages, liabilities and
judgments referred to above shall be deemed to include, subject to the
limitations set forth in the second paragraph of Section 8(a), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any matter, including any action that could have
given rise to such losses, claims, damages, liabilities or judgments.
The Company, the Guarantor and each Holder agree that it would not be
just and equitable if contribution pursuant to this Section 8(d) were determined
by pro rata allocation (even if the Holders were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 8, no Holder, its directors, its
officers or any Person, if any, who controls such Holder shall be required to
contribute, in the aggregate, any amount in excess of the amount by which the
total received by such Holder with respect to the sale of Transfer Restricted
Securities pursuant to a Registration Statement exceeds (i) the amount paid by
such Holder for such Transfer Restricted Securities and (ii) the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Holders' obligations to contribute
pursuant to this Section 8(d) are several in proportion to the respective
principal amount of Transfer Restricted Securities held by each Holder hereunder
and not joint.
(e) The Company and the Guarantor agree that the indemnity and
contribution provisions of this Section 8 shall apply to Affiliated Market
Makers to the same extent, on the same conditions, as it applies to Holders.
Section 9. RULE 144A and RULE 144
The Company and the Guarantor agree with each Holder, for so long as
any Transfer Restricted Securities remain outstanding and during any period in
which the Company or the Guarantor (i) is not subject to Section 13 or 15(d) of
the Exchange Act, to make available, upon request of any Holder, to such Holder
or beneficial owner of Transfer Restricted Securities in connection with any
sale thereof and any prospective purchaser of such Transfer Restricted
Securities designated by such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to
Section 13 or 15 (d) of the Exchange Act, to make all filings required thereby
in a timely manner in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144.
15
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Section 10. MISCELLANEOUS
(a) Remedies. The Company and the Guarantor acknowledge and agree that
any failure by the Company or the Guarantor to comply with its obligations under
Sections 3 and 4 hereof may result in material irreparable injury to the Initial
Purchasers or the Holders or Affiliated Market Makers for which there is no
adequate remedy at law, that it will not be possible to measure damages for such
injuries precisely and that, in the event of any such failure, the Initial
Purchasers or any Holder or Affiliated Market Makers may obtain such relief as
may be required to specifically enforce the Company's and the Guarantor's
obligations under Sections 3 and 4 hereof. The Company and the Guarantor further
agree to waive the defense in any action for specific performance that a remedy
at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor the Guarantor,
will, on or after the date of this Agreement, enter into any agreement with
respect to its securities that is inconsistent with the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions hereof.
Neither the Company nor the Guarantor has entered into any agreement on or prior
to the date hereof granting any registration rights with respect to its
securities to any Person, except for that certain Investors' Agreement dated
April 15, 1999, among the Company and certain Persons named therein who own
common stock of the Company. The rights granted to the Holders hereunder do not
in any way conflict with and are not inconsistent with the rights granted to the
holders of the Company's and the Guarantor's securities under any agreement
entered into on or prior to the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(c)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the rights
of Holders whose Transfer Restricted Securities are being tendered pursuant to
the Exchange Offer, and that does not affect directly or indirectly the rights
of other Holders whose Transfer Restricted Securities are not being tendered
pursuant to such Exchange Offer, may be given by the Holders of a majority of
the outstanding principal amount of Transfer Restricted Securities subject to
such Exchange Offer.
(d) Third Party Beneficiary. The Holders and Affiliated Market Makers
shall be third party beneficiaries to the agreements made hereunder between the
Company and the Guarantor, on the one hand, and the Initial Purchasers, on the
other hand, and shall have the right to enforce such agreements directly to the
extent they may deem such enforcement necessary or advisable to protect its
rights or the rights of Holders and Affiliated Market Makers hereunder.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
16
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(ii) if to the Company or the Guarantor:
Condor Systems, Inc.
2133 Samaritan Drive
San Jose, California 95124
Telecopier No.: (408) 371-5874
Attention: Chief Financial Officer
With a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10012
Telecopier No. (212) 450-4000
Attention: Richard D. Truesdell, Jr., Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next Business Day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
Upon the date of filing of the Exchange Offer or a Shelf Registration
Statement, as the case may be, notice shall be delivered to Donaldson, Lufkin &
Jenrette Securities Corporation, on behalf of the Initial Purchasers (in the
form attached hereto as Exhibit A) and shall be addressed to: Attention: Louise
Guarneri (Compliance Department), 277 Park Avenue, New York, New York 10172.
(f) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders; provided, that nothing herein shall be deemed to permit any
assignment, transfer or other disposition of Transfer Restricted Securities in
violation of the terms hereof or of the Purchase Agreement or the Indenture. If
any transferee of any Holder shall acquire Transfer Restricted Securities in any
manner, whether by operation of law or otherwise, such Transfer Restricted
Securities shall be held subject to all of the terms of this Agreement, and by
taking and holding such Transfer Restricted Securities such Person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement, including the restrictions on resale set
forth in this Agreement and, if applicable, the Purchase Agreement, and such
Person shall be entitled to receive the benefits hereof.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
17
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(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
(l) Compliance with Form S-3. The Company agrees for the benefit of any
Affiliated Market Makers that for so long as any of the Transfer Restricted
Securities remain outstanding, if at any time sales by the Affiliated Market
Makers of the Transfer Restricted Securities will satisfy clauses 1 or 3 of the
"Transaction Requirements" specified in Form S-3 (or any comparable provision of
any successor form to Form S-3), the Company will use its reasonable best
efforts to comply with, and maintain its compliance with, the "Registrant
Requirements" of Form S-3 (or any comparable provision of any successor form to
Form S-3).
18
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
CONDOR SYSTEMS, INC.
By: /s/ Gary M. Viljoen
---------------------------------------
Name: Gary M. Viljoen
---------------------------------
Title: Chief Financial Officer
--------------------------------
CEI SYSTEMS, INC.
By: /s/ Gary M. Viljoen
---------------------------------------
Name: Gary M. Viljoen
---------------------------------
Title: Chief Financial Officer
--------------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Joseph A. Samluk, Jr.
---------------------------------------
Name: Joseph A. Samluk, Jr.
---------------------------------
Title: Vice President
--------------------------------
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ Jan A. Schipper
---------------------------------------
Name: Jan A. Schipper
---------------------------------
Title: Vice President
--------------------------------
19
<PAGE>
EXHIBIT A
NOTICE OF FILING OF
A/B EXCHANGE OFFER REGISTRATION STATEMENT
To: Donaldson, Lufkin & Jenrette Securities Corporation
NationsBanc Montgomery Securities LLC
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Attention: Louise Guarneri (Compliance Department)
Fax: (212) 892-7272
From: Condor Systems, Inc.
11 7/8% Senior Subordinated Notes due 2009
Date: ____________, ____
For your information only (NO ACTION REQUIRED):
Today, ______, _____, we filed an A/B Exchange Registration Statement/
Shelf Registration Statement with the Securities and Exchange Commission.
Exhibit 2.1
================================================================================
AGREEMENT AND PLAN OF MERGER
dated as of March 8, 1999
among
CONDOR SYSTEMS, INC.,
WDC ACQUISITION CORP.
and
the SHAREHOLDERS
(as defined herein)
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS.......................................................2
SECTION 1.01. CERTAIN DEFINED TERMS..................................2
SECTION 1.02. OTHER DEFINED TERMS....................................8
ARTICLE II. PURCHASE AND MERGER..............................................9
SECTION 2.01. THE INVESTMENT.........................................9
SECTION 2.02. THE PURCHASE..........................................10
SECTION 2.03. THE MERGER............................................10
SECTION 2.04. EFFECTIVE TIME OF THE MERGER..........................10
SECTION 2.05. CLOSING...............................................10
SECTION 2.06. EFFECT OF THE MERGER..................................11
SECTION 2.07. ARTICLES OF INCORPORATION AND BYLAWS OF
THE SURVIVING CORPORATION.........................11
SECTION 2.08. DIRECTORS AND OFFICERS OF THE
SURVIVING CORPORATION.............................11
SECTION 2.09. CONVERSION OF SECURITIES..............................11
SECTION 2.10. EXCHANGE OF CERTIFICATES..............................13
SECTION 2.11. STOCK TRANSFER BOOKS..................................15
SECTION 2.12. COMPANY OPTIONS.......................................16
SECTION 2.13. [RESERVED]............................................16
SECTION 2.14. INCENTIVE PAYMENT.....................................16
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................17
SECTION 3.01. AUTHORITY OF THE COMPANY..............................17
SECTION 3.02. INCORPORATION AND QUALIFICATION OF THE COMPANY
AND THE COMPANY SUBSIDIARIES......................18
SECTION 3.03. CAPITAL STOCK OF THE COMPANY..........................18
SECTION 3.04. SUBSIDIARIES..........................................19
SECTION 3.05. NO CONFLICT...........................................19
SECTION 3.06. FINANCIAL STATEMENTS..................................20
SECTION 3.07. LABOR MATTERS.........................................20
SECTION 3.08. ABSENCE OF CERTAIN CHANGES OR EVENTS..................20
SECTION 3.09. ABSENCE OF LITIGATION.................................22
SECTION 3.10. COMPLIANCE WITH LAWS..................................22
SECTION 3.11. CONSENTS, APPROVALS, LICENSES. ETC....................23
SECTION 3.12. INTELLECTUAL PROPERTY.................................23
SECTION 3.13. REAL PROPERTY.........................................26
SECTION 3.14. EMPLOYEE BENEFIT MATTERS..............................26
SECTION 3.15. TAXES.................................................27
SECTION 3.16. CERTAIN CONTRACTS.....................................28
SECTION 3.17. GOVERNMENT CONTRACT MATTERS...........................30
SECTION 3.18. UNDISCLOSED LIABILITIES...............................33
SECTION 3.19. TRANSACTIONS WITH AFFILIATES..........................33
SECTION 3.20. INSURANCE.............................................33
SECTION 3.21. BROKERS...............................................33
SECTION 3.22. ENVIRONMENTAL MATTERS.................................33
SECTION 3.23. SMALL BUSINESS........................................34
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS..............34
SECTION 4.01. EXISTENCE AND POWER; OWNERSHIP........................34
SECTION 4.02. AUTHORIZATION.........................................35
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SECTION 4.03. NONCONTRAVENTION......................................35
SECTION 4.04. TRANSACTION; BROKERS..................................35
ARTICLE V. [INTENTIONALLY LEFT BLANK].......................................35
ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF MERGER SUB....................36
SECTION 6.01. INCORPORATION AND AUTHORITY OF MERGER SUB.............36
SECTION 6.02. CAPITAL STOCK OF MERGER SUB...........................36
SECTION 6.03. MERGER SUB LIABILITIES AND ASSETS.....................36
SECTION 6.04. NO CONFLICT...........................................36
SECTION 6.05. CONSENTS AND APPROVALS................................37
SECTION 6.06. ABSENCE OF LITIGATION.................................37
SECTION 6.07. FINANCING.............................................37
SECTION 6.08. BROKERS...............................................38
ARTICLE VII. ADDITIONAL AGREEMENTS..........................................38
SECTION 7.01. CONDUCT OF BUSINESS PRIOR TO THE CLOSING..............38
SECTION 7.02. MERGER SUB ACTION PRIOR TO THE CLOSING................40
SECTION 7.03. ACCESS TO INFORMATION.................................40
SECTION 7.04. CONFIDENTIALITY.......................................41
SECTION 7.05. EFFORTS; CONSENTS; REGULATORY AND OTHER
AUTHORIZATIONS; FINANCING;
SHAREHOLDER APPROVAL..............................41
SECTION 7.06. FURTHER ACTION........................................42
SECTION 7.07. NO SOLICITATION.......................................43
SECTION 7.08. NOTIFICATION OF CERTAIN MATTERS.......................43
SECTION 7.09. INDEMNIFICATION OF OFFICERS AND DIRECTORS.............43
SECTION 7.10. REPAYMENT OF SENIOR DEBT AND NOTES; PAYMENT
FOR TERMINATION OF WARRANTS;
PAYMENT OF BEHRMAN CAPITAL FEE....................44
SECTION 7.11. BOOKS AND RECORDS.....................................44
SECTION 7.12. NEW OPTION PLAN.......................................44
SECTION 7.13. VOTING; TERMINATION OF REGISTRATION RIGHTS............44
SECTION 7.14. COMPANY ESOP..........................................45
ARTICLE VIII. [RESERVED].....................................................45
ARTICLE IX. CONDITIONS TO CLOSING...........................................46
SECTION 9.01. CONDITIONS TO OBLIGATIONS OF THE COMPANY..............46
SECTION 9.02. CONDITIONS TO OBLIGATIONS OF MERGER SUB...............47
ARTICLE X. TERMINATION, AMENDMENT AND WAIVER................................49
SECTION 10.01. TERMINATION..........................................49
SECTION 10.02. EFFECT OF TERMINATION................................50
ARTICLE XI. GENERAL PROVISIONS..............................................50
SECTION 11.01. NONSURVIVAL OF REPRESENTATIONS,
WARRANTIES AND AGREEMENTS........................50
SECTION 11.02. EXPENSES.............................................50
SECTION 11.03. NOTICES..............................................51
SECTION 11.04. PUBLIC ANNOUNCEMENTS.................................51
SECTION 11.05. INTERPRETATION.......................................52
SECTION 11.06. SEVERABILITY.........................................52
SECTION 11.07. ENTIRE AGREEMENT.....................................52
SECTION 11.08. ASSIGNMENT...........................................52
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<PAGE>
SECTION 11.09. NO THIRD PARTY BENEFICIARIES.........................53
SECTION 11.10. WAIVERS AND AMENDMENTS...............................53
SECTION 11.11. EQUITABLE REMEDIES...................................53
SECTION 11.12. GOVERNING LAW; CONSENT TO JURISDICTION...............53
SECTION 11.13. WAIVER OF JURY TRIAL.................................54
SECTION 11.14. EXCLUSIVITY OF REPRESENTATIONS AND WARRANTIES........54
SECTION 11.15. COSTS AND ATTORNEYS' FEES............................54
SECTION 11.16. COUNTERPARTS.........................................55
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of March 8, 1999, among
Condor Systems, Inc., a California corporation (the "Company"), WDC Acquisition
Corp., a California corporation ("Merger Sub"), and solely for purposes of
Article IV and Sections 7.07 and 7.13, Behrman Capital, L.P., a Delaware limited
partnership, Behrman Capital "B" L.P., a Delaware limited partnership, and
Strategic Entrepreneur Fund, L.P., a Delaware limited partnership (collectively,
the "Behrman Funds"), and Robert E. Young II, John L. Barnum, Vernon A. Dale,
David J. Klingler, Thomas A. Michalski and Gary M. Viljoen (collectively, the
"Management"). Each of the Behrman Funds and each member of Management is
individually referred to herein as a "Shareholder," and collectively they are
referred to as the "Shareholders."
W I T N E S S E T H:
WHEREAS, the Directors of the Company have unanimously
determined that, upon the terms and subject to the conditions set forth in this
Agreement, the Merger and the other transactions contemplated hereby are fair to
and in the best interests of the Company and its shareholders.
WHEREAS, the Boards of Directors of the Company and Merger Sub
have each approved and adopted this Agreement and approved the Merger and the
other transactions contemplated hereby.
WHEREAS, the Behrman Funds collectively own 11,000,000 shares
of Series A Preferred Stock, par value $.001 per share, of the Company (the
"Series A Preferred Stock"), which shares constitute all issued and outstanding
shares of Series A Preferred Stock, and 527,287 shares of Class A Common Stock,
par value $.001 per share, of the Company (the "Class A Common Stock"), the
Company ESOP owns 3,371,837 shares of Class A Common Stock and Management owns
beneficially an aggregate of 1,708,385 shares of Class A Common Stock and
29,200,000 shares of Class B Common Stock, par value $.001 per share, of the
Company (the "Class B Common Stock").
WHEREAS, in a stock purchase agreement dated as of the date
hereof (the "ESOP Stock Purchase Agreement"), the Trustee of the Company ESOP
has agreed to sell all of the shares of Class A Common Stock held by the Company
ESOP to WDC Stock Acquisition Corp., a California corporation ("Other Sub").
WHEREAS, in a Stock Purchase and Consent Agreement dated as of
the date hereof (the "Stock Purchase and Consent Agreement" and, together with
the ESOP Stock Purchase Agreement, the "Stock Purchase Agreements"),
shareholders of the Company holding all of the Class B Common Stock and certain
shares of the Class A Common Stock have agreed to sell certain of their shares
of Company Stock to Other Sub.
WHEREAS, prior to the Merger, Other Sub will assign the Stock
Purchase Agreements to certain of the DLJ Entities, and, after completing the
Purchase, such DLJ Entities will consent, as holders of a majority of Class A
Common Stock, to the Merger and the other transactions contemplated hereby.
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WHEREAS, the holders of all of the outstanding shares of
Series A Preferred Stock and Class B Common Stock have, in the Stock Purchase
and Consent Agreement, given their written consent to this Agreement and the
transactions contemplated hereby.
WHEREAS, the Warrant Holders have agreed to terminate their
warrants to purchase 19,148,940 shares of Class B Common Stock pursuant to the
Warrant Termination Agreements.
WHEREAS, the Investors have executed an equity commitment
letter dated as of the date hereof with Merger Sub pursuant to which they will
complete the Investment.
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements and covenants hereinafter set forth, the Company and Merger
Sub and the Shareholders (solely for purposes of Article IV and Sections 7.07
and 7.13), agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms have the following meanings:
"Action" means any claim, action, suit or proceeding, arbitral
action, governmental inquiry, criminal prosecution or other investigation as to
which written notice has been provided to the applicable party.
"Affiliate" means, when used with respect to a specified
Person, another Person that either directly or indirectly through one or more,
intermediaries, controls or is controlled by or is under common control with the
Person specified.
"Agreement" means this Agreement and Plan of Merger, by and
among the Company, Merger Sub and the Shareholders (including the Schedules and
Exhibits hereto) and all amendments hereto made in accordance with Section
11.10.
"Balance Sheet" means the audited consolidated balance sheet
of the Company and the Company Subsidiaries as of the Balance Sheet Date,
together with related notes thereon.
"Balance Sheet Date" means December 31, 1998.
"Business" means the business of the Company and the Company
Subsidiaries, as conducted on the date hereof, including the business of
providing tactical electronic intelligence and electronic support measures
products and systems.
"Business Day" means any day that is not a Saturday, a Sunday
or other day on which banks are required or authorized by law to be closed in
the State of California or New York.
2
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"CGCL" means the General Corporation Law of the State
of California.
"Class A Cash Consideration" means $4.57785979.
"Class B Cash Consideration" means $0.15922254.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock, par value $.001 per
share, of the Surviving Corporation, consisting of the following three classes:
non-voting common stock, supervoting common stock and one-vote common stock, as
more specifically set forth in the Restated Articles.
"Company ESOP" means the Company's Employee Stock Ownership
Plan and Trust.
"Company Financial Statements" means audited consolidated
financial statements of the Company and its consolidated Subsidiaries for the
twelve months ended the Balance Sheet Date, December 31, 1997, December 31, 1996
and December 31, 1995.
"Company Knowledge" means the actual knowledge of the members
of Management.
"Company Options" means options to purchase Class B Common
Stock granted pursuant to the 1997 Stock Option and Restricted Share Plan of the
Company.
"Company Parent" means a Person for which the Company is a
Subsidiary; provided, however, that none of (i) the Investors (ii) any permitted
transferee (as defined in the Shareholders' Agreement) of any Investor, or (iii)
any Person for which any Investor or permitted transferee is a Subsidiary shall
be deemed a Company Parent.
"Company Stock" means the Class A Common Stock, the Class B
Common Stock and the Series A Preferred Stock.
"Company Subsidiaries" means the Subsidiaries of the Company
(each of which is individually referred to as a "Company Subsidiary").
"Confidentiality Agreement(s)" means the letter agreement
between the Company and Bowles Hollowell Conner & Co. dated as of November 12,
1998 and the letter agreement between the Company and DLJ Merchant Banking II,
Inc. dated as of November 4, 1998.
"Contract" means any contract, agreement, indenture, note,
bond, loan, instrument, lease, conditional sales contract, mortgage, license,
franchise agreement, insurance policy, binding commitment or other agreement,
whether written or oral.
3
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"Disclosure Schedule" means the Disclosure Schedule dated as
of the date of this Agreement delivered to Merger Sub by the Company and to the
Company by Merger Sub, as applicable.
"DLJ Entities" means DLJ Merchant Banking Partners II, L.P.,
DLJ Merchant Banking Partners II-A, L.P., DLJ Offshore Partners II, C.V., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJMB Funding II,
Inc., DLJ Millennium Partners, L.P., DLJ Millennium Partners-A, L.P., DLJ EAB
Partners, L.P., UK Investment Plan 1997 Partners, DLJ ESC II, L.P., and DLJ
First ESC L.P.
"DLJSC" means Donaldson, Lufkin & Jenrette Securities
Corporation.
"Encumbrance" means any security interest, pledge, mortgage,
lien, charge, adverse claim of ownership or use, or other encumbrance of any
kind.
"Enterprise Value" means the value of a business which is the
subject of an Acquisition, determined based upon (i) the aggregate consideration
paid by a Company Entity for (A) the equity of a business acquired in a stock
purchase or (B) the net assets of a business acquired in an asset purchase, plus
(ii) the net debt assumed, refinanced, repaid or remaining on the balance sheet
after the Acquisition, provided that if less than a majority of the equity is
acquired, only a pro rata amount of the debt will be included. For these
purposes, the aggregate consideration paid will include, without any
duplication, the following: (Y) in a transaction in which a Company Entity
issues securities as consideration, the fair market value on the date of the
closing of the Acquisition (the "Acquisition Closing Date") of all securities
issued by a Company Entity, including for those businesses where a majority of
the equity of the business is acquired, the fair market value of any "stub"
equity retained by the minority shareholders of such business; and (Z) the
amount of any other form of consideration paid (but only when and to the extent
actually received by the sellers) including, without limitation, payments
pursuant to the terms of any employment, consulting or noncompetition agreements
(to the extent the same represent purchase price), any consideration initially
held in escrow, payments which are contingent upon the performance of a Company
Entity and the amount of any dividends or distributions paid to the holders of
the Company's capital securities after the Acquisition Closing Date, other than
usual recurring cash dividends.
"Environmental Law" means any Law pertaining to land use, air,
soil, surface water, groundwater (including the protection, cleanup, removal,
remediation or damage thereof), public or employee health or safety or any other
environmental matter as in effect on the date of Closing, including the
following laws: (a) Clean Air Act (42 U.S.C. ss.7401, et seq.); (b) Clean Water
Act (33 U.S.C. ss.1251, et seq.); (c) Resource Conservation and Recovery Act (42
U.S.C. ss.6901, et seq.); (d) Comprehensive Environmental Resource Compensation
and Liability Act (42 U.S.C. ss.9601, et seq.); (e) Safe Drinking Water Act (42
U.S.C. ss.300f, et seq.); (f) Toxic Substances Control Act (15 U.S.C. ss.2601,
et seq.); (g) Rivers and Harbors Act (33 U.S.C. ss.401, et seq.); (h) Endangered
Species Act (16 U.S.C. ss.1531, et seq.); and (i) Occupational Safety and Health
Act (29 U.S.C. ss.651, et seq.); together with any other foreign or domestic
Laws (federal, state, provincial or local) relating to pollutants, contaminants
or any toxic, radioactive or
4
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otherwise hazardous substance, material or waste, including asbestos, petroleum,
radon gas and radioactive materials.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"GAAP" means generally accepted accounting principles in the
United States.
"Governmental Authority" means any government, any
governmental entity, department, commission, board, agency or instrumentality,
and any court, tribunal, or judicial, body, whether federal, state, local or
foreign.
"Governmental Order" means any statute, rule, regulation,
order, judgment, injunction, decree, stipulation or determination issued,
promulgated or entered by or with any Governmental Authority of competent
jurisdiction.
"GTP" means Global Technology Partners, LLC.
"Hazardous Material" means any material, substance or waste
that is prohibited or regulated by or under any Environmental Law, or that has
been designated by any Governmental Authority as a pollutant, contaminant,
hazardous or toxic substance, material or waste, or that is radioactive, toxic,
hazardous or otherwise a danger to health, reproduction or the environment,
including asbestos, petroleum, radon gas, and radioactive matter.
"Hazardous Materials Activity" means the handling,
transportation, transfer, recycling, storage, use, treatment, manufacture,
investigation, disposal, arrangement for disposal, removal, remediation,
release, exposure of others to, sale, or distribution of any Hazardous Material
or any product containing a Hazardous Material.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Incentive Payment - Acquisition Amount" means as of any
specific date with respect to a specified Acquisition (including ATD if
consummated),
(i) if the aggregate Enterprise Value of businesses which have
been the subject of Acquisitions by Company Entities, including the specified
Acquisition (and ATD if consummated), since the Effective Time exceeds
$200,000,000, the difference, not to be less than zero, between (a) $7,000,000,
and (b) the aggregate amount paid or payable by the Company prior to such date
pursuant to Section 2.14; or
(ii) if the aggregate Enterprise Value of businesses which
have been the subject of Acquisitions by Company Entities, including the
specified Acquisition (and ATD if consummated), since the Effective Time equals
or is less than $200,000,000, the difference, not to be less than zero, between
(a) $5,000,000 multiplied by the quotient (not to exceed 1.0) of (1) the
aggregate Enterprise Value of businesses which have been the subject of
Acquisitions by
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Company Entities, including the specified Acquisition, since the
Effective Time, divided by (2) $200,000,000, and (b) the aggregate amount paid
or payable by the Company prior to such date pursuant to Section 2.14; provided,
however, that if the specified Acquisition is of ATD, and if upon consummation
of such specified Acquisition the cumulative Enterprise Value of businesses
which have been the subject of Acquisitions by Company Entities, including the
specified Acquisition, since the Effective Time is less than $200,000,000, then
"Incentive Payment - Acquisition Amount" means the difference, not to be less
than zero, between (1) $5,000,000, and (2) the aggregate amount paid or payable
by the Company prior to such date pursuant to Section 2.14.
"Incentive Payment - IPO Amount" means as of any specific
date, the difference, not to be less than zero, between (i) $7,000,000, and (ii)
the aggregate amount paid or payable by the Company prior to such date pursuant
to Section 2.14.
"Incentive Payment - Return of Capital Amount" means as of any
specific date, the difference, not to be less than zero, between (i) $7,000,000,
and (ii) the aggregate amount paid or payable by the Company prior to such date
pursuant to Section 2.14.
"Internal Revenue Code" or "Code" each means the Internal
Revenue Code of 1986, as amended.
"Investment" means the transactions contemplated by Section
2.01 hereof.
"Investors" means the DLJ Entities, Behrman Capital II L.P.,
Strategic Entrepreneur Fund II L.P and certain members of GTP.
"IRS" means the United States Internal Revenue Service.
"Law" means any federal, state, local or foreign statute, law,
ordinance, regulation, rule, code, order or rule of common law.
"Liabilities" means any and all debts, liabilities and
obligations, whether accrued or fixed, absolute or contingent, matured or
unmatured or determined or determinable.
"Licenses" means all of the licenses, permits and other
governmental authorizations required for the operation of the Business as
conducted as of the date of this Agreement.
"Material Adverse Effect" means any change or effect that is
materially adverse to the operations, business, financial condition or results
of operations of the Company and the Company Subsidiaries, taken as a whole,
except for changes in the defense electronics industry generally.
"Merger" shall mean the merger of Merger Sub with and into the
Company, with the Company being the surviving corporation, in accordance with
this Agreement and the Agreement of Merger.
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"Merger Consideration" means the Series A Cash Consideration,
the Class A Cash Consideration, in each case, to be paid, and the Common Stock
to be issued, to the shareholders of the Company in the Merger.
"Permitted Encumbrances" means (i) Encumbrances for inchoate
mechanics' and materialmen's liens for construction in progress and workmen's,
repairmen's, warehousemen's and carriers' liens arising in the ordinary course
of the business, (ii) Encumbrances for Taxes not yet payable and for Taxes being
contested in good faith, (iii) Encumbrances arising out of, under or in
connection with this Agreement, (iv) Encumbrances in respect of progress
payments arising in the ordinary course of business, and (v) Encumbrances and
imperfections of title the existence of which would not materially affect the
use of the property subject thereto, consistent with past practice.
"Person" means any individual, partnership, firm, corporation,
limited liability company, association, trust, unincorporated organization or
other entity, as well as any syndicate or group that would be deemed to be a
person under Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended.
"Post-Closing Tax Period" means any Tax period beginning after
the Closing Date; and, with respect to a Tax period that begins on or before the
Closing Date and ends thereafter, the portion of such Tax period beginning after
the Closing Date.
"Pre-Closing Tax Period" means any Tax period ending on or
before the Closing Date; and, with respect to a Tax period that begins on or
before the Closing Date and ends thereafter, the portion of such Tax period
ending on or before the Closing Date.
"Purchase" means the transactions contemplated by Section 2.02
hereof.
"Series A Cash Consideration" means $3.47924725.
"Subsidiaries" with respect to a Person means any other Person
in which such Person has a direct or indirect equity or ownership or voting
interest equal to or in excess of 50%.
"Tax" or "Taxes" means (i) all income, gross receipts, sales,
use, employment, franchise, profits, property, capital stock, premium, minimum
and alternative minimum or other taxes, fees, stamp taxes and duties,
assessments or charges of any kind whatsoever (whether payable directly or by
withholding), together with any interest and any penalties, additions to tax or
additional amounts imposed by any taxing authority with respect thereto; and
(ii) in the case of the Company or any Company Subsidiary, liability for the
payment of any amount of the type described in clause (i) as a result of being
or having been before the Closing Date a member of an affiliated, consolidated,
combined or unitary group, or a party to any agreement or arrangement, as a
result of which liability of the Company or any Company Subsidiary to a taxing
authority is determined or taken into account with reference to the liability
of any other Person, and (iii) liability of the Company or any Company
Subsidiary for the payment of any amount as a result of being party to any Tax
Sharing Agreement or with respect to the payment of any amount of
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the type described in (i) or (ii) as a result of any existing express or implied
obligation (including, but not limited to, an indemnification obligation).
"Tax Asset" means any net operating loss, net capital loss,
investment tax credit, foreign tax credit, charitable deduction or any other
credit or tax attribute that could be carried forward or back to reduce Taxes
(including without limitation deductions and credits related to alternative
minimum Taxes).
"Tax Sharing Agreements" means all existing agreements or
arrangements (whether or not written) binding the Company or any Company
Subsidiary that provide for the allocation, apportionment, sharing or assignment
of any Tax liability or benefit, or the transfer or assignment of income,
revenues, receipts, or gains for the principal purpose of determining any
person's Tax liability.
"Warrants" shall mean those certain warrants to purchase
19,148,940 shares of Class B Common Stock, each dated as of November 21, 1996.
"Warrant Holders" shall mean the holders of the Warrants.
SECTION 1.02. Other Defined Terms. The following terms have
the meanings defined for such terms in the Sections set forth below:
Term Section
---- -------
Acquisition 2.14(c)
Agreement of Merger 2.04
Agreement Period 7.13
ATD 2.14(c)
Behrman Fee 7.10(b)
Behrman Funds Preamble
Benefit Plans 3.14(a)
Certificates 2.10(b)
Class A Common Stock Recitals
Class B Common Stock Recitals
Closing 2.05
Closing Date 2.05
Company Preamble
Company Entities 2.14(a)
Current Articles 3.02
DLJ Approval 2.02
Effective Time 2.04
ESOP Stock Purchase Agreement Preamble
Exchange Agent 2.10(a)
Exchange Fund 2.10(a)
Financing 6.07
Financing Letters 6.07
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Term Section
---- -------
Government Contracts 3.17
Listed Contracts 3.16(a)
Management Preamble
Merger Sub Preamble
Merger Sub Common Stock 6.02
Notes 7.10(a)
Option Certificate 2.10(b)
Option Consideration 2.12
Other Sub Recitals
Option Termination Agreement 2.12
Proprietary Rights 3.12(f)
Purchase 2.02
Restated Articles 2.07
Section 4.01 Securities 4.01
Senior Debt 7.10(a)
Series A Preferred Stock Recitals
Shareholder Preamble
Shareholder Approval 7.05(e)
Shareholders' Agreement 9.02(o)
Stock Certificate 2.10(b)
Stock Purchase Agreements Preamble
Stock Purchase and Consent Agreement Preamble
Stock Subscription Agreement 2.01
Subsidiary Securities 3.04(a)
Substantial Detriment 9.02(b)
Surviving Corporation 2.06
Term Sheet 9.02(b)
Warrant Termination Agreement 7.10
ARTICLE II.
PURCHASE AND MERGER
SECTION 2.01. The Investment. Immediately prior to the
Purchase, Merger Sub will sell to the Investors 18,222,291 shares of Merger Sub
Common Stock for a purchase price of $1.00 per share, in the amounts and for the
consideration as more specifically set forth opposite each group of Investors
listed on Section 2.01 or elsewhere on such Schedule. The purchase and sale of
such capital stock shall be made pursuant to, and on the terms and conditions
set forth in, a Stock Subscription Agreement, in a form to be agreed among
Merger Sub, the Investors and the Company prior to the Investment (the "Stock
Subscription Agreement"). In addition, each of Behrman Capital, L.P. and DLJSC
have entered into a
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financial advisory agreement with the Company, forms of which are attached
hereto as Exhibits A and B, which agreements shall become effective as of the
Closing.
SECTION 2.02. The Purchase. Immediately prior to the Effective
Time and immediately following the Investment, the DLJ Entities shall purchase
(a) 3,371,837 shares of Class A Common Stock from the Company ESOP for a per
share purchase price, in cash, equal to the Class A Cash Consideration, pursuant
to the terms of the ESOP Stock Purchase Agreement, and (b) from each Company
shareholder set forth on Section 2.02 of the Disclosure Schedule, the number of
shares of Class A Common Stock and Class B Common Stock set forth opposite such
shareholder's name for a per share purchase price, in cash, equal to the Class A
Cash Consideration and Class B Cash Consideration, respectively, pursuant to the
terms of the Stock Purchase and Consent Agreement. Immediately following the
Purchase, the DLJ Entities, as holders of the Class A Common Stock, will execute
a written consent to approve the Merger, this Agreement and the other
transactions contemplated thereby and hereby (the "DLJ Approval") as will the
Behrman Funds and any other holders of the Class A Common Stock (or their
proxies).
SECTION 2.03. The Merger. After consummation of the Purchase,
the Investment and the DLJ Approval, upon the terms and subject to the
provisions of this Agreement, and in accordance with the CGCL, Merger Sub will
merge with and into the Company at the Effective Time.
SECTION 2.04. Effective Time of the Merger. Subject to the
provisions of this Agreement, an agreement of merger with respect to the Merger
in form and substance satisfactory to Merger Sub and the Company (the "Agreement
of Merger") shall be duly prepared, executed and acknowledged and thereafter
delivered to the Secretary of State of the State of California for filing, as
provided in the CGCL, as early as practicable on the Closing Date. The Merger
shall become effective at such time as is specified in the Agreement of Merger
(the time at which the Merger has become fully effective being hereinafter
referred to as the "Effective Time").
SECTION 2.05. Closing. The closing of the Purchase, the Merger
and the Investment (the "Closing") will take place at 10:00 a.m., California
time, on a date to be specified by Merger Sub and the Company, which shall be no
later than the fifth Business Day after satisfaction or, if permissible, waiver
of the conditions set forth in Article IX (the "Closing Date"), at the offices
of Davis Polk & Wardwell, 450 Lexington Avenue, New York, NY 10017, unless
another date, place or time is agreed to in writing by Merger Sub and the
Company. At the Closing, (i) the documents, certificates and instruments
referred to in Article IX shall be executed and delivered, (ii) the Merger
Consideration and Option Consideration shall be deposited with the Exchange
Agent for disbursement pursuant to Section 2.10, (iii) all amounts contemplated
by Section 7.10 to be paid at Closing shall be paid, and (iv) the transactions
contemplated by the Stock Subscription Agreement and the Stock Purchase
Agreements shall be consummated.
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SECTION 2.06. Effect of the Merger. As a result of the Merger,
Merger Sub shall merge into the Company, the separate corporate existence of
Merger Sub shall cease and the Company shall continue as the surviving
corporation (the "Surviving Corporation"). Upon becoming effective, the Merger
shall have the effects set forth in Section 1107 of the CGCL. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time, all
the property, rights, privileges, powers and franchises of Merger Sub shall vest
in Surviving Corporation, and all debts, liabilities and duties of Merger Sub
shall become the debts, liabilities and duties of Surviving Corporation.
SECTION 2.07. Articles of Incorporation and Bylaws of the
Surviving Corporation. At the Effective Time, the Articles of Incorporation of
Surviving Corporation shall be in a form to be agreed by Merger Sub and the
Company and attached to the Agreement of Merger (the "Restated Articles") until
duly amended in accordance with applicable Law, and the Bylaws of Merger Sub as
in effect immediately prior to the Effective Time shall be the Bylaws of
Surviving Corporation until duly amended in accordance with applicable Law.
SECTION 2.08. Directors and Officers of the Surviving
Corporation. At the Effective Time, the directors set forth on Section 2.08(a)
of the Disclosure Schedule hereto shall become the initial directors of
Surviving Corporation, each to hold office from the Effective Time until his or
her respective successor is duly elected or appointed and qualified in
accordance with the Articles of Incorporation and Bylaws of Surviving
Corporation. The officers of the Company immediately prior to the Effective Time
shall be the initial officers of Surviving Corporation, each to hold office
until his or her respective successor is duly elected or appointed and qualified
in accordance with the Articles of Incorporation and Bylaws of Surviving
Corporation. The Company shall use its best efforts to cause each director of
the Company immediately prior to the Effective Time, other than those set forth
on Section 2.08(b) of the Disclosure Schedule hereto, to tender his or her
resignation prior to the Effective Time, each such resignation to be effective
as of the Effective Time.
SECTION 2.09. Conversion of Securities. At the Effective Time,
by virtue of the Merger and without any action on the part of any of the parties
hereto or the holders of any shares of the following securities:
(a) Conversion of Capital Stock of Merger Sub. Each issued and
outstanding share of non-voting Merger Sub Common Stock shall be converted into
and become one fully paid and nonassessable share of non-voting Common Stock of
Surviving Corporation. Each issued and outstanding share of supervoting Merger
Sub Common Stock shall be converted into and become one fully paid and
nonassessable share of supervoting Common Stock of Surviving Corporation. Each
issued and outstanding share of one-vote Merger Sub Common Stock shall be
converted into and become one fully paid and nonassessable share of one-vote
Common Stock of Surviving Corporation. At the Effective Time, each of the
Investors, as the sole holders of Merger Sub Common Stock, shall surrender any
and all certificates representing such Merger Sub Common Stock to Surviving
Corporation and shall be entitled to receive in exchange therefor a certificate
representing the class and number of shares of Common Stock of
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Surviving Corporation into which the Merger Sub Common Stock theretofore
represented by the certificates so surrendered shall have been converted as
provided in this Section 2.09(a). From and after the Effective Time, until so
surrendered, each certificate theretofore representing shares of issued and
outstanding Merger Sub Common Stock shall be deemed for all corporate purposes
to evidence the number of shares of Common Stock of Surviving Corporation into
which such shares shall have been converted.
(b) Conversion of Series A Preferred Stock, Class A Common
Stock and Class B Common Stock.
(i) Series A Preferred Stock. Each issued and
outstanding share of Series A Preferred Stock shall be converted into
and represent the right to receive the Series A Cash Consideration, in
cash. All such shares of Series A Preferred Stock, when so converted,
shall no longer be outstanding and shall automatically be canceled,
retired and extinguished and shall cease to exist, and each certificate
which immediately prior to the Effective Time represented any such
shares shall thereafter represent the right to receive, upon surrender
of such certificate in accordance with the provisions of Section 2.10,
the Series A Cash Consideration into which such shares have been
converted in accordance herewith.
(ii) Class A Common Stock. Each issued and outstanding
share of Class A Common Stock shall be converted into and represent the
right to receive the Class A Cash Consideration; provided, however,
that each share of Class A Common Stock held by the persons listed on
Section 2.09(b)(ii)(A) of the Disclosure Schedule shall be converted
into and represent the right to receive 4.57785979 shares of one-vote
Common Stock of Surviving Corporation; provided further, that each
share of Class A Common Stock held by a DLJ Entity shall be converted
into and represent the right to receive 4.57785979 shares of non-voting
Common Stock of Surviving Corporation. All such shares of Class A
Common Stock, when so converted, shall no longer be outstanding and
shall automatically be canceled, retired and extinguished and shall
cease to exist, and each certificate which immediately prior to the
Effective Time represented any such shares shall thereafter represent
the right to receive, upon surrender of such certificate in accordance
with the provisions of Section 2.10, the Class A Cash Consideration or
Common Stock into which such shares have been converted in accordance
herewith. A list of holders of Class A Common Stock whose shares shall
be converted into the right to receive the Class A Cash Consideration
is provided in Schedule 2.09(b)(ii)(B).
(iii) Class B Common Stock. Each issued and
outstanding share of Class B Common Stock shall be converted into and
represent the right to receive 0.15922254 shares of one-vote Common
Stock of Surviving Corporation; provided, however, that each share of
Class B Common Stock held by a DLJ Entity shall be converted into and
represent the right to receive 0.15922254 shares of non-voting Common
Stock of Surviving Corporation. All such shares of Class B Common
Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled,
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retired and extinguished and shall cease to exist, and each
certificate which immediately prior to the Effective Time represented
any such shares shall thereafter represent the right to receive, upon
surrender of such certificate in accordance with the provisions of
Section 2.10, the Common Stock into which such shares have been
converted in accordance herewith.
(iv) Notwithstanding anything else contained herein,
no Person who is a holder of Class A Common Stock or Class B Common
Stock shall be entitled to receive, pursuant to the Merger, shares of
Common Stock if such Person is not, and did not, satisfy the Company
and Merger Sub prior to the date hereof that such Person was, (i) an
"accredited investor" within the meaning of Regulation D under the
Securities Act of 1933, as amended, and (ii) permitted to receive such
Common Stock without the issuance being registered, qualified or
otherwise approved under applicable state securities or blue sky laws.
If any Person who is a holder of Class A Common Stock or Class B Common
Stock who was otherwise intended to receive Common Stock fails to
qualify as provided above, the shares of Class A Common Stock or Class
B Common Stock held by such Person shall be converted into the Class A
Cash Consideration or Class B Cash Consideration, as applicable.
SECTION 2.10. Exchange of Certificates. The procedures for
exchanging certificates which prior to the Effective Time represented shares of
the Company Stock for the Merger Consideration pursuant to the Merger and
certificates representing Company Options for the Option Consideration are as
follows:
(a) Exchange Agent. As of the Effective Time, Merger Sub shall
deposit with a bank or trust company designated by Merger Sub and the Company
(the "Exchange Agent"), for the benefit of the holders of shares of Company
Stock and Company Options outstanding immediately prior to the Effective Time,
for exchange in accordance with this Section 2.10, through the Exchange Agent,
cash and shares of Common Stock in the aggregate amount sufficient to pay the
Merger Consideration for all shares of Company Stock converted pursuant to
Section 2.09(b) and to pay the Option Consideration for all Company Options
pursuant to Section 2.11 (such cash being hereinafter referred to in the
aggregate as the "Exchange Fund"). The Exchange Agent shall, pursuant to
irrevocable instructions, deliver the cash required to be delivered pursuant to
Section 2.09(b) and Section 2.12 out of the Exchange Fund to holders of shares
of Company Stock and Company Options, respectively. Except as contemplated by
Section 2.10(e), the Exchange Fund shall not be used for any other purpose.
(b) Exchange Procedures. Commencing on the tenth calendar day
prior to the date of the Closing, Merger Sub shall cause the Exchange Agent to
promptly deliver to each holder of record of a certificate or certificates
representing outstanding shares of Company Stock (the "Stock Certificates") and
to each holder of record of a certificate or instrument which immediately prior
to the Effective Time represented any outstanding Company Options (the "Option
Certificates" and collectively together with the Stock Certificates, the
"Certificates") from whom the Exchange Agent receives a written request (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only
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at or following the Effective Time and upon delivery of the Certificates to the
Exchange Agent and which shall be in such form and have such other provisions as
Merger Sub and the Company may reasonably specify) and (ii) instructions for
effecting the surrender of the Certificates in exchange for the consideration
with respect to the shares of Company Stock or Company Options, as applicable,
formerly represented thereby. The letter of transmittal with respect to Option
Certificates shall contain language waiving any claims the holders thereof may
have against the Company or any Affiliates thereof with respect to the Company
Options. As soon as reasonably practicable (and in any event not later than five
(5) Business Days) after the Effective Time, Merger Sub shall cause the Exchange
Agent to mail a letter of transmittal and the instructions described above to
each holder of record of a Certificate who has not previously requested such
documents from the Exchange Agent.
Each holder of a Certificate shall be entitled to surrender
such Certificate to the Exchange Agent at the Effective Time in accordance with
the procedures described herein. Upon surrender of a Stock Certificate or Option
Certificate, as the case may be, to the Exchange Agent, together with such
letter of transmittal, duly executed, the holder of such Certificate shall be
entitled to receive promptly in exchange therefor the consideration (to be paid
in immediately available funds) which such holder has the right to receive
pursuant to the provisions of Section 2.09(b) or Section 2.12, as applicable
(provided that Certificates delivered to the Exchange Agent at least two
Business Days prior to the Closing shall be paid promptly after the Effective
Time), and the Certificate so surrendered shall immediately be canceled.
(c) Distributions with Respect to Holders of Unsurrendered
Certificates. No consideration shall be paid to the holder of any unsurrendered
Certificate in respect thereof until the holder of record of such Certificate
shall surrender such Certificate to the Exchange Agent in accordance herewith.
(d) No Further Ownership Rights in Company Stock or Company
Options. Until surrendered pursuant to Section 2.10(b), each Certificate shall,
after the Effective Time, represent for all purposes, only the right to receive
the consideration in respect of the Company Stock or Company Options represented
by such Certificate. No interest will be paid or will accrue on any cash payable
as such consideration. The Merger Consideration or Option Consideration paid
upon the surrender for exchange of Certificates in accordance with the terms
hereof shall be deemed to have been issued in full satisfaction of all rights
pertaining to the shares of Company Stock or Company Options, as applicable,
theretofore represented by such Certificates.
(e) Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed for 180 days after the Effective Time shall be
delivered to Surviving Corporation upon demand, and any former shareholder of
the Company or former holder of Company Options who have not previously complied
with this Section 2.10 shall thereafter look only to Surviving Corporation for
payment of such Person's claim for Merger Consideration or Option Consideration.
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(f) No Liability. None of the Company, Merger Sub or the
Exchange Agent shall be liable to any holder of shares of Company Stock or
Company Options for any cash, stock or other property delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(g) Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
Person claiming such Certificate to be lost, stolen or destroyed and the giving
of an appropriate indemnity by such Person, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed Certificate the Merger Consideration
or Option Consideration, as applicable, deliverable in respect thereof pursuant
to this Agreement.
(h) Withholding Rights.
(i) Surviving Corporation shall be entitled to deduct
and withhold from the consideration otherwise payable to any Person
pursuant to this Article (other than Section 2.14) such amounts as it
is required by law to deduct and withhold with respect to the making of
such payment under any provision of federal, state, local or foreign
tax law. If Surviving Corporation so withholds amounts, such amounts
shall be treated for all purposes of this Agreement as having been paid
to the holder of the shares of Company Stock or Company Options in
respect of which the Surviving Corporation made such deduction and
withholding.
(ii) With respect to compensation payments made by
the Company under Section 2.14 hereof, the Company shall be entitled to
deduct and withhold such amounts as required by applicable provisions
of federal, state, local or foreign tax law. The amounts so withheld by
the Company shall be treated for all purposes of this Agreement as
having been paid to the person entitled to such payments under Section
2.14 hereof.
(i) Fractional Shares. No fractional shares shall be issued in
the Merger. All fractional shares that a holder of Company Stock would otherwise
be entitled to receive as a result of the Merger shall be aggregated and if a
fractional share results from such aggregation, such holder shall be entitled to
receive, in lieu thereof, an amount in cash determined by multiplying $1.00 by
the fraction of a share to which such holder would otherwise have been entitled.
SECTION 2.11. Stock Transfer Books. From and after the
Effective Time, the stock transfer books of the Company shall be closed, and
there shall be no further registration of transfers of shares of Company Stock
on the books and records of the Company or Surviving Corporation. If, after the
Effective Time, any Certificates are presented to the Exchange Agent or the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article II.
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SECTION 2.12. Company Options. The Company shall use its
reasonable efforts to have all of the holders of Company Options execute an
option termination agreement, in a form to be agreed prior to the Closing (the
"Option Termination Agreement"), within 40 days of the date hereof, pursuant to
which each Company Option will be terminated for a cash payment equal to (a) the
Class B Cash Consideration multiplied by the number of shares of Class B Common
Stock issuable upon the exercise of such Company Option, reduced by (b) the
aggregate exercise price for the shares of Class B Common Stock then issuable
upon exercise of such Company Option (such net amount in the aggregate, with
respect to such Company Option, the "Option Consideration").
SECTION 2.13. [Reserved].
SECTION 2.14. Incentive Payment.
(a) IPO Payment. Upon consummation of an underwritten public
offering of common stock (or of a security convertible or exchangeable for such
common stock) of the Company, any successor to the Company, or any Company
Subsidiary or Company Parent (collectively, the "Company Entities"), prior to
the eighth anniversary of the Closing Date, the Company shall either (i) pay as
compensation the Incentive Payment - IPO Amount in cash to the Persons set forth
on Section 2.14 of the Disclosure Schedule hereto immediately following such
consummation, such amount to be paid among such Persons in accordance with the
percentages set forth opposite the name of such Person, or (ii) pay as
compensation the Incentive Payment - IPO Amount in cash to the Persons set forth
on Section 2.14 of the Disclosure Schedule hereto in four equal quarterly
installments, commencing on the three month anniversary of such consummation,
and continuing every three months thereafter until all four installments have
been paid, with such amount to be paid among such Persons in accordance with the
percentages set forth opposite the name of such Person; provided however, that
if the Company elects to pay the Incentive Payment - IPO Amount pursuant to
clause (ii), the Company's obligation to pay such quarterly installments shall
cease whenever the aggregate amount previously paid by the Company pursuant to
Section 2.14 equals $7,000,000.
(b) Return of Capital Payment. Upon consummation of a sale,
recapitalization, merger, change in control or similar transaction prior to the
eighth anniversary of the Closing Date of any Company Entity in which any DLJ
Entity (or a Permitted Transferee of any DLJ Entity, as such term is defined in
the Shareholders' Agreement) receives consideration (other than equity
securities in any Company Entity) in respect of its equity securities in such
Company Entity, which when aggregated with all other such consideration received
by all DLJ Entities and DLJ Permitted Transferees in respect of their equity
securities in all Company Entities, exceeds their aggregate purchase price for
all such equity securities, the Company shall pay as compensation the Incentive
Payment - Return of Capital Amount in cash to the Persons set forth on Section
2.14 of the Disclosure Schedule, such amount to be paid among such Persons in
accordance with the percentages set forth opposite the name of such Person.
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(c) Acquisition Payment. Upon consummation, prior to the
eighth anniversary of the Closing Date, of:
(i) an acquisition by any Company Entity of the
Applied Technology Division of Litton Industries, Inc. ("ATD") whether
by merger, acquisition of all or substantially all the assets of ATD,
or otherwise, the Company shall pay as compensation the Incentive
Payment - Acquisition Amount in cash to the Persons set forth on
Section 2.14 of the Disclosure Schedule, such amount to be paid among
such Persons in accordance with the percentages set forth opposite the
names of such Person; or
(ii) an acquisition by any Company Entity of a
business (other than ATD), whether by merger, acquisition of all or
substantially all the assets of such business or otherwise (an
"Acquisition"), and the cumulative Enterprise Value of all businesses
(including ATD if consummated) which have been the subject of
Acquisitions by Company Entities since the Effective Time equals or
exceeds $100,000,000, then the Company shall pay as compensation the
Incentive Payment - Acquisition Amount in cash to the Persons set forth
on Section 2.14 of the Disclosure Schedule, such amount to be paid
among such Persons in accordance with the percentages set forth
opposite the names of such Person.
(d) The rights of each Person set forth on Section 2.14 of the
Disclosure Schedule to receive payments pursuant to this Section 2.14 shall be
personal to, and shall not be assignable or transferable by, such Persons,
except by will, intestate succession or operation of law. The Persons set forth
on Schedule 2.14 are intended to be third party beneficiaries of this Section
2.14.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Merger Sub as follows:
SECTION 3.01. Authority of the Company. The Company has all
necessary corporate power and authority to enter into this Agreement, and
subject to the approvals discussed below, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby
(other than the Financing, adoption of the Restated Articles and the stock
option plans contemplated by Section 7.12) to which the Company is a party have
been duly authorized by its Board of Directors and approved by the holders of
the Series A Preferred Stock and Class B Common Stock and except for the
approval of this Agreement by the holders of Class A Common Stock in accordance
with the CGCL, and approval by the Board of Directors of the Company of the
Financing and the Restated Articles and the stock option plans contemplated by
Section 7.12, no other corporate action on the part of the Company is necessary
to authorize this Agreement and the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Company and assuming due
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authorization, execution and delivery by Merger Sub and the Shareholders, this
Agreement constitutes a legally valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, subject to (i)
approval of this Agreement and the transactions contemplated hereby in
accordance with the CGCL by the holders of Class A Common Stock and (ii) the
effect of any applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally and general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
SECTION 3.02. Incorporation and Qualification of the Company
and the Company Subsidiaries. Each of the Company and each Company Subsidiary is
duly organized, validly existing and in good standing under the laws of its
respective jurisdiction of organization and has the requisite corporate or other
organizational power and authority to own, operate or lease the respective
properties and assets now owned, operated or leased by it and to carry on its
respective business in all material respects as currently conducted by the
Company or such Company Subsidiary. The Company and each Company Subsidiary is
duly qualified as a foreign organization to do business, and is in good
standing, in each jurisdiction where the character of its properties owned,
operated or leased or the nature of its activities makes such qualification
necessary, except for such failures which, when taken together with all other
such failures, would not have a Material Adverse Effect. True and complete
copies of the Restated Articles of Incorporation (the "Current Articles") and
Bylaws of the Company and the charter documents of each Company Subsidiary, each
of the foregoing as amended to the date of this Agreement, have been made
available to Merger Sub.
SECTION 3.03. Capital Stock of the Company. The authorized
capital stock of the Company consists of 170,000,000 shares of common stock, par
value $.001 per share, of which 10,000,000 shares are designated Class A Common
Stock and 150,000,000 shares are designated Class B Common Stock, and 30,000,000
shares of preferred stock, par value $.001 per share, of which 22,000,000 shares
are designated Series A Preferred Stock. As of the date hereof, 6,125,000 shares
of Class A Common Stock were issued and outstanding, 45,000,000 shares of Class
B Common Stock were issued and outstanding and 11,000,000 shares of Series A
Preferred Stock were issued and outstanding. Such shares of capital stock have
been duly authorized and validly issued and are fully paid and nonassessable and
were not issued in violation of any preemptive rights. Section 3.03 of the
Disclosure Schedule sets forth, as of the date hereof, all of the record owners
of the outstanding Company Stock and their respective holdings thereof. Except
as set forth above and except for changes after the date hereof resulting from
the exercise of Company Options representing the right to purchase shares of
Class B Common Stock and Warrants, in each case, outstanding on the date hereof,
there are no shares of capital stock or other voting securities of the Company
outstanding. There are no options, warrants or rights of conversion or other
rights (whether preemptive, subscription or similar), agreements, arrangements
or commitments relating to the capital stock of the Company obligating the
Company to issue or sell any of its shares of capital stock, other than (i) the
outstanding Company Options representing the right to purchase 4,800,000 shares
of Class B Common Stock, (ii) the Warrants, and (iii) as contemplated by this
Agreement. A schedule of exercise prices for all Company Options and Warrants is
included in Section 3.03 of the Disclosure Schedule. Except as set forth in this
Agreement, the Stock Purchase and Consent
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Agreement and Section 3.03 of the Disclosure Schedule, there are (A) no voting
trusts, shareholder agreements, proxies or other agreements in effect to which
the Company is a party with respect to the governance of the Company or the
voting or transfer of its shares of capital stock and (B) no outstanding
obligations of the Company to repurchase, redeem or otherwise acquire any
capital stock or other equity securities of the Company.
SECTION 3.04. Subsidiaries.
(a) Section 3.04(a) of the Disclosure Schedule sets forth the
jurisdiction of organization of each Company Subsidiary, its authorized capital
stock and any other ownership interests therein, the number and type of its
issued and outstanding shares of capital stock, and the current ownership by the
Company and the Company Subsidiaries of such shares. Except as set forth in
Section 3.04(a) of the Disclosure Schedule, all of the outstanding capital stock
of, or other ownership interests in, each Company Subsidiary (other than
directors' qualifying shares), is owned by the Company, directly or indirectly,
free and clear of any Encumbrance and free of any other contractual limitation
or restriction (including any contractual restriction on the right to vote, sell
or otherwise dispose of such capital stock or other ownership interests). All
such capital stock has been duly authorized and validly issued and is fully paid
and non-assessable. There are no outstanding (i) securities of the Company or
any Company Subsidiary convertible into or exchangeable for shares of capital
stock or other voting securities or ownership interests in any Company
Subsidiary, and (ii) options or other rights to acquire from the Company or any
Company Subsidiary, and no other obligation of the Company or any Company
Subsidiary to issue, any capital stock, voting securities or other ownership
interests in, or any securities convertible into or exchangeable for any capital
stock, voting securities or ownership interests in, any Company Subsidiary (the
items in clauses (i) and (ii) being referred to collectively as the "Subsidiary
Securities"). There are no outstanding obligations of the Company or any Company
Subsidiary to repurchase, redeem or otherwise acquire any outstanding Subsidiary
Securities. Except as set forth in Section 3.04(a) of the Disclosure Schedule,
there are no voting trusts, shareholder agreements, proxies or other agreements
in effect to which the Company or any Company Subsidiary is a party with respect
to the governance of a Company Subsidiary or the voting or transfer of any
Subsidiary Securities.
(b) Other than the Company Subsidiaries, and except as set
forth in Section 3.04(b) of the Disclosure Schedule, there are no other Persons
in which the Company or any Company Subsidiary owns, of record or beneficially,
any direct or indirect equity interest or any right (contingent or otherwise) to
acquire such an equity interest. Except as set forth in Section 3.04(b) of the
Disclosure Schedule, neither the Company nor any Company Subsidiary is a member
of any partnership, nor is the Company or any Company Subsidiary a participant
in any joint venture or similar arrangement constituting a legal entity.
SECTION 3.05. No Conflict. Assuming all consents, approvals,
authorizations and other actions described in Sections 3.01 and 3.11 have been
obtained and all filings and notifications listed in Section 3.11 of the
Disclosure Schedule have been made, and except as may result from any facts or
circumstances relating solely to Merger Sub, the execution, delivery and
performance of this Agreement by the Company does not and will not
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(a) violate or conflict with the Current Articles, Restated Articles or Bylaws
of the Company, (b) conflict with or violate in any material respect any Law or
Governmental Order applicable to the Company or any Company Subsidiary or (c)
result in any material breach of, or constitute a material default (or event
which with the giving of notice or lapse of time, or both, would become a
material default) under, or give to others any material rights of termination,
amendment, acceleration or cancellation of, or result in the creation of any
material Encumbrance on any of the material assets or properties of the Company
or any Company Subsidiary pursuant to any material contract to which the Company
or any Company Subsidiary is a party or by which any of such assets or
properties is bound or affected. The Bylaws of the Company have been amended to
remove Section 8.8 previously contained therein.
SECTION 3.06. Financial Statements. The Company has caused to
be prepared and delivered to Merger Sub the Company Financial Statements (copies
of which are included in Section 3.06 of the Disclosure Schedule). The Company
Financial Statements have been prepared in accordance with GAAP and except as
set forth in the Company Financial Statements, on a consistent basis, and
present fairly, in all material respects, the consolidated financial position,
results of operations and cash flows of the Company at the date and for the
period indicated. Attached as Section 3.06 of the Disclosure Schedule is a
spreadsheet setting forth contract values and the estimated cost to completion
for each Government Contract that has contract values in excess of $500,000 as
of December 31, 1998. The Company Financial Statements were prepared using the
estimates to complete set forth in Section 3.06 of the Disclosure Schedule, and
such estimates to complete were prepared using the Company's customary
practices, estimating techniques, schedules and procedures consistently applied
from prior periods.
SECTION 3.07. Labor Matters. Neither the Company nor any
Company Subsidiary is a party to any labor agreement with respect to its
employees with any labor organization, group or association nor within the last
year, have there been any material attempts to organize. Except as set forth in
Section 3.07 of the Disclosure Schedule, (a) the Company and each Company
Subsidiary is in material compliance with all applicable Laws respecting
employment practices, terms and conditions of employment and wages and hours,
(b) there is no material unfair labor practice charge or complaint against the
Company or any Company Subsidiary pending before the National Labor Relations
Board or any comparable state agency, (c) there is no material complaint, charge
or claim pending or, to the Knowledge of the Company, threatened in writing
against the Company or any Company Subsidiary with any Governmental Authority,
arising out of, in connection with, or otherwise relating to the employment by
the Company or any Company Subsidiary of any individual, and (d) there is no
labor strike, labor disturbance or work stoppage pending or, to the Company's
Knowledge, threatened in writing against the Company or any Company Subsidiary.
SECTION 3.08. Absence of Certain Changes or Events. Since the
Balance Sheet Date to the date of this Agreement and except as set forth in
Section 3.08 of the Disclosure Schedule or as contemplated by this Agreement,
there has not been:
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(a) any material damage, destruction or loss to any material
asset or property of the Company or any Company Subsidiary;
(b) any declaration, setting aside or payment of any dividend
or distribution or capital return in respect of any shares of Company Stock or
any redemption, purchase or other acquisition by the Company or any Company
Subsidiaries of any shares of Company Stock, Company Options or Warrants;
(c) any sale, assignment, transfer, lease or other disposition
or agreement to sell, assign, transfer, lease or otherwise dispose of any of the
assets of the Company or any Company Subsidiary having a value individually
exceeding $100,000, other than in the ordinary course of business consistent
with past practice;
(d) any acquisition (by merger, consolidation, or acquisition
of stock or assets or otherwise) by the Company or any Company Subsidiary of any
corporation, partnership or other business organization or division thereof for
consideration individually in excess of $100,000;
(e) except as reflected in the Company Financial Statements,
(i) any incurrence by the Company or any Company Subsidiary of any indebtedness
for borrowed money, (ii) any issuance by the Company or any Company Subsidiary
of any debt securities or (iii) any assumption, granting, guarantee or
endorsement, or other accommodation arrangement making the Company or any
Company Subsidiary responsible for, the indebtedness for borrowed money of any
Person (other than another Company Subsidiary), in the case of (i), (ii) and
(iii) above, having an aggregate value exceeding $100,000 for all such
occurrences, other than letters of credit created in the ordinary course of
business and consistent with past practice as set forth in Section 3.08(c) of
the Disclosure Schedule.
(f) except as may be reflected in the Company Financial
Statements, any material change in any method of accounting or accounting
practice used by the Company or any Company Subsidiary, other than such changes
required by GAAP;
(g) any Material Adverse Effect;
(h) (i) any employment, deferred compensation, severance or
similar agreement entered into or amended by the Company or any Company
Subsidiary, except any employment agreement providing for compensation of less
than $100,000 per annum entered into in the ordinary course of business, (ii)
increase in the compensation payable or to become payable by the Company or any
Company Subsidiary to any of its directors, officers or employees, or (iii) any
increase in the coverage or benefits available under any severance pay,
termination pay, vacation pay, company awards, salary continuation or
disability, sick leave, deferred compensation, bonus or other incentive
compensation, insurance, pension or other employee benefit plan, payment or
arrangement made to, for or with directors, officers, employees, agents or
representatives of the Company or any Company Subsidiary, other than, in the
case of (ii) and (iii) above, normal increases in the ordinary course of
business consistent
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with past practice and that in the aggregate have not resulted in a material
increase in the benefits or compensation expense of the Company or the Company
Subsidiaries; or
(i) any agreement to take any actions specified in this
Section 3.08, except as contemplated by this Agreement.
SECTION 3.09. Absence of Litigation. Section 3.09 of the
Disclosure Schedule sets forth as of the date hereof, all pending Actions, and,
to the Company's Knowledge, Actions threatened in writing, against the Company
or any Company Subsidiary. Except as set forth in Section 3.09 of the Disclosure
Schedule, there are no Actions pending or, to the Company's Knowledge,
threatened, against the Company or any Company Subsidiary or any of the assets
or properties of the Company or any Company Subsidiary. The Company, each
Company Subsidiary and their respective assets and properties are not subject to
any material Governmental Order relating specifically to the Company or any
Company Subsidiary. The Company has maintained, for at least one year prior to
the date hereof, a "hot line" or other ethics compliance notice procedure for
anonymous tips or information regarding possible unlawful actions or omissions
by any employee or outside consultant, independent contractor or agent of the
Company or a Company Subsidiary and has made available all records of, and
responses to, such hot line or notice procedures, for the period beginning
December 31, 1997, available to Merger Sub for review.
SECTION 3.10. Compliance with Laws.
(a) Applicable Laws. Neither the Company nor any Company
Subsidiary is in material violation of, or has since December 31, 1995
materially violated, and to the knowledge of the Company none is under
investigation with respect to or has been threatened to be charged with or given
notice of any material violation of, any applicable Law. Neither the Company nor
any Company Subsidiary has received any written notice to the effect that the
Company or any Company Subsidiary is not in material compliance with any
applicable Laws except as set forth in Section 3.10 of the Disclosure Schedule.
(b) FCPA. The Company and the Company Subsidiaries are in
material compliance with the Foreign Corrupt Practices Act, as amended, 15
U.S.C. ss.ss. 78m, 78dd-11 78dd-2, 78dd-3 and 78ff (the "FCPA"), and no pending
contracts, bids or proposals of the Company or any of the Company Subsidiaries
were obtained or made in material violation of the FCPA.
(c) Clearances. To the extent permitted by law, Section
3.10(c) of the Disclosure Schedule lists (a) all facility security clearances
("Facility Clearances") held by the Company and the Company Subsidiaries, and
(b) personnel security clearances ("Personnel Clearances") held by officers,
directors or employees of the Company and the Company Subsidiaries. The Company
and each Company Subsidiary is in material compliance with the National
Industrial Security Program Operating Manual and applicable laws and regulations
of the United States, and the terms and conditions of the Facility Clearances.
To the Company's knowledge, no Person is in violation of the terms and
conditions of his/her Personnel Clearance.
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(d) Export Permits. Section 3.10(d) of the Disclosure Schedule
sets forth all current United States Government export licenses containing open
balances as of the date specified therein, and all extant technical assistance
and disclosure agreements required by the Office of the Defense Trade Controls
of the U.S. Department of State and applicable regulations or the Bureau of
Export Administration of the U.S. Department of Commerce and applicable
regulations. The Company and each Company Subsidiary is in material compliance
with all such licenses and agreements, and with all other export laws and
regulations applicable to their businesses.
(e) Anti Boycott. The Company and the Company Subsidiaries are
in material compliance with all applicable "antiboycott" laws and regulations of
the United States.
SECTION 3.11. Consents, Approvals, Licenses. Etc. No consent,
approval, authorization, license, order or permit of, or declaration, filing or
registration with, or notification to, any Governmental Authority or third party
is required to be made or obtained by the Company or the Company Subsidiaries in
connection with the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby, except: (a) as set
forth in Section 3.11 of the Disclosure Schedule; (b) applicable requirements,
if any, of state securities or blue sky laws and the HSR Act, and approval of
this Agreement and the transactions contemplated hereby by the holders of Class
A Common Stock and filing of the Restated Articles with the Secretary of State
of California, all in accordance with the CGCL; (c) any novations or consents
required in connection with Government Contracts which are listed in Section
3.11 of the Disclosure Schedule, (d) any filings required under the National
Industrial Security Program Operating Manual, (e) as may be necessary as a
result of any facts or circumstances relating solely to Merger Sub and (f) where
the failure to obtain such consent, approval, authorization or action, or to
make such filing or notification would not, when taken together with all such
other failures, have a Material Adverse Effect.
The Company and each Company Subsidiary have all material
Licenses. Other than as set forth in Section 3.11 of the Disclosure Schedule, as
of the date hereof no audit of the Company or any Company Subsidiary is pending
before, or to the Knowledge of the Company has been threatened by, any
Governmental Authority (other than the IRS). All of the material Licenses of the
Company and each Company Subsidiary are in full force and effect and the Company
or respective Company Subsidiary is in material compliance with each such
material License.
SECTION 3.12. Intellectual Property.
(a) General. Section 3.12 of the Disclosure Schedule sets
forth with respect to the Proprietary Rights: (i) all patents and patent
applications, including petty patents and utility models and, as applicable, the
patent number, application number, filing date, country of jurisdiction, normal
expiration date, title, priority information, (ii) all material trademarks,
trade names and service marks, whether or not registered, the date first used
and as applicable for each country, the application serial number and
registration number, the classes of goods or services covered, the nature of the
goods or services, the countries in which the name or mark is used and
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the expiration date for each country in which a trademark, trade name or service
mark has been registered, and (iii) all material copyrights for which
registration has been sought, and whether or not registered, the date of
creation and first publication of the copyrighted work, the application number
and registration number, the country of jurisdiction, and the dates of
application and registration. Section 3.12 of the Disclosure Schedule also sets
forth a list of all licenses and sublicenses to or from the Company or any
Company Subsidiary relating to any Proprietary Rights. True and correct copies
of all such scheduled Proprietary Rights (including all pending applications)
and all such scheduled agreements have been provided or made available to Merger
Sub.
(b) Adequacy. To the Company's Knowledge, the Proprietary
Rights are all those necessary for the normal conduct of the Business as
presently conducted. The Proprietary Rights are valid and enforceable. No loss
of any item of the Proprietary Rights is pending, reasonably foreseeable or, to
the Company's Knowledge, threatened. The Company and the Company Subsidiaries
have taken all actions necessary to maintain and protect the Proprietary Rights.
Each patent, patent application, registered trademark, trademark application,
and registered copyright has been duly registered with the United States Patent
and Trademark Office, the United States Copyright Office, or such other domestic
or foreign government authority as indicated on Section 3.12 of the Disclosure
Schedule, and all annuity, maintenance, renewal and other similar fees relating
to the same are current, and such registrations, filings and issuances remain in
full force and effect. None of the Proprietary Rights, the value of which to the
Company and the Company Subsidiaries is contingent upon maintenance of the
confidentiality thereof, has been disclosed by the Company or the Company
Subsidiary to any third party except to third parties that are bound under
written confidentiality agreements to maintain such Proprietary Rights in
confidence.
(c) Royalties and Licenses. Except as set forth on Section
3.12 of the Disclosure Schedule, neither the Company nor any Company Subsidiary
(i) is operating under any obligation of compensation for the use of any
Proprietary Rights, nor are they committed to enter into any such obligation,
and (ii) has granted any option, license, sublicense or agreement of any kind
relating to the material Proprietary Rights, nor are they committed to enter
into any such option, license, sublicense or agreement. Neither the Company nor
any Company Subsidiary is subject to any outstanding judgment, injunction, order
or decree restricting the use or transfer of any material Proprietary Rights or
restricting the licensing thereof by the Company or any Company Subsidiary to
any third party. The execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby will not alter, impair or
extinguish any of the Proprietary Rights.
(d) Ownership. The material Proprietary Rights owned by the
Company are owned solely by the Company, and the Company has good and marketable
title in and to such Proprietary Rights, free and clear of all material
Encumbrances. The Proprietary Rights owned by each Company Subsidiary are owned
solely by each such Company Subsidiary, and each such Company Subsidiary has
good and marketable title in and to such Proprietary Rights, free and clear of
all Encumbrances. Each of the Company or the Company Subsidiaries has a valid
right to use the material Proprietary Rights used by it in the Business.
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(e) Absence of Claims. There has been no claim made and, to
the Company's Knowledge, threatened against the Company or any Company
Subsidiary asserting the invalidity, misuse or unenforceability of any item of
the Proprietary Rights or challenging the Company or any of the Company
Subsidiaries' right to use or ownership of any item of the Proprietary Rights
and, to the Company's Knowledge, there are no grounds for any such claim or
challenge. Neither the Company nor any of the Company Subsidiaries has infringed
or misappropriated any proprietary rights of a third party, or been a defendant
in any action, suit, investigation or proceeding relating to, or otherwise has
been notified of, any alleged claim of infringement or misappropriation of any
proprietary rights of a third party, except as would not have a Material Adverse
Effect. Neither the Company nor any of the Company Subsidiaries has any
outstanding claim or suit for or, to the Company's Knowledge, of infringement or
misappropriation or facts raising a likelihood of, infringement or
misappropriation by any third party of any of the Proprietary Rights, except as
would not have a Material Adverse Effect.
(f) Definition. "Proprietary Rights" means all the following
that is owned or licensed by the Company or any Company Subsidiary: (i) U.S. and
foreign patents, patent disclosures and improvements thereto, petty patents and
utility models, and any continuations, continuations-in-part, divisions,
extensions, reissues and renewals for any of the foregoing; (ii) U.S. and
foreign trademarks, service marks, trade dress, logos, trade names, corporate
names and the goodwill associated therewith and registrations thereof; (iii)
U.S. and foreign copyrights and registrations; (iv) with respect to (i) - (iii),
applications for any of the foregoing; (v) trade secrets and confidential or
proprietary business information (including ideas, formulas, compositions,
inventions (whether patentable or unpatentable and whether or not reduced to
practice), improvements, discoveries, processes, know-how, research and
development information, software (whether in source code, object code or other
format), drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing plans and customer and supplier lists
and information); (vi) mask works; (vii) domain names; (viii) other intellectual
property and proprietary rights; (ix) tangible embodiments of any of the
foregoing (in whatever form or medium).
(g) Government Data Rights. Section 3.12(g) of the Disclosure
Schedule identifies the "technical data" and "computer software" developed by
the Company or any Company Subsidiary to which the United States Government has
claimed "unlimited rights," "restricted rights" or "Government purpose rights"
by written notice to the Company or appropriate Company Subsidiary at any time
since January 1, 1994. For purposes of this Section 3.12(g), the terms first
used in quotation marks have the meaning as defined in the applicable federal
acquisition regulations and supplements. Except as identified in Section 3.12 of
the Disclosure Schedule, the Company and the Company Subsidiaries have the right
to use the "technical data" and "computer software" developed and used by them
in the Business.
(h) Year 2000 Compliance. Except as disclosed on Section 3.12
of the Disclosure Schedule, each item of hardware, software or firmware (a
"System") that is part of or is used in connection with the Business, or any
product or service designed, manufactured, sold, licensed or provided by the
Company or any Company Subsidiary after October 31, 1998 in connection with the
Business, is Year 2000 Compliant. Except as disclosed in Section 3.12 of
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the Disclosure Schedule, neither the Company nor any Company Subsidiary knows
of any inability on the part of any suppliers or service providers to timely
ensure that its Systems are Year 2000 Compliant, which inability, individually
or in the aggregate, reasonably could be expected to have a Material Adverse
Effect. For purposes of this Section 3.12, "Year 2000 Compliant" means that the
System will record, store, process, calculate, sequence, compare, compile and
present calendar dates falling on or after January 1, 2000 in the same manner
and with the same functionality and accuracy, and without interruption to
operations, as such System records, stores, processes, calculates, sequences,
compares, compiles and presents calendar dates falling on or before December
31, 1999.
SECTION 3.13. Real Property. Neither the Company nor any
Company Subsidiary owns any real property. Section 3.13 of the Disclosure
Schedule lists as of the date hereof the address of all real property now leased
or subleased by the Company or any Company Subsidiaries and the name of the
record owner thereof.
SECTION 3.14. Employee Benefit Matters.
(a) With respect to each employee benefit plan (including,
without limitation, any "employee benefit plan" as defined in Section 3(3) of
ERISA) maintained or contributed to by the Company or any Company Subsidiary or
under which current or former employees of the Company or any Company Subsidiary
benefit (the "Benefit Plans"), a list of which is set forth on Section 3.14 of
the Disclosure Schedule, the Company has made available to Merger Sub a copy, if
applicable, of (i) the most recent annual report (Form 5500) filed with the IRS,
(ii) such Benefit Plan, (iii) each trust agreement relating to such Benefit
Plan, (iv) the most recent summary plan description for each Benefit Plan for
which a summary plan description is required and (v) the most recent
determination letter issued by the IRS with respect to any Benefit Plan
qualified under Section 401(a) of the Internal Revenue Code.
(b) With respect to the Benefit Plans, except as set forth in
Section 3.14 of the Disclosure Schedule, no event has occurred and there exists
no condition or set of circumstances, in connection with which the Company, any
Company Subsidiary or any Benefit Plan could be subject to any material
liability under the terms of such Benefit Plans, ERISA, the Internal Revenue
Code or any other material applicable Law other than in the ordinary course. No
Benefit Plan is subject to Title IV of ERISA.
(c) The Company has made available to Merger Sub (i) copies of
all employment agreements with officers of the Company and each Company
Subsidiary involving payments in excess of $100,000 and not terminable within 60
days without payment of any material penalty or similar amount, (ii) copies of
all material severance agreements and plans of the Company and each Company
Subsidiary with or relating to their employees, and (iii) copies of all material
plans and agreements of the Company and each Company Subsidiary with or relating
to its respective employees which contain change in control provisions.
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(d) Except as provided in Section 3.14 of the Disclosure
Schedule or as otherwise required by Law, no Benefit Plan of the Company or any
Company Subsidiary provides retiree medical or retiree life insurance benefits
to any person.
SECTION 3.15. Taxes.
(a) Except as set forth in Section 3.15 of the Disclosure
Schedule, (i) the Company and each Company Subsidiary has timely filed all
income tax returns for 1994, 1995, 1996 and 1997. All other tax returns have
been filed timely or any delinquency penalties resulting from late filing have
been paid. The 1998 tax returns for the Company and each Company Subsidiary will
be filed timely; (ii) the Company and each Company Subsidiary has paid all
income taxes as shown on prior returns and all incomes taxes for 1998 for the
Company and each Company Subsidiary have either been paid or are shown as an
accrued liability on the Company Financial Statements as of 12/31/98; (iii) as
of the time of filing, such Tax returns correctly reflected the facts regarding
the income, business, assets, operations, activities and status in all material
respects of the Company, its Subsidiaries and any other information required to
be shown therein; (iv) the charges, accruals and reserves for Taxes with respect
to the Company and its Subsidiaries reflected on the Balance Sheet (including
any provision for deferred income taxes) are recorded in accordance with GAAP to
cover such Taxes accruing through the date thereof; (v) the Company and its
Subsidiaries have made provision for all Taxes payable by the Company and its
Subsidiaries for all Pre-Closing Tax Periods for which no Tax return has yet
been filed, except for instances where failure to so provide, individually or in
the aggregate, would not have a Material Adverse Effect.
(b) Except as set forth in Section 3.15 of the Disclosure
Schedule, neither the Company nor any Company Subsidiary is or will become
obligated under any contract entered into by the Company or any Affiliate of the
Company prior to or contemporaneously with the Closing to make any payments that
will be nondeductible under Section 28OG of the Code (or any corresponding
provision of state, local or foreign income tax law).
(c) As of the date hereof, except as set forth in Section 3.15
of the Disclosure Schedule, with respect to the Company or any Company
Subsidiary, no waivers of statutes of limitations have been given with respect
to any Tax returns and reports, which waivers are currently in effect, and no
request for any such waiver is currently pending. No requests for ruling or
determination letters or competent authority relief with respect to the Company
or any Company Subsidiary is pending with any taxing agency with respect to any
Taxes. Section 3.15 of the Disclosure Schedule identifies all Tax returns of the
Company or any Company Subsidiary with respect to which an audit is in progress
as of the date hereof. All Tax returns filed with respect to Tax years of the
Company and its Subsidiaries through the Tax year ended December 31, 1993 have
been examined and closed or are returns with respect to which the applicable
period for assessment under applicable law, after giving effect to extensions or
waivers, has expired. Neither the Company nor any Company Subsidiary has entered
into any agreement or arrangement with any taxing authority with regard to the
Tax liability of the Company or any Company Subsidiary. The Company has not
filed any amended return, entered into any closing agreement, settled any Tax
claim or assessment, or surrendered any right to
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claim a Tax refund to the extent any such action by the Company may adversely
affect any tax position or increase any Tax liability of the Company or any
Company Subsidiary in any Post-Closing Tax Period.
(d) Except as set forth in Section 3.15(d) of the Disclosure
Schedule, (i) neither the Company nor any Company Subsidiary has (A) been a
member of an affiliated, consolidated, combined or unitary group or (B)
participated in any other arrangement whereby any income, revenues, receipts,
gain, loss or Tax Asset of the Company or any Company Subsidiary was determined
or taken into account for Tax purposes with reference to or in conjunction with
any income, revenues, receipts, gain, loss, asset, liability or Tax Asset of any
other person, and (ii) neither the Company nor any Company Subsidiary is
currently under any contractual obligation to pay any amounts of the type
described in clause (ii) or (iii) of the definition of "Tax".
(e) Except as set forth in Section 3.15(e) of the Disclosure
Schedule, (i) during the five-year period ending on the date hereof, none of the
Company, any Company Subsidiary or any Affiliate of the Company has made or
changed any tax election, changed any annual tax accounting period, or adopted
or changed any method of tax accounting (to the extent that any such action may
materially affect the Company or any Company Subsidiary), (ii) neither the
Company nor any Company Subsidiary will be required to include any adjustment in
taxable income in any Post-Closing Tax Period under Section 481(c) of the Code
(or any similar provision of the Tax laws of any jurisdiction) as a result of a
change in method of accounting for a Pre-Closing Tax Period, and (iii) except as
provided for in the deferred tax accounts, neither the Company nor any Company
Subsidiary will be required to include in a Post-Closing Tax Period taxable
income attributable to income economically realized in a Pre-Closing Tax Period
including any income that would be includible in a Post-Closing Period as a
result of the installment method.
(f) Except as set forth in Section 3.15(f) of the Disclosure
Schedule, neither the Company nor any Company Subsidiary is a party to any
understanding or arrangement described in Section 6111(d)(2) of the Code.
(g) Except as set forth in Section 3.15(g) of the Disclosure
Schedule, (i) there are no liens for Taxes upon the assets of the Company or any
Company Subsidiary except liens for current Taxes not yet due, and (ii) the
Company and its Subsidiaries have materially complied with all laws, rules and
regulations relating to the payment and withholding of Taxes, including
employment Taxes, except with respect to which the failure to comply
individually or in the aggregate would not have a Material Adverse Effect.
SECTION 3.16. Certain Contracts.
(a) To the extent permitted by government regulations
applicable to classified documents, Section 3.16 of the Disclosure Schedule
contains a listing of all Contracts described in clauses (i) through (xi) below
to which the Company or any Company Subsidiary is a party as of the date hereof
(collectively, the "Listed Contracts"). To the extent permitted by government
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regulations applicable to classified documents, true, correct and complete
copies of the Listed Contracts have been delivered or made available to Merger
Sub:
(i) each Government Contract or other revenue
producing contract submitted by the Company or any Company Subsidiary
and each Government Bid, which involves performance of services or
delivery of goods and/or materials by the Company or any Company
Subsidiary of an amount or value in excess of $500,000;
(ii) each note, debenture, other evidence of
indebtedness, guarantee, loan, credit or financing agreement or
instrument or other contract for money borrowed, including any
agreement or commitment for future loans, credit or financing, in each
case, in excess of $100,000, other than intercompany indebtedness;
(iii) any employment agreements involving annual
salary payments by the Company or any Company Subsidiary in excess of
$100,000 that are not terminable within 60 days without payment of any
penalty or similar amount;
(iv) each Contract not in the ordinary course of
business involving annual expenditures or receipts of the Company and
the Company Subsidiaries in excess of $100,000;
(v) each lease, rental or occupancy agreement,
license, installment or conditional sale agreement, and other Contract
affecting the ownership of, leasing of, title to, use of, or any
leasehold or other interest in, any real or personal property and
involving annual aggregate payments in excess of $100,000;
(vi) any indemnity arrangement with any directors,
officers, shareholders or Affiliates of the Company or any Company
Subsidiary or arising in connection with any sale or disposition of
assets for proceeds in excess of $500,000 (other than sales of assets
in the ordinary course of business) wherein the Company or any Company
Subsidiary is the indemnitor and any existing waivers of claims against
same;
(vii) each joint venture Contract, partnership
agreement, or limited liability company agreement;
(viii) each Contract explicitly requiring capital
expenditures after the date hereof in an amount in excess of $100,000;
(ix) each material licensing agreement with respect to
Proprietary Rights;
(x) any agreements containing covenants presently
limiting, in any material respect, the freedom of the Company or any
Company Subsidiary to compete with any person in any line of business
or in any area or territory; and
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(xi) any teaming agreement, Cooperative Research and
Development Agreement ("CRADA"), and the agreement to acquire ATD,
which has been terminated without any material liability of the Company
to Litton Industries, Inc.
(b) Except as set forth in the Disclosure Schedule, (i) each
Listed Contract (other than those which have been terminated pursuant to their
terms) represents the legally valid and binding obligation of the Company or the
Company Subsidiary party thereto, and to the Knowledge of the Company,
represents the legally valid and binding obligations of the other parties
thereto, (ii) each of the Company and the Company Subsidiaries is aware of no
material obligations that it will not be able to perform under the Listed
Contracts, (iii) neither the Company nor any Company Subsidiary is in material
breach or violation of, or material default under, any of the Listed Contracts
and (iv) to the Knowledge of the Company, there is no breach or anticipatory
breach by the other parties to any Listed Contract.
SECTION 3.17. Government Contract Matters.
(a) Government Contract Compliance. Except as set forth in
Section 3.17(a) of the Disclosure Schedule, with respect to each and every
contract, agreement or subcontract with or on behalf of the United States
Government or any agency, department or division thereof (a "Government
Contract") or bid or proposal which, if accepted, would result in a Government
Contract, each of which is listed on Section 3.17(a) of the Disclosure Schedule
(a "Government Bid") with a value in excess of $500,000: (i) the Company and
each Company Subsidiary has complied with all material terms and conditions of
such Government Contract or Government Bid; (ii) the Company and each Company
Subsidiary has complied with all material laws, regulations, standards or
agreements pertaining to such Government Contract or Government Bid, including
without limitation the Truth in Negotiations Act; (iii) all representations and
certifications executed, acknowledged or set forth in or pertaining to such
Government Contract or Government Bid were complete and correct in all material
respects as of their effective date and the Company and each Company Subsidiary
(as applicable) has complied in all material respects with all such
representations and certifications; (iv) neither the United States Government
nor any prime contractor, subcontractor or other person has notified the Company
or a Company Subsidiary, either in writing or orally, that the Company or any
Company Subsidiary has breached or violated in any material respect any Law,
certification, representation, clause, provision or requirement pertaining to
such Government Contract or Government Bid; (v) no termination for convenience,
termination for default, cure notice or show cause notice is currently in effect
pertaining to such Government Contract or Government Bid, except for such
terminations or notices which are not material; (vi) no cost in excess of
$100,000 incurred by the Company or any Company Subsidiary pertaining to a
Government Contract or Government Bid has been formally questioned or
challenged, is the subject of any investigation or has been disallowed by the
United States Government; (vii) no money in excess of $100,000 due to the
Company or any Company Subsidiary pertaining to such Government Contract or
Government Bid has been withheld or set off nor has any claim been made to
withhold or set off money and the Company or such Company Subsidiary is entitled
to all progress payments received with respect thereto; and (viii) each
Government Contract to which the Company and each Company Subsidiary is a party
is valid and subsisting.
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(b) Government Investigations. Except as set forth in Section
3.17(b) of the Disclosure Schedule, since January 1, 1994 (i) the Company and
each Company Subsidiary, and the Company's and each Company Subsidiary's
directors, officers or employees are not under administrative, civil or criminal
investigation, indictment or writ of information by any United States Government
entity or any audit or investigation by any United States Government entity with
respect to any alleged irregularity, misstatement or omission arising under or
relating to any Government Contract or Government Bid; and (ii) during the last
seven years, the Company and the Company Subsidiaries have not conducted or
initiated any internal investigation under which the Company determined material
irregularities existed, or made a voluntary disclosure to the United States
Government, with respect to any alleged irregularity, misstatement or omission
arising under or relating to any Government Contract or Government Bid or export
of articles, technical data or technical assistance. Except as set forth in
Section 3.17(b) of the Disclosure Schedule, there exists no irregularity,
misstatement or omission arising under or relating to any Government Contract or
Government Bid that has led to any of the consequences set forth in clause (i)
or (ii) of the immediately preceding sentence or any other damage, penalty
assessment, recoupment of payment or disallowance of cost.
(c) Absence of Claims. Except as set forth in Section 3.17(c)
of the Disclosure Schedule, with respect to the Company and each Company
Subsidiary, there exist (i) no outstanding claims in excess of $100,000 against
the Company or a Company Subsidiary, either by the United States Government or
by any prime contractor, subcontractor, vendor or other third party, arising
under or relating to any Government Contract to which the Company or any Company
Subsidiary is a party; and (ii) no material disputes between the Company and the
United States Government under the Contract Disputes Act or any other federal
statute or between the Company or a Company Subsidiary and any prime contractor,
subcontractor or vendor arising under or relating to any Government Contract to
which the Company is a party. Except as set forth in Section 3.17(c) of the
Disclosure Schedule, neither the Company nor any Company Subsidiary has any
interest in any pending or potential claim against the United States Government
or any prime contractor, subcontractor or vendor arising under or relating to
any Government Contract or Government Bid. Section 3.17(c) of the Disclosure
Schedule lists each Government Contract which is currently under audit (other
than routine audits conducted in the ordinary course of business where there has
been no indication of a potential disagreement in excess of $100,000) by the
United States Government or any other person that is a party to such Government
Contract.
(d) Eligibility; Systems Compliance. Except as set forth in
Section 3.17(d) of the Disclosure Schedule, since January 1, 1992, neither the
Company nor any of the Behrman Funds or Management have ever been debarred or
suspended from participation in the award of contracts with the United States
Department of Defense or any other United States Government entity (excluding
for this purpose ineligibility to bid on certain contracts due to generally
applicable bidding requirements). There exist no facts or circumstances that
would warrant the institution of suspension or debarment proceedings or the
finding of nonresponsibility or ineligibility on the part of the Company or any
Company Subsidiary with respect to any prior, subsisting or future Government
Contract or Government Bid. No payment has been made by the Company or any
Company Subsidiary, or by any Person on behalf of the Company or any
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Company Subsidiary, in connection with any Government Contract or Government
Bid in violation of applicable procurement laws or regulations. Except as set
forth in Section 3.17(d) of the Disclosure Schedule, the Company's and each
Company Subsidiary's cost accounting, materials management and procurement
systems, and the associated entries reflected in the Financial Statements,
with respect to the Government Contracts and the Government Bids are in
compliance in all material respects with all applicable laws and regulations.
(e) Test and Inspection Results. Except as set forth in
Section 3.17(e) of the Disclosure Schedule, all test and inspection results
provided by the Company or any Company Subsidiary to the United States
Government pursuant to any Government Contract or to any other Person pursuant
to a Government Contract or as a part of the delivery to the United States
Government or to any other Person pursuant to a Government Contract of any
article, spare part, apparatus or any intangible (including software and
databases) which were designed, developed, engineered or manufactured by the
Company, a Company Subsidiary or any of its subcontractors, were complete and
correct in all material respects as of the date so provided. Except as set forth
in Section 3.17(e) of the Disclosure Schedule, the Company, and where applicable
a Company Subsidiary, has provided all test and inspection results to the United
States Government or to any other Person pursuant to a Government Contract as
required by applicable law and the terms of the applicable Government Contract.
(f) Government Furnished Equipment. Section 3.17(f) of the
Disclosure Schedule identifies by description or inventory number and contract
all equipment and fixtures loaned, bailed or otherwise furnished to or held by
the Company or any Company Subsidiary (or by subcontractors on behalf of the
Company or any Company Subsidiary) by or on behalf of the United States as of
the date stated therein (said equipment and fixtures are herein referred to as
the "GFE"). The Company and the Company Subsidiaries have certified to the U.S.
Government where contractually required that all GFE is in good working order,
reasonable wear and tear excepted, and otherwise meets the requirements of the
applicable contract. There are no outstanding loss, damage or destruction
reports that have been or should have been submitted to the United States
Government in respect of any GFE. In respect of the GFE, the Disclosure Schedule
is accurate and complete on the date thereof, and if dated as of the Closing
Date would contain only those additions and omit only those deletions of
equipment and fixtures that have occurred in the ordinary course of business.
The GFE is in the possession of the Company, a Company Subsidiary, or a
subcontractor of the Company or a Company Subsidiary and is located at the place
identified in the list of GFE referred to in Section 3.17(f) of the Disclosure
Schedule.
(g) Closed Years; Forward Rates. The Company has reached
agreement with the responsible United States Government contracting officers and
applicable agencies approving and closing all overhead and other costs charged
to Government Contracts for the years prior to and through December 31, 1994,
and those years are closed. The Company has no formal forward pricing rate
agreements with the United States Government and the Company has materially
complied with its obligations under applicable laws and regulations to provide
cost or pricing data to the government that might affect the current accurate or
complete nature of forward rates used in pricing Government Contracts and
Government Bids.
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SECTION 3.18. Undisclosed Liabilities. Neither the Company nor
any Company Subsidiary has any material Liability or obligation of any kind or
nature except those (i) specifically disclosed in the Company Financial
Statements or the footnotes thereto, (ii) disclosed in Section 3.18 of the
Disclosure Schedule or (iii) incurred in the ordinary course of business since
the Balance Sheet Date.
SECTION 3.19. Transactions with Affiliates. Except as set
forth in Section 3.19 of the Disclosure Schedule, there have been no material
transactions, agreements or arrangements between the Company or any of the
Company Subsidiaries, on the one hand, and any director, officer or Shareholder
of the Company or any Company Subsidiary or any immediate family member or any
Affiliate of any officer, director, or Shareholder of the Company or any Company
Subsidiary, other than those constituting an employee benefit plan or
compensation arrangement entered into in the ordinary course of business.
Without limiting the foregoing, except as set forth in Section 3.19 of the
Disclosure Schedule, no officer, director or Shareholder of the Company or any
Company Subsidiary (or any immediate family member or Affiliate of any such
officer, director, or shareholder), (i) has any material interest in any
material property, real or personal, tangible or intangible, including licenses,
agencies or Intellectual Property, used in or pertaining to the Company or the
Business or any Company Subsidiary, (ii) has any material interest in any
business, corporate or otherwise, that is in competition with the business of
the Company or any Company Subsidiary or (iii) has received any loan or advance
that remains unpaid or is otherwise a debtor of, or made any loan or advance to
or is otherwise a creditor of, the Company or any Company Subsidiary. Since the
Balance Sheet Date there has not been any material asset sold by the Company or
any Company Subsidiary to, or to the Company or any Company Subsidiary by, any
officer, director or Shareholder of the Company or any Company Subsidiary or any
immediate family member or Affiliate of any officer, director or Shareholder of
the Company or any Company Subsidiary, other than salaries and employee benefits
accruing in the ordinary course of business.
SECTION 3.20. Insurance. Section 3.20 of the Disclosure
Schedule sets forth a true and correct list of all insurance policies which are
in force and under which the Company or any Company Subsidiary is a named
insured or beneficiary.
SECTION 3.21. Brokers. Except for Bowles Hollowell Conner &
Co. and Behrman Capital (the fees and expenses of which shall be paid in full by
the Company) no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
SECTION 3.22. Environmental Matters. Except for such breaches
as have not resulted and would not result in a Material Adverse Effect:
(a) To the Knowledge of the Company, no Hazardous Material is
present at or has been discharged or released from any of the real property
owned, leased or operated by the Company or any Company Subsidiary in violation
of any applicable Law;
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(b) Each of the Company and the Company Subsidiaries has not
engaged in Hazardous Materials Activity in violation of or in a manner that may
lead to liability under any applicable Law; and
(c) No Action is pending or, to the Knowledge of the Company,
threatened concerning any of the Company's or the Company Subsidiaries'
Hazardous Materials Activities or any of the real property owned, leased or
operated by the Company or any Company Subsidiaries, and the Company has no
Knowledge of any fact or circumstance that is likely to involve any litigation
or impose any liability on the Company or any of the Company Subsidiaries
arising under any Environmental Laws.
(d) There has been no material environmental investigation,
study, audit, test, review or other analysis conducted of which the Company has
Knowledge in relation to the current or prior business of the Company or any
Company Subsidiary or of any property or facility now or previously owned,
leased or operated by the Company or any Company Subsidiary which has not been
delivered to Merger Sub at least five days prior to the date hereof.
(e) Neither the Company nor any Company Subsidiary owns or
leases or has owned or leased any real property, or conducts or has conducted
any operations, in New Jersey or Connecticut.
(f) The Company and each Company Subsidiary has made available
to Merger Sub all material reports provided to any Government Authority during
the past five years (other than routine NPDES monitoring reports) with respect
to environmental compliance or allowable costs claimed under a Government
Contract for environmental compliance and cleanup or remediation.
SECTION 3.23. Small Business. The Company has accurately
represented with respect to each Government Contract and Government Bid that the
Company (when counting all employees of all affiliates as these terms are
defined in 48 CFR Section 19.101 and 13 C.F.R. Part 101) qualifies as a small
business under the applicable Standard Industrial Classification code for that
procurement in accordance with 48 CFR Section 19.301. The Company is not aware
of any facts or circumstances that would cause the Small Business Administration
to challenge the Company's representations or determine that the Company was not
a small business with respect to any Government Contract or Government Bid in
excess of $500,000.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Except as set forth on the Disclosure Schedule, each
Shareholder, severally and not jointly, hereby represents and warrants, as to
such Shareholder, to Merger Sub as follows:
SECTION 4.01. Existence and Power; Ownership. If such
Shareholder is a corporation, a trust, a limited liability company or a
partnership, such
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Shareholder has been duly organized and is validly existing and in good
standing under the laws of its jurisdiction of organization. Such Shareholder
owns beneficially all of the shares of Company Stock set forth opposite such
Shareholder's name on Section 4.01 of the Disclosure Schedule hereto (with
respect to such Shareholder, the "Section 4.01 Securities"), free and clear of
all Encumbrances (other than under existing shareholder agreements, which will
be terminated upon consummation of the transactions contemplated hereby).
SECTION 4.02. Authorization. The execution, delivery and
performance by such Shareholder of this Agreement, and the consummation by such
Shareholder of the transactions contemplated hereby, are within such
Shareholder's power and authority, corporate or otherwise, and have been duly
authorized by all necessary action, corporate or otherwise, on the part of such
Shareholder. This Agreement constitutes a legally valid and binding obligation
of such Shareholder enforceable against such Shareholder in accordance with its
terms, subject to the effect of any applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors' rights generally and
general principles of equity, regardless or whether such enforceability is
considered in a proceeding in equity or at law.
SECTION 4.03. Noncontravention. The execution, delivery and
performance by such Shareholder of this Agreement does not and will not (i) in
the case of a Shareholder that is a corporation, a trust, a limited liability
company or a partnership, contravene or conflict with the certificate of
incorporation or other governing document of such Shareholder, (ii) conflict
with or violate in any material respect any Law or Governmental Order applicable
to such Shareholder, or (iii) result in any material breach of, or constitute a
material default (or event which with the giving of notice or lapse of time, or
both, would become a material default) under, or give to others any material
right of termination, amendment, acceleration or cancellation of, or result in
the creation of any material Encumbrance on any of the assets or properties of
such Shareholder pursuant to any material contract to which such Shareholder is
a party. Such Shareholder has not entered into any voting agreement with or
granted any person any proxy (revocable or irrevocable) with respect to such
Shareholder's Section 4.01 Securities (other than this Agreement and the Stock
Purchase and Consent Agreements).
SECTION 4.04. Transaction; Brokers. No broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission payable by the Company or Merger Sub in connection with the
transactions contemplated by this Agreement based upon any agreement entered
into by such Shareholder, in its capacity as a shareholder.
ARTICLE V.
[INTENTIONALLY LEFT BLANK]
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ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
Merger Sub represents and warrants to the Company as follows:
SECTION 6.01. Incorporation and Authority of Merger Sub.
Merger Sub is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of California and has all necessary
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Merger Sub and the consummation by Merger Sub of the transactions
contemplated hereby has been duly authorized by all requisite corporate action
on the part of Merger Sub. This Agreement has been duly executed and delivered
by Merger Sub, and (assuming due authorization, execution and delivery by the
other parties hereto) constitutes a legally valid and binding obligation of
Merger Sub enforceable against it in accordance with its terms, subject to the
effect of any applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally and to the effect of general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
SECTION 6.02. Capital Stock of Merger Sub. The authorized
capital stock of Merger Sub will at the Closing consist of shares of common
stock, par value $.001 per share ("Merger Sub Common Stock"), classified into
classes of shares of nonvoting Merger Sub Common Stock; shares of supervoting
Merger Sub Common Stock and shares of one-vote Merger Sub Common Stock.
Immediately after the Investment and prior to the Merger, 18,222,291 shares of
Merger Sub Common Stock will be issued and outstanding, and all will be held by
the Investors. Such shares of capital stock have been duly authorized and will
be validly issued, fully paid and nonassessable and will not be issued in
violation of any preemptive rights. There will be no other shares of capital
stock or other voting securities of Merger Sub outstanding and, other than as
contemplated hereby, no options, warrants or rights of conversion or other
rights (whether preemptive, subscription or similar), agreements, arrangements
or commitments relating to the capital stock of Merger Sub obligating Merger Sub
to issue or sell any of its shares of capital stock.
SECTION 6.03. Merger Sub Liabilities and Assets. Merger Sub
has no liabilities or contractual obligations other than those incurred in
connection with the transactions contemplated by this Agreement. Assuming
performance by all parties to the Stock Subscription Agreement, immediately
prior to the Merger, Merger Sub will have $16,382,291 in net cash proceeds and
$1,170,000 in promissory notes from certain members of GTP from the sale of
Merger Sub Common Stock.
SECTION 6.04. No Conflict. Assuming all consents, approvals,
authorizations and other actions described in Section 6.05 have been obtained
and all filings and notifications listed on Section 6.05 of the Disclosure
Schedule, have been made, and except as may result from any facts or
circumstances relating solely to the Company, the execution,
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delivery and performance of this Agreement by Merger Sub does not and will
not: (a) violate or conflict with the organizational documents of Merger Sub;
(b) conflict with or violate in any material respect any Law or Governmental
Order applicable to Merger Sub; or (c) result in a material breach of, or
constitute a material default (or event which with the giving of notice or
lapse of time, or both, would become a material default) under, or give to
others any material rights of termination, amendment, acceleration or
cancellation of, or result in the creation of any Encumbrance on any of the
assets or properties of Merger Sub pursuant to any material Contract relating
to such assets or properties to which Merger Sub is a party or by which any of
such assets or properties is bound or affected.
SECTION 6.05. Consents and Approvals. No consent, approval,
authorization, license, order or permit of, or declaration, filing or
registration with, or notification to, any Governmental Authority or third party
is required to be made or obtained by Merger Sub in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, except (a) as set forth in Section 6.05 of the
Disclosure Schedule; (b) applicable requirements, if any, of the CGCL, state
securities or blue sky laws and the HSR Act, (c) any novations or consents
required in connection with Government Contracts, (d) any filings required under
the National Industrial Security Program Operating Manual, (e) any filings
required under U.S. export control Laws and (f) as may be necessary as a result
of any facts or circumstances relating solely to the Company.
SECTION 6.06. Absence of Litigation. (a) There are no Actions
pending against Merger Sub or any of its Affiliates or any of the assets or
properties of Merger Sub or any of its Affiliates that, individually or in the
aggregate, would prevent Merger Sub from consummating the transactions
contemplated hereby and (b) (assuming receipt of all consents and approvals
referred to in Section 6.05) Merger Sub, its Affiliates and their respective
assets and properties are not subject to any Governmental Order that would
prevent Merger Sub from consummating the transactions contemplated hereby.
SECTION 6.07. Financing. Merger Sub has provided to the
Company true and complete copies of a commitment letter dated March 4, 1999 from
Bank of America National Trust & Savings Association and Nationsbanc Montgomery
Securities LLC ("BoA"), pursuant to which BoA has committed, subject to the
terms and conditions set forth therein, to fund up to $50,000,000 of borrowings
of the Company incurred pursuant to a senior secured revolving credit facility
and a "highly confident" letter from Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJSC") relating to an offering by the Company of $100,000,000 of
high-yield debt securities. The aforementioned letters shall be referred to as
the "Financing Letters" and the financing to be provided thereunder shall be
referred to as the "Financing." The aggregate proceeds of the Financing, taken
together with the proceeds of the Investment (assuming it occurs) and cash
balances of the Company are in an amount sufficient to pay the aggregate Merger
Consideration, Option Consideration, make the payments required by the Warrant
Termination Agreements, to repay the Company's and its Subsidiaries'
indebtedness together with any interest, premium or penalties payable in
connection therewith, and to pay all fees and expenses to be paid by Merger Sub
or the Company in connection with the transactions contemplated hereby and
thereby.
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SECTION 6.08. Brokers. Except for DLJSC (the fees and expenses
of which shall be paid in full by the Surviving Corporation if the Closing shall
have occurred and by the DLJ Entities if this Agreement is terminated pursuant
to Section 10.01 hereof), no broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Merger Sub or its Affiliates.
ARTICLE VII.
ADDITIONAL AGREEMENTS
SECTION 7.01. Conduct of Business Prior to the Closing.
(a) Unless Merger Sub otherwise agrees in writing (such
agreement not to be unreasonably withheld) and except as otherwise set forth
herein, between the date of this Agreement and the Closing Date, Company will ,
and will cause each Company Subsidiary to (i) conduct the Business only in the
ordinary course; (ii) use reasonable efforts, subject to the limitations set
forth herein, to preserve the current relationships of the Company and the
Company Subsidiaries with their respective customers, suppliers, distributors,
officers and other key employees and other Persons with which the Company and
the Company Subsidiaries have significant business relationships; (iii) use
reasonable efforts to maintain its assets and properties in their current
condition, normal wear and tear excepted; and (iv) maintain its books, accounts
and records in the usual, regular and ordinary manner, on a basis consistent
with past practice.
(b) Except as expressly provided in this Agreement, between
the date of this Agreement and the Closing Date, the Company will not, and shall
cause the Company Subsidiaries not to, do any of the following without the prior
written consent of Merger Sub (which consent shall not be unreasonably
withheld):
(i) except for government liens on work in progress,
create any Encumbrance of any kind on any properties or assets (whether
tangible or intangible) of the Company or any Company Subsidiary, other
than (A) Permitted Encumbrances, (B) Encumbrances that will be released
at or prior to the Closing, (C) Encumbrances on assets having a value
not exceeding $500,000 in the aggregate and (D) Encumbrances relating
to any acquisitions permitted by clause (iii) below;
(ii) except for transactions among the Company and
Company Subsidiaries sell, assign, transfer, lease or otherwise dispose
of or agree to sell, assign, transfer, lease or otherwise dispose of
any of the assets of the Company or any Company Subsidiary having a
value individually exceeding $100,000, other than in the ordinary
course of business consistent with past practice;
(iii) acquire (by merger, consolidation, or
acquisition of stock or assets or otherwise) any corporation,
partnership or other business organization or division thereof, other
than in connection with the transactions set forth in Section
7.01(b)(iii) of
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the Disclosure Schedule and except for transactions with an aggregate
fair market value of less than $1,000,000;
(iv) (A) increase the rate of compensation payable or
to become payable to any of its directors, officers or employees, other
than normal increases in the ordinary course of business consistent
with past practice to Persons receiving cash compensation of less than
$100,000 per annum; (B) pay or provide for any bonus, stock option,
stock purchase, profit sharing, deferred compensation, pension,
retirement or other similar payment or arrangement to or in respect of
any such director, officer or employee except to the extent the Company
or the Company Subsidiaries are, on the date hereof, contractually
obligated to do so or required to do so by Law and except as would not
materially increase the benefits or compensation expense of the Company
and the Company Subsidiaries; and (C) enter into any new, or amend in
any material respect any existing employment, deferred compensation,
severance, or consulting agreement, sales agency or other Contract with
respect to the performance of personal services, except in the ordinary
course of business consistent with past practice with persons receiving
cash compensation of less than $100,000 per annum; provided that any
actions permitted by (A), (B) and (C) would not, in the aggregate,
materially increase the benefits or compensation expense of the Company
and the Company Subsidiaries;
(v) change any method of accounting or accounting
practice used by the Company or any Company Subsidiary;
(vi) issue or sell any additional shares of the
capital stock of, or other equity interests in, the Company or any
Company Subsidiary, or securities convertible into or exchangeable for
such shares or equity interests, or issue or grant of any options,
warrants, calls, subscription rights or other rights of any kind to
acquire additional shares of such capital stock, such other equity
interests, or such securities; except pursuant to Company Options
outstanding on the date hereof and the Warrants outstanding on the date
hereof;
(vii) amend the Company's or any Company Subsidiary's
Articles of Incorporation or Bylaws or equivalent organizational
documents;
(viii) take any action which would interfere with the
consummation of the transactions contemplated hereby, or make such
consummation more difficult or materially delay the consummation of
such transactions;
(ix) incur, guarantee or assume any indebtedness for
borrowed money except for letters of credit in the ordinary course of
business and otherwise which in any event shall not exceed $100,000 in
the aggregate;
(x) declare, set aside or pay any stock split,
dividend or distribution or capital return in respect of any shares of
Company Stock or redeem, purchase or acquire any shares of Company
Stock or Company Options or Warrants (except in connection
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with the repurchase of any Company Stock in accordance with the terms
of any agreements entered into with employees or consultants to the
Company prior to the date hereof, which are set forth in Section
7.01(b)(x) of the Disclosure Schedule);
(xi) agree to take any of the actions specified in
this Section 7.01(b);
(xii) make or change any Tax election, change any
annual Tax accounting period, adopt or change any method of Tax
accounting, file any amended Tax return, enter into any closing
agreement, settle any Tax claim or assessment, surrender any right to
claim a Tax refund, consent to any extension or waiver of the
limitations period applicable to any Tax claim or assessment or take or
omit to take any other action, if any such action or omission would
have the effect of increasing the Tax liability or reducing any Tax
Asset of the Company, any Company Subsidiary, Merger Sub or any
Affiliate of Merger Sub;
(xiii) abandon or permit the lapse of any material
Proprietary Rights owned by the Company or any Company Subsidiary
except as required by contract or by applicable Law;
(xiv) submit any Government Bid in excess of $5
million and where the EBIT margin would be less than 10% without giving
notice of such bids to Merger Sub; in no event shall the Company be
required to obtain Merger Sub's approval for such bids;
(xv) intentionally take any action that would make
the representations and warranties in Article III inaccurate in any
material respect; or
(xvi) enter into any indemnity arrangements with any
directors, officers, shareholders or Affiliates of the Company or any
Company Subsidiary, or waive any claims or rights it may have against
any of the foregoing.
SECTION 7.02. Merger Sub Action Prior to the Closing. Between
the date of this Agreement and the Closing Date, Merger Sub shall not take any
action which would materially interfere with the consummation of the
transactions contemplated hereby, or make such consummation more difficult or
materially delay the consummation of such transactions. Merger Sub agrees to use
its commercially reasonable efforts to consent to and authorize all actions in
connection with the Purchase, the Investment, the Merger and all other
transactions contemplated hereby to which it is a party.
SECTION 7.03. Access to Information. Subject to the terms of
the Confidentiality Agreement(s), from the date of this Agreement until the
Closing, upon reasonable notice, the Company shall, and shall cause the
officers, employees, auditors and agents of the Company, to, (i) afford the
officers, employees and authorized agents and representatives of Merger Sub
reasonable access, during normal business hours, to the offices, properties,
books and records of the Company and the Company Subsidiaries and, in
consultation with the Company, to the Company's key customers, contracting
officers, subcontractors and suppliers, and (ii) furnish to the officers,
employees and authorized agents and representatives of
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Merger Sub such additional financial and operating data and other information
regarding the assets, properties, goodwill and business of the Company and the
Company Subsidiaries as Merger Sub may from time to time reasonably request in
order to assist Merger Sub in connection with this Agreement and to facilitate
the consummation of the transactions contemplated hereby; provided, however,
that Merger Sub shall not unreasonably interfere with any of the businesses or
operations of the Company or any Company Subsidiaries.
SECTION 7.04. Confidentiality. The terms of the
Confidentiality Agreement(s) are hereby incorporated herein by reference and
shall continue in full force and effect until the Closing, at which time such
Confidentiality Agreement(s) shall terminate.
SECTION 7.05. Efforts; Consents; Regulatory and Other
Authorizations; Financing; Shareholder Approval.
(a) Each party hereto shall use its commercially reasonable
efforts to (i) take, or cause to be taken, all appropriate action, and do, or
cause to be done, all things necessary, proper or advisable under applicable Law
or otherwise to promptly consummate and make effective the transactions
contemplated by this Agreement, (ii) obtain all authorizations, consents, orders
and approvals of, and give all notices to and make all filings with, all
Governmental Authorities and other third parties that may be or become necessary
for its execution and delivery of, and the performance of its obligations
pursuant to, this Agreement including, without limitation, those consents set
forth in the Disclosure Schedule, (iii) lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the parties
hereto to consummate the transactions contemplated hereby, and (iv) fulfill all
conditions to this Agreement. Each party will cooperate fully with the other
parties in promptly seeking to obtain all such authorizations, consents, orders
and approvals, giving such notices, and making such filings. In connection with
obtaining such consents from third parties, including the Government, no party
hereto shall be required to make payments, commence litigation or agree to
modifications of the terms of any agreements with third parties, and no material
modification shall be made to any Contract of the Company or any Company
Subsidiary without the consent of Merger Sub, which consent shall not be
unreasonably withheld. The parties hereto agree not to take any action that will
have the effect of unreasonably delaying, impairing or impeding the receipt of
any required authorizations, consents, orders or approvals.
(b) In furtherance and not in limitation of the foregoing
clause (a), each party hereto agrees to make an appropriate filing of a
Notification and Report Form pursuant to the HSR Act with respect to the
transactions contemplated hereby within ten Business Days of the date hereof and
to supply promptly any additional information and documentary material that may
be requested pursuant to the HSR Act and cooperate in connection with any filing
under applicable antitrust Laws and in connection with resolving any
investigation or other inquiry concerning the transactions contemplated by this
Agreement commenced by either the Federal Trade Commission or the Antitrust
Division of the Department of Justice.
(c) In furtherance and not in limitation of the foregoing
clause (a), Merger Sub shall (i) use commercially reasonable efforts to obtain
the Financing; (ii) use reasonable
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efforts to obtain necessary approvals and consents as set forth on Section
9.02(e) of the Disclosure Schedule; provided, however, Merger Sub shall not be
required to agree to any arrangement as a result of which neither (a) GTP or
members of GTP nor (b) any DLJ Entity would control the Surviving Corporation;
and (iii) use reasonable efforts to cause its Affiliates to vote any and all
shares purchased by them in the Purchase in favor of the Merger.
(d) In furtherance and not in limitation of the foregoing
clause (a), the Company shall use its reasonable efforts to provide (i) prior to
the Closing, all documents that Merger Sub may reasonably request relating to
the existence of the Company and the Company Subsidiaries and the authority of
the Company for this Agreement, all in form and substance reasonably
satisfactory to Merger Sub, and (ii) all necessary cooperation in connection
with the arrangement of the Financing to be consummated contemporaneous with or
at or after the Closing in respect of the transactions contemplated by this
Agreement, including without limitation, (x) participation in meetings, due
diligence sessions and road shows, (y) the preparation of offering memoranda,
private placement memoranda, prospectuses and similar documents, and (z) the
execution and delivery of any commitment letters, underwriting or placement
agreements, pledge and security documents, other definitive financing documents,
or other requested certificates or documents, including a certificate of the
chief financial officer of the Company with respect to solvency matters,
provided that the form and substance of any of the material documents referred
to in clause (y), and the terms and conditions of any of the material agreements
and other documents referred to in clause (z), shall be substantially consistent
with the terms and conditions of the Financing Letters.
(e) In furtherance and not in limitation of the foregoing
clause (a), (i) Merger Sub agrees that immediately after consummation of the
Purchase, it shall use its reasonable efforts to obtain the DLJ Approval, and
(ii) the Company shall use its reasonable efforts to obtain the consent of the
other holders of Class A Common Stock in connection with the transactions
contemplated by this Agreement (the "Shareholder Approval").
(f) Notwithstanding anything else contained herein, the
provisions of this Section 7.05 shall not be construed to require any party to
undertake any efforts or to take any action if the result thereof would give
Merger Sub the right to decline to consummate the transactions contemplated by
this Agreement by reason of giving rise to a Substantial Detriment.
(g) The Company, the Behrman Funds and Management shall use
their reasonable best efforts to have finalized and executed the Shareholders'
Agreement, which shall become effective at the Effective Time, by March 26,
1999, it being understood that Merger Sub need not commence the "road show" for
the high-yield debt securities comprising part of the Financing until such
Shareholders' Agreement is so executed.
SECTION 7.06. Further Action. Subject to the terms and
conditions herein provided, each of the parties hereto covenants and agrees to
use its commercially reasonable efforts to deliver or cause to be delivered such
documents and other papers and to take or cause to be taken such further actions
as may be necessary, proper or advisable under applicable Laws to consummate and
make effective the transactions contemplated hereby.
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SECTION 7.07. No Solicitation. From the date hereof through
the Closing or the earlier termination of this Agreement, each of the Company,
its Subsidiaries and Affiliates and their respective officers, directors,
employees, agents and representatives and each Shareholder shall not, directly
or indirectly, enter into, solicit, initiate or continue any discussions or
negotiations with, or encourage or respond to any inquiries or proposals by, or
participate in any negotiations with, or provide any information to, or
otherwise cooperate in any other way with, any corporation, partnership, person
or other entity or group, other than Merger Sub and its officers, directors,
employee, agents and representatives, concerning any sale of the Company or any
Company Subsidiary of all or a substantial portion of their assets, the Business
or any merger, consolidation, liquidation, dissolution or similar transaction
involving the Company or any of its Subsidiaries. Each of the Company and each
Shareholder agrees promptly to notify Merger Sub if after the date hereof the
Company or such Shareholder receives any such inquiry or proposal or offer to
discuss or negotiate any such transaction and will keep Merger Sub advised
promptly of the details and any material changes.
SECTION 7.08. Notification of Certain Matters. Each of the
Company, the Shareholders, and Merger Sub shall give prompt notice to the other
party of the occurrence of any events after the date hereof, which would cause
either (i) a representation or warranty contained in this Agreement to be untrue
or inaccurate in any material respect at the Effective Time, or (ii) any of the
conditions set forth in Article IX to be unsatisfied in any material respect at
the Effective Time; provided that the parties hereto need not give notice with
respect to events that are reported in the financial or general interest
newspapers that do not specifically relate to the Company or Merger Sub.
SECTION 7.09. Indemnification of Officers and Directors.
(a) The Company agrees to honor any indemnity agreements with
officers and directors of the Company in existence as of the date hereof, each
of which is set forth on Section 3.16 of the Disclosure Schedule.
(b) For a period of two years after the Effective Time, the
Company shall for itself and the Company Subsidiaries maintain (to the extent
available in the market) in effect a directors' and officers' liability
insurance policy covering those persons who are currently covered by the
Company's directors' and officers' liability insurance policy with coverage in
amount and scope at least as favorable as the Company's existing coverage;
provided that in no event shall the Company be required to expend in excess of
200% of the annual premium currently paid by the Company for such coverage; and
if such premium would at any time exceed 200% of the such amount, then the
Company shall maintain insurance policies which provide the maximum and best
coverage available at an annual premium equal to 200% of such amount. The
current officers and directors of the Company are intended to be third party
beneficiaries of this Section 7.09.
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SECTION 7.10. Repayment of Senior Debt and Notes; Payment for
Termination of Warrants; Payment of Behrman Capital Fee.
(a) At the Effective Time, the Company shall (i) repay all
amounts owed or outstanding, including principal, accrued interest and any
prepayment premiums or penalties, under (A) that certain Note and Warrant
Purchase Agreement dated as of November 15, 1996 and related Notes (the "Senior
Debt") among the Company, Nomura Holding America Inc., Antares Leveraged Capital
Corp. and First Union Bank of Connecticut, and (B) the Company's 10%
Subordinated Notes due December 2004 (the "Notes"), (ii) pay amounts due under
the Warrant Termination Agreement, attached hereto as Exhibit C (the "Warrant
Termination Agreement"), and (iii) pay all other fees and expenses incurred by
the Company, or for which the Company is otherwise obligated to pay, related to
this Agreement and the transactions contemplated hereby.
(b) At the Effective Time, the Company shall pay Behrman
Capital a financial advisory fee of $2,520,000 (the "Behrman Fee") and the
Company ESOP an additional payment of $400,000.
SECTION 7.11. Books and Records. For a period of seven years
from the Closing, Merger Sub shall, and shall cause the Company and the Company
Subsidiaries to, provide to any Shareholder for any purpose relating to such
Shareholder's ownership of any securities of the Company, access to the books
and records of the Company upon reasonable advance written notice during regular
business hours for the sole purpose of obtaining information for use as
aforesaid and will permit such Shareholder to make such extracts and copies
thereof as may be necessary. Such Shareholder shall reimburse the Company or the
Subsidiary for the reasonable out-of-pocket expenses incurred by any of them in
performing the covenants contained in this Section 7.11.
SECTION 7.12. New Option Plans. After the Effective Time, the
Company shall put into place a new employee stock option plan and a new super
performance stock option plan with options to purchase 5,472,600 shares and
1,756,322 shares, respectively (the "New Option Plans"). In addition, the
Company will grant to members of GTP options to purchase an aggregate of
1,272,700 shares.
SECTION 7.13. Voting; Termination of Registration Rights(a).
Each Shareholder agrees as follows:
(i) During the period (the "Agreement Period")
beginning on the date hereof and ending on the earlier of the (A)
Effective Time and (B) the termination of the Agreement in accordance
with Section 10.01, such Shareholder shall vote at any shareholder
meetings or adjournments thereof, or give its written consent with
respect to, its Section 4.01 Securities to approve and adopt this
Agreement, the Merger and the other transactions contemplated hereby.
(ii) During the Agreement Period, such Shareholder
hereby agrees that it will not vote any of such Shareholder's Section
4.01 Securities in favor of
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the approval of any other merger, consolidation, sale of assets,
reorganization, recapitalization, liquidation or winding up of the
Company or any other extraordinary transaction involving the Company
or any matters related to or in connection therewith, or any
corporate action relating to or the consummation of which would
either frustrate the purposes of, or prevent or delay the
consummation of, the transactions contemplated by the Agreement.
(iii) Such Shareholder agrees not to exercise any
rights (including, without limitation, under Section 1300 of the CGCL)
to demand appraisal of any shares of Company Stock owned by such
Shareholder in connection with the Merger.
(iv) The parties hereto agree that if for any reason
any party hereto shall have failed to perform its obligations under
this Section 7.13, then the party seeking to enforce this Section
against such non-performing party shall be entitled to specific
performance and injunctive and other equitable relief against such
non-performing party, and the parties hereto further agree to waive any
requirement for the securing or posting of any bond in connection with
the obtaining of any such injunctive or other equitable relief. This
provision is without prejudice to any other rights or remedies, whether
at law or in equity, that any party hereto may have against any other
party hereto for any failure to perform its obligations under this
Agreement.
(v) Such Shareholder will execute and deliver any
additional documents reasonably requested by Merger Sub to complete and
effectuate the agreements contained in this Section 7.13. Except as
contemplated by this Agreement, such Shareholder agrees not to transfer
any of its Section 4.01 Securities during the Agreement Period.
(b) The Company and each Behrman Fund hereby agrees that at
the Effective Time, the Registration Rights Agreement dated October 1996 among
the Company and the Behrman Funds shall terminate and be of no further force or
effect, and each Behrman Fund hereby agrees that during the Agreement Period it
shall not exercise any rights thereunder.
SECTION 7.14. Company ESOP. The Company intends to terminate
the Company ESOP and merge any remaining assets into the Company's 401(k) plan.
ARTICLE VIII. [RESERVED]
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ARTICLE IX.
CONDITIONS TO CLOSING
SECTION 9.01. Conditions to Obligations of the Company. The
obligations of the Company to consummate the Merger and the other transactions
to which it is a party contemplated by this Agreement to be consummated as of
the Closing shall be subject to the fulfillment or written waiver, at or prior
to the Closing, of each of the following conditions:
(a) Representations and Warranties; Covenants. (i) The
representations and warranties of Merger Sub contained in this Agreement (A)
that are qualified by materiality shall be true and correct at and as of the
Closing as if made at and as of such time, and (B) that are not qualified by
materiality shall be true and correct in all material respects at and as of the
Closing (or, in the case of representations and warranties which address matters
only as of a particular date, as of such date), except for changes specifically
permitted or required by this Agreement, (ii) the covenants and agreements
contained in this Agreement to be complied with by Merger Sub at or prior to the
Closing, shall have been complied with in all material respects; and (iii) the
Company shall have received a certificate of Merger Sub as to the matters set
forth in clauses (i) and (ii) above signed by a duly authorized executive
officer of Merger Sub.
(b) No Order. No U.S. Governmental Authority shall have
enacted, issued, promulgated, enforced or entered any Governmental Order which
is in effect as of the Closing and has the effect of making the transactions
contemplated by this Agreement illegal or otherwise prohibiting consummation of
such transactions.
(c) HSR Act. The applicable waiting period under the HSR Act
shall have expired or been terminated.
(d) Governmental Approvals; Third Party Consents. All consents
and approvals of Governmental Authorities set forth in Section 9.01(d) of the
Disclosure Schedule shall have been obtained and all third party consents set
forth in Section 9.01(d) of the Disclosure Schedule shall have been obtained.
(e) DLJ Approval. The DLJ Approval shall have been obtained.
(f) Solvency Opinion. The Board of Directors of the Company
shall have received an opinion, in form and substance reasonably acceptable to
it, from Houlihan Lokey Howard & Zukin relating to the solvency of the Company
after giving effect to the Purchase, the Merger, the Investment and the
Financing and the other transactions contemplated hereby.
(g) Legal Opinions. The Board of Directors of the Company
shall have received opinions of outside counsel to Merger Sub, dated the Closing
Date to the effect specified in Exhibit D hereto.
(h) Purchase and Investment. The Purchase and the Investment
shall have been consummated immediately prior to the Merger; provided that if
Behrman Capital II, L.P.,
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Strategic Entrepreneur Fund II, L.P. or members of GTP fail to purchase any
number of the shares of Merger Sub Common Stock contemplated to be purchased
by them in the Investment, and the DLJ Entities purchase a number of shares of
Merger Sub Common Stock equal to such number, the Investment shall be deemed
to have occurred for purposes of this subsection (h).
SECTION 9.02. Conditions to Obligations of Merger Sub. The
obligations of Merger Sub to consummate the Investment, the Merger and the other
transactions contemplated by this Agreement to be consummated as of the Closing
shall be subject to the fulfillment or waiver, at or prior to the Closing, of
each of the following conditions:
(a) Representations and Warranties; Covenants. (i) Except for
changes specifically permitted or required by this Agreement, the
representations and warranties of the Company contained in this Agreement (A)
that are qualified by materiality or Material Adverse Effect shall be true and
correct at and as of the Closing as if made at and as of such time, and (B) that
are not qualified by materiality or Material Adverse Effect shall be true and
correct in all material respects at and as of the Closing as if made at and as
of such time (except to the extent such representations and warranties speak as
of an earlier specific date); (ii) the covenants and agreements contained in
this Agreement to be complied with by the Company at or prior to the Closing
shall have been complied with in all material respects; (iii) Merger Sub shall
have received a certificate of the Company as to the matters set forth in
clauses (i) and (ii) above signed by a duly authorized executive officer of the
Company; (iv) the representations and warranties of each Shareholder contained
in this Agreement, and of each of the parties to the Stock Purchase Agreements
(other than Other Sub) contained in such agreements (A) that are qualified by
materiality shall be true and correct as of the Closing as if made at and as of
such time, and (B) that are not qualified by materiality shall be true and
correct in all material respects at and as of the Closing as if made at and as
of such time; and (v) the covenants and agreements contained in this Agreement
to be complied with by the Shareholders and of each of the parties to the Stock
Purchase Agreements (other than Other Sub) contained in such agreements at or
prior to Closing shall have been complied with in all material respects.
(b) No Order. No U.S. Governmental Authority shall have
enacted, issued, promulgated, enforced or entered any Governmental Order which
is in effect as of the Closing and which results in (i) a restraint, prohibition
or other interference with the ownership, control or operation (as contemplated
in the term sheet for the Shareholders' Agreement attached hereto as Exhibit E
(the "Term Sheet") of all or any material portion of the business of the Company
and the Company Subsidiaries, taken as a whole, (ii) the imposition or
confirmation of any material limitations on the ability effectively to exercise
full rights of ownership of the securities of the Company or the Surviving
Corporation (as contemplated in the Term Sheet), (iii) a requirement that any
securities of the Company or the Surviving Corporation or any material part of
the Business be divested, or (iv) of making the transactions contemplated by
this Agreement illegal or otherwise prohibiting consummation of such
transactions (each of (i) through (iv), a "Substantial Detriment").
(c) HSR Act. The applicable waiting period under the HSR Act
shall have expired or been terminated.
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(d) Material Adverse Effect. Since the date of this Agreement
there shall not have been any Material Adverse Effect.
(e) Governmental Approvals. (i) All consents and approvals set
forth in Section 9.02(e) of the Disclosure Schedule shall have been obtained
substantially on the terms set forth in such Section 9.02(e), (ii) all other
required approvals or consents of any Governmental Authority in connection with
the Merger and the consummation of the other transactions contemplated hereby
shall have been obtained unless the failure to receive any such approval or
consent would not be reasonably likely, directly or indirectly, to result in a
Substantial Detriment, or have a Material Adverse Effect, and (iii) all such
approvals and consents which have been obtained shall be on terms that are not
reasonably likely, directly or indirectly, to result in a Substantial Detriment
or have a Material Adverse Effect. It is understood, however, that any novations
required in connection with the Government Contracts or subcontracts thereunder
need not be obtained prior to Closing.
(f) Shareholder Approval. The Shareholder Approval shall have
been obtained.
(g) Resignations. Prior to the Effective Time, each member of
the Board of Directors of the Company, except those set forth on Section 9.02(g)
of the Disclosure Schedule, shall have executed a letter of resignation which
shall become effective as of the Effective Time.
(h) Financing. The funds contemplated by the Financing Letters
shall have been made available to the Company.
(i) Legal Opinions. Merger Sub shall have received an opinion
of outside counsel to the Company dated the Closing Date to the effect specified
in Exhibit F hereto.
(j) FIRPTA. Merger Sub shall have received, for the benefit
and use of the Investors, a certificate signed by an officer of the Company to
the effect that the interests in the Company to be transferred in the
transactions contemplated hereby do not constitute a "U.S. real property
interest," within the meaning of Section 897(c)(1) of the Code and Treasury
Regulations Section 1.897-2(h)(1)(i).
(k) Purchase and Investment. The Purchase and the Investment
shall have been consummated immediately prior to the Merger.
(l) Employment Contracts. The Company and Robert E. Young II
shall have entered into an employment agreement on the terms previously agreed
between Mr. Young and Merger Sub, and certain other key employees listed on
Section 9.02(l) of the Disclosure Schedule shall have entered into employment
contracts with the Company, which will contain standard noncompetition,
nonsolicitation and confidentiality provisions and other terms reasonably
satisfactory to Merger Sub.
(m) No Litigation. There shall not be instituted or pending
any action or proceeding by any Governmental Authority or Person before any
Governmental Authority,
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seeking damages, equitable relief or any other remedy that could reasonably be
expected to result in a Substantial Detriment or a Material Adverse Effect.
(n) Voting Arrangements. Other than this Agreement, the Stock
Purchase Agreements and the Shareholders' Agreement (as defined below), there
shall be no voting trusts, shareholder agreements, proxies or other agreements
in effect with respect to the governance of the Company or any Company
Subsidiary or the voting or transfer of any shares of their capital stock or
other interests therein.
(o) Shareholders' Agreement. A Shareholders' Agreement (the
"Shareholders' Agreement") substantially on the terms set forth in the Term
Sheet and otherwise on such terms as may be agreed shall have been duly executed
by all the parties thereto and counterparts thereof shall have been delivered to
Merger Sub.
(p) BancAmerica Engagement Letter. The engagement letter dated
September 14, 1998 (together with any amendments thereto) between BancAmerica
Securities, Inc. and Condor Systems, Inc. shall have been terminated, as
contemplated in the relevant Financing Letter with BoA.
(q) Recapitalization. PricewaterhouseCoopers LLC shall have
reasonably concluded that the Merger shall be recorded as a "recapitalization"
for financial reporting purposes.
(r) Option and Warrant Holders. All holders of Warrants shall
have agreed in writing to the cancellation of the Warrants pursuant to the
Warrant Termination Agreement, and holders of all Company Options, other than
Company Options which in the aggregate are not exercisable for more than 500,000
shares of Class B Common Stock, shall have agreed in writing to the cancellation
of such Company Options on the terms set forth in the Option Termination
Agreement.
(s) Receipt of Financial Information. Merger Sub shall have
received from the Company unaudited financial statements for each month of 1999
for which financial statements are readily available immediately prior to the
Closing.
(t) New Option Plans. The allocations to employees under the
New Option Plans shall have been agreed by Merger Sub and the Company and shall
be reasonably acceptable to Merger Sub.
ARTICLE X.
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.01. Termination. This Agreement may be terminated
and the Purchase, the Merger and the Investment may be abandoned at any time
prior to the Closing, before or after the approval of the shareholders of the
Company and Merger Sub:
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(a) by the mutual written consent of the Company and Merger
Sub;
(b) by either Company or Merger Sub by written notice to the
other, if any U.S. Governmental Authority with jurisdiction over such matters
shall have issued a Governmental Order permanently restraining, enjoining or
otherwise prohibiting the Purchase, the Merger or the Investment and such
Governmental Order shall have become final and unappealable;
(c) by either Merger Sub or Company by written notice to the
other if the Closing shall not have been consummated on or before May 5, 1999,
unless the failure to consummate the Closing is the result of a default under
this Agreement by the party seeking to terminate the Agreement or unless Company
and Merger Sub have mutually consented in writing to extend the foregoing date;
or
(d) by Merger Sub if the holders of all Company Options (other
than Company Options exercisable for 500,000 or fewer shares of Class B Common
Stock), have not, within 40 days of the date hereof, agreed in writing to the
cancellation of such Company Options on the terms set forth in the Option
Termination Agreement.
SECTION 10.02. Effect of Termination. In the event of
termination of this Agreement and abandonment of the Purchase, the Merger and
the Investment as provided in Section 10.01, this Agreement shall forthwith
become void and there shall be no liability on the part of any party hereto
except that nothing herein shall relieve either party from liability for any
willful breach of any agreement hereunder. Section 7.04 and Article XI (except
Section 11.04) hereof shall survive termination of this Agreement.
ARTICLE XI.
GENERAL PROVISIONS
SECTION 11.01. Nonsurvival of Representations, Warranties and
Agreements. None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for the agreements contained in Article II,
Section 6.08, Section 7.09, Section 7.10, Section 7.11 and Article XI and any
other agreement which contemplates performance after the Effective Time. No
claim shall be made for the breach of any representation, warranty, covenant,
agreement or obligation in this Agreement, any ancillary agreement or under any
certificate delivered with respect thereto under this Agreement after the
Closing Date other than claims for breach of the covenants and agreements that
survive the Closing.
SECTION 11.02. Expenses. Except as provided in Section 6.08 or
11.15, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses,
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except that all costs and expenses of Merger Sub, Other Sub, and the DLJ
Entities shall be paid by Surviving Corporation if the Closing shall have
occurred.
SECTION 11.03. Notices. All notices, requests, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given or made as follows: (a) if sent by registered or certified mail
in the United States return receipt requested, upon receipt; (b) if sent by
nationally recognized overnight air courier (such as DHL or Federal Express),
two Business Days after mailing; (c) if sent by facsimile transmission, with a
copy mailed on the same day in the manner provided in (a) or (b) above, when
transmitted and receipt is confirmed; or (d) if otherwise actually personally
delivered, when delivered, and shall be delivered as follows (or to such other
address as any party shall provide by like notice to the other parties hereto):
(a) if to the Company or the Shareholders:
Condor Systems, Inc.
2133 Samaritan Drive
San Jose, California 95124
Attn: Gary M. Viljoen, Chief Financial Officer
with copies to:
Latham & Watkins
135 Commonwealth Drive
Menlo Park, CA 94025
Attn: Peter Kerman, Esq.
(b) if to Merger Sub:
DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
Attn: David Jaffe
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attn: Christopher Mayer, Esq.
SECTION 11.04. Public Announcements. Unless otherwise required
by applicable Law, no party to this Agreement shall make any public
announcements in respect of this Agreement or the transactions contemplated
hereby or otherwise communicate with any news media without the prior consent of
the other parties hereto (which consent shall not be unreasonably withheld). If
a public statement is required to be made pursuant to the foregoing
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sentence, the parties shall consult with each other, to the extent reasonably
practicable, in advance as to the contents and timing thereof.
SECTION 11.05. Interpretation. The section headings in this
Agreement are for convenience of reference only and shall not be deemed to alter
or affect the meaning or interpretation of any provision hereof. References to
Sections or Articles, unless otherwise indicated, are references to Sections or
Articles of this Agreement. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties, and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of any
of the provisions of this Agreement. Any reference to any federal, state, local
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" means including without limitation. Words (including defined
terms) in the singular shall be held to include the plural and vice versa and
words of one gender shall be held to include the other gender as the context
requires. The terms "hereof", "herein" and "herewith" and words of similar
import shall, unless otherwise stated, be construed to refer to this Agreement
as a whole (including all of the Schedules and Exhibits hereto) and not to any
particular provision of this Agreement unless otherwise specified. All
accounting terms not specifically defined herein shall be construed in
accordance with GAAP.
SECTION 11.06. Severability. In the event that any one or more
of the provisions contained in this Agreement or in any other instrument
referred to herein, shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement or any other such
instrument and the parties shall use their reasonable efforts to substitute one
or more valid, legal and enforceable provisions which insofar as practicable
implement the purposes and intent hereof. Any provision of this Agreement held
invalid or unenforceable only in part, degree or certain jurisdictions will
remain in full force and effect to the extent not held invalid or unenforceable.
To the extent permitted by applicable Law, each party waives any provision of
Law which renders any provision of this Agreement invalid, illegal or
unenforceable in any respect.
SECTION 11.07. Entire Agreement. This Agreement (including the
Disclosure Schedule and the Exhibits and Schedules hereto) and the
Confidentiality Agreement(s) constitute the entire agreement of the parties
hereto with respect to the subject matter hereof and supersede all prior
agreements and undertakings, both written and oral, among the Company, Merger
Sub and the Shareholders with respect to the subject matter hereof.
SECTION 11.08. Assignment. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, and any purported assignment or other
transfer without such consent shall be void and unenforceable. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and assigns.
52
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SECTION 11.09. No Third Party Beneficiaries. Except as
specifically provided in Section 7.09 and 2.14, this Agreement is for the sole
benefit of the parties hereto and nothing herein, express or implied, is
intended to or shall confer upon any other Person any legal or equitable right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 11.10. Waivers and Amendments. This Agreement may be
amended or modified only by a written instrument executed by the parties hereto;
provided that Section 2.14 may only be amended with the additional consent of
Persons set forth on Section 2.14 of the Disclosure Schedule whose percentages
set forth opposite their names aggregate in excess of 50%. Any failure of the
parties hereto to comply with any obligation, covenant, agreement or condition
herein may be waived by the party entitled to the benefits thereof only by a
written instrument signed by the party granting such waiver. No delay on the
part of any party hereto in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
hereto of any right, power or privilege hereunder operate as a waiver of any
other right, power or privilege hereunder, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder. Unless otherwise provided, the rights and remedies herein provided
are cumulative and are not exclusive of any rights or remedies which the parties
hereto may otherwise have at law or in equity. Whenever this Agreement requires
or permits consent by or on behalf of a party, such consent shall be given in
writing in a manner consistent with the requirements for a waiver of compliance
as set forth in this Section 11.10.
SECTION 11.11. Equitable Remedies. Each of the parties
acknowledges and agrees that the other parties would be irreparably damaged in
the event any of the provisions of this Agreement are not performed in
accordance with their specific terms or otherwise are breached. Therefore,
notwithstanding anything to the contrary in this Agreement, each of the parties
agrees that the other parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically the performance by such first party under this Agreement, and each
party agrees to waive the defense in any such suit that the other parties have
an adequate remedy at law and to interpose no opposition, legal or otherwise, as
to the propriety of injunction or specific performance as a remedy, and agrees
to waive any requirement to post any bond in connection with obtaining such
relief. The equitable remedies described in this Section 11.11 shall be in
addition to, and not in lieu of, any other remedies at law or in equity that the
parties hereto may elect to pursue.
SECTION 11.12. Governing Law; Consent to Jurisdiction. This
Agreement shall be governed by, and construed in accordance with, the laws of
the State of New York (without giving effect to the conflicts of laws rules
thereof), except that the consummation and effectiveness of the Merger shall be
governed by and construed in accordance with the laws of the State of
California. Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the jurisdiction of any New York State
court, or Federal court of the United States of America, sitting in the Borough
of Manhattan, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement or
53
<PAGE>
the agreements delivered in connection herewith or the transactions
contemplated hereby or thereby or for recognition or enforcement of any
judgment relating thereto, and each of the parties hereby irrevocably and
unconditionally (i) agrees that any claim in respect of any such action or
proceeding may be heard and determined in such New York State court or, to the
extent permitted by law, in such Federal court, (ii) waives, to the fullest
extent it may legally and effectively do so, any objection which it may now or
hereafter have to the laying of venue of any such action or proceeding in any
such New York State or Federal court, and (iii) waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such New York State or Federal court. Each of
the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Each party to
this Agreement irrevocably consents to service of process in the manner
provided for notices in Section 11.03. Nothing in this Agreement will affect
the right of any party to this Agreement to serve process in any other manner
permitted by law.
SECTION 11.13. Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES
AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY
TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE SUCH WAIVER, (ii) IT UNDERSTANDS AND HAS
CONSIDERED THE IMPLICATIONS OF SUCH WAIVER, (iii) IT MAKES SUCH WAIVER
VOLUNTARILY, AND (iv) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.13.
SECTION 11.14. Exclusivity of Representations and Warranties.
It is the explicit intent and understanding of each of the parties hereto that
no party hereto nor any of its Affiliates, representatives or agents is making
any representation or warranty whatsoever, oral or written, express or implied,
other than those set forth in this Agreement, and none of the parties hereto is
relying on any statement, representation or warranty, oral or written, express
or implied, made by another party or such other party's Affiliates,
representatives or agents, except for the representations and warranties set
forth herein.
SECTION 11.15. Costs and Attorneys' Fees. In the event any
action, suit or other proceeding is instituted concerning or arising out of this
Agreement, the prevailing party shall recover all of such party's costs and
reasonable attorneys' fees incurred in each and every such action, suit or other
proceeding, including any and all appeals and petitions therefrom.
54
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SECTION 11.16. Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original, but
all of which taken together shall constitute one and the same agreement.
55
<PAGE>
IN WITNESS WHEREOF, the Company, Merger Sub and the
Shareholders (solely with respect to Article IV and Sections 7.07 and 7.13) have
caused this Agreement to be executed as of the date first written above.
CONDOR SYSTEMS, INC.
By: /s/ Gary M. Viljoen
-----------------------------------
Name: Gary M. Viljoen
Title: Chief Financial Officer
WDC ACQUISITION CORP.
By: /s/ Kirk B. Wortman
-----------------------------------
Name: Kirk B. Wortman
Title: President
56
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SHAREHOLDERS (agreed as to Articles IV and Sections 7.07 and 7.13 only)
BEHRMAN FUNDS
BEHRMAN CAPITAL, L.P.
By: Behrman Brothers, L.P.,
its General Partner
By: /s/ William M. Matthes
-----------------------------------
William M. Matthes,
General Partner
BEHRMAN CAPITAL "B" L.P.
By: Behrman Brothers L.P.
By: /s/ William M. Matthes
-----------------------------------
William M. Matthes,
General Partner
STRATEGIC ENTREPRENEUR FUND,
L.P.
By: /s/ William M. Matthes
-----------------------------------
William M. Matthes,
General Partner
57
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MANAGEMENT
/s/ Robert E. Young II
---------------------------------------
Robert E. Young II
/s/ John Barnum
---------------------------------------
John L. Barnum
/s/ Vernon A. Dale
---------------------------------------
Vernon A. Dale
/s/ David J. Klingler
---------------------------------------
David J. Klingler
/s/ Thomas A. Michalski
---------------------------------------
Thomas A. Michalski
/s/ Gary M. Viljoen
---------------------------------------
Gary M. Viljoen
58
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INDEX OF EXHIBITS
Exhibit A Financial Advisory Agreement between Behrman Capital, L.P. and the
Company
Exhibit B Financial Advisory Agreement between DLJSC and the Company
Exhibit C Warrant Termination Agreements
Exhibit D Opinion of Davis Polk & Wardwell, Counsel to Merger Sub
Exhibit E Term Sheet for the Shareholders' Agreement
Exhibit F Opinion of Outside Counsel to the Company
59
Exhibit 2.2
March 8, 1999
PERSONAL AND CONFIDENTIAL
WDC Acquisition Corp.
c/o DLJ Merchant Banking Partners II, Inc.
277 Park Avenue
New York, NY 10172
WDC Stock Acquisition Corp.
c/o DLJ Merchant Banking Partners II, Inc.
277 Park Avenue
New York, NY 10172
Gentlemen:
We understand that WDC Acquisition Corp. ("Merger Sub") proposes to
engage in a leveraged recapitalization transaction (the "Recapitalization")
with Condor Systems, Inc. (the "Company") in the manner set forth below. You
have advised us that you propose to complete the Recapitalization in accordance
with the Agreement and Plan of Merger, dated the date hereof (the "Merger
Agreement") among Merger Sub, the Company and certain existing shareholders of
the Company. Pursuant to the Merger Agreement, Merger Sub will merge with and
into the Company, with the Company continuing as the surviving corporation (the
"Merger"). Immediately prior to the Merger, the DLJMB Investors (as defined
herein) will purchase (the "Purchase") from certain existing stockholders of
the Company and from the Company Employee Stock Ownership Plan certain shares
of Class A and Class B Common Stock of the Company. Such purchases will take
place pursuant to a Stock Purchase and Consent Agreement and an ESOP Stock
Purchase Agreement (together, the "Stock Purchase Agreements") between WDC
Stock Acquisition Corp. ("Other Sub") and such respective selling stockholders,
which Other Sub will assign, prior to such purchases, to some or all of the
DLJMB Investors. Pursuant to the Merger, shares of Series A Preferred Stock of
the Company, par value $0.001 per share, will convert into the right to receive
cash, and shares of Class A Common Stock of the Company, par value $0.001 per
share, and Class B Common Stock of the Company, par value $0.001 per share,
will, depending on the identity of the holder, convert into cash or shares of
stock of the surviving corporation, all as set forth in the Merger Agreement.
In the Merger, the shares of Common Stock of Merger Sub purchased as
contemplated by this letter will convert into similar shares of stock of the
surviving corporation, as set forth in the Merger Agreement.
<PAGE>
You have advised us that the total cash proceeds required to
consummate the Recapitalization (including payments with respect to shares of
Company stock, the refinancing of existing indebtedness of the Company, the
cashout of outstanding warrants and employee stock options and the payment of
related fees and expenses) will be approximately $150.9 million (including
shares rolled over by existing shareholders valued at approximately $6.4
million). It is anticipated that the Recapitalization will be financed by (i)
the issuance by the Company, for cash, of $100 million of senior subordinated
notes (the "Notes"), and (ii) the issuance by Merger Sub of shares of common
stock ("Merger Sub Common Stock") to the Investors and the Purchase by the DLJ
Investors, representing an aggregate equity investment of $50.9 million. It is
anticipated that the Company will enter into a new $50 million senior credit
facility with various lenders, Bank of America National Trust and Savings
Association, as Administrative Agent and NationsBanc Montgomery Securities
L.L.C., as Sole Lead Arranger and Sole Book Manager (the "Credit Facility").
The Recapitalization and the Merger, and transactions related or
incidental thereto, including the raising of funds required to consummate the
Recapitalization, are hereafter referred to as the "Transaction".
We are pleased to advise you that each of the following groups: (i)
DLJ Merchant Banking Partners II, L.P., DLJ Merchant Banking Partners II - A,
L.P., DLJ Offshore Partners II, C.V., DLJ Diversified Partners, L.P., DLJ
Diversified Partners - A, L.P., DLJ Millennium Partners, L.P., DLJ Millennium
Partners - A, L.P., DLJMB Funding II, Inc., UK Investment Plan 1997 Partners,
DLJ EAB Partners, L.P., DLJ ESC II, L.P. and DLJ First ESC, L.P. (collectively,
the "DLJMB Investors"), (ii) Behrman Capital II L.P. and Strategic Entrepreneur
Fund II L.P. (together, the "Behrman Investors"), and (iii) Ashton Carter, John
Deutch, Robert Hermann, Paul Kaminski, William Perry, Irving Yoskowitz, and
John White (collectively, the "GTP Investors," and collectively with the DLJMB
Investors and the Behrman Investors, the "Investors") hereby, severally, and
not jointly, commit (the "Commitment") to purchase shares of one or more
classes of Merger Sub Common Stock (and, in the case of the DLJMB Investors,
shares of Class A Common Stock and Class B Common Stock of the Company pursuant
to an assignment of the Stock Purchase Agreements from Other Sub) at the total
aggregate purchase price as is set forth opposite the name of each group of
Investors on Exhibit II attached hereto. The purchase price for the Merger Sub
Common Stock will be $1.00 per share. Except in the case of the GTP Investors,
the Merger Sub Common Stock will be paid for entirely in cash. The GTP
Investors will pay (i) part in cash, (ii) part by cancellation of a fee payable
to GTP in connection with the consummation of the Transaction and (iii) part in
non-recourse notes secured by shares of Merger Sub Common Stock purchased
pursuant to the foregoing (i) and (ii). The purchase of shares of Merger Sub
Common Stock will be made pursuant to, and
2
<PAGE>
upon the terms and conditions of, a Stock Subscription Agreement among the
Investors and Merger Sub, in a form to be agreed by the parties (the "Stock
Subscription Agreement"). The Investors each understand that the shares to be
purchased by them will be subject to a shareholders' agreement to be entered
into at the time of the closing of the Merger, the principal terms of which are
attached as an exhibit to the Merger Agreement. It is further understood by all
parties hereto that in the event that the Behrman Investors and / or the GTP
Investors fail to purchase all or part of the shares of Merger Sub that they
are committing to purchase hereunder, the DLJMB Investors may, at their option,
purchase such shares not purchased by the Behrman Investors and / or the GTP
Investors, with such purchase to be allocated among the DLJMB Investors at such
time.
This Commitment is subject to the following conditions:
(i) the Merger Agreement, Stock Purchase Agreements and
related agreements shall have been duly executed and delivered, in
the form previously provided, and none of which shall have been
amended, waived or otherwise modified in any respect materially
adverse to the interests of any Investor without the written consent
of the DLJMB Investors and the Behrman Investors;
(ii) the Company shall have entered into the Credit
Facility, which shall be in form and substance reasonably
satisfactory to, and none of which shall have been amended without
the written consent of, the DLJMB Investors;
(iii) Merger Sub and the Investors shall have entered into
the Stock Subscription Agreement;
(iv) the Company shall have entered into a securities
purchase agreement or placement agreement with Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJSC") and NationsBanc Montgomery
Securities L.L.C. relating to the purchase or placement by DLJSC and
NationsBanc Montgomery Securities L.L.C. of the Notes, which shall be
in form and substance reasonably satisfactory to, and none of which
shall have been amended without the prior written consent of, the
DLJMB Investors;
(v) the absence of any Material Adverse Effect (as defined
in the Merger Agreement); and
(vi) each of the foregoing transactions, financings or
borrowings shall be consummated substantially simultaneously with any
funding of the commitments described herein.
3
<PAGE>
This Commitment is not assignable by you. Nothing in this letter,
expressed or implied, shall give any person, other than the parties hereto, any
benefit or any legal or equitable right, remedy or claim under this letter.
Merger Sub agrees to indemnify and hold each of the Investors, DLJ
Merchant Banking II, Inc., and Behrman Brothers, L.L.C. harmless to the extent
set forth in Exhibit I to this letter. Notwithstanding the foregoing, all
out-of-pocket costs, expenses and other payments, including but not limited to
legal fees and disbursements, incurred by the Investors in connection with the
negotiation and consummation of the Transaction, whether or not the Transaction
is consummated, shall not be reimbursable under this indemnity but will be paid
as provided in the Merger Agreement.
This Commitment supersedes all prior commitments and undertakings,
both written and oral, by any of the Investors, DLJ Merchant Banking II, Inc.,
and Behrman Brothers, L.L.C. with respect to the subject matter thereof.
This Commitment will expire at 5:00 p.m., New York time, May 5, 1999,
unless the Merger Agreement is terminated in accordance with its terms, in
which case this Commitment will expire as of the date thereof.
This Commitment shall be governed by, and construed in accordance
with, the laws of the State of New York.
4
<PAGE>
Please confirm that the foregoing is in accordance with your understanding by
signing and returning to us an executed duplicate of this letter. Upon your
acceptance hereof, this letter will constitute a binding agreement among us.
Very truly yours,
DLJ MERCHANT BANKING II, INC.
By: /s/ David L. Jaffe
--------------------------------
Name: David L. Jaffe
Title: Managing Director
BEHRMAN BROTHERS, L.L.C.
By: /s/ William M. Matthes
--------------------------------
Name: William M. Matthes
Title: Managing Member
GLOBAL TECHNOLOGY PARTNERS,
L.L.C.
By: /s/ illegible signature
--------------------------------
Name:
Title: Managing Member
Accepted and agreed as of
the date first above written:
WDC ACQUISITION CORP.
By: /s/ Kirk Wortman
---------------------------
Name: Kirk Wortman
Title: President
WDC STOCK ACQUISITION CORP.
By: /s/ Kirk Wortman
---------------------------
Name: Kirk Wortman
Title: President
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EXHIBIT I
Merger Sub agrees to indemnify and hold harmless DLJ Merchant Banking
Partners II, Inc., Behrman Brothers, L.L.C. and each of the Investors, and each
of their respective affiliates and partners, and the respective directors,
officers, agents and employees of any of the foregoing (collectively, the
"Investor Group") from and against any claims, actions, proceedings, demands,
liabilities, damages, judgments, assessments, losses, costs, including fees and
expenses, and other liabilities arising out of or in connection with the
Commitment under the agreement to which this Exhibit I is attached, the
transactions contemplated thereby, or any actions or inactions on behalf of any
of the members of the Investor Group in connection with any such Commitment or
transactions and will reimburse any member of the Investor Group for all such
fees and expenses, including the reasonable fees of counsel, as they are
incurred by any member of the Investor Group in connection with any pending or
threatened litigation, whether or not any member of the Investor Group is a
party. However, notwithstanding anything herein to the contrary, Merger Sub
will not be responsible for any claims, liabilities, losses, damages or
expenses of any member of the Investor Group that are determined by final
judgment of a court of competent jurisdiction to have resulted solely from such
member's willful breach of its Commitment or gross negligence or willful
misconduct in connection with any of the actions or inactions referred to
above. Merger Sub agrees that no member of the Investor Group shall have any
liability, whether in contract, tort or otherwise, for claims, liabilities,
damages, losses or expenses, including legal fees, incurred by Merger Sub
unless they are determined by final judgment of a court of competent
jurisdiction to have resulted solely from such member's willful breach of the
Commitment or gross negligence or willful misconduct in connection with any of
the actions or inactions referred to above.
Capitalized terms used but not defined herein have the meanings set
forth in the agreement to which this Exhibit I is attached.
In case any action shall be brought against any member of the
Investor Group with respect to which indemnity may be sought against Merger Sub
under this agreement, Behrman Brothers, L.L.C. (in the case of a member of the
Behrman Investors), Global Technology Partners, LLC (in the case of a member of
the GTP Investors) or DLJ Merchant Banking II, Inc. (in the case of a member of
the DLJMB Investors) (each, a "Notifying Person") shall promptly notify Merger
Sub in writing; provided that failure to do so shall not relieve Merger Sub
from any liability it may have on account of this indemnity or otherwise,
except to the extent Merger Sub shall have been materially prejudiced by such
failure. Merger Sub shall, if requested by such Notifying Person, assume the
defense of any such action or proceeding, including the employment of counsel
satisfactory to such Notifying Person. and the payment of all fees and expenses
related thereto. The indemnified party shall have
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the right to employ separate counsel in such action and participate in the
defense thereof, but the fees and expenses of such separate counsel shall be at
the expense of such indemnified party unless: (i) Merger Sub has failed to
assume the defense and employ counsel satisfactory to the Notifying Person or
(ii) the named parties to any such action (including any impleaded parties)
include such indemnified party and Merger Sub, and such indemnified party shall
have been advised by such separate counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to Merger Sub, provided, that Merger Sub shall not in such event be
responsible hereunder for the fees and expenses of more than one such firm of
separate counsel for all indemnified parties, in addition to any local counsel.
Merger Sub will not be liable for any settlement of any such action effected
without the written consent of Merger Sub (which shall not be unreasonably
withheld), and, except as provided above, Merger Sub agrees to indemnify and
hold harmless each member of the Investor Group from and against any loss or
liability by reason of settlement of any action effected with the consent of
Merger Sub. In addition, Merger Sub will not, without the prior written consent
of the relevant Notifying Person, settle, compromise or consent to the entry of
any judgment in or otherwise seek to terminate any pending or threatened action
in respect of which indemnification or reimbursement may be sought hereunder
(whether or not any member of the Investor Group is a party thereto), unless
such settlement, compromise, consent or termination includes an unconditional
release of each of the members of the Investor Group from all claims, actions,
proceedings, demands, liabilities, damages, judgments, assessments, losses,
costs and other liabilities arising out of such action.
If any term, provision, covenant or restriction contained in this
Exhibit I is held by a court of competent jurisdiction or other authority to be
invalid, void, unenforceable or against its regulatory policy, the remainder of
the terms, provisions, covenants and restrictions contained herein shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated.
The obligations of Merger Sub set forth herein shall apply to any
modification of the agreement to which this Exhibit I is attached and shall
remain in full force and effect regardless of any termination of, or the
completion of the members of the Investor Group's obligations under the
Commitment and services under or in connection with, such agreement.
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EXHIBIT II
Investors Total Aggregate Purchase Price
- --------- ------------------------------
DLJMB Investors $ 26,500,000
Behrman Investors $ 15,000,000
GTP Investors $ 3,000,000
8
Exhibit 2.3
STOCK PURCHASE AND CONSENT AGREEMENT
AGREEMENT dated as of March 8, 1999 among Condor Systems, Inc., a
California corporation (the "Company"), WDC Stock Acquisition Corp., a
California corporation ("Other Sub"), each of the individuals listed on the
signature pages hereto (each of such individuals, a "Shareholder", and
collectively, the "Shareholders"), and, solely for purposes of Sections 3.01,
3.02, 3.04, and 3.05 (other than 3.05(a), 3.05(b) and 3.05(f)) hereof, Behrman
Capital L.P., Behrman Capital "B" L.P., and Strategic Entrepreneur Fund, L.P.
(the "Behrman Holders").
WHEREAS, it is a condition to the willingness of WDC Acquisition
Corp. ("Merger Sub") to enter into an Agreement and Plan of Merger (the
"Merger Agreement"), among the Company, Merger Sub, and certain shareholders
as set forth therein that this Agreement be entered into;
WHEREAS, certain Shareholders desire to sell, prior to the Merger,
certain shares of Class A and Class B Common Stock of the Company, and Other
Sub is willing to purchase such shares for a price of $4.57785979 per share of
Class A Common Stock, and a price of $0.15922254 per share of Class B Common
Stock, upon the terms and subject to the conditions provided herein;
WHEREAS, certain Shareholders desire to roll over certain shares of
Class A and Class B Common Stock into shares of the surviving corporation in
the Merger, which rollover will be effected pursuant to the Merger Agreement
and the Merger (each such Shareholder, a "Rollover Shareholder");
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to such terms in the
Merger Agreement.
The following terms, as used herein, have the following meanings:
<PAGE>
"Escrow Agent" means a financial institution to be agreed upon prior
to Closing by Other Sub and the Company.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
ARTICLE 2
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale. Upon the basis of the
representations and warranties and agreements contained herein and subject to
the conditions contained herein and in the Merger Agreement, each Shareholder
party hereto hereby agrees to sell to Other Sub, and Other Sub hereby agrees
to purchase from such Shareholder: (a) the number of shares of Class A Common
Stock set forth opposite such Shareholder's name under the column "Class A
Common Stock" on Section 2.02 of the Disclosure Schedule to the Merger
Agreement (the "Disclosure Schedule") and (b) the number of shares of Class B
Common Stock set forth opposite such Shareholder's name under the column
"Class B Common Stock" on Section 2.02 of the Disclosure Schedule. The
aggregate purchase price to be paid in cash by Other Sub for the Company Stock
sold by each such Shareholder hereunder is set forth opposite such
Shareholder's name under the column "Total Purchase Price" on Section 2.02 of
the Disclosure Schedule (with respect to such Shareholder, the "Total Purchase
Price").
SECTION 2.02. Delivery to Escrow Agent. No later than 40 days after
the date hereof, each Shareholder set forth on Section 2.02 of the Disclosure
Schedule shall deliver to the Escrow Agent certificates for the Company Stock
set forth opposite such Shareholder's name on Section 2.02 of the Disclosure
Schedule, duly endorsed or accompanied by stock powers duly endorsed in blank,
with any required transfer stamps affixed thereto, pursuant to the Escrow
Agreement attached as Exhibit A hereto (the "Escrow Agreement"). If the Merger
Agreement is terminated in accordance with its terms, the Company Stock so
deposited shall be returned to such Shareholders.
SECTION 2.03. Closing. The closing of the purchase and sale hereunder
shall take place after the Investment and prior to the Effective Time, at a
closing at the offices of Davis Polk & Wardwell, 450 Lexington Avenue, New
York, NY 10017 (the "Closing"):
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(a) Other Sub shall deliver to the Escrow Agent (for distribution to
the Shareholders listed on Section 2.02 of the Disclosure Schedule), the
aggregate Total Purchase Price to be received by all such Shareholders in
respect of the Company Stock set forth opposite the names of such Shareholders
on such Schedule, by a wire transfer of immediately available funds to an
account to be specified by the Escrow Agent to Other Sub not less than three
business days prior to Closing.
(b) Simultaneously with such wire transfer to the Escrow Agent, the
Escrow Agent shall deliver to Other Sub certificates for the Company Stock set
forth opposite the name of such Shareholders on Section 2.02 of the Disclosure
Schedule, duly endorsed or accompanied by stock powers duly endorsed in blank,
with any required transfer stamps affixed thereto.
ARTICLE 3
CONSENT TO TRANSACTIONS; WAIVER AND TERMINATION OF EXISTING
SHAREHOLDERS' AGREEMENT; GRANTS OF PROXIES
SECTION 3.01. General Acknowledgment and Consent. (a) Each
Shareholder and each Behrman Holder severally represents and warrants to Other
Sub and the Company that it has read this Agreement, the Escrow Agreement and
the Merger Agreement, and hereby consents to all of the transactions
contemplated hereby and thereby.
(b) Each Shareholder and each Behrman Holder acknowledges and agrees
that pursuant to this Agreement and the Merger Agreement, certain holders of
Class A Common Stock and Class B Common Stock will receive cash in the Merger
and others will receive Surviving Corporation Shares (as defined herein) and
as a result will receive different consideration in the Merger.
SECTION 3.02. Unanimous Consent of Series A Preferred Stock. The
Behrman Holders, as record holders of all of the issued and outstanding Series
A Preferred Stock, hereby consent to and adopt, for purposes of all approvals
required to be given by holders of Series A Preferred Stock voting or
consenting as a separate class and voting or consenting as a single class with
all holders of Company Stock, pursuant to Section 603 of the General
Corporation Law of the State of California, the following resolution, waive
any notice required by such Section, and direct that this Consent be filed
with the minutes of proceedings of stockholders of the Company:
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RESOLVED, that the Agreement and Plan of Merger dated as of March 8,
1999 among the Company, Merger Sub, and certain shareholders as set
forth therein, and the transactions contemplated thereby, including
the Merger, are hereby approved in all respects.
SECTION 3.03. Unanimous Consent of Class B Common Stock. The
Shareholders who are record holders of Class B Common Stock, as record holders
of such Class B Common Stock, hereby consent to and adopt, for purposes of all
approvals required to be given by holders of Class B Common Stock voting or
consenting as a separate class and voting or consenting as a single class with
all holders of Company Stock, pursuant to Section 603 of the General
Corporation Law of the State of California, the following resolution, waive
any notice required by such Section, and direct that this Consent be filed
with the minutes of proceedings of stockholders of the Company:
RESOLVED, that the Agreement and Plan of Merger dated as of March 8,
1999 among the Company, Merger Sub, and certain shareholders as set
forth therein, and the transactions contemplated thereby, including
the Merger, are hereby approved in all respects.
SECTION 3.04. Waiver and Termination of Existing Shareholders'
Agreement. To the extent necessary to effectuate the transactions contemplated
by this Agreement and the Merger Agreement, each relevant party hereto hereby
waives any rights that it may have under the Shareholders' Agreement dated as
of October 15, 1996 among the Company, the Behrman Holders, and the other
persons set forth on the signature pages thereto (the "Existing Shareholders'
Agreement") arising out of or in connection with such transactions including
without limitation all rights of first offer and tag-along rights.
Furthermore, each relevant party hereto agrees that effective upon the Closing
of the Merger, the Existing Shareholders' Agreement shall terminate and be of
no further force and effect, and no party thereto shall have any further
rights thereunder.
SECTION 3.05. Irrevocable Proxy; No Appraisal; No Transfer; Escrow
Agreement Power of Attorney. (a) Each Shareholder hereby irrevocably appoints
Robert E. Young II and Gary M. Viljoen (who are acting as nominees of Other
Sub for this purpose) and each of them singly, with full power of substitution
(each, a "Proxy Holder") to be its proxy and to vote all of such Shareholder's
Company Stock for such Shareholder on all matters relating to the Merger
Agreement and the transactions contemplated thereby, until and unless the
Merger Agreement is terminated in accordance with its terms. Other Sub hereby
appoints Robert E. Young II and Gary M. Viljoen as its nominees for purposes
of acting as
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the Proxy Holders. Specifically, each Shareholder irrevocably directs the Proxy
Holders until such time:
(i) to vote at any shareholder meetings or adjournments
thereof, or give its written consent with respect to, the Company
Stock of such Shareholder to approve and adopt the Merger Agreement,
the Merger and the other transactions contemplated hereby; and
(ii) to vote such Shareholder's Company Stock against the
approval of any other merger, consolidation, sale of assets,
reorganization, recapitalization, liquidation or winding up of the
Company or any other extraordinary transaction involving the Company
or any matters related to or in connection therewith, or any
corporate action relating to or the consummation of which would
either frustrate the purposes of, or prevent or delay the
consummation of, the transactions contemplated by the Merger
Agreement.
Robert E. Young II and Gary M. Viljoen each hereby accept the appointments and
direction provided for in this Section 3.05.
(b) Each Shareholder hereby agrees not to exercise any rights
(including, without limitation, under Section 1300 of the CGCL), and
irrevocably directs the Proxy Holders not to exercise any rights, to demand
appraisal of any of such Shareholder's Company Stock in connection with the
Merger.
(c) The parties hereto agree that if for any reason any party hereto
shall have failed to perform its obligations under this Section, then the
party seeking to enforce this Section against such non-performing party shall
be entitled to specific performance and injunctive and other equitable relief
against such non-performing party, and the parties hereto further agree to
waive any requirement for the securing or posting of any bond in connection
with the obtaining of any such injunctive or other equitable relief. This
provision is without prejudice to any other rights or remedies, whether at law
or in equity, that any party hereto may have against any other party hereto
for any failure to perform its obligations under this Agreement.
(d) Each Shareholder and each Behrman Holder agrees to execute and
deliver any additional documents reasonably requested by Other Sub to complete
and effectuate the agreements contained in this Section.
(e) Except as contemplated by this Agreement and the Merger
Agreement, each Shareholder and each Behrman Holder agrees not to transfer any
of its
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Company Stock until and unless the Merger Agreement is terminated in
accordance with its terms.
(f) Each Shareholder constitutes and appoints Robert E. Young II and
Gary M. Viljoen, or either of them, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, to
sign the Escrow Agreement substantially in the form attached hereto as Exhibit
A.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each Shareholder severally represents and warrants to Other Sub and the
Company, to the extent applicable to such Shareholder, that as of the date
hereof and as of the date of Closing:
SECTION 4.01. Existence and Power; Ownership. If such Shareholder is
a corporation, a trust, a limited liability company or a partnership, such
Person has been duly organized and is validly existing and in good standing
under the laws of its jurisdiction of incorporation. Such Shareholder owns
beneficially and of record all of the Company Stock set forth opposite the
name of such Shareholder on Sections 2.02 and 2.09(b)(ii) of the Disclosure
Schedule, and such Shareholder has good and valid title to such Company Stock.
Upon the purchase of any shares of Company Stock from such Shareholder
pursuant to this Agreement, Other Sub will acquire valid title to such shares
free and clear of any Encumbrance and any other limitation or restriction
(including any restriction on the right to vote, sell or otherwise dispose of
such Company Stock), other than limitations and restrictions under applicable
securities laws, and free of any options, warrants, purchase rights,
contracts, or other commitments.
SECTION 4.02. Authorization. The execution, delivery and performance
by such Shareholder of this Agreement and the Escrow Agreement are within such
Shareholder's power and authority, corporate or otherwise, and have been duly
authorized by all necessary action, corporate or otherwise, on the part of
such Shareholder. This Agreement and the Escrow Agreement constitute legally
valid and binding obligations of such Shareholder enforceable against such
Shareholder in accordance with their terms, subject to the effect of any
applicable bankruptcy, reorganization, insolvency, moratorium or similar law
affecting creditors' rights generally and general principles of equity,
regardless of whether such enforceability is considered in a proceeding in
equity or at law.
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SECTION 4.03. Governmental Authorization. To the knowledge of such
Shareholder, the execution, delivery and performance by such Shareholder of
this Agreement and the Escrow Agreement require no action by or in respect of,
or filing with, any governmental body, agency, or official, except as may be
necessary as a result of any facts or circumstances relating solely to Other
Sub.
SECTION 4.04. Non-Contravention. The execution, delivery and
performance by such Shareholder of this Agreement and the Escrow Agreement do
not and will not (i) violate any organizational document of such Shareholder,
(ii) to the knowledge of such Shareholder, violate any material applicable
law, rule, regulation, judgment, injunction, order or decree, (iii) require
any material consent or other action by any Person, or constitute a default
under any material agreement or other instrument binding upon such Shareholder,
or (iv) result in the creation or imposition of any Lien on the Class A Common
Stock, Class B Common Stock, or Series A Preferred Stock of such Shareholder.
SECTION 4.05. Litigation. There is no action, suit, investigation or
proceeding pending against, or to the best knowledge of such Shareholder,
threatened against or affecting, such Shareholder or any of its properties
before any court or arbitrator or any governmental body, agency or official
which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay the transaction contemplated by this Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE ROLLOVER SHAREHOLDERS
Each Rollover Shareholder hereby severally makes the following
representations and warranties to Other Sub and the Company, to the extent
applicable to such Shareholder, as of the date hereof and as of the date of
Closing:
SECTION 5.01. Private Placement. (a) Such Rollover Shareholder is
acquiring the shares of the Surviving Corporation set forth opposite its name on
Section 2.09(b)(ii) of the Disclosure Schedule for investment for its own
account and not with a view to, or for sale in connection with, any
distribution thereof.
(b) Such Rollover Shareholder understands that (i) its
acquisition of shares of stock of the Surviving Corporation ("Surviving
Corporation Shares") pursuant to the Merger Agreement is intended to be exempt
from registration under the Securities Act and (ii) there is only a limited
market for
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such shares, and there can be no assurance that it will be able to sell or
dispose of such shares.
(c) Such Rollover Shareholder's financial situation is such
that such Rollover Shareholder can afford to bear the economic risk of holding
the relevant Surviving Corporation Shares to be acquired pursuant to the
Merger for an indefinite period of time, and such Rollover Shareholder can
afford to suffer the complete loss of the investment in the Surviving
Corporation Shares.
(d) Such Rollover Shareholder's knowledge and experience in
financial and business matters are such that it is capable of evaluating the
merits and risks of the investment in the Surviving Corporation Shares, or
such Rollover Shareholder has been advised by a representative possessing such
knowledge and experience.
(e) Such Rollover Shareholder understands that the Surviving
Corporation Shares to be acquired pursuant to the Merger are a speculative
investment which involves a high degree of risk of loss of the entire
investment therein, that there are substantial restrictions on the
transferability of the Surviving Corporation Shares as set forth in the
shareholders' agreement that will be executed on the Closing Date (a copy of
the term sheet of which is attached as an exhibit to the Merger Agreement),
and that for an indefinite period following the date hereof there will be no
(or only a limited) public market for the Surviving Corporation Shares and
that, accordingly, it may not be possible for such Rollover Shareholder to
sell the Surviving Corporation Shares in case of emergency or otherwise.
(f) Such Rollover Shareholder and its representatives,
including, to the extent it deems appropriate, its professional, financial,
tax and other advisors, have reviewed all documents provided to them in
connection with the investment in the Surviving Corporation Shares, and such
Rollover Shareholder understands and is aware of the risks related to such
investment.
(g) Such Rollover Shareholder and its representatives have
been given the opportunity to examine all documents and to ask questions of,
and to receive answers from, the Company and its representatives concerning
the terms and conditions of the acquisition of the Surviving Corporation
Shares and related matters and to obtain all additional information which such
Rollover Shareholder or its representatives deem necessary.
(h) Such Rollover Shareholder is an "accredited investor,"
as such term is defined in Regulation D under the Securities Act. Such
Shareholder
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has accurately completed the questionnaire given to such Shareholder, a form of
which is attached as Exhibit B hereto, and delivered it to Other Sub.
SECTION 5.02. Compliance with Section 25110 of the California
Corporations Code. Such Rollover Shareholder:
(a) either has a preexisting personal or business relationship with
the Company or any of its partners, officers, directors or controlling
persons, or by reason of its business or financial experience or the business
or financial experience of its professional advisors who are unaffiliated with
and who are not compensated by the Company or any affiliate or selling agent
of the Company, directly or indirectly, could be reasonably assumed to have
the capacity to protect its own interests in the transaction;
(b) is purchasing for its own account (or a trust account if it is a
trustee) and not with a view to or for sale in connection with any
distribution of the security; and
(c) is not making the purchase as a result of the publication of any
advertisement.
Furthermore, such Rollover Shareholder is one or more of the following:
(x) a person who occupies a position with the Company with duties
and authority substantially similar to those of an executive officer of a
corporation;
(y) a person who is receiving $150,000 or more of the Surviving
Corporation Shares in the transaction, and is any one of the following:
(i) a person who, or a person with a professional advisor who,
has the capacity to protect such person's interests in connection with
the transaction;
(ii) a person who is able to bear the economic risk of such
person's investment in the transaction; or
(iii) a person for whom the Surviving Corporation Shares to be
received in the transaction do not constitute over 10% of such
person's net worth or joint net worth with such person's spouse; or
(z) an individual whose net worth, or whose net worth with such
individual's spouse, at the Closing Date will exceed $1,000,000, or an
individual whose income, or whose joint income with such individual's spouse,
exceeded
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$200,000 in each of the two most recent years and who reasonably expects an
income in excess of $200,000 in the current year, provided in either case that
such individual meets the provisions of subparagraph (i), (ii) or (iii) of
subsection (y) above. For the purposes of this subsection, the terms "income"
and "net worth" shall be interpreted in a manner consistent with the
interpretation of those terms as used in subsections (5) and (6) of Rule
230.501(a) under the Securities Act of 1933.
SECTION 5.03. Cash in Lieu of Stock. If, immediately prior to the
date of Closing, Other Sub is not satisfied that the issuance of Surviving
Corporation Shares to any Rollover Shareholder is exempt from registration
under all applicable federal and state securities laws, such Rollover
Shareholder agrees to receive Class A Cash Consideration or Class B Cash
Consideration, as applicable, in the Merger in exchange for its Company Stock
set forth on Section 2.09(b)(ii) of the Disclosure Schedule, instead of
Surviving Company Shares.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF OTHER SUB
Other Sub represents and warrants to each Shareholder that as of the
date hereof and as of the date of Closing
SECTION 6.01. Existence and Power. Other Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of California.
SECTION 6.02. Authority; Binding Effect. The execution, delivery and
performance by Other Sub of this Agreement are within the corporate powers of
Other Sub and have been duly authorized by all necessary action on the part of
Other Sub. This Agreement constitutes a valid and binding agreement of Other
Sub, enforceable against Other Sub in accordance with its terms, subject to
the effect of any applicable bankruptcy, reorganization, insolvency,
moratorium or similar law affecting creditors' rights generally and general
principles of equity, regardless of whether such enforceability is considered
in a proceeding in equity or at law.
SECTION 6.03. Governmental Authorization. Except as set forth in the
Merger Agreement and the Disclosure Schedule with respect to Merger Sub, the
execution, delivery and performance by Other Sub of this Agreement require no
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action by or in respect of, or filing with, any governmental body, agency or
official.
SECTION 6.04. Non-Contravention. Except as set forth in the Merger
Agreement and the Disclosure Schedule with respect to Merger Sub, the
execution, delivery and performance by Other Sub of this Agreement does not
and will not (i) violate any organizational document of Other Sub, (ii)
violate any material applicable law, rule, regulation, judgment, injunction,
order or decree, (iii) require any material consent or other action by any
Person, or constitute a default under any material agreement or other
instrument binding upon Other Sub, or (iv) result in the creation or
imposition of any lien on any material asset of Other Sub.
SECTION 6.05. Purchase for Investment. Other Sub acknowledges that
the Company Stock have not been registered under the Securities Act or any
state securities laws and that the purchase and sale of the Company Stock
contemplated hereby is to be effected pursuant to an exemption from the
registration requirements imposed by such laws. In this regard, Other Sub is
purchasing the Company Stock to be purchased by it hereunder for its own
account and not with a view to, or for sale in connection with, any
distribution thereof in violation of the Securities Act.
SECTION 6.06. Litigation. There is no material action, suit,
investigation or proceeding pending against or, to the knowledge of Other Sub,
threatened against or affecting Other Sub before any court or arbitrator or
any governmental body, agency or official which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay the consummation of the
transactions contemplated hereby.
ARTICLE 7
CONDITIONS TO CLOSING
SECTION 7.01. Conditions to Obligations of Other Sub. The obligation
of Other Sub to consummate the transactions contemplated hereby is subject to
the satisfaction of the following conditions:
(a) All of the conditions to the obligations of Merger Sub
under the Merger Agreement, except for (i) the purchase of shares of
Company Stock pursuant to this Agreement and the ESOP Stock Purchase
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Agreement and (ii) any approval of holders of Class A Common Stock,
shall have been either satisfied or waived.
(b) Each Shareholder shall have complied with its
obligations pursuant to Section 2.02 hereof to deliver its Company
Stock to the Escrow Agent.
(c) Other Sub shall have received certification signed by
each Shareholder to the effect that such Shareholder is not a
"foreign person" as defined in Section 1445 of the Code.
(d) The questionnaires filled out by each Shareholder shall
be true and correct in all material respects at and as of the Closing
Date.
SECTION 7.02. Conditions to Obligations of the Shareholders. The
obligation of the Shareholders to consummate the transactions contemplated
hereby is subject to the satisfaction of the following condition:
(a) All of the conditions to the obligations of the Company under
the Merger Agreement, except for (i) the purchase of shares of
Company Stock pursuant to this Agreement and the ESOP Stock Purchase
Agreement and (ii) any approval of holders of Class A Common Stock,
shall have been either satisfied or waived.
ARTICLE 8
TERMINATION
SECTION 8.01. Termination. If the Merger Agreement is terminated in
accordance with its terms, this Agreement is also terminated in its entirety
and the Escrow Agent shall return the Escrow Shares (as defined in the Escrow
Agreement attached as Exhibit A hereto) to the Shareholders who own such
shares.
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Entire Agreement. This Agreement, together with the
Escrow Agreement and the other agreements contemplated hereby, constitutes the
entire agreement and understanding among the parties hereto and supersedes all
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prior agreements and understandings, both oral and written, among the parties
relating to the subject matter of this Agreement.
SECTION 9.02. Amendments and Waivers. Any provision of this Agreement
may be amended or waived if, but only if, such amendment or waiver is in
writing and is signed, in the case of an amendment, by each party hereto, or
in the case of a waiver, by the party or parties against whom the waiver is to
be effective.
SECTION 9.03. Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, executors, administrators, successors and assigns;
provided that no party may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the consent of each other
party hereto, except that Other Sub may without consent assign its rights and
obligations hereunder to one or more of the following entities: DLJ Merchant
Banking Partners II, L.P., DLJ Merchant Banking Partners II-A, L.P., DLJ
Offshore Partners II, C.V., DLJ Diversified Partners, L.P., DLJ Diversified
Partners-A, L.P., DLJMB Funding II, Inc., DLJ Millennium Partners, L.P., DLJ
Millennium Partners-A, L.P., DLJ EAB Partners, L.P., UK Investment Plan 1997
Partners, DLJ ESC II, L.P., and DLJ First ESC L.P.
SECTION 9.04. Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of New York, without regard to
the conflicts of law rules of such state.
SECTION 9.05. Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
SECTION 9.06. Further Assurances. The Shareholders and Other Sub
agree that, from time to time, each of them will execute and deliver such
further instruments of conveyance and transfer and take all such other action
as may be necessary to carry out the transactions contemplated by the terms of
this Agreement and the terms of the Merger Agreement.
SECTION 9.07. Costs and Expenses. Each of the parties hereto shall
pay its own costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby, any amendment or supplement to or
modification of this Agreement, and any and all other documents furnished
pursuant to or in connection with this Agreement and the transactions
contemplated hereby.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized signatories (or, in the case
of parties that are not corporations, other authorized persons), as of the day
and year first above written.
CONDOR SYSTEMS, INC.
By: /s/ Gary M. Viljoen
---------------------------------
Name: Gary M. Viljoen
Title: Chief Financial Officer
WDC STOCK ACQUISITION CORP.
By: /s/ Kirk Wortman
---------------------------------
Name: Kirk Wortman
Title: President
BEHRMAN CAPITAL L.P. (as to Sections
3.01, 3.02, 3.04, and 3.05 (other
than 3.05(a), 3.05(b) and 3.05(f))
only)
BY BEHRMAN BROTHERS L.P., General
Partner
By: /s/ William M. Matthes
---------------------------------
Name: William M. Matthes
Title:
BEHRMAN CAPITAL "B" L.P. (as to
Sections 3.01, 3.02, 3.04, and 3.05
(other than 3.05(a), 3.05(b) and
3.05(f)) only)
BY BEHRMAN BROTHERS L.P., General
Partner
By: /s/ William M. Matthes
---------------------------------
Name: William M. Matthes
Title:
STRATEGIC ENTREPRENEUR FUND,
L.P. (as to Sections 3.01, 3.02,
3.04, and 3.05 (other than 3.05(a),
3.05(b) and 3.05(f)) only)
By: /s/ William M. Matthes
---------------------------------
Name: William M. Matthes
Title:
14
<PAGE>
SPOUSES OF SHAREHOLDERS: SHAREHOLDERS:
ROBERT E. YOUNG II
By: /s/ Nancy J. Young By: /s/ R.E. Young
- ---------------------------------------- ------------------------------------
Name: Nancy J. Young Name: R.E. Young
JOHN L. BARNUM
By: /s/ J.L. Barnum By: /s/ John L. Barnum
- ---------------------------------------- ------------------------------------
Name: J.L. Barnum Name: John L. Barnum
VERNON A. DALE
By: /s/ Joyce Stanford-Dale By: /s/ Vernon A. Dale
- ---------------------------------------- ------------------------------------
Name: Joyce Stanford-Dale Name: Vernon A. Dale
DAVID J. KLINGLER
By: /s/ Elizabeth Klingler By: /s/ David J. Klingler
- ---------------------------------------- ------------------------------------
Name: Elizabeth Klingler Name: David J. Klingler
THOMAS A. MICHALSKI
By: /s/ Ann T. Michalski By: /s/ Thomas A. Michalski
- ---------------------------------------- ------------------------------------
Name: Ann T. Michalski Name: Thomas A. Michalski
GARY M. VILJOEN
By: /s/ Jennifer M. Viljoen By: /s/ Gary M. Viljoen
- ---------------------------------------- ------------------------------------
Name: Jennifer M. Viljoen Name: Gary M. Viljoen
15
<PAGE>
SPOUSES OF SHAREHOLDERS: SHAREHOLDERS:
JOHN L. TAFT
By: /s/ Donna M. Taft By: /s/ John L. Taft
- ---------------------------------------- ------------------------------------
Name: Donna M. Taft Name: John L. Taft
MICHAEL J. BILINSKI
By: By: /s/ M.J. Bilinski
- ---------------------------------------- ------------------------------------
Name: Name: M.J. Bilinski
TERRANCE SCHMIDT
By: /s/ Teresa Schmidt By: /s/ Terrance Schmidt
- ---------------------------------------- ------------------------------------
Name: Teresa Schmidt Name: Terrance Schmidt
JOHN DOWNS
By: /s/ illegible signature By: /s/ John A. Downs
- ---------------------------------------- ------------------------------------
Name: Name: John A. Downs
BILL BIGAS
By: N/A By: /s/ William R. Bigas
- ---------------------------------------- ------------------------------------
Name: Name: William R. Bigas
WALTER CANNON
By: /s/ Maria B. Cannon By: /s/ Walter C. Cannon
- ---------------------------------------- ------------------------------------
Name: Maria B. Cannon Name: Walter C. Cannon
16
<PAGE>
SPOUSES OF SHAREHOLDERS: SHAREHOLDERS:
RANDALL KRIEGH
By: /s/ Elaine R. Kriegh By: /s/ Randall Kriegh
- ---------------------------------------- ------------------------------------
Name: Elaine R. Kriegh Name: Randall Kriegh
MIKE KEY
By: By: /s/ Michael L. Key
- ---------------------------------------- ------------------------------------
Name: Name: Michael L. Key
3/3/99
THOMAS MULCAHY
By: By: /s/ illegible signature
- ---------------------------------------- ------------------------------------
Name: Name:
MARILYN GOODMAN
By: /s/ Jack Goodman By: /s/ Marilyn Goodman
- ---------------------------------------- ------------------------------------
Name: Jack Goodman Name: Marilyn Goodman
LEILI McPHERSON
By: /s/ James A. McPherson By: /s/ Leili McPherson
- ---------------------------------------- ------------------------------------
Name: James A. McPherson Name: Leili McPherson
BILL CAMPBELL
By: /s/ illegible signature By: /s/ J. William Campbell
- ---------------------------------------- ------------------------------------
Name: Name: J. William Campbell
17
<PAGE>
SPOUSES OF SHAREHOLDERS: SHAREHOLDERS:
VINCENT FATA
By: /s/ Ann Marie Fata By: /s/ Vincent Fata
- ---------------------------------------- ------------------------------------
Name: Ann Marie Fata Name: Vincent Fata
PETER FERA
By: /s/ illegible signature By: /s/ Peter Fera
- ---------------------------------------- ------------------------------------
Name: Name: Peter Fera
JOHN JENSEN
By: /s/ illegible signature By: /s/ John C. Jensen
- ---------------------------------------- ------------------------------------
Name: Name: John C. Jensen
DENNIS RICHARDSON
By: /s/ Laura Richardson By: /s/ Dennis Richardson
- ---------------------------------------- ------------------------------------
Name: Laura Richardson Name: Dennis Richardson
CHARLES LEBER
By: /s/ Patricia E. Lee By: /s/ Charles Leber
- ---------------------------------------- ------------------------------------
Name: Patricia E. Lee Name: Charles Leber
DAVID SABO
By: /s/ illegible signature By: /s/ David Sabo
- ---------------------------------------- ------------------------------------
Name: Name: David Sabo
18
<PAGE>
SPOUSES OF SHAREHOLDERS: SHAREHOLDERS:
DAN CAMILLI
By: /s/ Jennifer J. Camilli By: /s/ Dan Camilli
- ---------------------------------------- ------------------------------------
Name: Jennifer J. Camilli Name: Dan Camilli
GREGORY DONALDSON
By: /s/ illegible signature By: /s/ Gregory Donaldson
- ---------------------------------------- ------------------------------------
Name: Name: Gregory Donaldson
RICHARD McINNIS
By: By: /s/ Richard McInnis
- ---------------------------------------- ------------------------------------
Name: Name: Richard McInnis
DAVID McINTIRE
By: /s/ Velma McIntire By: /s/ illegible signature
- ---------------------------------------- ------------------------------------
Name: Velma McIntire Name:
DENNIS TRIOLO
By: /s/ illegible signature By: /s/ Dennis Triolo
- ---------------------------------------- ------------------------------------
Name: Name: Dennis Triolo
KATHLEEN THOMAS & MICHAEL STONE
TRUSTEES OF THE YOUNG'S CHILDREN
1994 IRREVOCABLE TRUST DATED
12/28/94
By: /s/ illegible signature
------------------------------------
19
<PAGE>
The Young's Children
1994 Irrevocable Trust
Dated 12/28/94
By: /s/ Kathleen Thomas
---------------------------------------
Name: Kathleen Thomas
Title: Trustee
By:____________________________________
Name:
Title: Trustee
20
<PAGE>
EXHIBIT A
ESCROW AGREEMENT
AGREEMENT dated as of ________ __, 1999 among AC Stock Acquisition
Corp., a California corporation ("Other Sub"), ______________ (the "Escrow
Agent"), and the Shareholders (as defined herein).
WHEREAS, it is a condition to the willingness of AC Acquisition Corp.
("Merger Sub") to enter into an Agreement and Plan of Merger (the "Merger
Agreement"), among the Company, Merger Sub, and certain shareholders as set
forth therein, that the Shareholders, Other Sub, and certain other parties
have entered into a Stock Purchase and Consent Agreement pursuant to which,
among other things, Other Sub shall purchase shares of Class A and Class B
Common Stock in Condor Systems, Inc., a Californian corporation (the
"Company") from the Shareholders (the "Stock Purchase and Consent Agreement");
WHEREAS, in accordance with Section 2.02 of the Stock Purchase and
Consent Agreement, the Company Stock to be sold are to be deposited in escrow
with the Escrow Agent within 40 days of the date of execution of the Stock
Purchase and Consent Agreement;
WHEREAS, the Escrow Agent has agreed to serve in accordance with the
terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and mutual
covenants set forth herein, the parties hereto agree as follows:
1. Definitions. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in the Stock
Purchase and Consent Agreement and in the Merger Agreement.
2. Appointment of Escrow Agent. Other Sub and the Shareholders hereby
appoint the Escrow Agent to (i) accept and hold the Company Stock set forth on
Section 2.02 of the Disclosure Schedule, and to deliver such Company Stock
either to Other Sub or return them to the Shareholders in accordance with the
terms of the Stock Purchase and Consent Agreement and this Agreement and (ii)
if the Closing occurs, accept and hold the funds representing payment of the
Total Purchase Price in respect of such Company Stock, and deliver them to the
Shareholders in accordance with the terms of the Stock Purchase and Consent
Agreement and this Agreement. The Escrow Agent hereby accepts such
21
<PAGE>
appointment and agrees to assume and perform the duties of Escrow Agent
pursuant to the terms and conditions of this Agreement.
3. Delivery of Escrow Shares and Total Purchase Price to Escrow
Agent. (a) In accordance with Section 2.02 of the Stock Purchase and Consent
Agreement, within 40 days after the execution of such agreement, each
Shareholder shall deliver to the Escrow Agent the Company Stock set forth
opposite the name of such Shareholder on Section 2.02 of the Disclosure
Schedule, duly endorsed or accompanied by stock powers duly endorsed in blank,
with any required transfer stamps affixed thereto (the "Escrow Shares").
(b) In accordance with Section 2.03 of the Stock Purchase and Consent
Agreement, if the Closing occurs Other Sub shall deliver to the Escrow Agent
on the date of Closing a wire transfer representing the Total Purchase Price
to be received by such Shareholders in respect of all Escrow Shares.
4. Delivery of Escrow Shares and Total Purchase Price By Escrow
Agent.
(a) If the Closing occurs, the Escrow Agent shall deliver all the
Escrow Shares to Other Sub on the date of Closing against confirmation of a
wire transfer of immediately available funds representing the aggregate Total
Purchase Price to be received by all the Shareholders set forth on Section
2.02 of the Disclosure Schedule in respect of such Escrow Shares; and shall
promptly thereafter distribute the Total Purchase Price with respect to each
such Shareholder to such Shareholder, as set forth in the Stock Purchase and
Consent Agreement.
(b) If the Merger Agreement is terminated in accordance with its
terms, the Escrow Agent shall return the Escrow Shares to the Shareholders who
own such Escrow Shares.
5. Liability of Escrow Agent; Indemnification. The Escrow Agent's
duties hereunder are only those as specified in this Agreement and the Stock
Purchase and Consent Agreement and are deemed to be purely ministerial in
nature. The Escrow Agent shall not be compelled to furnish a formal accounting
for the Escrow Shares other than to notify the Shareholders and Other Sub
concerning any deliveries of the Escrow Shares. The Escrow Agent shall not be
responsible for the genuineness of any document or signature and may rely
conclusively upon any notice, agreement, certification, authorization, release
or other written instrument reasonably believed by it to be genuine or to be
signed or to be presented by the proper person, or duly authorized or properly
made. The Escrow Agent will incur no liability under this Agreement except for
willful misconduct or gross negligence. Shareholders and Other Sub agree
jointly and
22
<PAGE>
severally to hold the Escrow Agent harmless from any and all liabilities under
this Agreement, except no such indemnification shall be made for the Escrow
Agent's willful misconduct or gross negligence.
6. Term. The term of this Agreement shall commence as of the date
hereof and terminate upon the date of Closing, or upon the earlier
distribution of the Escrow Shares in accordance with the terms hereof.
6. Fee to the Escrow Agent. The Escrow Agent shall receive no amount
for services rendered under this Agreement.
7. Notices. All notices, requests, demands and other communications
under this Agreement shall be mailed, postage prepaid, registered mail, return
receipt requested, or delivered personally, addressed as follows:
If to Escrow Agent:
[ ]
With a copy to:
[ ]
If to Other Sub:
DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
Attn: David Jaffe
With a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attn: Chris Mayer, Esq.
If to the Shareholders:
Condor Systems, Inc.
2133 Samaritan Drive
San Jose, California 95124
Attn: Robert E. Young II
23
<PAGE>
With a copy to:
Latham & Watkins
135 Commonwealth Drive
Menlo Park, California 94025
Attn: Peter Kerman, Esq.
And to:
Seyfarth, Shaw, Fairweather & Geraldson
55 East Monroe Street
Suite 4200
Chicago, IL 60603
Attn: Theodore E. Cornell III, Esq.
8. Entire Agreement. This Agreement, together with the Merger
Agreement, the Stock Purchase and Consent Agreement, and the other agreements
contemplated thereby, constitutes the entire agreement and understanding among
the parties hereto and supersedes all prior agreements and understandings,
both oral and written, among the parties relating to the subject matter of
this Agreement.
9. Amendments and Waivers. Any provision of this Agreement may be
amended or waived if, but only if, such amendment or waiver is in writing and
is signed, in the case of an amendment, by each party hereto, or in the case
of a waiver, by the party or parties against whom the waiver is to be
effective.
10. Governing Law. This Agreement shall be governed by and construed
in accordance with the law of the State of New York, without regard to the
conflicts of law rules of such state.
11. Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto, except that Other Sub may
without consent assign its rights and obligations hereunder to one or more of
the following entities: DLJ Merchant Banking Partners II, L.P., DLJ Merchant
Banking Partners II-A, L.P., DLJ Offshore Partners II, C.V., DLJ Diversified
Partners, L.P., DLJ Diversified Partners-A, L.P., DLJMB Funding II, Inc., DLJ
Millennium Partners, L.P., DLJ Millennium Partners-A, L.P., DLJ EAB Partners,
L.P., UK Investment Plan 1997 Partners, DLJ ESC II, L.P., and DLJ First ESC
L.P.
24
<PAGE>
12. Counterparts. This Agreement may be executed in counterparts,
each of which will be deemed an original, but all of which when taken together
will constitute one and the same instrument.
25
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has duly executed this
Agreement on the date first above stated.
_______________, as Escrow Agent
By: ___________________________________
Name:
Title:
WDC STOCK ACQUISITION CORP.
By: ___________________________________
Name:
Title:
THE SHAREHOLDERS
By: ___________________________________
Name:
Title: Attorney-in-Fact
26
<PAGE>
EXHIBIT B
I. PLEASE INDICATE TYPE OF OWNERSHIP OF OLD
SECURITIES:
|_| Individual |_| Community Property (Arizona,
California, Idaho, Louisiana,
Nevada, New Mexico, Puerto Rico,
Texas, Washington or Wisconsin)
II. ACCREDITED INVESTOR SECTION
|_| 1. I have an individual net worth or joint net worth
with my spouse in excess of $1,000,000.
|_| 2. I have had an individual income in excess of
$200,000 in each of 1997 and 1998, or joint income
with my spouse in excess of $300,000 in each of
those years, and I reasonably expect to reach the
same level in 1999.
|_| 3. I am a director or executive officer (within the
meaning of Rule 501(f) under the Securities Act of
1933, as amended (the "Securities Act")) of Condor
Systems, Inc.
|_| 4. We are a bank as defined in Section 3(a)(2) of
the Securities Act or a savings and loan
association or other institution as defined in
Section 3(a)(5)(A) of the Securities Act, acting in
our individual or fiduciary capacity.
|_| 5. We are an employee benefit plan within the
meaning of the Employee Retirement Income Security
Act of 1974, as amended, with total assets in
excess of $5,000,000, or if a self-directed plan,
with investment decisions made solely by persons
that are accredited investors.
|_| 6. We are a trust with total assets in excess of
$5,000,000, not formed for the specific purpose of
acquiring the Surviving Corporation Shares, whose
purchase is directed by a sophisticated person as
described in Rule 506(b)(2)(ii) under the
Securities Act.
B-1
<PAGE>
III. OTHER CERTIFICATIONS
By signing this Questionnaire, I certify the following:
(a) that my exchange of Company Stock for Suiting Corporation
Shares will be solely for my own account and not for the
account of any other person, or if we are a trust or a
trustee for a trust, for the account of the beneficiary or
beneficiaries of such trust;
(b) that the name, home address and taxpayer identification
number, and all other statements and certifications set
forth in or contained in this Questionnaire are true,
correct and complete; and
(c) that one of the following is true and correct (check one):
|_| (i) I am a United States citizen or resident of the
United States for United States federal income tax
purposes.
|_| (ii) I am neither a United States citizen nor a resident of
the United States for federal income tax purposes.
B-2
<PAGE>
IV. GENERAL INFORMATION -- PLEASE FILL OUT
COMPLETELY
Name:__________________________________________________________________________
Social Security or Taxpayer Identification Number:_____________________________
Residence Address:_____________________________________________________________
Number and Street)
_______________________________________________________________________________
(City) (State) (Zip Code)
Residence Telephone Number:____________________________________________________
(Area Code) (Number)
Business Address:______________________________________________________________
(Number and Street)
_______________________________________________________________________________
(City) (State) (Zip Code)
Business Telephone Number:_____________________________________________________
(Area Code) (Number)
I prefer to have correspondence sent to: |_| Residence |_| Business
B-3
<PAGE>
V. SIGNATURE
The undersigned represents that (a) he/she has read and understands
all information included with this Questionnaire, (b) the information
contained in this Questionnaire is complete and accurate and (c) he/she is
purchasing for his/her own account (or a trust account if the purchaser is a
trustee) for investment and not with a view to or for sale in connection with
any distribution of the offered securities, and (d) he/she will telephone
Condor Systems, Inc. (contact Gary M. Viljoen, Chief Financial Officer at
408-879-2215) immediately if any material change in any of this information
occurs before the date of the Closing and will promptly send to Condor
Systems, Inc. written confirmation of such change.
---------------------------------, 1997
Date
---------------------------------------
Signature
---------------------------------------
Name (Please Type or Print)
---------------------------------------
Signature of Spouse if
Community Property State
---------------------------------------
Name of Spouse if
Community Property State
(Please Type or Print)
- -------------------------------------------------------------------------------
IF YOU ARE MARRIED AND LIVE IN A COMMUNITY
PROPERTY STATE, BOTH YOU AND YOUR SPOUSE MUST SIGN THIS
QUESTIONNAIRE.
- -------------------------------------------------------------------------------
B-4
Exhibit 2.4
EXECUTION COPY
ESOP STOCK PURCHASE AGREEMENT
AGREEMENT dated as of March __, 1999 among Condor Systems, Inc., a
California corporation (the "Company"), WDC Stock Acquisition Corp., a
California corporation ("Other Sub") and Wells Fargo Bank, N.A., as Trustee
(the "Trustee") under the Company's Employee Stock Ownership Trust Agreement
between the Company and the Trustee, as amended (the "Trust Agreement").
WHEREAS, it is a condition to the willingness of WDC Acquisition
Corp. ("Merger Sub") to enter into an Agreement and Plan of Merger (the "Merger
Agreement"), among the Company, Merger Sub, and certain shareholders as set
forth therein that this Agreement be entered into;
WHEREAS, the Trustee desires to sell, prior to the Merger (and prior
to the approval of the Merger by the holders of Class A Common Stock), all of
the shares of Class A Common Stock held by the Company's Employee Stock
Ownership Plan (the "Plan"), and Other Sub is willing to purchase such shares
for a price of $4.57785979 per share of Class A Common Stock, upon the terms
and subject to the conditions provided herein;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to such terms in the
Merger Agreement.
The following terms, as used herein, have the following meanings:
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
<PAGE>
ARTICLE 2
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale. Upon the basis of the
representations and warranties and agreements contained herein and subject to
the conditions contained herein and in the Merger Agreement, the Trustee hereby
agrees to sell to Other Sub, and Other Sub hereby agrees to purchase from the
Trustee, 3,371,837 shares of Class A Common Stock (the "ESOP Shares"), together
with any rights the Trustee may have as record holder of the ESOP Shares. The
aggregate purchase price to be paid in cash by Other Sub for the ESOP Shares
sold by the Trustee hereunder is $15,435,797 (the "Total Purchase Price").
SECTION 2.02. Closing. The closing of the purchase and sale hereunder
shall take place after the Investment and prior to the Effective Time, at a
closing at the offices of Davis Polk & Wardwell, 450 Lexington Avenue, New
York, NY 10017 (the "Closing"):
(a) Other Sub shall deliver to the Trustee the Total Purchase Price,
by a wire transfer of immediately available funds to an account to be specified
by the Trustee to Other Sub not less than three business days prior to Closing.
(b) Simultaneously with such wire transfer, the Trustee shall deliver
to Other Sub certificates for the ESOP Shares, duly endorsed or accompanied by
stock powers duly endorsed in blank, with any required transfer stamps affixed
thereto.
(c) Provided that the Merger occurs, the Plan shall thereafter be
entitled to (i) the $400,000 fee set forth in Section 7.10(b) of the Merger
Agreement and (ii) the percentage set forth in Schedule 2.14 of the Merger
Agreement of any payments made pursuant to Section 2.14 of the Merger Agreement
(but only to the extent actually made). Any payments made pursuant to this
section (c) shall be allocated and/or distributed to the persons who are
participants in the Plan as of the day immediately prior to the Closing, pro
rata based on the number of shares of Company Stock allocated to them in the
Plan as of such date, pursuant to the provisions of the Plan.
2
<PAGE>
ARTICLE 3
WAIVER AND TERMINATION OF EXISTING SHAREHOLDERS' AGREEMENT; NO
TRANSFER
SECTION 3.01. Waiver and Termination of Existing Shareholders'
Agreement; No Transfer. (a) To the extent necessary to effectuate the
transactions contemplated by this Agreement and the Merger Agreement, the
Trustee hereby waives any rights that it or the Plan may have under the
Shareholders' Agreement dated as of October 15, 1996 among the Company, the
Plan, and the other persons set forth on the signature pages thereto (the
"Existing Shareholders' Agreement") arising out of or in connection with such
transactions. Furthermore, the Trustee agrees that effective upon the Closing
of the Merger, the Existing Shareholders' Agreement shall terminate and be of
no further force and effect, and no party thereto shall have any further rights
thereunder.
(b) Except as contemplated by this Agreement, the Trustee agrees not
to transfer any of the ESOP Shares, or grant any proxies or powers of attorney
with respect to the ESOP Shares, until and unless the Merger Agreement is
terminated in accordance with its terms.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE TRUSTEE
The Trustee represents and warrants to Other Sub that as of the date
hereof and as of the date of Closing:
SECTION 4.01. Existence and Power; Ownership. The Trustee is the
record owner of all of the ESOP Shares, and the Trustee has good and valid
title to such ESOP Shares. Upon the purchase of the ESOP Shares pursuant to
this Agreement, Other Sub will acquire valid title to such Shares free and
clear of any Encumbrance or any other limitation or restriction (including any
restriction on the right to vote, sell or otherwise dispose of such ESOP
Shares), other than limitations and restrictions under applicable securities
laws, and free of any options, warrants, purchase rights, contracts, or other
commitments.
SECTION 4.02. Authorization. The execution, delivery and performance
by the Trustee of this Agreement are within such Trustee's power and authority,
corporate or otherwise, and have been duly authorized by all necessary action,
corporate or otherwise. This Agreement constitutes a legally valid and binding
obligation of the Trustee and the Plan enforceable against the Trustee and the
Plan in accordance with its terms, subject to the effect of any applicable
bankruptcy, reorganization, insolvency, moratorium or similar law affecting
creditors' rights
3
<PAGE>
generally and general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
SECTION 4.03. Governmental Authorization. The execution, delivery and
performance by the Trustee of this Agreement requires no action by or in
respect of, or filing with, any governmental body, agency, or official, except
as may be necessary as a result of any facts or circumstances relating solely
to Other Sub.
SECTION 4.04. Non-Contravention. The execution, delivery and
performance by the Trustee of this Agreement does not and will not (i) violate
any organizational document of the Trustee or the Plan, (ii) violate any
material applicable law, rule, regulation, judgment, injunction, order or
decree, (iii) require any material consent or other action by any Person, or
constitute a default under any material agreement or other instrument binding
upon the Trustee or the Plan, or (iv) result in the creation or imposition of
any Encumbrance on the ESOP Shares.
SECTION 4.05. Litigation. There is no action, suit, investigation or
proceeding pending against, or to the best knowledge of the Trustee, threatened
against or affecting, the Trustee or the Plan or any of its properties before
any court or arbitrator or any governmental body, agency or official which in
any manner challenges or seeks to prevent, enjoin, alter or materially delay
the transaction contemplated by this Agreement.
Section 4.06. Determination by Trustee. The Trustee has determined,
in the exercise of its reasonable judgment, that, assuming the receipt by the
Trustee of the fairness opinion described in Article VI, the transactions
contemplated hereby are in the best interest of the Participants and are in
compliance with all applicable provisions of the Code and ERISA.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF OTHER SUB
Other Sub represents and warrants to the Trustee that as of the date
hereof and as of the date of Closing:
SECTION 5.01. Existence and Power. Other Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of California.
SECTION 5.02. Authority; Binding Effect. The execution, delivery and
performance by Other Sub of this Agreement are within the corporate powers of
Other Sub and have been duly authorized by all necessary action on the part of
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Other Sub. This Agreement constitutes a valid and binding agreement of Other
Sub, enforceable against Other Sub in accordance with its terms, subject to the
effect of any applicable bankruptcy, reorganization, insolvency, moratorium or
similar law affecting creditors' rights generally and general principles of
equity, regardless of whether such enforceability is considered in a proceeding
in equity or at law.
SECTION 5.03. Governmental Authorization. Except as set forth in the
Merger Agreement and the Disclosure Schedule thereto with respect to Merger
Sub, the execution, delivery and performance by Other Sub of this Agreement
require no action by or in respect of, or filing with, any governmental body,
agency or official.
SECTION 5.04. Non-Contravention. Except as set forth in the Merger
Agreement and the Disclosure Schedule thereto with respect to Merger Sub, the
execution, delivery and performance by Other Sub of this Agreement does not and
will not (i) violate any organizational document of Other Sub, (ii) violate any
material applicable law, rule, regulation, judgment, injunction, order or
decree, (iii) require any material consent or other action by any Person, or
constitute a default under any material agreement or other instrument binding
upon Other Sub, or (iv) result in the creation or imposition of any lien on any
material asset of Other Sub.
SECTION 5.05. Purchase for Investment. Other Sub acknowledges that
the ESOP Shares have not been registered under the Securities Act or any state
securities laws and that the purchase and sale of the ESOP Shares contemplated
hereby is to be effected pursuant to an exemption from the registration
requirements imposed by such laws. In this regard, Other Sub is purchasing the
ESOP Shares to be purchased by it hereunder for its own account and not with a
view to, or for sale in connection with, any distribution thereof in violation
of the Securities Act.
SECTION 5.06. Litigation. There is no material action, suit,
investigation or proceeding pending against or, to the knowledge of Other Sub,
threatened against or affecting Other Sub before any court or arbitrator or any
governmental body, agency or official which in any manner challenges or seeks
to prevent, enjoin, alter or materially delay the consummation of the
transactions contemplated hereby.
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ARTICLE 6
CONDITIONS TO CLOSING
SECTION 6.01. Conditions to Obligations of Other Sub. The obligation
of Other Sub to consummate the transactions contemplated hereby is subject to
the satisfaction of the following conditions:
(a) All of the conditions to the obligations of Merger Sub under
the Merger Agreement, except for (i) the purchase of shares of Company
Stock pursuant to this Agreement and the Stock Purchase and Consent
Agreement and (ii) any approval of holders of Class A Common Stock, shall
have been either satisfied or waived.
SECTION 6.02. Conditions to Obligations of the Trustee. The
obligation of the Trustee to consummate the transactions contemplated hereby is
subject to the satisfaction of the following condition:
(a) All of the conditions to the obligations of the Company
under the Merger Agreement except for (i) the purchase of shares of
Company Stock pursuant to this Agreement and the Stock Purchase and
Consent Agreement and (ii) any approval of holders of Class A Common
Stock, shall have been either satisfied or waived.
(b) The Trustee shall have received an updated fairness opinion
from Valuation Research Corporation dated as of the Closing Date
confirming, in all material respects, the fairness opinion that has been
rendered to the Trustee as of the date hereof (a copy of which has been
made available to Other Sub).
ARTICLE 7
TERMINATION
SECTION 7.01. Termination. If the Merger Agreement is terminated in
accordance with its terms, this Agreement is also terminated in its entirety.
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ARTICLE 8
MISCELLANEOUS
SECTION 8.01. Entire Agreement. This Agreement, together with the
other agreements contemplated hereby, constitutes the entire agreement and
understanding among the parties hereto and supersedes all prior agreements and
understandings, both oral and written, among the parties relating to the
subject matter of this Agreement.
SECTION 8.02. Amendments and Waivers. Any provision of this Agreement
may be amended or waived if, but only if, such amendment or waiver is in
writing and is signed, in the case of an amendment, by each party hereto, or in
the case of a waiver, by the party or parties against whom the waiver is to be
effective.
SECTION 8.03. Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, executors, administrators, successors and assigns;
provided that no party may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the consent of each other
party hereto, except that Other Sub may without consent assign its rights and
obligations hereunder to one or more of the following entities: DLJ Merchant
Banking Partners II, L.P., DLJ Merchant Banking Partners II-A, L.P., DLJ
Offshore Partners II, C.V., DLJ Diversified Partners, L.P., DLJ Diversified
Partners-A, L.P., DLJMB Funding II, Inc., DLJ Millennium Partners, L.P., DLJ
Millennium Partners-A, L.P., DLJ EAB Partners, L.P., UK Investment Plan 1997
Partners, DLJ ESC II, L.P., and DLJ First ESC L.P.
SECTION 8.04. Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of New York, without regard
to the conflicts of law rules of such state.
SECTION 8.05. Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
SECTION 8.06. Further Assurances. The Trustee and Other Sub agree
that, from time to time, each of them will execute and deliver such further
instruments of conveyance and transfer and take all such other action as may be
necessary to carry out the transactions contemplated by the terms of this
Agreement and the terms of the Merger Agreement.
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SECTION 8.07. Costs and Expenses. Each of the parties hereto shall
pay its own costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby, any amendment or supplement to or
modification of this Agreement, and any and all other documents furnished
pursuant to or in connection with this Agreement and the transactions
contemplated hereby, provided that the costs and expenses of the Plan and the
Trustee shall be paid by the Company.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized signatories, as of the day and
year first above written.
CONDOR SYSTEMS, INC.
By: /s/ Gary M. Viljoen
--------------------------------
Name: Gary M. Viljoen
Title: Chief Financial Officer
WDC STOCK ACQUISITION CORP.
By: /s/ Kirk Wortman
--------------------------------
Name: Kirk Wortman
Title: President
WELLS FARGO BANK, N.A.,
AS TRUSTEE
By: /s/ Jonathan L. Anderson
--------------------------------
Name: Jonathan L. Anderson
Title: Vice President
EXHIBIT 3.1.1
ACTION BY UNANIMOUS WRITTEN CONSENT
OF THE BOARD OF DIRECTORS
IN LIEU OF A MEETING
OF
WDC ACQUISITION CORP.,
a California corporation
The undersigned, being the sole member of the Board of Directors of
WDC Acquisition Corp., a California corporation, and acting pursuant to
Section 307 of the California Corporations Code hereby consents to, takes and
adopts the following resolutions and actions:
RESOLVED, that the Certificate of Amendment of Articles of
Incorporation of the corporation, substantially in the form attached hereto as
Attachment 1, is hereby deemed advisable and is authorized and approved and
shall be submitted to the sole shareholder for approval.
RESOLVED, that upon approval of the Certificate of Amendment of
Articles of Incorporation by the sole shareholder, the officers of the
Corporation are hereby directed to take any and all actions, including, but
not limited to, filing the Certificate of Amendment of Articles of
Incorporation with the Secretary of State of California, to effectuate the
above resolution.
RESOLVED FURTHER, that Section 2.01 of the Bylaws of the corporation
shall be amended to read as set forth below, but said amendment shall only
become effective upon the merger of the corporation into Condor Systems, Inc.,
a California corporation.
"SECTION 2.01. Number of Directors. The authorized number of
directors of the Corporation shall be five. The authorized number of directors
may be changed only by an amendment of this Section approved by the holders of
a majority of the outstanding voting shares of the Corporation."
IN WITNESS WHEREOF, the undersigned have executed this
ACTION BY UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS IN LIEU OF A
MEETING to be effective as of the ____ day of _____________, 1999.
/s/ Kirk Wortman
-----------------------------------
Kirk Wortman, Director
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
WDC ACQUISITION CORP.,
a California corporation
Kirk Wortman and Ivy Dodes certify that:
1. They are the duly elected and acting President and the
Secretary of WDC Acquisition Corp., a California corporation.
2. The Articles of Incorporation of the corporation are hereby
amended in their entirety to state as follows:
- -------------------------------------------------------------------------------
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
WDC ACQUISITION CORP.
* * * * *
The Articles of Incorporation of WDC Acquisition Corp. (the
"Corporation") are amended and restated to read in full as follows:
FIRST: The name of the Corporation is WDC Acquisition Corp.
SECOND: The address of its registered agent for service of process in
the State of California is CSC--Lawyers Incorporating Service, 2730 Gateway Oaks
Drive, Sacramento, CA 95833.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of California as the same exists or may hereafter be amended
("California Law"), other than the banking business, the trust company
business or the practice of a profession permitted to be incorporated by the
California Corporations Code (the "Corporations Code").
<PAGE>
FOURTH: (1) The Corporation is authorized to issue three classes of
shares, designated "Class A Common Stock", "Class B Common Stock", and "Class
C Common Stock" (collectively, "Common Stock").
(2) The Corporation is authorized to issue:
60,000,000 shares of Class A Common Stock, par value $0.001 per
share, 10,000,000 shares of Class B Common Stock, par value $0.001 per share,
and 60,000,000 shares of Class C Common Stock, par value $0.001 per share.
(3) Each of the shares of Common Stock shall be identical in all
respects and shall have equal rights and privileges, except as set forth
below:
Voting. Each share of Class A Common Stock shall entitle the holder
thereof to one vote. Each share of Class B Common Stock shall entitle the
holder thereof to the number of votes equal to (x) the sum of (A) the
aggregate number of shares of outstanding Class B Common Stock and (B) if the
holders of Class C Common Stock are not entitled to vote upon the matter in
question, the aggregate number of shares of outstanding Class C Common Stock,
divided by (y) the aggregate number of shares of outstanding Class B Common
Stock, all determined as of the relevant record date. Holders of shares of
Class C Common Stock shall not be entitled to vote for the election of
directors. Holders of shares of Class C Common Stock shall not be entitled to
vote on any other matter except as may be required by applicable law, in which
case each share of Class C Common Stock shall entitle the holder thereof to
one vote. The holders of the Class A Common Stock and Class B Common Stock
(and Class C Common Stock, if applicable) shall vote together as a single
class, except as may be required by applicable law.
Conversion. (a) Class A Common Stock.
Automatic. Each share of Class A Common Stock will automatically, and
without any further action by the record holder thereof, the Corporation or
anyone else, convert into one fully paid and nonassessable share of Class C
Common Stock upon the date that such share of Class A Common Stock is
transferred to a record holder of Class C Common Stock. Upon the occurrence of
such event, stock certificates formerly representing shares of Class A Common
Stock shall thereafter be deemed to represent the number of shares of Class C
Common Stock into which the shares of Class A Common Stock formerly
represented by such stock certificates have been converted.
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(b) Class B Common Stock.
Optional. Each holder of record of Class B Common Stock may at any
time convert any or all of such holder's shares of Class B Common Stock into
fully paid and nonassessable shares of Class A Common Stock at the rate of one
share of Class A Common Stock for each share of Class B Common Stock
surrendered for conversion. Notwithstanding the foregoing, no such conversion
shall be made unless (i) the holders of the remaining shares of Class B Common
Stock would be entitled to designate a majority of the Board of Directors of
the Corporation, or (ii) the Board of Directors of the Corporation determines,
after consultation with appropriate regulatory authorities, that such
entitlement is not required in order for the Corporation to continue to
perform classified work. Any such conversion may be effected by any holder of
the Class B Common Stock surrendering such holder's certificate or
certificates for the Class B Common Stock to be converted, duly endorsed, at
the office of the Corporation or of any transfer agent for the Class B Common
Stock, together with a written notice to the Corporation or such transfer
agent that such holder elects to convert such shares of Class B Common Stock
and stating the name or names in which such holder desires the certificate or
certificates for shares of the Class A Common Stock to be issued. Promptly
thereafter, the Corporation or such transfer agent shall issue and deliver to
such holder, or to such holder's nominee or nominees, a certificate or
certificates for the number of shares of the Class A Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made as of the close of business on the date of the receipt by the
Corporation or such transfer agent of the certificates for the shares being
surrendered, and the holders entitled to receive the shares of the Class A
Common Stock issuable on such conversion shall be treated for all purposes as
the record holder or holders of such shares of the Class A Common Stock on
such date.
Automatic. Each share of Class B Common Stock will automatically, and
without any further action by the record holder thereof, the Corporation or
anyone else, convert into one fully paid and nonassessable Class A Common
Stock upon the date upon which no shares of Class C Common Stock are
outstanding. On and after such date, stock certificates formerly representing
shares of Class B Common Stock shall thereafter be deemed to represent the
number of shares of Class A Common Stock into which the shares of Class B
Common Stock formerly represented by such stock certificates have been
converted. Notice of such conversion shall be sent to all record holders of
Class B Common Stock not less than 15 days after the occurrence of such event,
but the failure of the Corporation to give such notice shall not affect the
validity of such conversion.
In addition, each share of Class B Common Stock will automatically,
and without any further action by the record holder thereof, the Corporation
or anyone
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else, convert into one fully paid and nonassessable share of Class C Common
Stock upon the date that such share of Class B Common Stock is transferred to
a record holder of Class C Common Stock. Upon the occurrence of such event,
stock certificates formerly representing shares of Class B Common Stock shall
thereafter be deemed to represent the number of shares of Class C Common Stock
into which the shares of Class B Common Stock formerly represented by such
stock certificates have been converted.
(c) Class C Common Stock. Each holder of record of the Class C Common
Stock may at any time convert any or all of such holder's shares of Class C
Common Stock into fully paid and nonassessable shares of Class A Common Stock
at the rate of one share of the Class A Common Stock for each share of the
Class C Common Stock surrendered for conversion. Notwithstanding the
foregoing, no such conversion shall be made unless (i) the Board of Directors
of the Corporation determines, after consultation with appropriate regulatory
authorities, that the Corporation could continue to perform classified work if
the holders of the Class C Common Stock held an equal number of shares of
Class A Common Stock, or (ii) such holder of Class C Common Stock is
transferring such shares of Class C Common Stock to a person or entity that is
not a record holder of Class C Common Stock. Any such conversion may be
effected by any holder of the Class C Common Stock surrendering such holder's
certificate or certificates for the Class C Common Stock to be converted, duly
endorsed, at the office of the Corporation or of any transfer agent for the
Class C Common Stock, together with a written notice to the Corporation or
such transfer agent that such holder elects to convert such shares of Class C
Common Stock and stating the name or names in which such holder desires the
certificate or certificates for shares of the Class A Common Stock be issued.
Promptly thereafter, the Corporation or such transfer agent shall issue and
deliver to such holder, or to such holder's nominee or nominees, a certificate
or certificates for the number of shares of the Class A Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made as of the close of business on the date of the receipt by the
Corporation or such transfer agent of the certificates for the shares being
surrendered, and the holders entitled to receive the shares of the Class A
Common Stock issuable on such conversion shall be treated for all purposes as
the record holder or holders of such shares of the Class A Common Stock on
such date.
The reason for the conversion provisions relating to the Class C
Common Stock is to preserve the Company's facility security clearance.
FIFTH: The share of common stock outstanding as of the date of this
amendment shall convert into one share of Class A Common Stock.
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SIXTH: (1) The liability of the directors of the Corporation for
monetary damages shall be eliminated to the fullest extent permissible under
California Law.
(2)(a) Each person (and the heirs, executors or administrators of such
person) who was or is a party or is threatened to be made a party to, or is
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the
fact that such person is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
shall be indemnified and held harmless by the Corporation to the fullest
extent permitted by California Law. The right to indemnification conferred in
this ARTICLE SIXTH shall also include the right to be paid by the Corporation
the expenses incurred in connection with any such proceeding in advance of its
final disposition to the fullest extent authorized by California Law. The
right to indemnification conferred in this ARTICLE SIXTH shall be a contract
right.
(b) The Corporation may, by action of its Board of Directors,
provide indemnification to such of the officers or employees and agents of the
Corporation to such extent and to such effect as the Board of Directors shall
determine to be appropriate and authorized by California Law.
(3) The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss incurred by such person in any such capacity or arising out
of his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under California Law.
(4) The rights and authority conferred in this ARTICLE SIXTH shall
not be exclusive of any other right which any person may otherwise have or
hereafter acquire.
(5) Neither the amendment nor repeal of this ARTICLE SIXTH, nor the
adoption of any provision of this Certificate of Incorporation or the bylaws
of the Corporation, nor, to the fullest extent permitted by California Law,
any modification of law, shall eliminate or reduce the effect of this ARTICLE
SIXTH in respect of any acts or omissions occurring prior to such amendment,
repeal, adoption or modification.
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SEVENTH: Notwithstanding any of the foregoing, the Corporation is
authorized to provide indemnification of agents (as defined in Section 317 of
the Corporations Code) for breach of duty to the Corporation and its
stockholders through bylaw provisions or through agreements with its agents,
or both, in excess of the indemnification otherwise permitted by Section 317
of the Corporations Code, subject to the limits of such excess indemnification
set forth in Section 204 of the Corporations Code.
EIGHTH: The Corporation reserves the right to amend this Certificate
of Incorporation in any manner permitted by California Law and, with the sole
exception of those rights and powers conferred under the above ARTICLE SIXTH,
all rights and powers conferred herein on stockholders, directors and
officers, if any, are subject to this reserved power.
- -------------------------------------------------------------------------------
3. The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the Board of Directors of the
Corporation.
4. The foregoing amendment has been duly approved by the
shareholders in accordance with Sections 902, 903 and 152 of the California
Corporations Code. On the date of this amendment, the Corporation has only one
class of shares outstanding, namely common stock and the number of outstanding
shares of common stock is one share.
a. Approval of more than fifty percent of the outstanding shares
was required for amending the Articles of Incorporation in their
entirety. The number of shares approving the amendment of the
Articles of Incorporation in their entirety equaled or exceeded the
percentage required.
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We further declare under penalty of perjury under the laws of the
State of California that the matters set forth in this certificate are true
and correct of our own knowledge.
Dated: /s/ Kirk Wortman
--------------------------------- ----------------------------------
Kirk Wortman, President
Dated: /s/ Ivy Dodes
--------------------------------- ----------------------------------
Ivy Dodes, Secretary
7
ACTION BY UNANIMOUS WRITTEN CONSENT OF THE
SOLE SHAREHOLDER IN LIEU OF A MEETING
OF
WDC ACQUISITION CORP.,
a California corporation
The undersigned holder of all of the issued and outstanding shares of
common stock of WDC Acquisition Corp., a California corporation, acting
pursuant to the authority of Section 603 of the California Corporations Code,
hereby consents to, takes and adopts the following resolutions and actions:
RESOLVED, that the Certificate of Amendment of Articles of
Incorporation of the corporation, substantially in the form attached hereto as
Attachment 1, is hereby authorized and approved.
RESOLVED, that the officers of the Corporation are hereby directed to
take any and all actions, including, but not limited to, filing the
Certificate of Amendment of Articles of Incorporation with the Secretary of
State of California, to effectuate the above resolution.
RESOLVED FURTHER, that Section 2.01 of the Bylaws of the corporation
shall be amended to read as set forth below, but said amendment shall only
become effective upon the merger of the corporation into Condor Systems, Inc.,
a California corporation.
"SECTION 2.01. Number of Directors. The authorized number of
directors of the Corporation shall be five. The authorized number of directors
may be changed only by an amendment of this Section approved by the holders of
a majority of the outstanding voting shares of the Corporation."
IN WITNESS WHEREOF, the undersigned has executed this ACTION
BY UNANIMOUS WRITTEN CONSENT OF THE SOLE SHAREHOLDER IN LIEU OF A MEETING to
be effective as of the _____ day of _____________, 1999.
DLJ Merchant Banking II, Inc.
By: /s/ Kirk Wortman
------------------------------
Kirk Wortman, Principal
EXHIBIT 3.1.2
BYLAWS OF
WDC ACQUISITION CORP.
ARTICLE 1
OFFICES
SECTION 1.01. Principal Office. The location of the principal
executive office of WDC Acquisition Corp., a California corporation (the
"Corporation") is 277 Park Avenue, New York, NY 10172. The board of directors
of the Corporation (the "Board") may change the location of the Corporation's
principal executive office at any time. Any change in location shall be noted
by the secretary of the corporation (the "Secretary") on these Bylaws opposite
this Section, or this Section may be amended to state the new location. The
Board may, at any time, establish branch or subordinate offices wherever the
Corporation is qualified to do business.
ARTICLE 2
DIRECTORS
SECTION 2.01. Number of Directors. The authorized number of directors
of the Corporation shall be one. The authorized number of directors may be
changed only by an amendment of this Section approved by the holders of a
majority of the outstanding voting shares of the Corporation.
SECTION 2.02. Election of Directors. At each annual meeting of
shareholders (as set forth in the Section below entitled "Annual Meeting of
Shareholders"), directors shall be elected to hold office until the next such
annual meeting. Each director, including a director elected to fill a vacancy,
shall hold office until the expiration of the term for which elected and until
a successor has been elected. Directors need not be residents of the State of
California or shareholders of the Corporation.
SECTION 2.03. Resignation and Removal of Directors. Any director may
resign at any time by giving written notice to the chairman of the Board (the
"Chairman of the Board"), the president of the Corporation (the "President"),
the Secretary or the Board. Such resignation shall be effective upon giving
such notice or at such later time specified in such notice. The Board may
remove a director for cause only if such director has been declared of unsound
mind by an order of court or convicted of a felony. Any director may be
removed, with or without cause, if such removal is approved by the holders of
a majority of the outstanding voting shares of the Corporation, except that no
director may be removed without cause (unless all directors are removed) when
the votes cast against removal, or not consenting in writing to such removal,
would be sufficient to elect such director if voted cumulatively at an
election at which the same total number of votes were cast (or, if such action
is taken by written consent, all shares entitled to vote were voted) and the
entire number of directors authorized at the time of the director's
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most recent election were then being elected. Any reduction of the authorized
number of directors does not remove any director prior to the expiration of
such director's term of office.
SECTION 2.04. Filing Director Vacancies. Except for a vacancy created
by the removal of a director, vacancies on the Board may be filled by a
majority of the directors then in office, whether or not less than a quorum,
or by a sole remaining director, and each director so elected shall hold
office for the unexpired term of such director's predecessor and until such
director's successor is elected at the next annual meeting of shareholders, or
at a special shareholders' meeting called for such purpose. A vacancy on the
Board created by the removal of a director may be filled only by the
shareholders, except that a vacancy created by the Board's removing a director
for cause may be filled by the Board. The shareholders may elect a director at
any time to fill any vacancy not filled by the Board.
SECTION 2.05. Meetings of the Board. Meetings of the Board shall be
held at the principal executive office of the Corporation unless another place
is stated in the notice of the meeting. Regular meetings of the Board shall be
held annually immediately following the annual meeting of shareholders.
Additional regular meetings of the Board shall be held, if so provided in a
resolution adopted by the Board, at the time and place specified in such
resolution. A special meeting of the Board may be called by the President, any
vice president of the Corporation, the Secretary or any two directors. Notice
of all regular and special meetings of the Board shall be given in writing and
mailed at least four days before the meeting or shall be delivered personally
or by telephone or telegraph at least two days before the meeting. Such notice
need not be given any director who signs a waiver of notice, whether before or
after the meeting, or who attends the meeting without protesting, prior
thereto, or at its commencement, the lack of notice to such director. Such
notice need not include the purpose or agenda for the meeting. Members of the
Board may participate in a meeting through use of conference telephone or
similar communications equipment, provided all directors participating in such
meeting can hear one another. Participation in a meeting by such means
constitutes presence in person at such meeting. A majority of the authorized
number of directors constitutes a quorum of the Board for the transaction of
business. A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place. If the meeting is
adjourned for more than two days, notice of any adjournment to another time or
place shall be given, prior to the time of the adjourned meeting, to the
directors who were not present at the time of the adjournment.
SECTION 2.06. Required Vote of Directors. Every act or decision done
or made by a majority of the directors present at a meeting duly held at which
a quorum is present is the act of the Board. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a
majority of the required quorum for such meeting.
SECTION 2.07. Written Consent of Directors. Any action required or
permitted to be taken by the Board may be taken without a meeting, if all
directors consent in writing to such action. Such written consent or consents
shall be filed with the minutes of the proceedings of the
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Board. Such action by written consent shall have the same force and effect as
a unanimous vote of such directors.
SECTION 2.08. Committees with Legal Authority. The Board may, by
resolution adopted by a majority of the authorized number of directors,
appoint one or more committees with legal authority to act for the Corporation
to the extent specified in such resolution, each such committee consisting of
two or more directors, to serve at the pleasure of the Board. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent member at any meeting of such committee. The Sections above
entitled "Meetings of the Board," "Required Vote of Directors," and "Written
Consent of Directors," with appropriate adaptations to the circumstances,
apply to the procedures of such committees. Any such committee, to the extent
provided in the Board resolution appointing such committee, shall have the
same authority as the Board, except with respect to (a) the approval of any
action which also requires shareholder approval, (b) the filling of vacancies
on the Board or on any committee, (c) the fixing of compensation for
directors, (d) the amendment or repeal of these Bylaws or the adoption of new
bylaws, (e) the amendment or repeal of any resolution of the Board which by
its express terms may not be so amended or repealed, (f) the declaration of a
dividend or other distribution to shareholders, except at a rate or in a
periodic amount or within a price range determined by the Board, or (g) the
appointment of other committees.
SECTION 2.09. Advisory Committees. The Board may appoint advisory
committees to consist of one or more members. Advisory committees may consist
of directors, non-directors, non-voting members and/or alternate members.
Advisory committees have no legal authority to act for the Corporation, but
shall report their findings and recommendations to the Board.
SECTION 2.10. Fees and Compensation; Inspection Rights. Directors and
members of advisory committees shall not receive any reimbursement for
expenses or compensation unless approved by a Board resolution. Any director
may at any reasonable time inspect and copy any books, records and documents
of the Corporation and may inspect the physical properties of the Corporation
and of its subsidiary corporations, domestic and foreign. Such inspection may
be made in person or by agent or attorney.
ARTICLE 3
OFFICERS
SECTION 3.01. Officers and Duties. The officers of the Corporation
are the President, the Secretary and the chief financial officer of the
Corporation (the "Chief Financial Officer"), and such other of the following
officers as the Board may by resolution authorize:
(a) Chairman of the Board. The Board may elect a Chairman of the
Board, who shall preside at all meetings of the Board at which the Chairman of
the Board is present and shall have any other powers and perform any other
duties that are prescribed by the Board.
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(b) President. The President is the chief executive officer and
general manager of the Corporation. The President shall, subject to the
control of the Board, direct and control the business and affairs of the
Corporation and of its officers, employees and agents, including the right to
employ, discharge and prescribe the duties and compensation of all officers,
employees and agents of the Corporation, except where such matters are
prescribed in these Bylaws or by the Board. The President shall preside at all
Board meetings (unless a Chairman of the Board is elected pursuant to the
Subsection above entitled "Chairman of the Board") and shareholders' meetings.
The President is authorized to sign all contracts, notes, conveyances and
other papers, documents and instruments in writing in the name of the
Corporation.
(c) Vice President. The Board may by resolution authorize one or
more vice presidents to perform, under the direction of the President, duties
and responsibilities in the management of the Corporation or in particular
areas of its management. If the President becomes disabled, then the duties of
the President shall be exercised by any person designated by the Board, or in
the absence of such designation, by the senior vice president of the
Corporation, if one exists.
(d) Secretary. The Secretary shall keep the minute book of the
Corporation. The Secretary shall keep the share register of the Corporation.
The Secretary shall sign in the name of the Corporation, either alone or with
one or more other officers, all documents authorized or required to be signed
by the Secretary. If the Corporation has a corporate seal, the Secretary shall
keep the seal and shall affix the seal to stock certificates and to other
documents as appropriate or desired. The Board may by resolution authorize one
or more assistance secretaries to perform, under the direction of the
Secretary, some or all of the duties of the Secretary.
(e) Chief Financial Officer. The Chief Financial Officer is
responsible for the receipt, maintenance and disbursement of the Corporation's
funds. The Chief Financial Officer shall keep books and records of account and
records of all properties of the Corporation. The Chief Financial Officer
shall prepare annually, or more often if so directed by the Board or the
President, financial statements of the Corporation. The Chief Financial
Officer shall be deemed to be the treasurer of the Corporation for purposes of
giving any reports or executing any documents or instruments requiring the
signature of the "treasurer." The Board may by resolution authorize one or
more assistant financial officers to perform, under the direction of the Chief
Financial Officer, some or all of the duties of the Chief Financial Officer.
SECTION 3.02. Election and Removal of Officers. The Chairman of the
Board, the President, the Secretary and the Chief Financial Officer shall be
elected by the Board. Other officers shall be elected or appointed as
prescribed in the Board resolution authorizing such officer. Any officer may
be removed from office at any time by the Board, with or without cause or
prior notice. Any officer not elected by the Board may be removed from office
at any time by the officer by whom appointed, with or without cause or prior
notice. When authorized by the Board, any officer may be elected for a
specified term under a contract of employment. Notwithstanding that such
officer is elected for a specified term or under a contract of employment, any
such officer may be removed from office at any time pursuant to this Section
and shall have no claim against the Corporation on account of such removal
other than for such
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monetary compensation as such officer may be entitled to under the terms of
the contract of employment. Any officer may resign at any time upon written
notice to the Corporation without prejudice to the rights, if any, of the
Corporation under any contract to which the officer is a party. Such
resignation shall be effective upon giving such notice or at such later time
specified in such notice.
SECTION 3.03. Execution of Instruments. Except as provided in Article
6 of these Bylaws, any instrument executed in the name of the Corporation,
including without limitation contracts, agreements, purchase orders, notes,
deeds, deeds of trust, mortgages, leases, security agreements, checks and
drafts issued, endorsements of checks and drafts received, certificates,
applications and reports, shall be executed by any one or more officers,
employees or agents of the Corporation as authorized from time to time by the
Board. Except as otherwise provided in these Bylaws or by the Board, each
officer has the authority to execute instruments in the name of the
Corporation when the execution of such instrument is incident to carrying out
such officer's duties.
ARTICLE 4
INDEMNIFICATION
SECTION 4.01. Indemnification of Directors, Officers and Employees.
The Corporation shall, to the maximum extent permitted by the California
General Corporation Law and by the Articles of Incorporation, indemnify each
of its agents against expenses, judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any proceeding
arising from the fact that such person is or was an agent of the Corporation.
For the purposes of this Section, an "agent" of the Corporation includes a
person who is or was a director, officer, employee, or other agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust or other enterprise, or was a director, officer, employee
or agent of a corporation which was a predecessor corporation of the
Corporation or of any other enterprise at the request of such predecessor
corporation. The Corporation may purchase and maintain insurance on behalf of
any agent of the Corporation against any liability asserted against or
incurred by such agent in such capacity or arising out of such agent's status
as such, whether or not the Corporation would have the power to indemnify such
agent against such liability under California Corporations Code Section 317.
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ARTICLE 5
SHAREHOLDERS
SECTION 5.01. Annual Meeting of Shareholders. A meeting of the
shareholders shall be held annually within 120 days after the end of the
Corporation's fiscal year or on such other date determined by the Board by
resolution at the first meeting of the Board or by unanimous written consent
in lieu thereof. The date of such annual meeting may be changed from time to
time by resolution of the Board. Such annual meeting shall be held at the
principal executive office of the Corporation unless the Board by resolution
prescribes a different place. At such annual meeting the total authorized
number of directors shall be elected. Any other proper business may be
transacted at such annual meeting except as limited by the notice requirements
of Section 601 of the California Corporations Code.
SECTION 5.02. Special Meetings of Shareholders. Special meetings of
the shareholders may be called by the Board, the President or holders of
voting shares of the Corporation entitled to cast not less than 10 percent of
the votes at such meeting.
SECTION 5.03. Notice of Meeting of Shareholders. Written notice of
all annual and special meetings of shareholders shall be given, not less than
10 nor more than 60 days before the date of such meeting, to each shareholder
entitled to vote at such meeting. Such notice shall state the place, date and
time of the meeting and (1) in the case of a special meeting, the general
nature of the business to be transacted, or (2) in the case of the annual
meeting, those matters which the Board, at the time of the mailing of the
notice, intends to present for action by the shareholders. The notice of any
meeting at which the directors are to be elected shall include the names of
nominees intended at the time of the notice to be presented by the Board for
election. Notice of a shareholders' meeting or reports required by these
Bylaws, if any, shall be given either personally or by first-class mail or
other means of written communication, addressed to the shareholder at the
address of such shareholder appearing on the books of the Corporation or given
by the shareholder to the Corporation for the purpose of notice; or if no such
address appears or is given, at the place where the principal executive office
of the Corporation is located or by publication at least once in a newspaper
of general circulation in the county in which the principal executive office
is located. The notice or report shall be deemed to have been given at the
time when delivered personally or deposited in the mail or sent by other means
of written communication. An affidavit of mailing of any notice or report in
accordance with this Section, executed by the Secretary, an assistant
secretary of the Corporation or any transfer agent, shall be prima facie
evidence of the giving of such notice or report. Except as otherwise provided
by the Board in particular instances and except as otherwise provided by
Section 601(c) of the California Corporations Code, the Secretary shall
prepare and give the notice of meetings of shareholders.
SECTION 5.04. Record Date. In order that the Corporation may
determine the shareholders entitled to notice of any meeting, to vote, to
receive payment of any dividend or other distribution or allotment of any
rights or to exercise any rights in respect of any other lawful action, the
Board may fix, in advance, a record date, which shall not be less than 10 nor
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more than 60 days prior to the date of such meeting nor more than 60 days
prior to any other action.
(a) If no record date is fixed, then the following shall control:
(i) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the
close of business on the business day next preceding the day on which
notice is given or, if notice is waived, at the close of business on
the business day next preceding the day on which the meeting is held.
(ii) The record date for determining shareholders entitled to
give consent to corporate action in writing without a meeting, when
no prior action by the Board has been taken, shall be the day on
which the first written consent is given.
(iii) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the
Board adopts the resolution relating thereto, or the 60th day prior
to the date of such other action, whichever is later.
(b) A determination of shareholders of record entitled to notice of
or to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board fixes a new record date for the adjourned meeting,
but the Board shall fix a new record date if the meeting is adjourned for more
than 45 days from the date set for the original meeting.
(c) Shareholders at the close of business on such record date are
entitled to notice and to vote or to receive the dividend, distribution or
allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the Corporation
after such record date.
SECTION 5.05. Shareholder's Proxies. Every person entitled to vote
shares may authorize another person or persons to act by written proxy with
respect to such shares. A proxy may also be in the form of an electronic
transmission (including facsimile or telephone) authorized by a shareholder. A
proxy may be transmitted by telephone if it is submitted with information from
which it may be determined that the proxy was authorized by the shareholder.
No proxy shall be valid after the expiration of 11 months from the date
thereof unless otherwise provided in such proxy. Every proxy continues in full
force and effect until revoked by the person executing it prior to the vote
pursuant thereto. Such revocation may be effected by a writing delivered to
the Corporation stating that the proxy is revoked or by a subsequent written
proxy executed by, or by attendance at the meeting and voting in person by,
the person executing the proxy. The dates contained on the forms of proxy
presumptively determine the order of execution, regardless of the postmark
dates on the envelopes in which they are mailed. A proxy is not revoked by the
death or incapacity of the maker, unless, before the vote is counted, written
notice of such death or incapacity is received by the Corporation. A proxy may
be made irrevocable as set forth in Section 705(e) of the California
Corporations Code.
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SECTION 5.06. Quorum for Meeting of Shareholders. A majority of the
shares entitled to vote, represented in person or by proxy, shall constitute a
quorum at a shareholders' meeting. If a quorum is present, then the
affirmative vote of a majority of the shares represented and voting at the
meeting, and entitled to vote on any matter, shall be the act of the
shareholders, unless the vote of a majority or higher percentage of all
outstanding shares is required by law or by the Articles of Incorporation of
the Corporation and except as provided in the succeeding two sentences. The
shareholders present at a duly called or held meeting at which a quorum is
present may continue to transact business until adjournment notwithstanding
the withdrawal of enough shareholders to leave less than a quorum, if any
action taken (other than adjournment) is approved by a least a majority of the
shares required to constitute a quorum. In the absence of a quorum, any
meeting of shareholders may be adjourned by the vote of a majority of the
shares represented either in person or by proxy, but no other business may be
transacted, except as provided in the preceding sentence.
SECTION 5.07. Adjourned Meeting of Shareholders. When a shareholders'
meeting is adjourned to another time or place, except as otherwise provided in
this Section, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business
which might have been transacted at the original meeting. If the adjournment
is for more than 45 days or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each shareholder of record entitled to Vote at the Meeting.
SECTION 5.08. Validating Meeting of Shareholders. The transactions of
any shareholders' meeting, however called and noticed and wherever held, are
as valid as though had at a meeting duly held after regular call and notice,
if a quorum is present either in person or by proxy, and if, either before or
after the meeting, each of the persons entitled to vote, not present in person
or by proxy, signs a written waiver of notice or a consent to the holding of
the meeting or an approval of the minutes thereof. All such waivers, consents
and approvals shall be filed with the Corporation's records or made a part of
the minutes of the meeting. Attendance in person at a meeting shall constitute
a waiver of notice of and presence at such meeting, except when a person
objects, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened and except that
attendance at a meeting is not a waiver of any right to object to the
consideration of matters required by law to be included in the notice but not
so included, if such objection is expressly made at the meeting. Neither the
business to be transacted at nor the purpose of any regular or special meeting
of shareholders need be specified in any written waiver of notice, except as
required by Section 601(f) of the California Corporations Code.
SECTION 5.09. Cumulative Voting for Directors. Every shareholder
complying with the succeeding sentence and entitled to vote at any election of
directors may cumulate such shareholder's votes and give one candidate a
number of votes equal to the number of directors to be elected multiplied by
the number of votes to which the shareholder's shares are normally entitled,
or distribute the shareholder's votes on the same principle among as many
candidates as
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the shareholder thinks fit. No shareholder shall be entitled to cumulate votes
(i.e., cast for any candidate a number of votes greater than the number of
votes which such shareholder normally is entitled to cast) unless such
candidate or candidates' names have been placed in nomination prior to the
voting and the shareholder has given notice at the meeting prior to the voting
of the shareholder's intention to cumulate the shareholder's votes. If any one
shareholder has given such notice, all shareholders may cumulate their votes
for candidates in nomination. In any election of directors, the candidates
receiving the highest number of affirmative votes of the shares entitled to be
voted for them up to the number of directors to be elected by such shares are
elected.
SECTION 5.10. Voting by Ballot. Elections for directors need not be
by ballot unless a shareholder demands election by ballot at the meeting and
before the voting begins.
SECTION 5.11. Inspectors of Election. In advance of any meeting of
shareholders the Board may appoint inspectors of election to act at the
meeting and any adjournment thereof. If inspectors of election are not so
appointed, or if any persons so appointed fail to appear or refuse to act, the
chairman of any meeting of shareholders may, and on the request of any
shareholder or a shareholder's proxy shall, appoint inspectors of election (or
persons to replace those who so fail or refuse) at the meeting. The number of
inspectors shall be either one or three. If appointed at a meeting on the
request of one or more shareholders or proxies, the majority of shares
represented in person or by proxy shall determine whether one or three
inspectors are to be appointed. The inspectors of election shall determine the
number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum and the authenticity,
validity and effect of proxies, receive votes, ballots or consents, hear and
determine all challenges and questions in any way arising in connection with
the right to vote, count and tabulate all votes or consents, determine when
the polls shall close, determine the result and do such acts as may be proper
to conduct the election or vote with fairness to all shareholders. The
inspectors of election shall perform their duties impartially, in good faith,
to the best of their ability and as expeditiously as practical. If there are
three inspectors of election, the decision, act or certificate of a majority
is effective in all respects as the decision, act or certificate of all. Any
report or certificate made by the inspectors of election is prima facie
evidence of the facts stated therein.
SECTION 5.12. Written Consent of Shareholders.
(a) Subject to the succeeding Subsection (b), any action which may
be taken at any annual or special shareholders' meeting may be taken without a
meeting and without prior notice, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding shares having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted
(b) The election of a director by the shareholders by written
consent to fill a vacancy (other than one created by removal) not filled by
the Board requires the written consent of a
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majority of the outstanding shares entitled to vote. Any other election of
directors by written consent requires the unanimous written consent of all
shares entitled to vote for the election of directors.
(c) Any shareholder giving a written consent, or the shareholder's
proxyholders, or a transferee of the shares or a personal representative of
the shareholder or their respective proxyholders, may revoke the consent by a
writing received by the Corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the Secretary, but may not do so thereafter. Such revocation is effective
upon its receipt by the Secretary. Unless the consents of all shareholders
entitled to vote have been solicited in writing, notice of any shareholder
approval without a meeting by less than unanimous written consent shall be
given as provided in Section 603(b) of the California Corporations Code.
SECTION 5.13. Inspection Rights of Shareholders.
(a) A shareholder or shareholders holding at least five percent in
the aggregate of the outstanding voting shares of the Corporation or who hold
at least one percent of such voting shares and have filed a Schedule 14A with
the United States Securities and Exchange Commission relating to the election
of directors shall have an absolute right to do either or both of the
following: (1) inspect and copy the record of shareholders' names and
addresses and shareholdings during usual business hours upon five business
days' prior written demand upon the Corporation, or (2) obtain from the
transfer agent for the Corporation, upon written demand and upon the tender of
its usual charges for such a list (the amount of which charges shall be stated
to the shareholder by the transfer agent upon request), a list of the
shareholders' names and addresses, who are entitled to vote for the election
of directors, and their shareholdings, as of the most recent record date for
which it has been compiled or as of a date specified by the shareholder
subsequent to the date of demand. The list shall be made available on or
before the later of five business days after the demand is received or the
date specified therein as the date of which the list is to be compiled. The
Corporation shall have the responsibility to cause its transfer agent to
comply with the requirements of this Subsection.
(b) The record of shareholders shall also be open to inspection and
copying by any shareholder or holder of a voting trust certificate at any time
during usual business hours upon written demand on the Corporation, for a
purpose reasonably related to such holder's interests as a shareholder or
holder of a voting trust certificate.
(c) The accounting books and records and minutes of proceedings of
the shareholders, the Board and committees of the Board shall be open to
inspection upon the written demand on the Corporation of any shareholder or
holder of a voting trust certificate at any reasonable time during usual
business hours, for a purpose reasonably related to such holder's interests as
a shareholder or as the holder of such voting trust certificate.
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(d) Inspection pursuant to this Section by a shareholder or holder
of a voting trust certificate may be made in person or by agent or attorney,
and the right of inspection includes the right to copy and make extracts.
(e) If any record subject to inspection pursuant to this Section is
not maintained in written form, the Corporation shall at its expense make such
record available in written form upon request pursuant to this Section.
ARTICLE 6
SHARES
SECTION 6.01. Share Certificates; Signatures. The share certificates
of the Corporation shall be in a form approved by the Board. The share
certificates shall be signed in the name of the Corporation by (a) the
President, the Chairman of the Board or a vice president of the Corporation,
and (b) the Secretary, the Chief Financial Officer, an assistant secretary of
the Corporation or an assistant financial officer of the Corporation. Any of
the signatures on the certificate may be facsimile. In case any officer who
has signed or whose facsimile signature has been placed upon a certificate has
ceased to be such officer before such certificate is issued, it may be issued
by the Corporation with the same effect as if such person were an officer at
the date of issue.
SECTION 6.02. Fractional Shares. If upon original issuance, there
would be a fraction of a share issued, the fraction shall be issued unless the
Board by resolution provides an alternative to the issuance of a fractional
share as authorized in this Section. In lieu of original issuance of a
fractional share, the Corporation shall (a) arrange for the disposition of
fractional interests by those entitled thereto, (b) pay in cash the fair value
of fractions of a share as of the time when those entitled to receive such
fractions are determined or (c) issue scrip or warrants in registered or
bearer form which shall entitle the holder to receive a certificate for a full
share upon the surrender of such scrip or warrants aggregating a full share.
Upon transfer, no share certificate shall be issued for a fraction of a share,
unless the prior share certificate included a fraction of a share.
ARTICLE 7
RECORDS
SECTION 7.01. Minute Book. The Corporation shall keep a minute book
which shall contain the following:
(a) The record of all meetings of the Board including date, place,
those attending and the proceedings thereof, a copy of the notice of meeting
and when and how given, written
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waivers of notice of meeting, written consents to holding meeting, written
approvals of minutes of meeting, and unanimous written consents to action of
the Board without a meeting, and similarly as to meetings of committees of the
Board appointed pursuant to the Section above entitled "Committees with Legal
Authority."
(b) The record of all meetings of the shareholders including date,
place, shareholders and numbers of shares present in person or by proxy,
proxies used, and the proceedings thereof, a copy of the notice of meeting and
when and how given, any affidavit as to the mailing or giving of notice,
written waivers of notice of meeting, written consents to the holding of the
meeting, written approvals of the minutes of the meeting, and a copy of the
notice to shareholders of Corporation action approved by shareholders without
a meeting by less than unanimous written consent.
(c) A copy of the articles of incorporation and all amendments
thereto and a copy of all certificates filed with the California Secretary of
State.
(d) A copy of the bylaws as amended, duly certified by the
Secretary.
(e) A copy of each Notice of Issuance filed with the California
Commissioner of Corporations together with the receipt issued by the
California Commissioner of Corporations and any affidavit or declaration of
mailing of such Notice, and each permit of or qualification by the California
Commissioner of Corporations to issue shares or consent to transfer shares.
SECTION 7.02. Share Register. The Corporation shall keep or cause to
be kept a share register, which shall contain a record of each share
certificate issued, including the certificate number, the date, the number of
shares, the name and address of the shareholder, and any shareholder changes
of address. The share register shall also record each transfer of a share
certificate issued upon the transfer and the numbers of shares for each such
certificate, and shall retain the share certificate cancelled upon the
transfer. If the Corporation has a transfer agent, the share register shall be
maintained by the transfer agent and the Corporation shall cause the transfer
agent to furnish the Corporation at least annually a list of shareholders with
names, addresses, share certificate numbers and numbers of shares held.
SECTION 7.03. Annual Report. The sending of an annual report to the
shareholders of the Corporation is waived.
SECTION 7.04. Financial Statements to Shareholders. If the
Corporation prepares an annual financial statement, a copy of it shall be
mailed on request to any shareholder. The annual financial statement shall be
accompanied by the report thereon, if any, of any independent accountants
engaged by the Corporation or by certificate of an authorized officer of the
Corporation that such financial statement was prepared without audit from the
books and records of the Corporation.
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ARTICLE 8
AMENDMENT OF BYLAWS
SECTION 8.01. Amendment. Except as provided in the Section above
entitled "Number of Directors," these Bylaws may be amended or repealed either
by approval of the Board or by approval of the holders of a majority of the
outstanding voting shares of the Corporation.
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CERTIFICATE OF SECRETARY
The undersigned hereby certifies as follows:
(1) The undersigned is the presently elected and acting
secretary of WDC Acquisition Corp.; and
(2) These Bylaws are the bylaws of such corporation as
ratified by its Board of Directors effective March 1, 1999.
Dated: March 1, 1999
-----------------------------------
Ivy Dodes, Secretary
Exhibit 3.1.3
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
1. The Sole Incorporator of CONDOR ELECTRONICS, INC. (the "Corporation") has
duly adopted resolutions amending the Certificate of Incorporation of the
Corporation. The resolution adopting the amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Article thereof numbered FIRST so that, as amended,
said Article shall be read as follows:
The name of the corporation is CEI SYSTEMS, INC.
2. That the Corporation has not received any payment for any of its stock.
3. That said amendment was duly adopted in accordance with the provisions of
Section 241 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, CONDOR ELECTRONICS, INC. has caused this
certificate to be signed by Robert J. Sell, its Incorporator, this 25th day of
September, A.D. 1997.
By: /s/ Robert J. Sell
------------------------------
Incorporator
<PAGE>
CERTIFICATE OF INCORPORATION
OF
CONDOR ELECTRONICS, INC.
The undersigned, for the purposes hereinafter stated under and pursuant to
the provisions of the General Corporation Law of the State of Delaware, does
hereby certify as follows:
ARTICLE FIRST
The name of the corporation is CONDOR ELECTRONICS, INC.
ARTICLE SECOND
The address of the registered office of the corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of the registered agent of the corporation at such address is
The Corporation Trust Company.
ARTICLE THIRD
The nature of the business of the corporation and the purposes to be
conducted and promoted by the corporation are to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware and to conduct its business, promote its purposes
and carry on its operations in any and all of its branches and maintain offices
both within and without the State of Delaware, in any and all States of the
United States of America, in the District of Columbia, and in any or all
commonwealths, territories, dependencies, colonies, possessions, agencies or
instrumentalities of the United States of America and of foreign countries.
ARTICLE FOURTH
The total number of shares of all classes of stock which the corporation
shall have authority to issue is 10,000 shares of Common Stock having a par
value of one cent ($0.01) per share, each share of which shall have voting
rights (hereinafter called "Common Stock").
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ARTICLE FIFTH
The name and mailing address of the incorporator is as follows:
Name Mailing Address
---- ---------------
Robert J. Sell 55 East Monroe Street, Suite 4200,
Chicago, Illinois 60603-5803
ARTICLE SIXTH
Whenever a compromise or arrangement is proposed between this corporation
and its creditors or any class of them and/or between this corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this corporation under section 291 of
Title 8 of the Delaware Code or on the application of trustees in dissolution
or of any receiver or receivers appointed for this corporation under section
279 of Title 8 of the Delaware Code, order a meeting of the creditors or class
of creditors, and/or of the stockholders or class of stockholders, of this
corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders, of this corporation, as the case may be, agree to any compromise
or arrangement and to any reorganization of this corporation as consequences of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
ARTICLE SEVENTH
The corporation, to the fullest extent now or hereafter provided for in
the General Corporation Law of the State of Delaware, as the same exists or may
hereafter be amended, shall indemnify any and all persons whom it shall have
power to indemnify from and against any and all expenses (including attorneys'
fees), judgments, fines, amounts paid in settlement or other matters which are
or may be referred to in or covered by applicable law, by reason of the fact
that such person is or was a director, officer, employee or agent of the
corporation, and the indemnification and advancement of expenses provided for
herein shall not be
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deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any By-law, agreement or
otherwise, both as to action in their official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Subject to the conditions provided for in the General Corporation Law of the
state of Delaware, as the same exists or may hereafter be amended, the
corporation may pay in advance expenses incurred by a party seeking
indemnification in connection with the preparation for or defense of any
action, suit or proceeding.
In addition, in accordance with Section 102(b)(7) of the General
Corporation Law of the State of Delaware, the Corporation does hereby eliminate
the personal liability of a Director of the Corporation to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
Director, provided that such liability of a Director shall not be eliminated
(a) for any breach of the Director's duty of loyalty to the Corporation or its
stockholders, (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) for unlawful payments
of dividends, stock purchases or redemptions, or (d) for any transaction from
which the Director derived an improper personal benefit. The determination as
to whether a Director has engaged in the conduct described in (a) through (d)
above shall be made either by the Board of Directors by a majority vote of a
quorum of disinterested Directors or by a majority vote of the Corporation's
stockholders, as determined by the Board of Directors.
Unless required by law, no reduction or elimination of the indemnity
provisions of this ARTICLE SEVENTH shall be applied retroactively with respect
to any person covered hereunder.
IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, does make this certificate, hereby
declaring and certifying that this is his act and deed and the facts herein
stated are true, and accordingly has hereunto set his hand this 17th day of
September, 1997.
/s/ Robert J. Sell
-----------------------------
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STATE OF ILLINOIS )
)
COUNTY OF COOK )
Be it remembered that on this 17th day of September, 1997, personally came
before me, a Notary Public for the state and county aforesaid, the incorporator
of the foregoing Certificate of Incorporation, known to me personally to be
such, and acknowledged the said certificate to be the act and deed of the
signer respectively and that the facts stated therein are true.
Subscribed and sworn to before
me this 17th day of September, 1997.
/s/ Margaret V. Brueck
- ------------------------------------
Notary Public
EXHIBIT 3.1.4
BY-LAWS
OF
CEI SYSTEMS, INC.
ARTICLE I
Section 1.1. General Offices. The principal place of business and general
offices of the Corporation shall be located in such place as the Board of
Directors may from time to time determine.
Section 1.2. Other Offices. The Corporation may also have offices at such
other places as the Board of Directors may from time to time determine.
ARTICLE II
Stockholders
Section 2. 1. Annual Meetings. An annual meeting of Stockholders shall be
held for the election of Directors on the first Tuesday in May of each year at
such time and place, either within or without the State of Delaware, as may be
designated by resolution of the Board of Directors from time to time. Any other
proper business may be transacted at the annual meeting.
Section 2.2. Special Meetings. Special meetings of Stockholders for any
purpose or purposes may be called at any time by the Chairman of the Board of
Directors, the Vice Chairman of the Board of Directors, the President & Chief
Executive Officer, or by Stockholders owning at least one-third (1/3) of the
outstanding capital stock of the Corporation entitled to vote at any such
meeting.
Section 2.3. Notice of Meetings. Whenever Stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting
shall be given which shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise provided by law, the Certificate of Incorporation
or these By-Laws, the written notice of any meeting shall be given not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each Stockholder entitled to vote at such meeting. If mailed, such notice shall
be deemed to be given when deposited in the mail, postage prepaid, directed to
the Stockholder at his address as it appears on the records of the Corporation.
Business transacted at any special meeting of Stockholders shall be limited to
the purposes stated in the notice.
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Section 2.4. Adjournments. Any meeting of Stockholders, annual or special,
may adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
Stockholder of record entitled to vote at the meeting.
Section 2.5. Quorum. Except as otherwise provided by law, the Certificate
of Incorporation or these By-Laws, at each meeting of Stockholders the presence
in person or by proxy of the holders of shares of stock having a majority of
the votes which could be cast by the holders of all outstanding shares of stock
entitled to vote at the meeting shall be necessary and sufficient to constitute
a quorum. In the absence of a quorum, the Stockholders so present may, by
majority vote, adjourn the meeting from time to time in the manner provided in
Section 2.4 of these By-Laws until a quorum shall attend. Shares of its own
stock belonging to the Corporation or to another corporation, if a majority of
the shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the Corporation, shall neither
be entitled to vote nor be counted for quorum purposes; provided, however, that
the foregoing shall not limit the right of the Corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
Section 2.6. Organization. Meetings of Stockholders shall be presided over
by the President & Chief Executive Officer, or in his absence, by the Executive
Vice President, or in the absence of the foregoing persons, by a chairman
designated by the Board of Directors, or in the absence of such designation, by
a chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his absence the chairman of the meeting may appoint any person
to act as secretary of the meeting.
Section 2.7. Voting; Proxies. Except as otherwise provided by the
Certificate of Incorporation, each Stockholder entitled to vote at any meeting
of Stockholders shall be entitled to one vote for each share of stock held by
him which has voting power upon the matter in question. Each Stockholder
entitled to vote at a meeting of Stockholders may authorize another person or
persons to act for him by proxy, but no such proxy shall be voted or acted upon
after three (3) years from its date, unless the proxy provides for a longer
period. A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient, in law to support an irrevocable power. A Stockholder may revoke
any proxy which is not irrevocable by attending the
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meeting and voting in person or by filing an instrument in writing revoking the
proxy or another duly executed proxy bearing a later date with the Secretary of
the Corporation. Voting at meetings of Stockholders need not be by written
ballot and need not be conducted by inspectors of election unless so determined
by the holders of shares of stock having a majority of the votes which could be
cast by the holders of all outstanding shares of stock entitled to vote thereon
which are present in person or by proxy at such meeting. When a quorum is
present at any meeting, all questions shall, unless otherwise provided by law,
the Certificate of Incorporation or these By-Laws, be decided by the vote of
the holders of shares of stock having a majority of the votes which could be
cast by the holders of all shares of stock entitled to vote thereon which are
present in person or represented by proxy at the meeting.
Section 2.8. Fixing Date for Determination of Stockholders of Record. In
order that the Corporation may determine the Stockholders entitled to notice of
or to vote at any meeting of Stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled
to receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect to any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors and which record date: (1) in the case of
determination of Stockholders entitled to vote at any meeting of Stockholders
or adjournment thereof, shall, unless otherwise required by law, not be more
than sixty (60) nor less than ten (10) days before the date of such meeting;
(2) in the case of determination of Stockholders entitled to express consent to
corporate action in writing without a meeting, shall not be more than ten (10)
days from the date upon which the resolution fixing the record date is adopted
by the Board of Directors; and (3) in the case of any other action, shall not
be more than sixty (60) days prior to such other action. If no record date is
fixed: (a) the record date for determining Stockholders entitled to notice of
or to vote at a meeting of Stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting in held; (b) the record date for determining Stockholders entitled to
express consent to corporate action in writing without a meeting when no prior
action of the Board of Directors is required by law shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the corporation in accordance with applicable law, or, if
prior action by the Board of Directors is required by law, shall be at the
close of business on the day on which the Board of Directors adopts the
resolution taking such prior action; and (c) the record date for determining
Stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. A
determination of Stockholders of record entitled to notice of or
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to vote at a meeting of Stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 2.9. List of Stockholders Entitled to Vote. The Secretary shall
prepare and make, at least ten (10) days before every meeting of Stockholders,
a complete list of the Stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each Stockholder. Such list
shall be open to the examination of any Stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten (10)
days prior to the meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting, or,
if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during the
whole time thereof and may be inspected by any Stockholder who is present. The
stock ledger shall be the only evidence as to who are the Stockholders entitled
to examine the stock ledger, the list of Stockholders or the books of the
Corporation, or to vote in person or by proxy at any meeting of Stockholders.
Section 2.10. Action By Consent of Stockholders. Unless otherwise
instructed by the Certificate of Incorporation, any action required or
permitted to be taken at any annual or special meeting of the Stockholders may
be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of
the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those Stockholders who have not consented in
writing.
ARTICLE III
Board Of Directors
Section 3.1. Number; Elections; Qualification. The number of Directors
which shall constitute the whole Board of Directors shall be not less than one
(1) but not more than six (6). Directors shall be elected at the annual meeting
of the Stockholders. Each Director shall be elected for a term of one (1) year,
except as provided in Section 3.2 of these By-Laws, and each Director so
elected shall hold office until his successor is elected and qualified.
Directors need not be Stockholders.
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Section 3.2. Resignation; Removal; Vacancies. Any Director may resign at
any time upon written notice to the Corporation. Any newly created Directorship
or any vacancy occurring in the Board of Directors for any cause may be filled
by a majority of the remaining members of the Board of Directors, although such
majority is less than a quorum, or by a majority of the votes cast at a special
meeting of Stockholders, and each Director so elected shall hold office until
the expiration of the term of office of the Director whom he has replaced or
until his successor is elected and qualified.
Section 3.3. Regular Meetings. Regular meetings of the Board of Directors
may be held at such places within or without the State of Delaware, and at such
times as the Board of Directors may from time to time determine, and if so
determined notices thereof need not be given.
Section 3.4. Special Meetings. Special meetings of the Board of Directors
may be held at any time or place within or without the State of Delaware
whenever called by the Chairman of the Board of Directors, the Vice Chairman of
the Board of Directors, the President & Chief Executive Officer, or by any two
(2) members of the Board of Directors. Notice of a special meeting of the Board
of Directors shall be given by the person or persons calling the meeting at
least three (3) days before the special meeting. Notice shall be given to each
Director in writing, by personal delivery, by mail with postage prepaid, or by
facsimile or like transmission.
Section 3.5. Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
by-law shall constitute presence in person at such meeting.
Section 3.6. Quorum; Vote Required for Action. At all meetings of the
Board of Directors a majority of the whole Board of Directors shall constitute
a quorum for the transaction of business. Except in cases in which the
Certificate of Incorporation or these By-Laws otherwise provide, the vote of a
majority of the whole Board of Directors shall be the act of the Board of
Directors.
Section 3.7. Organization. Meetings of the Board of Directors shall be
presided over by the President & Chief Executive Officer, or in his absence by
the Executive Vice President, or in their absence, by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting, but in his
absence the chairman of the meeting may appoint any person to act as secretary
of the meeting.
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Section 3.8. Informal Action by Directors. Unless otherwise restricted by
the Certificate of Incorporation or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board
of Directors or such committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or such committee.
Section 3.9. Compensation of Directors. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, the Board of Directors shall
have the authority to fix the compensation of Directors, including payment of
expenses of attendance at meetings. No such payment shall preclude any Director
from serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
ARTICLE IV
Committee
Section 4.1. Committees. The Board of Directors may, by resolution passed
by a majority of the whole Board of Directors, designate one (1) or more
committees, each committee to consist of one (1) or more of the Directors of
the Corporation. The Board of Directors may designate one (1) or more Directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in place of any such absent or disqualified
member. Any such committee, to the extent permitted by law and to the extent
provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it.
Each committee shall keep regular minutes of its meetings and report the same
to the Board of Directors when so required.
Section 4.2. Committee Rules. Unless the Board of Directors otherwise
provides, each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith. Adequate
provision shall be made for notice to members of all meetings: one-third (1/3)
of the
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members of a committee shall constitute a quorum unless the committee shall
consist of one (1) or two (2) members, in which event one (1) member shall
constitute a quorum; and all, matters shall be determined by a majority vote of
the members present. Action may be taken by any committee without a meeting if
all of its members; consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of such committee.
ARTICLE V
Officers
Section 5.1. Number. The officers of the Corporation shall be a President
& Chief Executive Officer, one or more Vice Presidents, a Secretary, a
Treasurer, and such other officers as may be determined from time to time by
the Board of Directors.
The President & Chief Executive Officer is authorized to appoint other
officers who shall serve at the discretion of the President & Chief Executive
Officer. The Board of Directors shall be given reasonable notice in advance of
any such appointments, and any such appointment made by the President & Chief
Executive Officer shall be made only upon specific concurrence of the Board of
Directors.
Section 5.2. Election and Term of Office. All officers who are elected by
the Board of Directors shall be elected for a one (1) year term. Each such
officer shall hold office until his successor shall have been duly elected and
shall have qualified, subject to the provisions of these By-Laws with respect
to the removal of officers.
Section 5.3. Removal. Any elected or appointed officer or agent of this
Corporation may be removed at any time by the Board of Directors whenever in
their judgment the best interests of the Corporation would be served thereby.
Section 5.4. Vacancies. Except as otherwise provided in these By-Laws, a
vacancy in any office may be filled by the Board of Directors for the unexpired
portion of the term.
Section 5.5. President & Chief Executive Officer. The Board of Directors
shall appoint the President & Chief Executive officer who shall:
(a) preside at all meetings of the Stockholders and of the Board of
Directors;
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(b) be responsible for carrying out the policies of the Corporation, and,
except as to matters specifically reserved to the Board of Directors,
shall supervise the conduct of the day-to-day business of the
Corporation;
(c) sign with the Secretary any deeds, mortgages, deeds of trust, notes,
bonds, contracts, certificates or other instruments authorized by the
Board of Directors to be executed, except in cases in which the
signing and execution thereof shall be delegated by the Board of
Directors to some other officer or agent of the Corporation; and
(d) in general, perform all duties incident to the office of the
President & Chief Executive Officer and such other duties as may be
prescribed by the Board of Directors from time to time.
Section 5.6. Executive Vice President. The Board of Directors shall
appoint the Executive Vice President who shall:
(a) be the executive officer of the corporation next in authority to the
President whom the executive vice president shall assist in the
management of the business of the corporation and the implementation
of orders and resolutions of the Board of Directors.
(b) in the absence of the President, the Executive Vice President shall
preside at all meetings of the Stockholders and of the Directors, and
shall exercise all other powers and perform all other duties of the
President.
(c) except in those instances in which the authority to execute is
expressly delegated to another officer or agent of the corporation or
a different mode of execution is expressly prescribed by the Board of
Directors or these by-laws, the Executive Vice President may execute
for the corporation certificates for its shares and any contracts,
deeds, mortgages, bonds or other instruments which the Board of
Directors has authorized to be executed, and he may accomplish such
execution either under or without the seal of the corporation and
either individually or with the Secretary, any Assistant Secretary,
or any other officer thereunto authorized by the Board of Directors,
according to the requirements of the form of the instrument.
(d) the Executive Vice President shall perform such other duties as the
Board of Directors may from time to time prescribe.
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Section 5.7. Vice Presidents. The Board of Directors shall appoint the
Vice President(s) who shall:
(a) shall assist the President or the Executive Vice President in the
discharge of their duties as the President or Executive Vice
President may direct and shall perform such other duties as from time
to time may be assigned to him by the President, the Executive Vice
President or by the Board of Directors.
(b) in the absence of the President or the Executive Vice President, or
in the event of their inability or refusal to act, the Vice President
(or in the event there be more than one Vice President, the Vice
Presidents in the order designated by the Board of Directors or by
the President if the Board of Directors has not made such a
designation, or in the absence of any designation, then in the order
of seniority of tenure as Vice President) shall perform the duties of
the President, and when so acting, shall have all the powers of and
be subject to all the restrictions upon the president.
(c) execute for the corporation certificates for its shares and any
contracts, deeds, mortgages, bonds or other instruments which the
Board of Directors has authorized to be executed, and he may
accomplish such execution either under or without the seal of the
corporation and either individually or with the secretary, any
assistant secretary, or any other officer thereunto authorized by the
Board of Directors, according to the requirements of the form of the
instrument, except in those instances in which the authority to
execute is expressly delegated to another officer or agent of the
corporation or a different mode of execution is expressly prescribed
by the Board of Directors or these by-laws.
Section 5.7. Secretary. The secretary shall:
(a) keep the minutes of the meetings of the Stockholders and the meetings
of the Board of Directors in one or more books provided for that
purpose;
(b) see that all notices are duly given in accordance with these By-
Laws, including all notices of meetings required to be held by these
By-Laws;
(c) keep a register of the post office address of each Stockholder which
shall be furnished to the Secretary by such Stockholder;
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(d) have general charge of the books of the Corporation in which a record
of the Stockholders is kept;
(e) keep on file at all times a complete copy of the By-Laws of the
Corporation containing all amendments thereto, which copy shall
always be open to the inspection of any Stockholder, and, at the
expense of the Corporation, shall promptly provide each Stockholder
with a copy of all amendments to said By-Laws; and
(f) in general perform all the duties incident to the office of Secretary
and such other duties as from time to time may be assigned to him by
the Board of Directors.
Section 5.8. Assistant Secretary. The Assistant Secretary or if there be
more than one, the Assistant Secretaries in the order determined by the board
of directors (or if there be no such determination, then in the order of their
election), shall:
(a) in the absence of the secretary or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the
secretary;
(b) perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
Section 5.9. Treasurer. The treasurer shall:
(a) have charge and be responsible for the custody of all funds and
securities of the Corporation;
(b) receive and give receipt for monies, due and payable to the
Corporation from any source whatsoever, and deposit all such monies
in the name of the Corporation in such bank or banks as shall be
selected by the Board of Directors; and
(c) in general perform all the duties incident to the office of the
Treasurer and such other duties as from time to time may be assigned
to him by the Board of Directors.
Section 5.10. Assistant Treasurer(s). The assistant treasurer, or if there
shall be more than one, the assistant treasurers in the order determined by the
board of directors (or if there be no such determination, then in the order of
their election), shall:
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(a) in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the
treasurer;
(b) perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
Section 5.11. Bonds of Officers. The Board of Directors may require each
officer of the Corporation, and such other employees or agents of the
Corporation as the Board of Directors shall, in their discretion, deem to be
appropriate, to give bond, the premium for which shall be paid by the
Corporation, in such sum and with such surety as the Board of Directors shall
determine.
Section 5.12. Reports. The officers of the Corporation shall submit, at
each annual meeting of the Stockholders, reports with respect to the business
of the Corporation for the previous fiscal year and showing the financial
condition of the Corporation at the close of such fiscal year.
ARTICLE VI
Stock
Section 6.1. Certificates. Every holder of stock shall be entitled to have
a certificate signed by or in the name of the Corporation by the Chairman of
the Board of Directors, the Vice Chairman of the Board of Directors, or the
President & Chief Executive Officer, and by the Treasurer or the Secretary of
the Corporation, certifying the number of shares owned by him in the
Corporation. Any of or all the signatures on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent, or registrar at the date of issue.
Section 6.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New
Certificates. The Corporation may issue a new certificate of stock in the place
of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it
on account of the alleged loss, theft or destruction of any such certificate or
the issuance of such new certificate.
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Section 6.3. Transfer of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 6.4. Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware,
Section 6.5. Dividends. Subject to the provisions of the Certificate of
Incorporation, if any, dividends upon the capital stock of the corporation may
be declared at any regular or special meeting, pursuant to law. Dividends may
be paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation. Before payment of any dividend,
there may be set aside out of any funds of the Corporation available for
dividends such sum or sums as the Board of Directors from time to time, in
their absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for such other purpose as the Board of
Directors shall think conducive to the interest of the Corporation, and the
Board of Directors may modify or abolish any such reserve in the manner in
which it was created.
ARTICLE VII
Indemnification of Directors, Officers, Employees and Agents
Section 7.1. Indemnification of Officers, Directors, Employees and Agents;
insurance. (a) Any person who was or is a party or is threatened to made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall be indemnified by the corporation against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection
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with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect, to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or
was a director, officer, employee or agent of the corporation or is
or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation partnership, joint
venture, trust or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation and except
that no indemnification shall be made in respect of any claim, issue
or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the
Court of Chancery of Delaware or the Court in which such action or
suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for
such expenses which the Court of Chancery of Delaware, or such other
court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in paragraphs (a) and
(b) hereof, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
(d) Any indemnification pursuant to paragraphs (a) and (b) of this
Section 7 (unless ordered by a court) shall be made by the
13
<PAGE>
corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee
or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in the first two paragraphs
of this Section 7. Such determination shall be made (1) by a majority
vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) if there are no
such directors, or if such directors so direct, by independent legal
counsel in written opinion, or (3) by the stockholders.
(e) Expenses (including attorney's fees) incurred by a director, officer,
employee or agent of the corporation in defending a civil, criminal,
administrative or investigative action, suit or proceeding may be
paid by the corporation in advance of the final disposition of such
action, suit of proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such
amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized in this Section 7.
(f) The indemnification and advancement of expenses provided by this
Section 7 shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be
entitled under any By-Law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding
such office, and shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(g) The corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not
the corporation would have the power to indemnify him against such
liability under the provision of this Section 7.
Section 7.2. Statutory Reference. For the purpose of this Section 7, all
words and phrases used herein shall have the meanings ascribed to them under
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Section 145 of the General Corporation Law of the State of Delaware, as amended
from time to time.
ARTICLE VIII
Miscellaneous
Section 8.1. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 8.2. Seal. The corporate seal shall have the name of the
Corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
Section 8.3. Checks, Drafts. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name
of the Corporation shall be signed by such person or persons as the Board of
Directors may from time to time designate.
Section 8.4. Books, Auditing. The Board of Directors shall cause to be
established and maintained a complete accounting system. The Board of Directors
shall, after the close of each fiscal year, cause to be made by a Certified
Public Accountant a full and complete audit of the accounts, books and
financial condition of the Corporation as of the end of such fiscal year. A
written report of the audit shall be submitted to the stockholders.
Section 8.5. Waiver of Notice. Any Stockholder, any member of the Board of
Directors, or any member of any other committee may waive, in writing, before
or after the meeting, any notice of any meeting required to be given by these
By-Laws.
Section 8.6. Participation in Meetings by Conference Call. Members of the
Board of Directors, or members of any other committee, may participate in any
meetings by means of conference telephone or similar communications equipment
that enables all persons participating in the meeting to hear each other. Such
participation shall constitute participation in person at such meeting.
Section 8.7. Irregularities in Notice. To do maximum extent allowed by
law, any irregularities in the giving of any notice or the holding of any
meeting provided for in these By-Laws shall not invalidate any action taken at
such meeting.
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Section 8.8. Waiver of Notice of Meetings of Stockholders, Directors and
Committees. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of any
regular or special meeting of the Stockholders, Directors, or members of a
committee of Directors need be specified in any written waiver of notice.
Section 8.9. Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its Directors or officers, or
between the Corporation and any other corporation, partnership, association, or
other organization in which one or more of its Directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the Director or officer is present at
or participates in the meeting of the Board of Directors or committee thereof
which authorized the contract or transaction, or solely because his or their
votes are counted for such purpose, if: (1) the material facts as to his
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of
Directors or committee in good faith authorizes the contract or transaction by
the affirmative votes of a majority of the disinterested Directors, even though
the disinterested Directors be less than a quorum; or (2) the material facts as
to his relationship or interest and as to the contract or transaction are
disclosed or are known to the Stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
Stockholders; or (3) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the Board of
Directors, a committee thereof, or the Stockholders. Common or interested
Directors may be counted in determining the presence of a quorum at a meeting
of the Board of Directors or of a committee which authorized the contract or
transaction.
Section 8.10. Form of Records. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs, or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
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Section 8.11. Amendment of By-Laws. These By-Laws may be altered or
repealed, and new By-Laws made, by the Board of Directors, but the Stockholders
may make additional By-Laws and may alter and repeal any By-Laws whether
adopted by them or otherwise.
* * * *
17
Exhibit 4.1
INVESTORS' AGREEMENT
dated as of
April 15, 1999
among
CONDOR SYSTEMS, INC.
and the
several Shareholders from time to time parties hereto
<PAGE>
TABLE OF CONTENTS
-----------------------
PAGE
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions.....................................................1
ARTICLE 2
CORPORATE GOVERNANCE
SECTION 2.01. Composition of the Board........................................7
SECTION 2.02. Removal.........................................................8
SECTION 2.03. Vacancies.......................................................8
SECTION 2.04. Meetings........................................................9
SECTION 2.05. Action by the Board.............................................9
SECTION 2.06. Certain Approval Rights.........................................9
SECTION 2.07. Affiliate Transactions.........................................10
SECTION 2.08. Capitalization of Company......................................11
SECTION 2.09. Conflicting Charter or Bylaw Provisions........................12
ARTICLE 3
RESTRICTIONS ON TRANSFER
SECTION 3.01. General........................................................12
SECTION 3.02. Legends........................................................13
SECTION 3.03. Permitted Transferees..........................................13
SECTION 3.04. Restrictions on Transfers by Management Shareholders...........14
SECTION 3.05. Restrictions on Transfers by GTP Shareholders..................15
SECTION 3.06. Restrictions on Transfers by Behrman...........................17
ARTICLE 4
TAG-ALONG RIGHTS; DRAG-ALONG RIGHTS
SECTION 4.01. Rights to Participate in Transfer..............................21
SECTION 4.02. Right to Compel Participation in Certain Transfers.............22
ARTICLE 5
PREEMPTIVE RIGHTS
SECTION 5.01. Pre-emptive Rights.............................................24
<PAGE>
PAGE
ARTICLE 6
REGISTRATION RIGHTS
SECTION 6.01. Demand Registration............................................25
SECTION 6.02. Incidental Registration........................................30
SECTION 6.03. Holdback Agreements............................................31
SECTION 6.04. Registration Procedures........................................31
SECTION 6.05. Indemnification by the Company.................................34
SECTION 6.06. Indemnification by Participating Shareholders..................35
SECTION 6.07. Conduct of Indemnification Proceedings.........................36
SECTION 6.08. Contribution...................................................37
SECTION 6.09. Participation in Public Offering...............................38
SECTION 6.10. Other Indemnification..........................................38
SECTION 6.11. Cooperation by the Company.....................................39
ARTICLE 7
MISCELLANEOUS
SECTION 7.01. Entire Agreement...............................................39
SECTION 7.02. Effectiveness; Binding Effect; Benefit.........................39
SECTION 7.03. Assignability..................................................39
SECTION 7.04. Amendment and Waiver...........................................40
SECTION 7.05. Notices........................................................40
SECTION 7.06. Headings.......................................................42
SECTION 7.07. Counterparts...................................................42
SECTION 7.08. Applicable Law.................................................42
SECTION 7.09. Specific Enforcement...........................................42
SECTION 7.10. Consent to Jurisdiction........................................42
<PAGE>
INVESTORS' AGREEMENT
INVESTORS' AGREEMENT dated as of April 15, 1999 among Condor Systems,
Inc., a California corporation (the "Company") and the several Shareholders of
the Company from time to time parties hereto.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. (a) The following terms, as used herein,
have the following meanings:
"Adverse Person" means any Person or group of affiliated Persons whom
the Board determines is a competitor or a potential competitor of, or otherwise
adverse to, the Company, its subsidiaries or any of the Shareholders.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person; provided that no Shareholder of the Company shall be deemed an
Affiliate of any other Shareholder of the Company solely by reason of any
investment in the Company. For the purpose of this definition, the term
"control" (including with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), when used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Affiliated Employee Benefit Trust" means any trust that is a successor
to the assets held by a trust established under an employee benefit plan subject
to ERISA or any other trust established directly or indirectly under such plan
or any other such plan having the same sponsor.
"Behrman" means together, Behrman Capital II L.P. and Strategic
Entrepreneur Fund II L.P.
"Board" means the board of directors of the Company.
<PAGE>
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York City are authorized by law to close.
"Bylaws" means the bylaws of the Company, as amended from time to
time.
"Charter" means the articles of incorporation of the Company, as
amended from time to time.
"Closing Date" means April 15, 1999.
"Co-Investment Agreement" means the Co-Investment Agreement dated as of
April 8, 1998, attached as Exhibit I hereto.
"Common Stock" means the Class A Common Stock, the Class B Common Stock
and the Class C Common Stock of the Company and any stock into which such Common
Stock may thereafter be converted or changed. References herein to all or a
portion of the outstanding shares of Common Stock shall mean without regard to
class and without regard to voting rights, counting all classes of Common Stock
as one class of Common Stock on a share-for-share basis.
"Company Securities" means (i) the Common Stock, (ii) securities
convertible into or exchangeable for Common Stock, (iii) options, warrants or
other rights to acquire Common Stock or (iv) any other equity security issued by
the Company.
"Consulting Agreement" means the Consulting Agreement among DLJ
Merchant Banking II, Inc., GTP, and the members of GTP, if and when such
agreement is executed, and as thereafter amended or supplemented.
"DLJMB Entity" means each of, and the "DLJMB Entities" means
collectively, DLJ Merchant Banking Partners II, L.P., a Delaware limited
partnership ("DLJMB Partners II"), DLJ Offshore Partners II, C.V. a Netherlands
Antilles limited partnership, DLJ Merchant Banking Partners II-A, L.P., a
Delaware limited partnership, DLJ Diversified Partners, L.P., a Delaware limited
partnership, DLJ Diversified Partners-A, L.P., a Delaware limited partnership,
DLJ EAB Partners, L.P., a Delaware limited partnership, DLJ Millennium Partners,
L.P., a Delaware limited partnership, DLJ Millennium Partners-A, L.P., a
Delaware limited partnership, DLJMB Funding II, Inc., a Delaware corporation, UK
Investment Plan 1997 Partners, a Delaware partnership, DLJ First ESC, L.P., a
Delaware limited partnership and DLJ ESC II, L.P., a Delaware limited
partnership.
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"DLJMB Proportion" means a fraction, the numerator of which is the
number of shares of Common Stock to be sold by the DLJMB Entities in the
transaction in question and the denominator of which is the total number of
shares of Common Stock owned by the DLJMB Entities immediately prior to such
transaction.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GTP" means Global Technology Partners, LLC, a Delaware limited
liability company.
"GTP Principal" means any person who is, at the time, a member of GTP,
and a party to the Consulting Agreement (if it has previously been executed) and
the Co-Investment Agreement (each as amended or supplemented).
"GTP Shareholder" means each of, and "GTP Shareholders" means
collectively, Ashton Carter, John Deutch, Robert Hermann, Paul Kaminski, William
Perry, Irving Yoskowitz, John White, and any GTP Principal who acquires Company
Securities from a GTP Shareholder as a Permitted Transferee.
"Initial Ownership" means, with respect to any Shareholder, the number
of shares of Common Stock owned by such Shareholder as of the Closing Date
(taking into account any stock split, stock dividend, reverse stock split or
other similar event occurring after such date but not taking account of shares
that may be acquired pursuant to other Company Securities).
"Initial Public Offering" means the first sale of shares of Common
Stock pursuant to a Public Offering.
"Management Shareholders" means Robert E. Young II, Gary M.
Viljoen, John L. Barnum, Vernon A. Dale, David J. Klingler, Thomas A.
Michalski, John L. Taft, Michael J. Bilinski, Terrance Schmidt, John Downs, Bill
Bigas, Charles Leber, Walter Carmon, David Sabo, Randall Kriegh, Dan Camilli,
Marilyn Goodman, Leili McPherson, Gregory Donaldson, Richard McInnis,
David McIntire, John Jensen and Dennis Triolo.
"Permitted Transferee" means:
(i) in the case of Behrman, the other Behrman funds listed on the
attached Schedule I hereto;
(ii) (x) in the case of any GTP Shareholder: (A) any other GTP
Shareholder in the event that the transferring GTP Shareholder dies,
3
<PAGE>
becomes disabled, or is divorced, and (B) any person who is a GTP
Principal but not a GTP Shareholder provided that (a) the Consulting
Agreement (if it has previously been executed) and the Co-Investment
Agreement (each as amended or supplemented) are still in effect (or
DLJMB Partners II's prior written approval has been obtained) and (b)
transfer to such person will not cause the transferee to own an amount
of Common Stock greater than the largest amount of Common Stock owned
by any GTP Shareholder as of the Closing Date; and (y) in the case of
any GTP Shareholder who accepts a full-time position with the federal,
or with any state or local, government, or with any organization where
possession of Company Securities may give rise to an apparent or actual
conflict of interest, such GTP Shareholder is permitted to transfer his
Company Securities to a blind trust (and if the conflict of interest
terminates, such Shareholder may reacquire such transferred Company
Securities); provided that any and all trustees of the blind trust will
be required with respect to a particular matter to vote such shares of
Common Stock held in such trust in the same proportion as all other
shares of Common Stock held by GTP Shareholders in the aggregate are
voted for or against the particular matter being voted on, and provided
further that with respect to the particular GTP Shareholder described
in this clause (y), such blind trust (or trustee or trustees, if
applicable) shall be deemed a Permitted Transferee .
(iii) in the case of any Management Shareholder, (A) subject to
Board approval, or in the event that the transferring Management
Shareholder dies, becomes disabled, or is divorced, any other
Management Shareholder, (B) a spouse or lineal descendant of any such
Management Shareholder, or (C) any trust, the beneficiaries of which
include only the Management Shareholder and /or the persons named in
clause (B); and
(iv) in the case of any DLJMB Entity, (A) any other DLJMB Entity,
(B) any general or limited partner of any DLJMB Entity (a "DLJMB
Partner"), and any Affiliated Employee Benefit Trust or other Person
that is an Affiliate of any DLJMB Partner (collectively, the "DLJMB
Affiliates"), (C) any managing director, general partner, director,
limited partner, officer or employee of any DLJMB Entity or of any
DLJMB Affiliate, or the heirs, executors, administrators, testamentary
trustees, legatees or beneficiaries of any of the foregoing persons
referred to in this clause (C) (collectively, "DLJMB Associates"), (D)
a trust, the beneficiaries of which, or a corporation, limited
liability company or partnership, all of the stockholders, members or
general or limited partners of which, include only the DLJMB Entities,
DLJMB Affiliates, DLJMB Associates, their spouses or their lineal
descendants, or (E) a voting trustee
4
<PAGE>
for one or more DLJMB Entities, DLJMB Affiliates or DLJMB Associates
under the terms of a voting trust designed to conform with the
requirements of the Insurance Law of the State of New York.
Unless otherwise indicated, any reference to a Shareholder (including
without limitation Behrman, any DLJMB Entity, any GTP Shareholder, and any
Management Shareholder) shall include its Permitted Transferees to the extent
Company Securities have been transferred to such Permitted Transferees, and any
rights or action that may be taken at the election of such Shareholder may be
taken at the election of such Shareholder and its Permitted Transferees.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
"Public Offering" means an underwritten public offering of Common Stock
pursuant to an effective registration statement under the Securities Act (other
than a registration statement on Form S-4, S-8 or any successor forms).
"Registrable Securities" means any shares of Common Stock owned by a
Shareholder and not acquired after the Initial Public Offering in market
transactions.
"Registration Expenses" means (i) all registration and filing fees,
(ii) fees and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications), (iii) printing expenses, (iv) internal expenses of the Company
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), (v) reasonable fees and
disbursements of counsel for the Company and customary fees and expenses for
independent certified public accountants retained by the Company (including the
expenses of any comfort letters), (vi) the reasonable fees and expenses of any
special experts retained by the Company in connection with such registration,
(vii) reasonable fees and expenses of one counsel for the Shareholders
participating in the offering selected (A) by Behrman, in the case of an
offering pursuant to a Catch-up Demand Registration or Unlimited Demand
Registration, (B) except as set forth in clause (A), by the DLJMB Entities, in
the case of any offering in which such entities participate, or (C) in any other
case, by the Shareholders holding the majority of shares to be sold for the
account of all Shareholders in the offering, (viii) fees and expenses in
connection with any review of underwriting arrangements by the National
Association of Securities Dealers, Inc. (the "NASD") including fees and expenses
of any "qualified independent underwriter" and (ix) fees and disbursements of
underwriters customarily paid by issuers or sellers of securities;
5
<PAGE>
but shall not include any underwriting fees, discounts or commissions
attributable to the sale of Registrable Securities, or any out-of-pocket
expenses (except as set forth in clause (vii) above) of the Shareholders (or the
agents who manage their accounts) or any fees and expenses of underwriter's
counsel.
"Restriction Termination Date" means the earlier to occur of (a) the
second anniversary of the Initial Public Offering and (b) the fifth anniversary
of the Closing Date.
"Rule 144" means Rule 144 (or any successor provisions) under the
Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholder" means each Person (other than the Company) who shall be a
party to or bound by this Agreement, whether in connection with the execution
and delivery hereof as of the date hereof, pursuant to Section 7.03, or
otherwise, so long as such Person owns any Company Securities.
Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
Applicable Holdback Period 6.03
Capital Return Date 3.04(a)
Catch-up Demand Registration 6.01(a)(iii)
Catch-up Shareholder Amount 6.01(a)
Catch-up Shareholder Maximum 6.01(a)
Catch-up Shares 3.06(a)(iii)
Class A Common Stock 2.08
Class B Common Stock 2.08
Class C Common Stock 2.08
Demand Registration 6.01(a)(iii)
DLJMB Termination Date 2.06
Drag-Along Rights 4.02(a)
Holders 6.01(a)
Incidental Registration 6.02(a)
Indemnified Party 6.07
Indemnifying Party 6.07
Inspectors 6.04(g)
6
<PAGE>
Term Section
Offering Amount 6.01(a)
Ombudsman 2.05
Option Shares 3.04(a)
Public Offering Limitations 3.04(a)
Records 6.04(g)
Regular Demand Registration 6.01(a)(i)
Selling Person 4.01(a)
Selling Shareholder 6.01(a)
Shareholder Amount 6.01(a)
Shareholder Maximum 6.01(a)
Shareholder Portion 6.01(a)
Tag-Along Offer 4.01(a)
Tag-Along Right 4.01(a)
Tag-Along Sale 4.01(a)
Tagging Person 4.01(a)
transfer 3.01
Unlimited Demand Registration 6.01(a)(ii)
Unlimited Shareholder Maximum 6.01(a)
Unlimited Tradable Shares 6.01(a)(iii)(B)
ARTICLE 2
CORPORATE GOVERNANCE
SECTION 2.01. Composition of the Board. (a) Each Shareholder agrees
that the Board shall consist of five directors, three of whom will be nominated
by the GTP Shareholders (two of whom will be GTP Shareholders, and one of whom
will be designated by the GTP Shareholders), one of whom will be nominated by
Behrman, and one of whom will be the Chief Executive Officer of the Company
appointed by the Board; provided that the GTP Shareholders may, and, if required
by a U.S. Government agency for whom the Company performs classified contracts,
will, select as the third GTP Shareholder nominee a non-GTP Shareholder having
considerable relevant business experience but no prior financial or contractual
relationship with any of the Shareholders. The GTP nominees shall select the
Chairman of the Board, and have initially selected Robert E. Young II. The
rights of any group of Shareholders to nominate under this Section shall
terminate when the number of shares of Common Stock held by such group of
Shareholders is less than 10% of its Initial Ownership.
7
<PAGE>
(b) If the Company could continue to perform classified work in
circumstances where the holders of the Class C Common Stock held instead an
equal number of shares of Class A Common Stock, and such holders elect, pursuant
to Section 2.08 hereof, to have the shares of Class C Common Stock converted to
shares of Class A Common Stock (which will automatically also cause all shares
of Class B Common Stock to be converted to shares of Class A Common Stock): (i)
the GTP Shareholders' right to nominate three directors will become a right of
DLJMB Partners II to nominate such directors (at least one of whom shall be a
GTP Shareholder so long as the Consulting Agreement (if it has previously been
executed) and the Co-Investment Agreement (each as amended or supplemented) are
still in effect), (ii) the GTP nominees' right to seats on committees will
become a right of the nominees of DLJMB Partners II, and (iii) the DLJMB
Entities will be obligated to vote for Board nominees as the GTP Shareholders
would under Section 2.01(c).
(c) The GTP Shareholders and Behrman will be required to vote for the
GTP nominees and the Chief Executive Officer unless the number of shares of
Common Stock held by GTP Shareholders and the DLJMB Entities is less than 10% of
the Initial Ownership of the GTP Shareholders and the DLJMB Entities, and the
GTP Shareholders and Behrman will be required to vote for the Behrman nominee
unless and until the number of shares of Common Stock held by Behrman is less
than 10% of Behrman's Initial Ownership.
(d) The rights to nominate directors pursuant to Section 2.01(a) and
(b), and the right to require other parties to vote therefor pursuant to Section
2.01(c), shall not be transferable by the GTP Shareholders, other than to their
Permitted Transferees, and shall not be transferable by DLJMB Partners II or
Behrman.
SECTION 2.02. Removal. Each Shareholder (other than the Management
Shareholders) agrees that it will vote all of its shares of Common Stock
entitled to vote in favor of the removal of any director who shall have been
designated or nominated or appointed pursuant to Section 2.01 at the request of
the Persons entitled to designate or nominate or appoint such director, and
otherwise only for cause or with the consent of such Persons.
SECTION 2.03. Vacancies. If, as a result of death, disability,
retirement, resignation, removal (with or without cause) or otherwise, there
shall exist or occur any vacancy of the Board:
(a) the Person or Persons entitled under Section 2.01 to designate
or nominate or appoint such director whose death, disability,
retirement, resignation or removal resulted in such vacancy may
designate another individual to fill such capacity and serve as a
director of the Company; and
8
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(b) subject to Section 2.01, each Shareholder (other than the
Management Shareholders) agrees to vote all of its shares of Common
Stock entitled to vote in favor of the election of such designee as a
director.
SECTION 2.04. Meetings. The Board shall hold a regularly scheduled
meeting at least once every calendar quarter.
SECTION 2.05. Action by the Board. (a) A quorum of the Board shall
consist of three directors. All actions of the Board shall require the
affirmative vote of at least a majority of the directors present at a duly
convened meeting of the Board (with prior notice as provided in the ByLaws) at
which a quorum is present or the unanimous written consent of the Board;
provided that, in the event there is a vacancy on the Board and an individual
has been nominated to fill such vacancy, the first order of business shall be to
fill such vacancy.
(b) The Board shall create a compensation committee which will have
three seats. The Behrman nominee will be entitled to one seat, and the GTP
nominees will be entitled to the other two seats. Subject to Section 2.06(ix),
the compensation committee will make all compensation decisions.
(c) The Board shall create an audit committee which will have three
seats. The GTP nominees will be entitled to two seats; one of which will be held
by a GTP Shareholder and one of which will be held by the third GTP nominee. The
Behrman nominee will be entitled to the third seat. An individual shall be
appointed by the audit committee to oversee the Company's handling of classified
and controlled unclassified information (the "Ombudsman"), who shall report to
the audit committee as needed, and no less than once per quarter.
(d) The Board shall not create any other committees, except as
required for appropriate regulatory authorities.
SECTION 2.06. Certain Approval Rights. The Board has full authority to
take any and all lawful action; provided that the prior written approval of
DLJMB Partners II shall be required for the following corporate actions:
(i) the sale or disposal of all Company assets (or a substantial
part thereof);
(ii) pledges, mortgages, or other encumbrances of the Company
assets (other than for obtaining working capital or funds for capital
improvements);
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(iii) the issuance or redemption by the Company of debt or equity
securities (including options and other equity-based compensation);
(iv) the Company's participation in any corporate mergers,
consolidations, reorganizations or acquisitions (of stock or assets);
(v) the dissolution of the Company, the sale or liquidation of its
business, or a change of control;
(vi) the Company's filing of a bankruptcy petition or the
windingdown of its business;
(vii) a change in the Company's independent auditors;
(viii) a change in the Company's Charter; and
(ix) any proposed increase in the base salary for any senior
manager of 20% or more in any given year, or a bonus for any senior
manager in any given year greater than 70% of base salary (140% for the
Chief Executive Officer).
These approval rights shall terminate if all shares of Class B Common
Stock and Class C Common Stock have been converted to shares of Class A Common
Stock as contemplated by Section 2.08. These approval rights shall also
terminate if the number of shares of Common Stock owned by the DLJMB Entities is
less than 10% of the Initial Ownership of the DLJMB Entities (the "DLJMB
Termination Date"). These approval rights shall not be transferable by DLJMB
Partners II.
SECTION 2.07. Affiliate Transactions. All transactions (other than
issuances of equity securities) between the Company, on the one hand, and any
shareholder or group of shareholders owning 5% or more of the outstanding shares
of Common Stock or of the total voting power of the outstanding shares of Common
Stock or any Affiliates thereof, on the other hand, shall be on terms no less
favorable to the Company than those that can be obtained by the Company from an
unaffiliated third party with similar qualifications. Any issuances or
repurchases of equity securities by the Company shall be at fair market value as
determined by the Board. It is understood and agreed that (a) the financial
advisory agreement between Behrman Capital Management Corp. and the Company
dated March 8, 1999, (b) the financial advisory agreement between Donaldson,
Lufkin & Jenrette Securities Corporation and the Company dated March 4, 1999
(only with respect to such agreement and not with respect to the
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future agreements contemplated therein), and (c) transactions contemplated by
the Co-Investment Agreement (or an amendment, supplement, or replacement thereof
which provides for benefits to the GTP Shareholders which are proportionately
(taking into account the size of the transaction) not materially greater than
those contemplated to be received by the GTP Shareholders in the transactions
consummated on the Closing Date) do not violate this Section 2.07.
SECTION 2.08. Capitalization of Company. (a) Each Shareholder agrees
that the Company shall be authorized to issue three classes of shares of capital
stock, designated "Class A Common Stock", "Class B Common Stock", and "Class C
Common Stock" (collectively, "Common Stock").
(b) Behrman and the Management Shareholders will initially be holders
of shares of Class A Common Stock. The GTP Shareholders will initially be
holders of shares of Class B Common Stock. The DLJMB Entities will initially be
holders of shares of Class C Common Stock.
(c) Each of the shares of Common Stock shall be identical in all
respects and shall have equal rights, powers, and privileges, except as set
forth in the Company's Charter and below:
(i) Conversion. (A) Any holder of shares of Class B Common Stock
who transfers such shares to any Person (other than a Permitted
Transferee of such holder, in which case such shares shall not convert,
or a holder of Class C Common Stock, in which case such shares shall
automatically convert to shares of Class C Common Stock) shall be
required to exercise its right to convert such shares to Class A Common
Stock as a condition to such transfer. Notwithstanding the foregoing,
no conversion from shares of Class B Common Stock to shares of Class A
Common Stock shall be made unless (i) the holders of the remaining
shares of Class B Common Stock would be entitled to designate a
majority of the Board of Directors of the Corporation, or (ii) such
entitlement is not required in order for the Corporation to continue to
perform classified work.
(B) Any holder of shares of Class C Common Stock who transfers
such shares to any Person (other than another holder of Class C Common
Stock or an Affiliate of such holder, in which case such shares shall
not convert) shall be required to exercise its right to convert such
shares to Class A Common Stock as a condition of such transfer.
(C) If the Company could continue to perform classified work in
circumstances where the holders of the Class C Common Stock held
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instead an equal number of shares of Class A Common Stock, the holders
of the Class C Common Stock may, at their option by majority vote (with
subsequent notice to the other Shareholders) elect to require all
holders of Class C Common Stock to convert their shares of Class C
Common Stock to Class A Common Stock on a share for share basis,
whereupon all such holders shall convert all such shares. Upon such
conversion, each share of Class B Common Stock will, as provided in the
charter, automatically convert into Class A Common Stock on a share for
share basis.
(ii) Dividends, Splits and Reclassifications. (A) Any dividends
or distributions with respect to Common Stock shall be declared and paid
at the same time and at the same rate per share on Class A Common Stock,
Class B Common Stock, and Class C Common Stock. Any stock dividends on
any class of Common Stock shall be paid in stock of such class, and any
splits, divisions, or combinations of Common Stock shall be made in the
same ratios with respect to the Class A Common Stock, Class B Common
Stock, and Class C Common Stock.
(B) Except as set forth in clause (A) above, each share of Class
A Common Stock, Class B Common Stock, and Class C Common Stock shall be
treated equally in respect of any dividends or distributions, when and
as declared, and whether by dividend, recapitalization, reorganization,
merger or otherwise.
SECTION 2.09. Conflicting Charter or Bylaw Provisions. Each Shareholder
shall vote its Company Securities entitled to vote and take all other actions
necessary to ensure that the Company's Charter and Bylaws facilitate and do not
at any time conflict with any provision of this Agreement.
ARTICLE 3
RESTRICTIONS ON TRANSFER
SECTION 3.01. General. Each Shareholder understands and agrees that the
Company Securities acquired on the Closing Date have not been registered under
the Securities Act and are "restricted securities" as defined in Rule 144. Each
Shareholder agrees that it will not, directly or indirectly, sell, assign,
transfer, grant a participation in, pledge or otherwise dispose of ("transfer")
any Company Securities (or solicit any offers to buy or otherwise acquire, or
take a pledge of any Company Securities) except in compliance with the
Securities Act and the terms and conditions of this Agreement. Any attempt to
transfer any Company
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Securities not in compliance with this Agreement shall be null and void and the
Company shall not, and shall cause any transfer agent not to, give any effect in
the Company's stock records to such attempted transfer.
SECTION 3.02. Legends. In addition to any other legend that may be
required, each certificate for Company Securities that is issued to any
Shareholder shall bear a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED
OR SOLD EXCEPT IN COMPLIANCE THEREWITH. THIS SECURITY IS SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE INVESTORS'
AGREEMENT DATED AS OF APRIL 15, 1999, COPIES OF WHICH MAY BE OBTAINED
UPON REQUEST FROM CONDOR SYSTEMS, INC. OR ANY SUCCESSOR THERETO."
If with respect to any Company Securities, (a) a registration statement
covering such securities has been declared effective by the SEC and such
securities have been disposed of pursuant to such effective registration
statement or (b) such securities are sold under circumstances in which all of
the applicable conditions of Rule 144 are met, the Company shall, upon the
written request of the holder thereof, issue to such holder a new certificate
evidencing such securities without the first sentence of the legend required by
this Section endorsed thereon. If any Company Securities cease to be subject to
any and all restrictions on transfer set forth in this Agreement, the Company
shall, upon the written request of the holder thereof, issue to such holder a
new certificate evidencing such Company Securities without the second sentence
of the legend required by this Section endorsed thereon.
SECTION 3.03. Permitted Transferees. Notwithstanding anything in this
Agreement to the contrary, any Shareholder may at any time transfer any or all
of its Company Securities to one or more of its Permitted Transferees without
the consent of the Board or any other Shareholder or group of Shareholders and
without compliance with Sections 3.04, 3.05, 3.06 and 4.01 so long as (a) such
Permitted Transferee shall have become a party to this Agreement and executed
and delivered a copy of this Agreement to the Company and (b) the transfer to
such Permitted Transferee is not in violation of applicable federal or state
securities laws. A Permitted Transferee will be entitled to the rights and
subject to the obligations of the transferor hereunder; however it shall not
have any rights to nominate any directors under Section 2.01, except if it is a
Permitted Transferee
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of a GTP Shareholder, and shall not have any approval rights under Section 2.06.
No transferee other than a Permitted Transferee shall be entitled to any rights
or subject to any obligations of the transferor under this Agreement.
SECTION 3.04. Restrictions on Transfers by Management Shareholders.
(a) Each Management Shareholder may transfer its Company Securities only
as follows; provided that notwithstanding anything herein to the contrary, such
transfers cannot, prior to eight years after the date of this Agreement, reduce
the ownership of shares of Common Stock by such Management Shareholder to below
that percentage of its Initial Ownership as equals the percentage of the DLJMB
Entities' Initial Ownership after previous (or simultaneous, if in the same
transaction) dispositions by the DLJMB Entities:
(i) in a transfer made in compliance with Section 4.01 or 4.02;
(ii) subject to the Public Offering Limitations, in a Public
Offering in connection with the exercise of its rights under Article 6
hereof;
(iii) following the second anniversary of the Initial Public
Offering, in a transfer made in compliance with Rule 144 and Section
6.03 hereof; or
(iv) following the Restriction Termination Date, on an arms-length
basis to any unaffiliated third party other than an Adverse Person for
consideration consisting solely of cash, provided, however, that the
number of shares of Common Stock transferred by such Management
Shareholder pursuant to this clause (iv) in any 12-month period shall
not exceed 20% of the total number of shares of Common Stock owned by
such Management Shareholder at the beginning of such 12-month period.
For purposes of this Agreement, "Public Offering Limitations" means (A)
in the Initial Public Offering no Management Shareholder may transfer any shares
of Common Stock, unless otherwise determined by the Board; (B)(i) in the first
Public Offering following the Initial Public Offering, until the date on which
the DLJMB Entities have received aggregate cash proceeds from the sale of shares
of Common Stock equal to the DLJMB Entities' initial investment in shares of
Common Stock (the "Capital Return Date"), no Management Shareholder may sell
more shares of Common Stock acquired pursuant to exercise of employee stock
options ("Option Shares") than the product of the number of Option Shares held
by such person or group prior to such Public Offering and the lesser of (x) 50%
of the DLJMB Proportion and (y) 20% and (ii) in each Public
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Offering thereafter, no Management Shareholder may sell more Option Shares than
the product of the number of Option Shares held by such person or group prior to
the Public Offering and the lesser of (x) the DLJMB Proportion and (y) 50%.
(b) The provisions of Section 3.04(a) shall terminate upon the DLJMB
Termination Date.
SECTION 3.05. Restrictions on Transfers by GTP Shareholders.
(a) Each GTP Shareholder may transfer its Company Securities only as
follows; provided that notwithstanding anything herein to the contrary, such
transfers cannot, without the prior written approval of DLJMB Partners II,
reduce the ownership of shares of Common Stock of such GTP Shareholder to below
that percentage of its Initial Ownership as equals the percentage of the DLJMB
Entities' Initial Ownership remaining after previous (or simultaneous, if in the
same transaction) dispositions of Common Stock by the DLJMB Entities, and
provided further that the proceeds from any such transfers must be first used to
repay all loans incurred by such GTP Shareholder to pay for shares of Common
Stock:
(i) in a transfer made in compliance with Section 4.01 or 4.02;
(ii) in a Public Offering (including the Initial Public Offering)
in connection with the exercise of its rights under Article 6 hereof;
(iii) following the second anniversary of the Initial Public
Offering, in a transfer made in compliance with Rule 144 and Section
6.03 hereof; or
(iv) following the Restriction Termination Date on an arms-length
basis to any unaffiliated third party other than an Adverse Person for
consideration consisting solely of cash.
(b) (i) If a GTP Shareholder proposes to transfer shares of Common
Stock owned by such GTP Shareholder in a transaction pursuant to
Section 3.05(a)(iii) or 3.05(a)(iv), such GTP Shareholder shall provide
the DLJMB Entities, the Management Shareholders and the Company written
notice of such proposed transfer. The notice shall identify the number
of shares of Common Stock proposed to be transferred, the cash price
per share at which a transfer is proposed to be made and all other
material terms and conditions of the offer. Each GTP Shareholder agrees
that it will not enter into any discussions or negotiations with any
third
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party concerning a transaction that might constitute or result in any
such offer, except in full compliance with Section 3.05(b).
(ii) The receipt of a such notice by the DLJMB Entities and the
Company from a GTP Shareholder shall constitute an offer by such GTP
Shareholder to sell first, to the DLJMB Entities and, if not accepted
or only accepted in part by the DLJMB Entities, second to the Company,
for cash, the shares of Common Stock at the price and on the other
terms and conditions set forth in such notice. Such offer shall be
irrevocable for 10 Business Days (or in the case of a sale pursuant to
Rule 144, 24 hours) after receipt of such notice by the DLJMB Entities
and the Company. During such period, any of the DLJMB Entities and the
Company shall have the right to accept such offer as to all or a
portion of the shares of Common Stock (provided that first priority of
the right to accept is given to the DLJMB Entities; and provided
further that the aggregate number of shares of Common Stock accepted by
the DLJMB Entities and the Company (and any participating Management
Shareholders) together equals the total number of shares of Common
Stock subject to the offer) by giving a written notice of acceptance to
such Shareholder prior to the expiration of the offer period.
(iii) If one or more of the DLJMB Entities accept the offer, the
Management Shareholders will have the right to participate with the
DLJMB Entities in the purchase, pro rata based on their respective
Initial Ownership. In addition, if the shares to be sold by the GTP
Shareholders are shares of Class B Common Stock: (A) the shares of
Common Stock purchased by the DLJMB Entities shall convert upon the
closing of such sale into shares of Class C Common Stock and (B) the
shares of Common Stock purchased by the Management Shareholders shall
convert upon the closing of such sale into shares of Class A Common
Stock.
(iv) Any person who has accepted the offer shall purchase and pay
for all shares of Common Stock accepted within 30 days after such
acceptance; provided that if the purchase and sale of such shares is
subject to any prior regulatory approval, the time period during which
such purchase and sale may be consummated shall be extended until the
expiration of five Business Days after all such approvals shall have
been received; provided further that such time period shall not exceed
120 days without the prior written consent of the GTP Shareholder.
(v) Upon the failure to accept the offer in full prior to the
expiration of the offer period or the failure to consummate the
purchase within 30 (or 120 days, if applicable) after the acceptance of
the offer,
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there shall commence a 60-day period during which the GTP Shareholder
that gave the notice shall have the right to transfer to a third party
any or all of the shares of Common Stock subject to such offer at a
price in cash not less than 90% of the price indicated in the applicable
notice to the DLJMB Entities and the Company, and on the other terms and
conditions set forth therein, provided that the transfer to such third
party is not in violation of applicable federal or state or foreign
securities laws. If such Shareholder does not consummate the sale in
accordance with the foregoing time limitations, such Shareholder may not
thereafter transfer any shares of Common Stock in a transaction pursuant
to Section 3.05(a)(iii) or 3.05(a)(iv) without repeating the foregoing
procedures.
(vi) Notwithstanding anything in this Section 3.05(b) to the
contrary, the provisions of this Section 3.05(b) will not be applicable
to transfers made pursuant to and in compliance with any provisions of
this Agreement other than Sections 3.05(a)(iii) or (iv).
(c) The provisions of Sections 3.05(a) and (b) shall terminate upon the
DLJMB Termination Date.
SECTION 3.06. Restrictions on Transfers by Behrman.
(a) Behrman may transfer its Company Securities only as follows:
(i) prior to the Initial Public Offering, in a transfer made in
compliance with Section 4.01 or 4.02;
(ii) in the Initial Public Offering in connection with the
exercise of its rights under Article 6 hereof;
(iii) in the first two years following the Initial Public
Offering, if the Shareholders own at the time of transfer more than 50%
of the outstanding shares of Common Stock, then:
(A) in a transfer made in compliance with Section 4.01 or
4.02;
(B) with respect to Catch-up Shares only,
(1) in a transfer made in compliance with Rule 144,
provided that sales by Behrman pursuant to this clause (1)
shall not (x) in any 60 day period, total over $3.5 million,
occur on more than seven trading days or occur
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outside a two week period, or (y) occur in more than four
60-day periods;
(2) in a transfer made pursuant to a Catch-Up Demand
Registration (as defined in Section 6.01(a)(iii)), or
(3) in a transfer made pursuant to a Regular Demand
Registration (as defined in Section 6.01(a)(i)) initiated by
a Shareholder other than Behrman or pursuant to an Incidental
Registration (as defined in Section 6.02(a)), subject to
applicable priority provisions.
"Catch-up Shares" means the number of shares of Common Stock that
Behrman would have been entitled to transfer pursuant to Section
4.01 after the Initial Public Offering or a Demand Registration
initiated by a Shareholder other than Behrman or an Incidental
Registration (excluding the Initial Public Offering), in each
case, in which Behrman elected not to participate; and
(C) in a transfer made pursuant to an Unlimited Demand
Registration (as defined in Section 6.01(a)(ii)) or the transfer
of Unlimited Tradable Shares (as defined in Section 6.01);
(iv) in the first two years following the Initial Public Offering,
if the Shareholders own at the time of such transfer 50% or less of the
outstanding shares of Common Stock or after two years following the
Initial Public Offering, then:
(A) in a transfer made in compliance with Section 4.01 or
4.02;
(B) in a transfer made in compliance with Rule 144;
(C) in a transfer made pursuant to a Regular Demand
Registration, a Catch-up Demand Registration or an Incidental
Registration;
(D) in the event that Behrman own either (a) less than 3.5%
of the outstanding shares of Common Stock, or (b) shares of
Common Stock with a market value of less than $8 million in the
aggregate, to any Person other than an Adverse Person; or
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(E) pursuant to an Unlimited Demand Registration or the
transfer of Unlimited Tradable Shares.
(v) Behrman may transfer its shares of Common Stock to general or
limited partners of Behrman, in the event that any of the DLJMB
Entities transfers shares of Common Stock to any general or limited
partners of DLJMB Entities; provided that Behrman cannot transfer to
its general and limited partners a number of shares of Common Stock
that is greater than 57% of the number of shares of Common Stock that
the DLJMB Entities transfer to their general and limited partners.
(b) (i) If Behrman proposes to transfer shares of Common Stock owned by
Behrman in a transaction pursuant to Sections 3.06(a)(iii)(B)(1),
3.06(a)(iii)(C) (only as to Unlimited Tradable Shares), 3.06(a)(iv)(B),
3.06(a)(iv)(D), or 3.06(a)(iv)(E) (only as to Unlimited Tradable Shares),
Behrman shall provide the DLJMB Entities, the other Shareholders and the Company
written notice of such offer. The notice shall identify the number of shares of
Common Stock proposed to be sold and the cash price per share of Common Stock at
which a sale is proposed to be made and all other material terms and conditions
of the offer. Behrman agrees that it will not enter into any discussions or
negotiations with any third party concerning a transaction that might constitute
or result in any such offer, except in full compliance with Section 3.06(b).
(ii) The receipt of such notice by the DLJMB Entities and the
Company from Behrman shall constitute an offer by such Shareholder to
sell first, to the DLJMB Entities and, if not accepted or only accepted
in part by the DLJMB Entities, second to the Company for cash the
shares of Common Stock at the offer price and on the other terms and
conditions set forth in such notice. Such offer shall be irrevocable
for 24 hours after receipt of such notice by the DLJMB Entities and the
Company. During such 24-hour period, any of the DLJMB Entities and the
Company shall have the right to accept such offer as to all or a
portion of the shares of Common Stock (provided that first priority of
the right to accept is given to the DLJMB Entities; and provided
further, that the aggregate number of shares of Common Stock accepted
by the DLJMB Entities and the Company (and any participating Management
Shareholders and GTP Shareholders) together equals the total number of
shares of Common Stock subject to the offer) by giving a written notice
of acceptance to such Shareholder prior to the expiration of such
24-hour period.
(iii) If any of the DLJMB Entities accept the offer, the
Shareholders other than Behrman will have the right to participate with
such DLJMB Entity in the purchase, pro rata based on their respective
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Initial Ownership, and at the discretion of the compensation committee,
the Company may lend on an arms-length basis necessary funds to any
Management Shareholder who wishes to participate for up to seven
Business Days. In addition, if at the time of such purchase any shares
of Class C Common Stock are outstanding, the shares purchased by the
DLJMB Entities shall convert upon the closing of such sale into shares
of Class C Common Stock.
(iv) Any person who has accepted the offer shall purchase and pay
for all shares of Common Stock accepted within 3 trading days after
acceptance of the offer.
(v) Upon the failure to accept the offer in full prior to the
expiration of the 24-hour period or the failure to consummate the
purchase within 3 trading days after the acceptance of the offer, there
shall commence a 60-day period during which the Shareholder that gave
the notice shall have the right to transfer to a third party any or all
of the shares of Common Stock subject to the such offer at a price in
cash not less than 90% of the price indicated in the applicable notice
to the DLJMB Entities and the Company, and on the other terms and
conditions set forth therein. If such Shareholders do not consummate
the sale in accordance with the foregoing time limitations, such
Shareholders may not thereafter transfer any shares of Common Stock in
a transaction pursuant to Sections 3.06(a)(iii)(B)(1), 3.06(a)(iii)(C)
(only as to Unlimited Tradable Shares), 3.06(a)(iv)(B), 3.06(a)(iv)(D),
or 3.06(a)(iv)(E) (only as to Unlimited Tradable Shares), without
repeating the foregoing procedures.
(vi) Notwithstanding anything in this Section 3.06(b) to the
contrary, the provisions of this Section 3.06(b) will not be applicable
to transfers made pursuant to and in compliance with any provisions of
this Agreement other than Sections 3.06(a)(iii)(B)(1), 3.06(a)(iii)(C)
(only as to Unlimited Tradable Shares), 3.06(a)(iv)(B), 3.06(a)(iv)(D),
or 3.06(a)(iv)(E) (only as to Unlimited Tradable Shares).
(c) The provisions of Sections 3.06(a) and (b) shall terminate on the
date that the number of shares of Common Stock owned by the DLJMB Entities
(excluding, for purposes of this Section 3.06 only, shares of Common Stock owned
by any Permitted Transferee who is not (i) a DLJMB Entity, (ii) a general
partner of a DLJMB Entity, (iii) a trust, the beneficiaries of which, or a
corporation, limited liability company or partnership, all of the stockholders,
members or general or limited partners of which, include only the DLJMB
Entities, or (iv) a voting trustee for one or more DLJMB Entities) is less than
10% of the Initial Ownership of the DLJMB Entities.
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ARTICLE 4
TAG-ALONG RIGHTS; DRAG-ALONG RIGHTS
SECTION 4.01. Rights to Participate in Transfer. (a) If one or more of
the DLJMB Entities (collectively, the "Selling Person") propose to transfer any
shares of Common Stock (other than to a Permitted Transferee) (a "Tag-Along
Sale"), the Selling Person shall provide each other Shareholder written notice
of the terms and conditions of such proposed transfer and offer each such
Shareholder the opportunity to participate in such transfer. The notice shall
identify the number of shares of Common Stock subject to the offer ("Tag-Along
Offer"), the per share cash price at which the sale is proposed to be made, and
all other material terms and conditions of the offer, including the form of the
proposed agreement, if any. From the date of such notice, each such Shareholder
shall have the right (a "Tag-Along Right"), exercisable by written notice given
to the Selling Person within 15 days, to request that the Selling Person include
in the proposed sale the number of shares of Common Stock owned by such
Shareholder (a "Tagging Person") as is specified in such Tagging Person's
notice; provided that if the aggregate number of shares of Common Stock proposed
to be sold by the Selling Person and all Tagging Persons in such transaction
exceeds the number of shares of Common Stock that can be sold to the third party
on the terms and conditions proposed, then each such Person shall be entitled to
sell a maximum number of shares of Common Stock equal to the product of (1) the
total number of shares of Common Stock that can be sold to the third party on
the terms and conditions proposed and (2) a fraction the numerator of which is
the total number of shares owned by such Shareholder and the denominator of
which is the aggregate number of shares of Common Stock owned by the Selling
Person and all Tagging Persons. Each Tagging Person shall deliver, together with
its notice of acceptance, to the Selling Person the certificate or certificates
representing the shares of Common Stock to be included in the transfer, together
with a limited power-of-attorney authorizing the Selling Person to transfer such
shares on the terms set forth in the notice from the Selling Person. Delivery of
such certificate or certificates and other documents to the Selling Person shall
constitute an irrevocable acceptance of the Tag-Along Offer by such Tagging
Persons. If, at the end of a 120 day period after such delivery, the Selling
Person has not completed the sale of all such shares of Common Stock on
substantially the same terms and conditions set forth in the notice from the
Selling Person, the Selling Person shall return to each Tagging Person the
limited power-of-attorney (and all copies thereof) together with all
certificates which such Tagging Person delivered for transfer pursuant to this
Section 4.01.
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(b) Concurrently with the consummation of the Tag-Along Sale, the
Selling Person shall notify the Tagging Persons thereof, shall remit to the
Tagging Persons the total consideration (less their proportional share of any
expenses of such sale) (by bank or certified check) for the shares of Common
Stock of the Tagging Persons sold pursuant thereto, and shall, promptly after
the consummation of such sale, furnish such other evidence of the completion and
time of completion of such transfer and the terms thereof as may be reasonably
requested by the Tagging Persons.
(c) If at the termination of the notice period referred to in Section
4.01(a) any Shareholder shall not have elected to participate in the Tag-Along
Sale, such Shareholder will be deemed to have waived its rights under Section
4.01(a) with respect to the transfer of its shares pursuant to such Tag-Along
Sale.
(d) If any Shareholder declines to exercise its Tag-Along Rights or
elects to exercise its Tag-Along Rights with respect to less than the maximum
number of shares it was entitled to sell, the Tagging Persons who do respond and
the DLJMB Entities shall be entitled to sell, pursuant to the Tag-Along Offer,
an additional number of shares of Common Stock equal to the number of shares of
Common Stock constituting their pro rata portion of the unexercised portion of
the number of shares of such Shareholder.
(e) The Selling Person may sell the shares of Common Stock subject to
the Tag-Along Offer on the terms and conditions set forth in the notice it gave
(provided, however, that the cash price payable in any such sale may exceed the
cash price specified in the notice by up to 10%) within 120 days of the date on
which Tag-Along Rights shall have been waived, exercised or expire.
(f) The Tag-Along Rights pursuant to this Section 4.01 will terminate
upon the DLJMB Termination Date.
SECTION 4.02. Right to Compel Participation in Certain Transfers. (a) If
the DLJMB Entities propose to transfer not less than 80% of the shares of Common
Stock then owned by them to an unaffiliated third party in a bona fide sale, the
DLJMB Entities may at their option require each of the other Shareholders to
sell a number of shares of Common Stock equal to the product of the total number
of shares of Common Stock owned by such other Shareholders and the DLJMB
Proportion on the terms and conditions proposed by the third party ("Drag-Along
Rights"). The DLJMB Entities shall provide written notice of such sale to the
other Shareholders not later than the 15th day prior to the proposed sale. The
notice shall identify the transferee, the number of shares of Common Stock to be
sold by each Shareholder, the proposed consideration and all other material
terms and conditions. Subject to the terms hereof, each
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Shareholder shall be required to participate in the sale on the terms and
conditions set forth in the notice and to tender all of its shares of Common
Stock to be sold as set forth below; provided that (x) Behrman shall not be
responsible for any post-closing covenants or obligations that would limit the
normal operation of Behrman or companies they have invested in, other than pro
rata indemnification provisions and nonsolicitation provisions and (y) the GTP
Shareholders shall not be personally responsible for any post-closing covenants
or obligations other than pro rata indemnification provisions and
nonsolicitation provisions imposed on all other Shareholders. Not later than the
10th day following the date of the notice from the DLJMB Entities, each of the
other Shareholders shall deliver to a Person designated in the notice
certificates representing the shares to be sold by such Shareholder, duly
endorsed, together with all other documents required to be executed in
connection with such sale. If a Shareholder should fail to deliver such
certificates, the Company shall cause the books and records of the Company to
show that such shares of Common Stock are bound by the provisions of this
Section 4.02 and that such shares of Common Stock shall be transferred to the
purchaser immediately upon surrender for transfer by the holder thereof.
(b) The DLJMB Entities shall have a period of 45 days from the date of
receipt of the notice to consummate the sale on the terms and conditions set
forth in such notice. If the sale shall not have been consummated during such
period, the DLJMB Entities shall return to each of the other Shareholders all
certificates and other documents that such Shareholder delivered for transfer
pursuant hereto, and all the restrictions on transfer contained in this
Agreement or otherwise applicable at such time with respect to Company
Securities owned by the other Shareholders shall again be in effect.
(c) Concurrently with the consummation of the transfer of shares of
Common Stock pursuant to this Section 4.02, the DLJMB Entities shall give notice
thereof to the other Shareholders, shall remit to such Shareholders the total
consideration (less their proportional share of any expenses of such sale) (by
bank or certified check) for the shares of Common Stock sold by such
Shareholders pursuant hereto and shall furnish such other evidence of the
completion and time of completion of such transfer and the terms thereof as may
be reasonably requested by such Shareholders.
(d) The Drag-Along Rights pursuant to this Section 4.02 will terminate
upon the earlier to occur of (i) at such time as the DLJMB Entities and the
other Shareholders own less than 50% of the outstanding shares of Common Stock
and (ii) the second anniversary of the Initial Public Offering.
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ARTICLE 5
PREEMPTIVE RIGHTS
SECTION 5.01. Pre-emptive Rights. (a) If the Company proposes to issue
Company Securities to the DLJMB Entities (excluding for these purposes any
Permitted Transferees who are not DLJMB Entities) or successor DLJ merchant
banking funds with substantially similar investment objectives, (i) each of
Behrman and the Management Shareholders shall have the pre-emptive right to
acquire its portion of such Company Securities, (ii) GTP Shareholders shall have
pre-emptive rights as provided in the Co-Investment Agreement, and (iii) each
GTP Shareholder shall have the pre-emptive right to acquire a number of Company
Securities equal to the excess, if any, of (A) its portion of such Company
Securities over (B) the number of Company Securities that it has the right to
acquire pursuant to clause (ii) of this sentence. For these purposes, each
Shareholder's portion will mean a fraction, the numerator of which is such
Shareholder's Initial Ownership and the denominator of which is the Initial
Ownership of all Shareholders.
(b) In the case of Behrman, the Company Securities that it may acquire
pursuant to this Section 5.01 (when taken together with all Company Securities
owned by Behrman immediately after the Closing Date) may not exceed $50 million
in aggregate purchase price. After any offer of Company Securities to Behrman
pursuant to this Section 5.01, the $50 million aggregate amount referred to
above shall be reduced by the amount of the Company Securities so offered to
Behrman, whether or not Behrman accepts such offer. Notwithstanding anything
contained in this paragraph (b) to the contrary, Behrman shall be entitled to
any pre-emptive rights it would otherwise have pursuant to the preceding
paragraph (a) if the Company Securities are sold at an effective price per share
of Common Stock less than the price per share paid at the Closing Date.
(c) Subject to any bank loan agreements and legal loan-to-value
requirements, and subject to the discretion of the compensation committee, the
Company may loan (on an arms-length basis) the Management Shareholders any funds
needed by them to exercise pre-emptive rights.
(d) At the discretion of the compensation committee, unexercised options
held by Management Shareholders or GTP Shareholders may be taken into account in
determining the amount of shares that they and the other parties are allowed to
purchase pursuant to this Section.
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ARTICLE 6
REGISTRATION RIGHTS
SECTION 6.01. Demand Registration. (a) If the Company shall receive a
written request (any requesting Person in this Article 6 being referred to as a
"Selling Shareholder") that the Company effect the registration under the
Securities Act so as to permit the disposition (in accordance with the intended
method of disposition specified therein) of:
(i) all or a portion of such Selling Shareholder's Registrable
Securities, (A) at any time by the DLJMB Entities and (B) by Behrman at
any time after the earlier of (x) two years following an Initial Public
Offering and (y) the first date after the Initial Public Offering on
which the Shareholders own 50% or less of the outstanding shares of
Common Stock (any such requested registration, a "Regular Demand
Registration");
(ii) all or a portion of Behrman's Registrable Securities, at any
time following the Initial Public Offering (an "Unlimited Demand
Registration"); or
(iii) all or a portion of Behrman's Registrable Securities, at any
time following the Initial Public Offering, provided that the request is
limited to the number of Catch-Up Shares (as defined in Section 3.06)
and it is in an amount which exceeds $20 million (a "Catch-Up Demand
Registration", and each of a Regular Demand Registration, an Unlimited
Demand Registration and Catch-Up Demand Registration being a "Demand
Registration");
then the Company shall use its best efforts, subject to the other terms and
conditions hereof, to effect, as expeditiously as possible, the registration
under the Securities Act of the Registrable Securities entitled to be included
pursuant to this Section 6.01 in such registration. If a Demand Registration
involves an underwritten Public Offering, in consultation with the managing
underwriter, the Selling Shareholders shall have the right to determine the
acceptable price range for the offering. Based upon such price range, the
managing underwriters will determine the number of shares of Registrable
Securities that can be sold in such offering in such price range (the "Offering
Amount"). Notwithstanding anything to the contrary contained herein, subject to
Sections 6.01(d) and 6.01(e), the Company shall not be obligated to initiate any
Demand Registration within four months after termination of any other
registration, and the Company's obligation to effect any Demand Registration in
this Section 6.01(a) is subject to the following:
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(A) Regular Demand Registrations. With respect to Regular
Demand Registrations, the Company shall not be required to effect
more than five Regular Demand Registrations for the benefit of
the DLJMB Entities on the one hand and one Regular Demand
Registration for Behrman on the other hand, and shall not be
required to effect more than one Regular Demand Registration
within four months after termination of any other Regular Demand
Registration, or more than one Regular Demand Registration for
Behrman within nine months after termination of any other Regular
Demand Registration for Behrman; provided that (x) if the party
initiating a Regular Demand Registration is not able to register
all of the shares of Common Stock it sought to register, it will
be entitled to an additional Regular Demand Registration, (y)
Behrman will have the right to an additional Regular Demand
Registration the first time Behrman purchases securities directly
from the Company in a future issuance of Company Securities by
the Company and (z) the DLJMB Entities will be entitled to
additional Regular Demand Registrations each time one or more of
them purchase securities directly from the Company in any future
issuances of Company Securities by the Company.
With respect to a Regular Demand Registration, the Company shall
be entitled to include in such registration, prior to the
inclusion of any Registrable Securities by any Shareholders, a
number of shares of Registrable Securities up to the Offering
Amount. To the extent the Company determines to include a number
of shares of Registrable Securities less than the Offering Amount
(the difference between the Offering Amount and the number of
shares to be included in the registration by the Company is
hereinafter referred to as the "Shareholder Amount"), the Company
shall promptly give written notice of such Regular Demand
Registration at least 15 Business Days prior to the anticipated
filing date of the registration statement relating to such
Regular Demand Registration to the Shareholders (such
Shareholders, including the Selling Shareholders, the "Holders").
Each Holder shall have the right to request the inclusion in such
registration of a number of shares of Registrable Securities
equal to the Shareholder Amount multiplied by a fraction (its
"Shareholder Portion"), the numerator of which is such Holder's
Initial Ownership and the denominator of which is the aggregate
Initial Ownership of Holders entitled to be included (its
"Shareholder Maximum"), and each Holder may request the Company
to include in such registration a number of shares of Registrable
Securities up to its
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Shareholder Maximum by written request within 10 Business Days
after the receipt by such Holders of such written notice given by
the Company. If a Holder elects not to request inclusion of its
full Shareholder Maximum, the other Holders who have elected to
request inclusion of their full Shareholder Maximums will be able
to request inclusion of additional shares of Registrable
Securities equal in the aggregate to the unused portion of such
Shareholder Maximum, pro rata based on their respective Initial
Ownership.
(B) Unlimited Demand Registrations. With respect to Unlimited
Demand Registrations, Behrman will initially have the right to
request only one Unlimited Demand Registration. The Company will
not be required to initiate an Unlimited Demand Registration
within nine months after termination of any other registration.
If the number of shares of Common Stock requested to be
registered and sold by Behrman (and not giving effect to any
shares of Common Stock requested by other Shareholders to be
included) would result in the Shareholders owning less than a
majority of the outstanding shares of Common Stock after
consummation of the offering, the Company shall not be required
to effect such Unlimited Demand Registration. If Behrman requests
to register less than $20 million of shares of Common Stock, the
Company may elect not to register such shares, at which time
Behrman will be free to dispose of such shares ("Unlimited
Tradable Shares") in any market transaction or to any
unaffiliated third party other than an Adverse Person. Further,
if another Shareholder is included in the Unlimited Demand
Registration, Behrman shall have the right to another Unlimited
Demand Registration if it is not able to register all of the
shares of Common Stock it sought to register (without regard to
its Unlimited Shareholder Maximum).
With respect to an Unlimited Demand Registration, the Company
shall promptly give written notice of such Unlimited Demand
Registration at least 15 Business Days prior to the anticipated
filing date of the registration statement relating to such
Unlimited Demand Registration to the other Shareholders. Each
Holder shall have the right to request the inclusion in such
registration of a number of shares of Registrable Securities
equal to the Offering Amount multiplied by its Shareholder
Portion (its "Unlimited Shareholder Maximum"), and each Holder
may request the Company to include in such registration a number
of shares of Registrable Securities up to its Unlimited
Shareholder Maximum
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by written request within 10 Business Days after the receipt by
such Holders of such written notice given by the Company. If a
Holder elects not to request inclusion of its full Unlimited
Shareholder Maximum, the other Holders who have elected to
request inclusion of their full Unlimited Shareholder Maximums
will be able to request inclusion of additional shares of
Registrable Securities equal in the aggregate to the unused
portion of such Unlimited Shareholder Maximum, pro rata based on
their respective Initial Ownership, provided that if Behrman has
sought to register all of its shares of Registrable Securities
(without regard to its Unlimited Shareholder Maximum), and such
amount is less than $20 million and the Company has determined to
register such shares rather than elect to have them become
Unlimited Tradable Shares, then in no event shall Behrman's
Unlimited Shareholder Maximum be set such that Behrman holds more
than $8 million of shares of Registrable Securities after
consummation of the offering.
If the Offering Amount exceeds the number of shares of
Registrable Securities to be included in the registration by all
Shareholders pursuant to the foregoing provisions, the Company
shall then be entitled to include in the registration a number of
shares equal to such excess.
(C) Catch-Up Demand Registration. With respect to Catch-Up
Demand Registrations, Behrman shall have one Catch- Up Demand
Registration for each transaction in which Catch-Up Shares are
created. The Company shall not be required to initiate a Catch-Up
Demand Registration within six months after termination of any
other Catch-Up Demand Registration.
With respect to a Catch-Up Demand Registration, Behrman shall be
entitled to include in such registration, prior to the inclusion
of any Registrable Securities by any Shareholders, a number of
shares of Registrable Securities up to the Offering Amount. To
the extent Behrman determines to include a number of shares of
Registrable Securities less than the Offering Amount (the
difference between the Offering Amount and the number of shares
requested by Behrman to be included in the registration is
hereinafter referred to as the "Catch-Up Shareholder Amount"),
the Company shall promptly give written notice of such Catch-Up
Demand Registration at least 15 Business Days prior to the
anticipated filing date of the registration statement relating to
such Catch-Up
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Demand Registration to the other Shareholders. Each of the other
Shareholders shall have the right to request the inclusion in
such registration of a number of shares of Registrable Securities
equal to the Catch-Up Shareholder Amount multiplied by such
Shareholder's Shareholder Portion (the "Catch-Up Shareholder
Maximum"), and each such Shareholder may request the Company to
include in such registration a number of shares of Registrable
Securities, up to its Catch-Up Shareholder Maximum by written
request within 10 Business Days after the receipt by such
Shareholders of such written notice given by the Company. If a
Shareholder elects not to request inclusion of its full Catch-Up
Shareholder Maximum, the other Shareholders who have elected to
request inclusion of their full Catch-Up Shareholder Maximums
will be able to request inclusion of additional shares of
Registrable Securities equal in the aggregate to the unused
portion of such Catch-Up Shareholder Maximum, pro rata based on
their respective Initial Ownership.
If the Offering Amount exceeds the number of shares of
Registrable Securities to be included in the registration by all
Shareholders pursuant to the foregoing provisions, the Company
shall then be entitled to include in the registration a number of
shares equal to such excess.
(b) The Selling Shareholders requesting a registration under this
Section may, at any time prior to the effective date of the registration
statement relating to such registration, revoke such request, without liability
to any of the other Holders, by providing a written notice to the Company
revoking such request, in which case such request, so revoked, shall still be
considered a Demand Registration unless the Selling Shareholders reimburse the
Company for all costs incurred by the Company in connection with such
registration, or unless such revocation arose out of the fault of the Company.
(c) Except as provided in (b) above, the Company will pay all
Registration Expenses in connection with any Demand Registration.
(d) A registration requested pursuant to this Section shall not be
deemed to have been effected unless the registration statement relating thereto
(i) has become effective under the Securities Act and (ii) has remained
effective for a period of at least 180 days (or such shorter period in which all
Registrable Securities of the Holders included in such registration have
actually been sold thereunder).
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(e) If a Demand Registration involves an underwritten Public Offering,
and after the Offering Amount is initially set, it is changed by the managing
underwriters, the Registrable Securities to be included in the Public Offering
shall be re-allocated among the Company and the holders thereof in the same
manner in which they were initially allocated.
SECTION 6.02. Incidental Registration. (a) If the Company proposes to
register any Company Securities under the Securities Act (other than a
registration (i) on Form S-8 or S-4 or any successor or similar forms, (ii)
relating to Common Stock issuable upon exercise of employee stock options or in
connection with any employee benefit or similar plan of the Company, (iii) in
connection with a direct or indirect acquisition by the Company of another
company, or (iv) pursuant to a Demand Registration), whether or not for sale for
its own account, it will each such time, subject to the provisions of Section
6.02(b), give prompt written notice at least 30 days prior to the anticipated
filing date of the registration statement relating to such registration to each
Shareholder, which notice shall set forth such Shareholder's rights under this
Section 6.02 and shall offer such Shareholders the opportunity to include in
such registration statement such number of Registrable Securities of the same
type as are proposed to be registered as each such Shareholder may request (an
"Incidental Registration"). Upon the written request of any such Shareholder
made within 15 days after the receipt of notice from the Company (which request
shall specify the number of Registrable Securities intended to be disposed of by
such Shareholder), the Company will use its best efforts to effect the
registration under the Securities Act of all Registrable Securities which the
Company has been so requested to register by such Shareholders, to the extent
requisite to permit the disposition of the Registrable Securities so to be
registered; provided that (I) if such registration involves a Public Offering,
all such Shareholders requesting to be included in the Company's registration
must sell their Registrable Securities to the underwriters selected as provided
in Section 6.04(f) on the same terms and conditions as apply to the Company and
(II) if, at any time after giving written notice of its intention to register
any stock pursuant to this Section 6.02(a) and prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such securities, the
Company shall give written notice to all such Shareholders and, thereupon, shall
be relieved of its obligation to register any Registrable Securities in
connection with such registration (without prejudice, however, to rights of a
Selling Shareholder or Holder under Section 6.01). No registration effected
under this Section 6.02 shall relieve the Company of its obligations to effect a
Demand Registration to the extent required by Section 6.01. The Company will pay
all Registration Expenses in connection with each registration of Registrable
Securities requested pursuant to this Section 6.02.
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(b) If a registration pursuant to this Section 6.02 involves a Public
Offering and the managing underwriter advises the Company that, in its view, the
number of shares of Common Stock that the Company and such Shareholders intend
to include in such registration exceeds the Offering Amount, the Company will
include in such registration, in the following priority, up to the Offering
Amount:
(i) first, any securities proposed to be registered by the Company
for its own account; and
(ii) second, all Registrable Securities requested to be included
in such registration by any Shareholder pursuant to this Section 6.02
(allocated, if necessary for the offering not to exceed the Offering
Amount, pro rata among such Shareholders on the basis of their
Shareholder Portion (as defined in Section 6.01)).
SECTION 6.03. Holdback Agreements. If any registration of Registrable
Securities shall be in connection with a Public Offering, each Shareholder
agrees not to effect any public sale or distribution, including any sale
pursuant to Rule 144, or any successor provision, under the Securities Act, of
any Registrable Securities, and not to effect any such public sale or
distribution of any other Common Stock of the Company or of any securities
convertible into or exchangeable or exercisable for any Common Stock of the
Company (in each case, other than as part of such Public Offering) during the 14
days prior to the effective date of such registration statement (except as part
of such registration) or during the period after such effective date equal to
the lesser of (i) such period of time as agreed between such managing
underwriter and the Company that shall apply to all Shareholders and (ii) 180
days (such lesser period, the "Applicable Holdback Period").
SECTION 6.04. Registration Procedures. Whenever Shareholders request
that any Registrable Securities be registered pursuant to Section 6.01 or 6.02,
the Company will, subject to the provisions of such Sections, use its best
efforts to effect the registration and the sale of such Registrable Securities
in accordance with the intended method of disposition thereof as quickly as
practicable, and in connection with any such request:
(a) The Company will as expeditiously as possible prepare and file with
the SEC a registration statement on any form for which the Company then
qualifies or which counsel for the Company shall deem appropriate and which form
shall be available for the sale of the Registrable Securities to be registered
thereunder in accordance with the intended method of distribution thereof, and
use
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its best efforts to cause such filed registration statement to become and remain
effective for a period of not less than 180 days.
(b) The Company will, if requested, prior to filing a registration
statement or prospectus or any amendment or supplement thereto, furnish to
participating Shareholder and each underwriter, if any, of the Registrable
Securities covered by such registration statement copies of such registration
statement as proposed to be filed, and thereafter the Company will furnish to
such Shareholder and underwriter, if any, such number of copies of such
registration statement, each amendment and supplement thereto (in each case
including all exhibits thereto and documents incorporated by reference therein),
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such Shareholder or
underwriter may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Shareholder.
(c) After the filing of the registration statement, the Company will
promptly notify each Shareholder holding Registrable Securities covered by such
registration statement of any stop order issued or threatened by the SEC and
take all reasonable actions required to prevent the entry of such stop order or
to remove it if entered.
(d) The Company will use its best efforts to (i) register or qualify the
Registrable Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions in the United States as any
Shareholder holding such Registrable Securities reasonably (in light of such
Shareholder's intended plan of distribution) requests and (ii) cause such
Registrable Securities to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company and do any and all other acts and things
that may be reasonably necessary or advisable to enable such Shareholder to
consummate the disposition of the Registrable Securities owned by such
Shareholder; provided that the Company will not be required to (A) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this paragraph (d), (B) subject itself to taxation
in any such jurisdiction or (C) consent to general service of process in any
such jurisdiction.
(e) The Company will immediately notify each Shareholder holding such
Registrable Securities, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the occurrence of an event
requiring the preparation of a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such
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prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, and promptly prepare and make available to
each such Shareholder any such supplement or amendment.
(f) The DLJMB Entities will have the right, in their sole discretion, to
select an underwriter or underwriters in connection with any Public Offering. In
connection with any Public Offering, the Company will enter into customary
agreements (including an underwriting agreement in customary form) and take such
other actions as are reasonably required in order to expedite or facilitate the
disposition of Registrable Securities in any such Public Offering, including the
engagement of a "qualified independent underwriter" in connection with the
qualification of the underwriting arrangements with the NASD.
(g) Upon the execution of confidentiality agreements in form and
substance satisfactory to the Company, the Company will make available for
inspection by any Shareholder and any underwriter participating in any
disposition pursuant to a registration statement being filed by the Company
pursuant to this Section 6.04 and any attorney, accountant or other professional
retained by any such Shareholder or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any Inspectors in connection with
such registration statement. Records that the Company determines, in good faith,
to be confidential and that it notifies the Inspectors are confidential shall
not be disclosed by the Inspectors unless (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in such registration
statement or (ii) the release of such Records is ordered pursuant to a subpoena
or other order from a court of competent jurisdiction. Each Shareholder agrees
that information obtained by it as a result of such inspections shall be deemed
confidential and shall not be used by it or its Affiliates as the basis for any
market transactions in the shares of Common Stock unless and until such is made
generally available to the public. Each Shareholder further agrees that it will,
upon learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at its expense,
to undertake appropriate action to prevent disclosure of the Records deemed
confidential.
(h) The Company will furnish to each such Shareholder and to each such
underwriter, if any, a signed counterpart, addressed to such underwriter, of (i)
an opinion or opinions of counsel to the Company and (ii) a comfort letter or
comfort letters from the Company's independent public accountants, each in
customary
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form and covering such matters of the type customarily covered by opinions or
comfort letters, as the case may be, as a majority of such Shareholders or the
managing underwriter therefor reasonably requests.
(i) The Company will otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
Shareholders, as soon as reasonably practicable, an earnings statement covering
a period of 12 months, beginning within three months after the effective date of
the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act.
The Company may require each such Shareholder to promptly furnish in
writing to the Company such information regarding the distribution of the
Registrable Securities as the Company may from time to time reasonably request
and such other information as may be legally required in connection with such
registration.
Each such Shareholder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 6.04(e),
such Shareholder will forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such Shareholder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 6.04(e), and, if so directed by the
Company, such Shareholder will deliver to the Company all copies, other than any
permanent file copies then in such Shareholder's possession, of the most recent
prospectus covering such Registrable Securities at the time of receipt of such
notice. In the event that the Company shall give such notice, the Company shall
extend the period during which such registration statement shall be maintained
effective (including the period referred to in Section 6.04(a)) by the number of
days during the period from and including the date of the giving of notice
pursuant to Section 6.04(e) to the date when the Company shall make available to
such Shareholder a prospectus supplemented or amended to conform with the
requirements of Section 6.04(e).
SECTION 6.05. Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Shareholder holding Registrable Securities
covered by a registration statement, its officers, directors and agents, and
each Person, if any, who controls such Shareholder within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act from and against any
and all losses, claims, damages and liabilities caused by any untrue statement
or alleged untrue statement of a material fact contained in any registration
statement or prospectus relating to the Registrable Securities (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or
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any preliminary prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information furnished in writing
to the Company by such Shareholder or on such Shareholder's behalf expressly for
use therein; provided that with respect to any untrue statement or omission or
alleged untrue statement or omission made in any preliminary prospectus, or in
any prospectus, as the case may be, the indemnity agreement contained in this
paragraph shall not apply to the extent that any such loss, claim, damage,
liability or expense results from the fact that a current copy of the prospectus
(or, in the case of a prospectus, the prospectus as amended or supplemented) was
not sent or given to the Person asserting any such loss, claim, damage,
liability or expense at or prior to the written confirmation of the sale of the
Registrable Securities concerned to such Person if it is determined that the
Company has provided such prospectus and it was the responsibility of such
Shareholder to provide such Person with a current copy of the prospectus (or
such amended or supplemented prospectus, as the case may be) and such current
copy of the prospectus (or such amended or supplemented prospectus, as the case
may be) would have cured the defect giving rise to such loss, claim, damage,
liability or expense. The Company also agrees to indemnify any underwriters of
the Registrable Securities, their officers and directors and each Person who
controls such underwriters, on substantially the same basis as that of the
indemnification of the Shareholders provided in this Section 6.05.
SECTION 6.06. Indemnification by Participating Shareholders. Each
Shareholder holding Registrable Securities included in any registration
statement agrees, severally but not jointly, to indemnify and hold harmless the
Company, its officers, directors and agents and each Person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act, to the same extent as the foregoing
indemnity from the Company to such Shareholder, but only (i) with respect to
information furnished in writing by such Shareholder or on such Shareholder's
behalf expressly for use in any registration statement or prospectus relating to
the Registrable Securities, or any amendment or supplement thereto, or any
preliminary prospectus or (ii) to the extent that any loss, claim, damage,
liability or expense described in Section 6.05 results from the fact that a
current copy of the prospectus (or, in the case of a prospectus, the prospectus
as amended or supplemented) was not sent or given to the Person asserting any
such loss, claim, damage, liability or expense at or prior to the written
confirmation of the sale of the Registrable Securities concerned to such Person
if it is determined that it was the responsibility of such Shareholder to
provide such Person with a current copy of the prospectus (or such amended or
supplemented prospectus, as the case may be) and such current copy of the
35
<PAGE>
prospectus (or such amended or supplemented prospectus, as the case may be)
would have cured the defect giving rise to such loss, claim, damage, liability
or expense. Each such Shareholder also agrees to indemnify and hold harmless
underwriters of the Registrable Securities, their officers and directors and
each Person who controls such underwriters, on substantially the same basis as
that of the indemnification of the Company provided in this Section 6.06. As a
condition to including Registrable Securities in any registration statement
filed in accordance with Article 6 hereof, the Company may require that it shall
have received an undertaking reasonably satisfactory to it from any underwriter
to indemnify and hold it harmless to the extent customarily provided by
underwriters with respect to similar securities. Each Shareholder's obligation
to indemnify pursuant to this Section 6.06 shall be limited in amount to the
public offering price of the shares sold by such Shareholder.
SECTION 6.07. Conduct of Indemnification Proceedings. In case any
proceeding (including any governmental investigation) shall be instituted
involving any Person in respect of which indemnity may be sought pursuant to
this Article 6, such Person (an "Indemnified Party") shall promptly notify the
Person against whom such indemnity may be sought (the "Indemnifying Party") in
writing and the Indemnifying Party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified Party, and
shall assume the payment of all fees and expenses; provided that the failure of
any Indemnified Party so to notify the Indemnifying Party shall not relieve the
Indemnifying Party of its obligations hereunder except to the extent that the
Indemnifying Party is materially prejudiced by such failure to notify. In any
such proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) in the
reasonable judgment of such Indemnified Party representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the Indemnifying Party shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Indemnified Parties, and that all such fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for the
Indemnified Parties, such firm shall be designated in writing by the Indemnified
Parties. The Indemnifying Party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent, or if there be a final judgment for the plaintiff, the Indemnifying
Party shall indemnify and hold harmless such Indemnified Parties from and
against any loss or liability (to the extent stated above) by reason of such
settlement or judgment. No Indemnifying Party shall,
36
<PAGE>
without the prior written consent of the Indemnified Party, effect any
settlement of any pending or threatened proceeding in respect of which any
Indemnified Party is or could have been a party and indemnity could have been
sought hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability arising out
of such proceeding.
SECTION 6.08. Contribution. If the indemnification provided for in this
Article 6 is unavailable (other than pursuant to its terms) to the Indemnified
Parties in respect of any losses, claims, damages or liabilities referred to
herein, then each such Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (i)
as between the Company and the Shareholders holding Registrable Securities
covered by a registration statement on the one hand and the underwriters on the
other, in such proportion as is appropriate to reflect the relative benefits
received by the Company and such Shareholders on the one hand and the
underwriters on the other, from the offering of the Registrable Securities, or
if such allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits but also the relative
fault of the Company and such Shareholders on the one hand and of such
underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations and (ii) as between the Company on the one
hand and each such Shareholder on the other, in such proportion as is
appropriate to reflect the relative fault of the Company and of each such
Shareholder in connection with such statements or omissions, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and such Shareholders on the one hand and such underwriters on the other
shall be deemed to be in the same proportion as the total proceeds from the
offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company and such Shareholders bear to the total
underwriting discounts and commissions received by such underwriters, in each
case as set forth in the table on the cover page of the prospectus. The relative
fault of the Company and such Shareholders on the one hand and of such
underwriters on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company and such Shareholders or by such underwriters. The
relative fault of the Company on the one hand and of each such Shareholder on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by such party,
and the parties' relative intent,
37
<PAGE>
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Shareholders agree that it would not be just and
equitable if contribution pursuant to this Section 6.08 were determined by pro
rata allocation (even if the underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 6.08, no underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no Shareholder
shall be required to contribute any amount in excess of the amount by which the
total price at which the Registrable Securities of such Shareholder were offered
to the public exceeds the amount of any damages which such Shareholder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. Each such Shareholder's obligation to contribute
pursuant to this Section 6.08 is several in the proportion that the proceeds of
the offering received by such Shareholder bears to the total proceeds of the
offering received by all such Shareholders and not joint.
SECTION 6.09. Participation in Public Offering. No Person may
participate in any Public Offering hereunder unless such Person (a) agrees to
sell such Person's securities on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and the provisions of
this Agreement in respect of registration rights.
SECTION 6.10. Other Indemnification. Indemnification similar to that
specified herein (with appropriate modifications) shall be given by the Company
and each Shareholder participating therein with respect to any required
38
<PAGE>
registration or other qualification of securities under any federal or state law
or regulation or governmental authority other than the Securities Act.
SECTION 6.11. Cooperation by the Company. In the event any Shareholder
shall transfer any Registrable Securities pursuant to Rule 144A under the
Securities Act, the Company shall cooperate with such Shareholder (which shall
include, without limitation, making registration rights with respect to the
Registrable Securities to be sold (or securities issuable or to be issued in
exchange therefor) available to the ultimate purchasers thereof) and shall
provide to such Shareholder such information as such Shareholder shall
reasonably request.
ARTICLE 7
MISCELLANEOUS
SECTION 7.01. Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto and supersede all prior agreements and
understandings, oral and written, among the parties hereto with respect to the
subject matter hereof.
SECTION 7.02. Effectiveness; Binding Effect; Benefit. This Agreement
shall become effective on the Closing Date. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
successors, legal representatives and permitted assigns. Nothing in this
Agreement, expressed or implied, shall confer on any Person other than the
parties hereto, and their respective heirs, successors, legal representatives
and permitted assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
SECTION 7.03. Assignability. This Agreement shall not be assignable by
any party hereto, except that any Person acquiring shares of Common Stock who is
required by the terms of this Agreement or any employment agreement or stock
purchase, option, stock option or other compensation plan of the Company or any
subsidiary to become a party hereto shall (unless already bound hereby) execute
and deliver to the Company an agreement to be bound by this Agreement and shall
thenceforth be a "Shareholder". Any Shareholder who ceases to own any shares of
Common Stock shall cease to be bound by the terms hereof (other than the
provisions of Sections 6.04(g), 6.05, 6.06, 6.07, 6.08, and 6.10 applicable to
such Shareholder with respect to any offering of Registrable Securities
completed before the date such Shareholder ceased to own any shares of Common
Stock).
39
<PAGE>
SECTION 7.04. Amendment and Waiver. No provision of this Agreement may
be waived except by an instrument in writing executed by the party against whom
the waiver is to be effective. No provision of this Agreement may be amended or
otherwise modified except by an instrument in writing executed by the Company
with the approval of the Board and Shareholders holding at least 85% of the
outstanding shares of Common Stock; provided that any amendment or other
modification of this Agreement that would adversely affect any Shareholder may
be effected only with the consent of such Shareholder.
SECTION 7.05. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmissions) and
shall be given,
if to the Company or the Management Shareholders, to:
Condor Systems, Inc.
2133 Samaritan Drive
San Jose, CA 95124
Attention: Gary M. Viljoen, Chief Financial Officer
Fax: (408) 371-5874
with a copy to:
Seyfarth, Shaw, Fairweather & Geraldson
55 E. Monroe St.,
Chicago, IL 60603
Attention: Theodore E. Cornell III
Fax: (312) 269-8869
and a copy to the DLJMB Entities at their addresses listed below.
if to the DLJMB Entities, to:
DLJ Merchant Banking Partners II, L.P.
277 Park Avenue
New York, New York 10172
Attention: David L. Jaffe
Fax: (212) 892-7552
40
<PAGE>
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Christopher Mayer
Fax: (212) 450-4800
if to Behrman, to:
Behrman Capital
4 Embarcadero Center
Suite 3640
San Francisco, CA 94111
Attention: William M. Matthes
Fax: (415) 434-7310
with a copy to:
Latham & Watkins
135 Commonwealth Drive
Menlo Park, CA 94025
Attention: Peter F. Kerman, Esq
Fax: (650) 463-2600
if to GTP Shareholders, to:
Global Technology Partners, LLC
1300 Eye Street, NW
Suite 220 East
Washington, DC 20005
Attention: Irving B. Yoskowitz, Esq
Fax: (202) 289-3222
with a copy to:
Shea & Gardner
1800 Massachusetts Ave., NW
Washington, DC 20036
Attention: Stephen J. Hadley, Esq.
Fax: (202) 828-2195
41
<PAGE>
All notices, requests and other communications shall be deemed received
on the date of receipt by the recipient thereof if received prior to 5 p.m. in
the place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to have
been received until the next succeeding business day in the place of receipt.
Any notice, request or other written communication sent by facsimile
transmission shall be confirmed by certified mail, return receipt requested,
posted within one Business Day, or by personal delivery, whether courier or
otherwise, made within two Business Days after the date of such facsimile
transmission.
Any Person who becomes a Shareholder shall provide its address and fax
number to the Company, which shall promptly provide such information to each
other Shareholder.
SECTION 7.06. Headings. The headings contained in this Agreement are
for convenience only and shall not affect the meaning or interpretation of this
Agreement.
SECTION 7.07. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be one and the same instrument.
SECTION 7.08. Applicable Law. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAW RULES OF SUCH STATE.
SECTION 7.09. Specific Enforcement. Each party hereto acknowledges that
the remedies at law of the other parties for a breach or threatened breach of
this Agreement would be inadequate and, in recognition of this fact, any party
to this Agreement, without posting any bond, and in addition to all other
remedies which may be available, shall be entitled to obtain equitable relief in
the form of specific performance, a temporary restraining order, a temporary or
permanent injunction or any other equitable remedy which may then be available.
SECTION 7.10. Consent to Jurisdiction. Any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby may be
brought in the United States District Court for the Southern District of New
York or any other New York State court sitting in New York City, and each of the
parties hereby consents to the non-exclusive jurisdiction of such courts (and of
the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by law, any
objection which it
42
<PAGE>
may now or hereafter have to the laying of the venue of any such suit, action or
proceeding in any such court or that any such suit, action or proceeding which
is brought in any such court has been brought in an inconvenient forum. Process
in any such suit, action or proceeding may be served on any party anywhere in
the world, whether within or without the jurisdiction of any such court. Without
limiting the foregoing, each party agrees that service of process on such party
as provided in Section 7.05 shall be deemed effective service of process on such
party.
43
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
CONDOR SYSTEMS, INC.
By: /s/ Gary M. Viljoen
-----------------------------------
Name: Gary M. Viljoen
Title: Chief Financial Officer
SHAREHOLDERS OF CONDOR
SYSTEMS, INC.
SPOUSES: GTP SHAREHOLDERS:
ASHTON B. CARTER
By: /s/ A. Clayton Spencer By: /s/ illegible signature
------------------------------ ------------------------------
Name: A. Clayton Spencer Name:
JOHN M. DEUTCH
By: By:
------------------------------ ------------------------------
Name: Name:
ROBERT J. HERMANN
By: /s/ Darlene F. Hermann By: /s/ Robert J. Hermann
------------------------------ ------------------------------
Name: Darlene F. Hermann Name: Robert J. Hermann
<PAGE>
PAUL G. KAMINSKI
By: /s/ Julie C. Kaminski By: /s/ Paul G. Kaminski
------------------------------ ------------------------------
Name: Julie C. Kaminski Name: Paul G. Kaminski
WILLIAM J. PERRY
By: /s/ illegible signature By: /s/ William J. Perry
------------------------------ ------------------------------
Name: Name: William J. Perry
IRVING B. YOSKOWITZ
By: /s/ Carol Yoskowitz By: /s/ Irving B. Yoskowitz
------------------------------ ------------------------------
Name: Carol Yoskowitz Name: Irving B. Yoskowitz
JOHN P. WHITE
By: /s/ illegible signature By: /s/ John P. White
------------------------------ ------------------------------
Name: Name: John P. White
BEHRMAN:
BEHRMAN CAPITAL II L.P.
By: Behrman Brothers L.L.C.
By: /s/ William Matthes
-----------------------------------
Name: William Matthes
Title: Managing Member
<PAGE>
STRATEGIC ENTREPRENEUR FUND II
L.P.
By: /s/ Darryl Behrman
-----------------------------------
Name: Darryl Behrman
Title: General Partner
DLJMB ENTITIES:
DLJ MERCHANT BANKING
PARTNERS II, L.P.
BY DLJ MERCHANT BANKING II, INC.,
Managing General Partner
By: /s/ illegible signature
-----------------------------------
Name:
Title:
DLJ MERCHANT BANKING
PARTNERS II-A, L.P.
BY DLJ MERCHANT BANKING II, INC.,
Managing General Partner
By: /s/ illegible signature
-----------------------------------
Name:
Title:
<PAGE>
DLJ OFFSHORE PARTNERS II, C.V.
BY DLJ MERCHANT BANKING II, INC.,
Advisory General Partner
By: /s/ illegible signature
-----------------------------------
Name:
Title:
DLJ DIVERSIFIED PARTNERS, L.P.
BY DLJ DIVERSIFIED PARTNERS, INC.,
Managing General Partner
By: /s/ illegible signature
-----------------------------------
Name:
Title:
DLJ DIVERSIFIED PARTNERS-A, L.P.
BY DLJ DIVERSIFIED PARTNERS INC.,
Managing General Partner
By: /s/ illegible signature
-----------------------------------
Name:
Title:
DLJMB FUNDING II, INC.
By: /s/ illegible signature
-----------------------------------
Name:
Title:
<PAGE>
DLJ EAB PARTNERS, L.P.
BY DLJ LBO PLANS MANAGEMENT
CORPORATION, General Partner
By: /s/ illegible signature
-----------------------------------
Name:
Title:
DLJ MILLENNIUM PARTNERS, L.P.
BY DLJ MERCHANT BANKING II, INC.,
Managing General Partner
By: /s/ illegible signature
-----------------------------------
Name:
Title:
UK INVESTMENT PLAN 1997
PARTNERS
DONALDSON, LUFKIN & JENRETTE,
INC., General Partner
By: /s/ illegible signature
-----------------------------------
Name:
Title:
DLJ FIRST ESC, L.P.
BY DLJ LBO PLANS MANAGEMENT
CORPORATION, as General Partner
By: /s/ illegible signature
-----------------------------------
Name:
Title:
<PAGE>
DLJ ESC II, L.P.
DLJ LBO PLANS MANAGEMENT
CORPORATION, as General Partner
By: /s/ illegible signature
-----------------------------------
Name:
Title:
DLJ MILLENNIUM PARTNERS-A, L.P.
BY DLJ MERCHANT BANKING II, INC.,
Managing General Partner
By: /s/ illegible signature
-----------------------------------
Name:
Title:
SPOUSES: MANAGEMENT SHAREHOLDERS:
ROBERT E. YOUNG II
By: /s/ illegible signature By: /s/ illegible signature
----------------------------------- -----------------------------------
Name: Name:
GARY M. VILJOEN
By: /s/ Jennifer M. Viljoen By: /s/ Gary M. Viljoen
----------------------------------- -----------------------------------
Name: Jennifer M. Viljoen Name: Gary M. Viljoen
<PAGE>
JOHN L. BARNUM
By: /s/ illegible signature By: /s/ John L. Barnum
----------------------------------- -----------------------------------
Name: Name: John L. Barnum
VERNON A. DALE
By: /s/ illegible signature By: /s/ Vernon A. Dale
----------------------------------- -----------------------------------
Name: Name: Vernon A. Dale
DAVID J. KLINGLER
By: By: /s/ David J. Klingler
----------------------------------- -----------------------------------
Name: Name: David J. Klingler
THOMAS A. MICHALSKI
By: /s/ Ann T. Michalski By: /s/ Thomas A. Michalski
----------------------------------- -----------------------------------
Name: Ann T. Michalski Name: Thomas A. Michalski
JOHN L. TAFT
By: /s/ Donna M. Taft By: /s/ John L. Taft
----------------------------------- -----------------------------------
Name: Donna M. Taft Name: John L. Taft
<PAGE>
MICHAEL J. BILINSKI
By: By: /s/ Michael J. Bilinski
----------------------------------- -----------------------------------
Name: Name: Michael J. Bilinski
TERRANCE SCHMIDT
By: /s/ Teresa Schmidt By: /s/ Terrance Schmidt
----------------------------------- -----------------------------------
Name: Teresa Schmidt Name: Terrance Schmidt
JOHN DOWNS
By: /s/ illegible signatire By: /s/ John A. Downs
----------------------------------- -----------------------------------
Name: Name: John A. Downs
BILL BIGAS
By: N/A By: /s/ illegible signature
----------------------------------- -----------------------------------
Name: Name:
CHARLES LEBER
By: /s/ Patricia E. Leber By: /s/ Charles Leber
----------------------------------- -----------------------------------
Name: Patricia E. Leber Name: Charles Leber
<PAGE>
WALTER CANNON
By: /s/ Maria Cannon By: /s/ Walter Cannon
----------------------------------- -----------------------------------
Name: Maria Cannon Name: Walter Cannon
DAVID SABO
By: /s/ illegible signature By: /s/ illegible signature
----------------------------------- -----------------------------------
Name: Name:
RANDALL KRIEGH
By: /s/ Elaine R. Kriegh By: /s/ Randall Kriegh
----------------------------------- -----------------------------------
Name: Elaine R. Kriegh Name: Randall Kriegh
DAN CAMILLI
By: /s/ Jennifer Camilli By: /s/ Daniel G. Camilli
----------------------------------- -----------------------------------
Name: Jennifer Camilli Name: Daniel G. Camilli
MARILYN GOODMAN
By: /s/ illegible signature By: /s/ Marilyn Goodman
----------------------------------- -----------------------------------
Name: Name: Marilyn Goodman
<PAGE>
LEILI McPHERSON
By: /s/ illegible signature By: /s/ illegible signature
----------------------------------- -----------------------------------
Name: Name:
GREGORY DONALDSON
By: /s/ illegible signature By: /s/ illegible signature
----------------------------------- -----------------------------------
Name: Name:
RICHARD McINNIS
By: /s/ Beverly A. McInnis By: /s/ Richard McInnis
----------------------------------- -----------------------------------
Name: Beverly A. McInnis Name: Richard McInnis
DAVID McINTIRE
By: /s/ Velma G. McIntire By: /s/ illegible signature
----------------------------------- -----------------------------------
Name: Velma G. McIntire Name:
JOHN JENSEN
By: /s/ illegible signature By: /s/ John Jensen
----------------------------------- -----------------------------------
Name: Name: John Jensen
<PAGE>
DENNIS TRIOLO
By: /s/ illegible signature By: /s/ Dennis Triolo
----------------------------------- -----------------------------------
Name: Name: Dennis Triolo
<PAGE>
SCHEDULE I
Names of Behrman Funds
-----------------------
Behrman Capital, L.P.
Behrman Capital "B" L.P.
Strategic Entrepreneur Fund, L.P.
Behrman Capital II, L.P.
Strategic Entrepreneur Fund II, L.P.
<PAGE>
EXHIBIT I
Co-Investment Agreement
-----------------------
[See exhibit to Form SF 328, included at Tab 67]
Exhibit 4.2
================================================================================
CONDOR SYSTEMS, INC.
11 7/8% SENIOR SUBORDINATED NOTES DUE 2009
Guaranteed to the extent set forth herein by
CEI SYSTEMS, INC.
---------------------------
INDENTURE
Dated as of April 15, 1999
---------------------------
STATE STREET BANK AND TRUST COMPANY
as TRUSTEE
---------------------------
================================================================================
<PAGE>
INDENTURE dated as of April 15, 1999, between Condor Systems, Inc., a
California corporation (referred to herein as the "Company"), CEI Systems, Inc.,
a Delaware corporation (the "Guarantor"), and State Street Bank and Trust
Company, as trustee (the "Trustee").
The Company, Guarantor and the Trustee agree as follows for the benefit
of each other and for the equal and ratable benefit of the Holders of the 11
7/8% Senior Subordinated Notes due 2009 (the "Notes").
Article 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 DEFINITIONS.
"144A Global Note" means a global Note in substantially the form of
Exhibit A-1 hereto bearing the Global Note Legend and having the "Schedule of
Exchanges of Interests in the Global Note" attached thereto and deposited with
or on behalf of and registered in the name of the Depositary or its nominee,
issued in accordance with Section 2.01(b).
"Accounts Receivable Subsidiary" means an Unrestricted Subsidiary of
the Company to which the Company or any of its Restricted Subsidiaries sells any
of its accounts receivable pursuant to a Receivables Facility.
"Acquired Indebtedness" means, with respect to any specified Person,
(a) Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (b) Indebtedness secured by a Lien
encumbering an asset acquired by such specified Person at the time such asset is
acquired by such specified Person.
"Acquisition" means the merger of WDC Acquisition Corp., a California
corporation, with and into the Company pursuant to the terms of the Acquisition
Agreement.
"Acquisition Agreement" means that certain Agreement and Plan of Merger
dated as of March 8, 1999 among the Company, WDC Acquisition Corp. and certain
of the shareholders of the Company referred to therein.
"Acquisition Financing" means (i) the issuance and sale by the Company
of senior subordinated increasing rate notes, and (ii) the execution and
delivery by the Company and certain of its subsidiaries of the New Credit
Facility and the borrowing of loans, if any, and the issuance of the letters of
credit thereunder to fund the Acquisition or related transactions, including
without limitation, the payment of fees and expenses and the refinancings of the
Company's and its subsidiaries' outstanding indebtedness.
"Additional Notes" means Notes (other than the Initial Notes) issued
under this Indenture in accordance with and subject to compliance with Sections
2.02 and 4.09 hereof that (i) are issued as part of the same class as the
Initial Notes and (ii) have the same terms in all respects as the Initial Notes
or the same terms in all respects except for the payment of interest in
<PAGE>
the Initial Notes (a) scheduled and paid prior to the date of original issuance
of such additional Notes or (b) payable on the first Interest Payment Date
following such date of original issuance.
"Affiliate" of any specified Person means any other Person which,
directly or indirectly, controls, is controlled by or is under direct or
indirect common control with, such specified Person. For purposes of this
definition, "control," when used with respect to any Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or exchange
of or for beneficial interests in any Global Note, the rules and procedures of
the Depositary, Euroclear and Cedel that apply to such transfer or exchange.
"Asset Sale" means (a) the sale, lease, conveyance, disposition or
other transfer (a "disposition") of any properties, assets or rights (including,
without limitation, by way of a sale and leaseback) (provided that the sale,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company and its Subsidiaries taken as a whole will be governed by the
Sections 4.14 and/or 5.01 and not by the provisions of Section 4.10), and (b)
the issuance, sale or transfer by the Company or any of its Restricted
Subsidiaries of Equity Interests of any of the Company's Restricted
Subsidiaries, in the case of either clause (a) or (b), whether in a single
transaction or a series of related transactions (i) that have a fair market
value in excess of $2.0 million or (ii) for net proceeds in excess of $2.0
million. Notwithstanding the foregoing, the following items shall not be deemed
to be Asset Sales: (a) dispositions in the ordinary course of business; (b) a
disposition of assets by the Company to a Restricted Subsidiary or by a
Restricted Subsidiary to the Company or to another Restricted Subsidiary; (c) a
disposition of Equity Interests by a Restricted Subsidiary to the Company or to
another Restricted Subsidiary; (d) the sale and leaseback of any assets within
90 days of the acquisition thereof; (e) foreclosures on assets; (f) any exchange
of like property pursuant to Section 1031 of the Internal Revenue Code of 1986,
as amended, for use in a Permitted Business; (g) any sale of Equity Interests
in, or Indebtedness or other securities of, an Unrestricted Subsidiary; (h) a
Permitted Investment or a Restricted Payment that is permitted by Section 4.07
hereof; and (i) sales of accounts receivable, or participations therein, in
connection with any Receivables Facility.
"Attributable Indebtedness" in respect of a sale and leaseback
transaction means, at the time of determination, the present value (discounted
at the rate of interest implicit in such transaction, determined in accordance
with GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction
(including, without limitation, period for which such lease has been extended or
may, at the option of the lessor, be extended).
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Behrman Capital" means Behrman Capital L.P. and its related funds.
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"Board of Directors" means the Board of Directors of the Company, or
any authorized committee of the Board of Directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Expenditure Indebtedness" means Indebtedness incurred by any
Person to finance the purchase or construction or any property or assets
acquired or constructed by such Person which have a useful life of more than one
year so long as (a) the purchase or construction price for such property or
assets is included in "addition to property, plant or equipment" in accordance
with GAAP, (b) the acquisition or construction of such property or assets is not
part of any acquisition of a Person or line of business and (c) such
Indebtedness is incurred within 90 days of the acquisition or completion of
construction of such property or assets.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (a) in the case of a corporation, corporate
stock, (b) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (c) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited) and (d) any
other interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing
Person.
"Cash Equivalents" means (i) Government Securities, (ii) any
certificate of deposit maturing not more than 365 days after the date of
acquisition issued by, or demand deposit or time deposit of, an Eligible
Institution or any lender under the New Credit Facility, (iii) commercial paper
maturing not more than 365 days after the date of acquisition of an issuer
(other than an Affiliate of the Company) with a rating, at the time as of which
any investment therein is made, of "A-3" (or higher) according to S&P or "P-2"
(or higher) according to Moody's or carrying an equivalent rating by a
nationally recognized rating agency if both of the two named rating agencies
cease publishing ratings of investments, (iv) any bankers acceptances or money
market deposit accounts issued by an Eligible Institution, (v) any fund
investing exclusively in investments of the types described in clauses (i)
through (iv) above and (vi) in the case of any Subsidiary organized or having
its principal place of business outside the United States, investments
denominated in the currency of the jurisdiction in which such Subsidiary is
organized or has its principal place of business which are similar to the items
specified in clauses (i) through (v) above (including, without limitation, any
deposit with a bank that is a lender to any Restricted Subsidiary).
"Cedel" means Cedelbank, societe anonyme.
"Change of Control" means the occurrence of any of the following: (a)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries, taken as a
whole, to any "person" or "group" (as such terms are used in Section 13(d) of
the Exchange Act), other than the Principals and their Related Parties; (b) the
adoption of a plan for the liquidation or dissolution of the Company; (c) the
consummation of any transaction
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(including, without limitation, any merger or consolidation) the result of which
is that any "person" or "group" (as such terms are used in Section 13(d) of the
Exchange Act), other than the Principals and their Related Parties, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act), directly or indirectly through one or more intermediaries, of
50% or more of the voting power of the outstanding voting equity interests of
the Company; or (d) the first day on which a majority of the members of the
board of directors of the Company are not Continuing Members.
"Commission" means the Securities and Exchange Commission.
"Company" means Condor Systems, Inc., a California corporation, until a
successor corporation shall have become such pursuant to Section 5.02 and
thereafter "Company" shall mean such successor corporation.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person and its Restricted
Subsidiaries for such period plus, to the extent deducted in computing
Consolidated Net Income, (a) provision for taxes based on income or profits of
such Person and its Restricted Subsidiaries for such period, (b) Fixed Charges
of such Person for such period, (c) depreciation, amortization (including,
without limitation, amortization of goodwill and other intangibles) and all
other non-cash charges (excluding any such non-cash charge, other than the First
Quarter Plant Closing Charge, to the extent that it represents an accrual of or
reserve for cash expenses in any future period or amortization of a prepaid cash
expense that was paid in a prior period) of such Person and its Restricted
Subsidiaries for such period, (d) net periodic post-retirement benefits, (e)
other income or expense net as set forth on the face of such Person's statement
of operations, (f) expenses and charges of the Company related to the
Acquisition (including, without limitation, any purchase price adjustment or any
other payments made pursuant to the Acquisition Agreement or the Financial
Advisory Agreements or the Termination Agreements) and Acquisition Financing,
the New Credit Facility and the application of the proceeds thereof, and (g) any
non-capitalized transaction costs incurred in connection with actual, proposed
or abandoned financings, acquisitions or divestitures (including, but not
limited to, financing and refinancing fees and costs incurred in connection with
the Acquisition and Acquisition Financing), in each case, on a consolidated
basis and determined in accordance with GAAP. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, the Fixed Charges of, and
the depreciation and amortization and other non-cash charges of, a Restricted
Subsidiary of a Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in the same proportion) that Net
Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person.
"Consolidated Interest Expense" means, with respect to any Person for
any period, the sum of, without duplication, (a) the interest expense of such
Person and its Restricted Subsidiaries for such period, on a consolidated basis,
determined in accordance with GAAP (including, without limitation, amortization
of original issue discount, non-cash interest payments, the interest component
of all payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Indebtedness, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments, if any, pursuant to Hedging Obligations; provided
that in no event shall any amortization of deferred financing costs be included
in Consolidated Interest Expense); and (b) the consolidated
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capitalized interest of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued; provided, however, that Receivables Fees shall
be deemed not to constitute Consolidated Interest Expense. Notwithstanding the
foregoing, the Consolidated Interest Expense with respect to any Restricted
Subsidiary that is not a Wholly Owned Restricted Subsidiary shall be included
only to the extent (and in the same proportion) that the net income of such
Restricted Subsidiary was included in calculating Consolidated Net Income.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (a) the Net Income (or loss) of any Person that is not
a Restricted 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 in cash to the referent Person or a Restricted Subsidiary
thereof, (b) the Net Income (or loss) of any Restricted Subsidiary other than a
Subsidiary organized or having its principal place of business outside the
United States shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that Net
Income (or loss) is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary, (c) the Net Income (or loss) of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded and (d) the cumulative effect of a change in
accounting principles shall be excluded.
"Continuing Members" means, as of any date of determination, any member
of the board of directors of the Company who (a) was a member of such board of
directors immediately after consummation of the Acquisition and the Acquisition
Financing or (b) was nominated for election or elected to such board of
directors with the approval of, or whose election to the board of directors was
ratified by, at least a majority of the Continuing Members who were members of
such board of directors at the time of such nomination or election or was
proposed by DLJMB.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 11.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Definitive Note" means a certificated Note registered in the name of
the Holder thereof and issued in accordance with Section 2.06 hereof, in the
form of Exhibit A-1 hereto except that such Note shall not bear the Global Note
Legend and shall not have the "Schedule of Exchanges of Interests in the Global
Note" attached thereto.
"Depositary" means DTC or any successor thereto.
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"Designated Noncash Consideration" means the fair market value of
non-cash consideration received by the Company or one of its Restricted
Subsidiaries in connection with an Asset Sale that is so designated as
Designated Noncash Consideration pursuant to an Officers' Certificate, setting
forth the basis of such valuation, executed by the principal executive officer
and the principal financial officer of the Company, less the amount of cash or
Cash Equivalents received in connection with a sale of such Designated Noncash
Consideration.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable), or upon the happening of any event (other than any event solely
within the control of the issuer thereof), matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, is exchangeable for
Indebtedness (except to the extent exchangeable at the option of such Person
subject to the terms of any debt instrument to which such Person is a party) or
redeemable at the option of the Holder thereof, in whole or in part, on or prior
to the date on which the Notes mature; provided that any Capital Stock that
would constitute Disqualified Stock solely because the holders thereof have the
right to require the Company to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with Section 4.07 hereof; and
provided further that, if such Capital Stock is issued to any plan for the
benefit of employees of the Company or its Subsidiaries or by any such plan to
such employees, such Capital Stock shall not constitute Disqualified Stock
solely because it may be required to be repurchased by the Company in order to
satisfy applicable statutory or regulatory obligations.
"DLJMB" means DLJ Merchant Banking Partners II, L.P. and its
Affiliates.
"DTC" means The Depository Trust Company.
"Domestic Subsidiary" means a Subsidiary that is organized under the
laws of the United States or any State, district or territory thereof.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus not less than $100.0 million or its equivalent in
foreign currency, whose short-term debt is rated "A-3" or higher according to
Standard & Poor's Ratings Group ("S&P") or "P-2" or higher according to Moody's
Investor Services, Inc. ("Moody's") or carrying an equivalent rating by a
nationally recognized rating agency if both of the two named rating agencies
cease publishing ratings of investments.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Exchange Notes" means the Notes issued in the Exchange Offer pursuant
to Section 2.06(f) hereof.
"Exchange Offer" has the meaning set forth in the Registration Rights
Agreement.
"Exchange Offer Registration Statement" has the meaning set forth in
the Registration Rights Agreement.
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness under the New Credit Facility)
in existence on the Original Issuance Date, until such amounts are repaid.
"fair market value" means, with respect to any asset or property, the
price which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. Unless the TIA
otherwise requires, fair market value shall be determined by the Board of
Directors of the Company acting reasonably and in good faith and shall be
evidenced by a resolution of the Board of Directors of the Company delivered to
the Trustee.
"Financial Advisory Agreements" means, collectively, that certain
Financial Advisory Agreement, dated March 8, 1999, between the Company and
Behrman Capital Management Corp., and that certain Financial Advisory Agreement,
dated March 4, 1999, among the Company, WDC Acquisition Corp. and Donaldson,
Lufkin & Jenrette Securities Corporation.
"First Quarter Plant Closing Charge" means the $0.9 million charge
recorded in the first fiscal quarter of 1999 in connection with the Company's
decision to close its facilities located in Sterling, Virginia.
"Fixed Charges" means, with respect to any Person for any period, the
sum, without duplication, of (a) the Consolidated Interest Expense of such
Person for such period and (b) all dividend payments on any series of preferred
stock of such Person (other than dividends payable solely in Equity Interests
that are not Disqualified Stock), in each case, on a consolidated basis and in
accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
(exclusive of amounts attributable to discontinued operations, as determined in
accordance with GAAP, or operations and businesses disposed of prior to the
Calculation Date (as defined)) to the Fixed Charges of such Person for such
period (exclusive of amounts attributable to discontinued operations, as
determined in accordance with GAAP, or operations and businesses disposed of
prior to the Calculation). In the event that the referent Person or any of its
Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other than
revolving credit borrowings) or issues or redeems preferred stock subsequent to
the commencement of the period for which the Fixed Charge Coverage Ratio is
being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock and the use of the proceeds therefrom,
as if the same had occurred at the
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beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, the Acquisition, the
Sterling Plant Closure and acquisitions that have been made by the Company or
any of its Subsidiaries, including, without limitation, all mergers or
consolidations and any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the
four-quarter reference period and Consolidated Cash Flow for such reference
period shall be calculated to include the Consolidated Cash Flow of the acquired
entities on a pro forma basis after giving effect to cost savings reasonably
expected to be realized in connection with such acquisition, as determined in
good faith by an officer of the Company (regardless of whether such cost savings
could then be reflected in pro forma financial statements under GAAP, Regulation
S-X promulgated by the Commission or any other regulation or policy of the
Commission) and without giving effect to clause (c) of the proviso set forth in
the definition of Consolidated Net Income.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Original Issuance Date.
"GTP" means Global Technology Partners, LLC and its Affiliates.
"GTP Investment" means the sale by the Company to GTP of its common
stock and the granting by the Company to GTP of options to purchase shares of
its common stock.
"GTP Loans" means one or more loans by the Company to GTP to the extent
the proceeds are used (or deemed used) solely to finance GTP's purchase of
capital stock of the Company.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit or
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means CEI Systems, Inc.
"Global Notes" means, individually and collectively, each of the 144A
Global Notes, the Regulation S Temporary Global Notes and the Unrestricted
Global Notes.
"Global Note Legend" means the legend set forth in Section 2.06(h)(ii),
which is required to be placed on all Global Notes issued under this Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (a) interest rate swap agreements, interest
rate cap agreements and interest rate
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collar agreements and (b) other agreements or arrangements designed to protect
such Person against fluctuations in interest rates.
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person in respect of borrowed money or evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or banker's acceptances or representing Capital
Lease Obligations or the balance deferred and unpaid of the purchase price of
any property or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense or trade payable or customer advances, if
and to the extent any of the foregoing Indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, as well as all Indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
Indebtedness is assumed by such Person) and, to the extent not otherwise
included, the guarantee by such Person of any Indebtedness of any other Person,
provided that Indebtedness shall not include the pledge by the Company of the
Capital Stock of an Unrestricted Subsidiary of the Company to secure
Non-Recourse Debt of such Unrestricted Subsidiary. The amount of any
Indebtedness outstanding as of any date shall be (a) the accreted value thereof
(together with any interest thereon that is more than 30 days past due), in the
case of any Indebtedness that does not require current payments of interest, and
(b) the principal amount thereof, in the case of any other Indebtedness provided
that the principal amount of any Indebtedness that is denominated in any
currency other than United States dollars shall be the amount thereof, as
determined pursuant to the foregoing provision, converted into United States
dollars at the Spot Rate in effect on the date that such Indebtedness was
incurred (or, if such indebtedness was incurred prior to the Original Issuance
Date, the Spot Rate in effect on the Original Issuance Date).
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Indirect Participant" means a Person who holds a beneficial interest
in a Global Note through a Participant.
"Initial Notes" means the first $100,000,000 aggregate principal amount
of Notes issued under this Indenture on the Original Issuance Date.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including, without limitation, guarantees by the referent Person
of, and Liens on any assets of the referent Person securing, Indebtedness or
other obligations of other Persons), advances or capital contributions
(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP, provided that an investment by the Company for
consideration consisting of common equity securities of the Company shall not be
deemed to be an Investment (other than for purposes of clause (iii) of the
definition of
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"Qualified Proceeds"). If the Company or any Restricted Subsidiary of the
Company sells or otherwise disposes of any Equity Interests of any direct or
indirect Restricted Subsidiary of the Company such that, after giving effect to
any such sale or disposition, such Person is no longer a Subsidiary of the
Company, the Company shall be deemed to have made an Investment on the date of
any such sale or disposition equal to the fair market value of the Equity
Interests of such Restricted Subsidiary not sold or disposed of in an amount
determined as provided in the final paragraph of Section 4.07 hereof.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or the city in which the principal
corporate trust office of the Trustee is located, or at a place of payment, are
authorized by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue on such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be prepared
by the Company and sent to all Holders of the Notes for use by such Holders in
connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including, without limitation, any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant
to Section 5 of the Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (a) any gain (or
loss), together with any related provision for taxes on such gain (or loss),
realized in connection with (i) any Asset Sale (including, without limitation,
dispositions pursuant to sale and leaseback transactions) or (ii) the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries; (b) any extraordinary or nonrecurring gain (or loss), together
with any related provision for taxes on such extraordinary or nonrecurring gain
(or loss); and (c) in the event that Condor's consolidated financial statements
are ever restated to reverse a write-off of in-process technology recorded prior
to July 1, 1999, the amortization of purchased technology.
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of,
without duplication, (a) the direct costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees,
and sales commissions, recording fees, title transfer fees and appraiser fees
and cost of preparation of assets for sale) and any relocation expenses incurred
as a result thereof, (b) taxes paid or payable as a result thereof (after taking
into account any available tax credits or deductions and any tax sharing
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arrangements), (c) amounts required to be applied to the repayment of
Indebtedness (other than revolving credit Indebtedness incurred pursuant to the
New Credit Facility) secured by a Lien on the asset or assets that were the
subject of such Asset Sale and (d) any reserve established in accordance with
GAAP or any amount placed in escrow, in either case for adjustment in respect of
the sale price of such asset or assets until such time as such reserve is
reversed or such escrow arrangement is terminated, in which case Net Proceeds
shall include only the amount of the reserve so reversed or the amount returned
to the Company or its Restricted Subsidiaries from such escrow arrangement, as
the case may be.
"New Credit Facility" means that certain Credit Agreement, dated as of
April 15, 1999 among the Company, certain subsidiaries of the Company from time
to time party thereto as guarantors, various financial institutions party
thereto and Bank of America National Trust & Savings Association, as
administrative agent, including, without limitation, any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and, in each case, as amended, modified, renewed,
refunded, replaced or refinanced from time to time, including, without
limitation, any agreement (i) extending or shortening the maturity of any
Indebtedness incurred thereunder or contemplated thereby, (ii) adding or
deleting borrowers or guarantors thereunder, (iii) increasing the amount of
Indebtedness incurred thereunder or available to be borrowed thereunder,
provided that on the date such Indebtedness is incurred it would not be
prohibited by clause (i) of the second paragraph of Section 4.09 hereof or (iv)
otherwise altering the terms and conditions thereof. Indebtedness under the New
Credit Facility outstanding on the Original Issuance Date shall be deemed to
have been incurred on such date in reliance on the first paragraph of Section
4.09 hereof.
"Non-Recourse Debt" means Indebtedness (i) no default with respect to
which (including, without limitation, any rights that the holders thereof may
have to take enforcement action against an Unrestricted Subsidiary) would permit
(upon notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (ii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock (other than the stock
of an Unrestricted Subsidiary pledged by the Company to secure debt of such
Unrestricted Subsidiary) or assets of the Company or any of its Restricted
Subsidiaries; provided that in no event shall Indebtedness of any Unrestricted
Subsidiary fail to be Non-Recourse Debt solely as a result of any default
provisions contained in a guarantee thereof by the Company or any of its
Restricted Subsidiaries if the Company or such Restricted Subsidiary was
otherwise permitted to incur such guarantee pursuant to this Indenture.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Note Custodian" means the Trustee, as custodian with respect to the
Global Notes, or any successor entity thereto.
"Note Guarantees" means the guarantees by the Guarantor of the
Company's payment obligations under this Indenture and the Notes.
"Notes" has the meaning assigned to it in the preamble to this
Indenture. The Initial Notes and the Additional Notes shall be treated as a
single class for all purposes under this Indenture.
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"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Notes issued on the Original
Issuance Date by the Company.
"Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Sections 11.04 and 11.05 hereof.
"Opinion of Counsel" means an opinion in form and substance reasonably
satisfactory to the Trustee and from legal counsel who is reasonably acceptable
to the Trustee, that meets the requirements of Sections 11.04 and 11.05 hereof.
The counsel may be an employee of or counsel to the Company, any Subsidiary of
the Company or the Trustee.
"Original Issuance Date" means April 15, 1999, the date on which Notes
are first issued and authenticated under this Indenture.
"Pari Passu Indebtedness" means Indebtedness of the Company that ranks
pari passu in right of payment to the Notes.
"Participant" means, with respect to the Depositary, Euroclear or
Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to the Depositary, shall include Euroclear and
Cedel).
"Participating Broker-Dealer" has the meaning set forth in the
Registration Rights Agreement.
"Permitted Business" means the manufacture, sale, distribution or
service of electronic defense products or systems or any other business
reasonably related, incidental or ancillary thereto or the manufacture, sale,
distribution or service of products using similar technologies.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company; (b) any Investment in cash or Cash
Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person, if as a result of such Investment (i) such Person
becomes a Restricted Subsidiary of the Company or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company or a Wholly Owned
Restricted Subsidiary of the Company; (d) any Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with Section 4.10 hereof; (e) any Investment acquired solely
in exchange for Equity Interests (other than Disqualified Stock)of the
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Company; (f) any Investment in a Person engaged in a Permitted Business (other
than an Investment in an Unrestricted Subsidiary) having an aggregate fair
market value, taken together with all other Investments made pursuant to this
clause (f) that are at that time outstanding, not to exceed the greater of (i)
$20.0 million and (ii) 15% of Total Assets at the time of such Investment (with
the fair market value of each Investment being measured at the time made and
without giving effect to subsequent changes in value); (g) Investments relating
to any special purpose Wholly Owned Subsidiary of the Company organized in
connection with a Receivables Facility that, in the good faith determination of
the board of directors of the Company, are necessary or advisable to effect such
Receivables Facility; and (h) the GTP Loans.
"Permitted Liens" means: (i) Liens on property of a Person existing at
the time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary, provided that such Liens were not incurred in
contemplation of such merger or consolidation and do not secure any property or
assets of the Company or any Restricted Subsidiary other than the property or
assets subject to the Liens prior to such merger or consolidation; (ii) Liens
existing on the Original Issuance Date; (iii) Liens securing Indebtedness
consisting of Capitalized Lease Obligations, purchase money Indebtedness,
mortgage financings, industrial revenue bonds or other monetary obligations, in
each case incurred solely for the purpose of financing all or any part of the
purchase price or cost of construction or installation of assets used in the
business of the Company or its Restricted Subsidiaries, or repairs, additions or
improvements to such assets, provided that (A) such Liens secure Indebtedness in
an amount not in excess of the original purchase price or the original cost of
any such assets or repair, additional or improvement thereto (plus an amount
equal to the reasonable fees and expenses in connection with the incurrence of
such Indebtedness), (B) such Liens do not extend to any other assets of the
Company or its Restricted Subsidiaries (and, in the case of repair, addition or
improvements to any such assets, such Lien extends only to the assets (and
improvements thereto or thereon) repaired, added to or improved), (C) the
Incurrence of such Indebtedness is permitted by Section 4.09 hereof and (D) such
Liens attach within 365 days of such purchase, construction, installation,
repair, addition or improvement; (iv) Liens to secure any refinancings,
renewals, extensions, modification or replacements (collectively, "refinancing")
(or successive refinancings), in whole or in part, of any Indebtedness secured
by Liens referred to in the clauses above so long as such Lien does not extend
to any other property (other than improvements thereto); (v) Liens securing
letters of credit entered into in the ordinary course of business and consistent
with past business practice; (vi) Liens on and pledges of the capital stock of
any Unrestricted Subsidiary securing Non-Recourse Debt of such Unrestricted
Subsidiary; (vii) Liens securing Indebtedness (including, without limitation,
all Obligations) under the New Credit Facility or any Foreign Credit Facility;
and (viii) other Liens securing Indebtedness that is permitted by the terms of
this Indenture to be outstanding having an aggregate principal amount at any one
time outstanding not to exceed $20.0 million.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued within 60 days after
repayment of, in exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease or refund other Indebtedness of the Company
or any of its Restricted Subsidiaries; provided that (a) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount of (or accreted value, if applicable), plus
premium, if any, and accrued interest on the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith), (b) such
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Permitted Refinancing Indebtedness has a final maturity date no earlier than the
final maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded, and (c) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness is subordinated in right of payment to, the Notes on terms at least
as favorable, taken as a whole, to the Holders of Notes as those contained in
the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof (including, without limitation, any subdivision or ongoing business of
any such entity or substantially all of the assets of any such entity,
subdivision or business).
"Principals" means DLJMB, GTP and Behrman Capital.
"Private Placement Legend" means the legend set forth in Section
2.06(h)(i) to be placed on all Notes issued under this Indenture except where
otherwise permitted by the provisions of this Indenture.
"Public Equity Offering" means any issuance of common stock by the
Company (other than Disqualified Stock) that is registered pursuant to the
Securities Act, other than issuances registered on Form S-8 and issuances
registered on Form S-4, excluding issuances of common stock pursuant to employee
benefit plans of the Company or otherwise as compensation to employees of the
Company.
"Qualified Proceeds" means any of the following or any combination of
the following: (i) cash; (ii) Cash Equivalents; (iii) assets (other than
Investments) that are used or useful in a Permitted Business; and (iv) the
Capital Stock of any Person engaged in a Permitted Business if, in connection
with the receipt by the Company or any Restricted Subsidiary of the Company of
such Capital Stock, (A) such Person becomes a Restricted Subsidiary of the
Company or any Restricted Subsidiary of the Company or (B) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or any
Restricted Subsidiary of the Company.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Receivables Facility" means one or more receivables financing
facilities, as amended from time to time, pursuant to which the Company or any
of its Restricted Subsidiaries sells its accounts receivable to an Accounts
Receivable Subsidiary.
"Receivables Fees" means distributions or payments made directly or by
means of discounts with respect to any participation interests issued or sold in
connection with, and other fees paid to a Person that is not a Restricted
Subsidiary in connection with, any Receivables Facility.
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"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of April 15, 1999, by and among the Company and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time, and, with respect to any Additional
Notes, one or more registration rights agreements between the Company and the
other parties thereto, as such agreement(s) may be amended, modified or
supplemented from time to time, relating to rights given by the Company to the
purchasers of Additional Notes to register such Additional Notes under the
Securities Act.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Permanent Global Note" means an Unrestricted Global Note
issued in accordance with Section 2.01(d).
"Regulation S Temporary Global Note" means a temporary global Note in
the form of Exhibit A-2 hereto bearing the Global Note Legend and the Private
Placement Legend and having the "Schedule of Exchanges of Interest in the Global
Note" attached thereto and deposited with or on behalf of and registered in the
name of the Depositary or its nominee, issued in accordance with Section
2.01(d).
"Related Party" means, with respect to any Principal, (i) any
controlling stockholder or partner of such Principal on the Original Issuance
Date, or (ii) any trust, corporation, partnership or other entity, the
beneficiaries, shareholders, partners, owners or Persons beneficially holding
(directly or through one or more Subsidiaries) a 51% or more controlling
interest of which consist of the Principals and/or such other Persons referred
to in the immediately preceding clauses (i) or (ii).
"Responsible Officer" when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Definitive Note" means a Definitive Note bearing the
Private Placement Legend.
"Restricted Global Note" means a the 144A Global Note or the Regulation
S Temporary Global Note, which Notes shall bear the Private Placement Legend.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Period" means the 40-day "distribution compliance period"
as defined in Rule 902(f) of Regulation S.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"Rule 144" means Rule 144 promulgated under the Securities Act.
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"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Spot Rate" means, for any currency, the spot rate at which such
currency is offered for sale against United States dollars as determined by
reference to the New York foreign exchange selling rates, as published in The
Wall Street Journal on such date of determination for the immediately preceding
business day or, if such rate is not available, as determined in any publicly
available source of similar market data.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Sterling Plant Closure" means the Company's closing of its facilities
in Sterling, Virginia.
"Subsidiary" means, with respect to any Person, (a) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (b) any partnership or limited liability company (i) the sole
general partner or the managing general partner or managing member of which is
such Person or a Subsidiary of such Person or (ii) the only general partners or
managing members of which are such Person or of one or more Subsidiaries of such
Person (or any combination thereof).
"Termination Agreements" means (i) that certain Termination Agreement,
dated as of March 8, 1999, among the Company, Nomura Holding America Inc.,
Antares Leveraged Capital Corp, Behrman Capital, Behrman Capital "B" L.P., and
the Strategic Entrepreneur Fund L.P. and (ii) that certain Option Termination
Agreement, dated as of April 15, 1999, among the Company and the holders of
certain options to purchase common stock of the Company.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. section section
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
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"Total Assets" means the total consolidated assets of the Company and
its Restricted Subsidiaries, as shown on the most recent balance sheet
(excluding the footnotes thereto) of the Company.
"Trustee" means, except solely for purposes of Section 8.05 as
otherwise specified therein, the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Definitive Note" means one or more Definitive Notes not
bearing the Private Placement Legend.
"Unrestricted Global Note" means a permanent global Note in
substantially the form of Exhibit A-1 hereto bearing the Global Note Legend (but
not the Private Placement Legend) and having the "Schedule of Exchanges of
Interests in the Global Note" attached thereto and deposited with or on behalf
of and registered in the name of the Depositary or its nominee, issued in
accordance with Section 2.01(d), 2.06(b)(v), 2.06(d)(iv) or 2.06(f), as
applicable.
"Unrestricted Subsidiary" means any Subsidiary that is designated by
the board of directors as an Unrestricted Subsidiary pursuant to a board
resolution, but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (i) to subscribe for additional Equity Interests (other than
Investments described in clause (g) of the definition of Permitted Investments)
or (ii) to maintain or preserve such Person's financial condition or to cause
such Person to achieve any specified levels, of operating results; and (d) has
not guaranteed or otherwise directly or indirectly provided credit support for
any Indebtedness of the Company or any of its Restricted Subsidiaries. Any such
designation by the board of directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the board resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by Section
4.07 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as a Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of this Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under Section 4.09 hereof, the Company
shall be in default of such covenant). The board of directors of the Company may
at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under Section 4.09 hereof and
(ii) no Default or Event of Default would be in existence following such
designation.
"U.S. Person" means a U.S. person as defined in Rule 902(o) under the
Securities Act.
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"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (b) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all the outstanding Capital Stock or other ownership
interests of which (other than directors' qualifying shares) shall at the time
be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries
of such Person or by such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person.
SECTION 1.02 OTHER DEFINITIONS.
Term Defined in Section
- ---- ------------------
"Asset Sale"............................................ 4.10
"Asset Sale Offer"...................................... 4.10
"Affiliate Transaction"................................. 4.11
"Authentication Order".................................. 2.02
"Bankruptcy Law"........................................ 4.01
"cash equivalents" ..................................... 10.02
"Change of Control Offer"............................... 4.14
"Change of Control Payment"............................. 4.14
"Change of Control Payment Date"........................ 4.14
"Covenant Defeasance"................................... 8.03
"Designated Senior Indebtedness"........................ 10.02
"distribution".......................................... 10.02
"Event of Default"...................................... 6.01
"Excess Proceeds"....................................... 4.10
"incur"................................................. 4.09
"Legal Defeasance"...................................... 8.02
"Offer Amount".......................................... 3.09
"Offer Period".......................................... 3.09
"Paying Agent".......................................... 2.03
"payment"............................................... 10.02
"Payment Blockage Notice"............................... 10.04
"Payment Default"....................................... 6.01
"Permitted Indebtedness"................................ 4.09
"Permitted Junior Securities"........................... 10.02
"Purchase Date"......................................... 3.09
"Registrar"............................................. 2.03
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"Representative"........................................ 10.02
"Restricted Payments"................................... 4.07
"Senior Indebtedness"................................... 10.02
"Subordinated Note Obligations" ........................ 10.02
SECTION 1.03 INCORPORATION OF TIA PROVISIONS.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Notes means the Company and any successor obligor upon
the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule under
the TIA have the meanings so assigned to them.
SECTION 1.04 RULES OF CONSTRUCTION.
(1) Unless the context otherwise requires:
(2) a term has the meaning assigned to it;
(3) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(4) "or" is not exclusive;
(5) words in the singular include the plural, and in the plural
include the singular;
(6) provisions apply to successive events and transactions; and
(7) references to sections of or rules under the Securities Act
shall be deemed to include substitute, replacement of successor sections
or rules adopted by the Commission from time to time.
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Article 2
THE NOTES
SECTION 2.01 FORM AND DATING.
(a) General. The Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its authentication. The Notes shall
be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Company, the
Guarantor and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby. However,
to the extent any provision of any Note conflicts with the express provisions of
this Indenture, the provisions of this Indenture shall govern and be
controlling.
(b) 144A Global Notes. Notes initially offered and sold to QIBs in
reliance on Rule 144A shall be issued initially in global form substantially in
the form of Exhibit A-1 attached hereto (including, without limitation, the
Global Note Legend thereon and the "Schedule of Exchanges of Interests in the
Global Note" attached thereto), which shall be deposited on behalf of the
purchasers of the Notes represented thereby with the Trustee, at its New York
office, as custodian for the Depositary, and registered in the name of the
Depositary or the nominee of the Depositary for credit to the accounts of DTC's
Participants, duly executed by the Company and authenticated by the Trustee as
hereinafter provided.
(c) Global Notes. Each Global Note shall represent such of the
outstanding Notes as shall be specified therein and each shall provide that it
shall represent the aggregate principal amount of outstanding Notes from time to
time endorsed thereon and that the aggregate principal amount of outstanding
Notes represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. The aggregate principal
amount of the Global Notes may from time to time be increased or decreased by
adjustments made on the records of the Trustee, as custodian for the Depositary
or its nominee, as the case may be, as herein provided. Any endorsement of a
Global Note to reflect the amount of any increase or decrease in the aggregate
principal amount of outstanding Notes represented thereby shall be made by the
Trustee or the Note Custodian, at the direction of the Trustee, in accordance
with instructions given by the Holder thereof as required by Section 2.06 hereof
or as specified in Section 2.01(d).
(d) Temporary Global Notes. Notes initially offered and sold in
reliance on Regulation S shall be issued initially in global form substantially
in the form of Exhibit A-2 attached hereto (including, without limitation, the
Global Note Legend and the "Schedule of Exchanges of Interests in the Global
Note" attached thereto), which shall be deposited on behalf of the purchasers of
the Notes represented thereby with the Trustee, at its New York office, as
custodian for the Depositary, and registered in the name of the Depositary or
the nominee of the Depositary for the accounts of designated agents holding on
behalf of Euroclear or Cedelbank, duly executed by the Company and authenticated
by the Trustee as hereinafter provided.
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Within a reasonable time period after the expiration of the Restricted
Period, upon the receipt by the Trustee of:
(i) a written certificate from the Depositary, together with copies
of certificates from Euroclear and Cedelbank certifying that they have
received certification of non-United States beneficial ownership of
100% of the aggregate principal amount of the Regulation S Temporary
Global Note (except to the extent of any beneficial owners thereof who
acquired an interest therein during the Restricted Period pursuant to
another exemption from registration under the Securities Act and who
will take delivery of a beneficial ownership interest in a 144A Global
Note, all as contemplated by Section 2.06(b)(iii)(A) hereof), and
(ii) an Officers' Certificate from the Company,
(x) if at such time an Unrestricted Global Note has not yet been issued, the
Company shall issue and, upon receipt of an Authentication Order in accordance
with Section 2.02, the Trustee shall authenticate one or more Unrestricted
Global Notes in global form in substantially the form of Exhibit A-1 attached
hereto (including, without limitation, the Global Note Legend (but not the
Private Placement Legend) and the "Schedule of Exchanges of Interests in the
Global Note" attached thereto), which shall be deposited with the Trustee at its
New York office, as custodian for the Depositary, and registered in the name of
the Depositary or the nominee of the Depositary, and (y) the Trustee shall
increase or cause to be increased the aggregate principal amount of the
Unrestricted Global Note by an amount equal to the aggregate principal amount of
the Regulation S Temporary Global Note, all pursuant to the Applicable
Procedures. Simultaneously with the authentication of the Unrestricted Global
Note and the increase of the principal amount of the Unrestricted Global Note in
the amount of the aggregate principal amount of the Regulation S Temporary
Global Note, the Trustee shall cancel the Regulation S Temporary Global Note.
Until the later of the termination of the Restricted Period and the
provision of the certifications required as specified in the preceding
paragraph, beneficial interests in any Regulation S Temporary Global Note may be
held only through Participants acting for and on behalf of Euroclear and Cedel.
(e) Euroclear and Cedel Procedures Applicable. The provisions of the
"Operating Procedures of the Euroclear System" and "Terms and
Conditions Governing Use of Euroclear" and the "General Terms and
Conditions of Cedelbank" and "Customer Handbook" of Cedelbank shall be
applicable to transfers of beneficial interests in the Regulation S
Temporary Global Note and the Unrestricted Global Notes that are held
by Participants through Euroclear or Cedelbank.
(f) Definitive Notes. Notes issued in definitive form shall be
issued substantially in the form of Exhibit A-1 attached hereto (but
without the Global Note Legend thereon and without the Schedule of
Exchanges of Interests in the Global Note" attached thereto), duly
executed by the Company and authenticated by Trustee as hereinafter
provided.
SECTION 2.02 EXECUTION AND AUTHENTICATION.
One Officer shall sign the Notes for the Company by manual or facsimile
signature.
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If an Officer whose signature is on a Note no longer holds that office
at the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by one
Officer (an "Authentication Order"), authenticate Notes for original issue up to
$100,000,000 in aggregate principal amount plus the aggregate principal amount
of any Additional Notes issued pursuant to this Section 2.02 and in compliance
with Section 4.09 hereof. The aggregate principal amount of Notes outstanding at
any time may not exceed such amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Company.
SECTION 2.03 REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints DTC to act as Depositary with respect to
the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes.
SECTION 2.04 PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Liquidated Damages, if any, or interest on the Notes, and
will notify the Trustee of any default by the Company in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company
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or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate
trust fund for the benefit of the Holders all money held by it as Paying Agent.
Upon any bankruptcy or reorganization proceedings relating to the Company, the
Trustee shall serve as Paying Agent for the Notes.
SECTION 2.05 HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee
is not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company shall otherwise comply with TIA Section 312(a).
SECTION 2.06 TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Global Notes. A Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary or by the Depositary or any such nominee to a successor Depositary or
a nominee of such successor Depositary. All Global Notes will be exchanged by
the Company for Definitive Notes if (i) the Company delivers to the Trustee
notice from the Depositary that it is unwilling or unable to continue as
Depositary for the Notes or that it is no longer a clearing agency registered
under the Exchange Act and, in either case, a successor Depositary is not
appointed by the Company within 90 days after the date of such notice from the
Depositary, (ii) the Company, at its option, elects to cause the Global Notes
(in whole but not in part) to be exchanged for Definitive Notes and delivers a
written notice to such effect to the Trustee or (iii) there shall have occurred
and be continuing a Default or Event of Default. In addition, beneficial
interests in a Global Note may be exchanged for Definitive Notes upon request
but only upon at least 20 days' prior written notice given to the Trustee by or
on behalf of DTC in accordance with customary procedures and subject to
compliance with Section 2.06(b)(ii) and Section 2.06(c). Notwithstanding the two
preceding sentences, in no event shall the Regulation S Temporary Global Note be
exchanged by the Company for Definitive Notes prior to (x) the expiration of the
Restricted Period and (y) the receipt by the Registrar of any certificates
required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act. Upon the
occurrence of any of the preceding events upon which Definitive Notes are to be
issued in exchange for any Global Note or beneficial interests therein as
specified above, Definitive Notes shall be issued in such names and approved
denominations as the Depositary shall instruct the Trustee and, if such Global
Note is a Restricted Global Note, shall bear the Private Placement Legend.
Global Notes also may be exchanged or replaced, in whole or in part, as provided
in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in
exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to
this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated and
delivered in the form of, and shall be, a Global Note except as provided in this
Section 2.06(a). A Global Note may not be exchanged for another Note other than
as provided in this Section 2.06(a) and Sections 2.07 and 2.10; provided,
however, that, beneficial interests in a Global Note may be transferred and
exchanged for beneficial interests in another Global Note as provided in Section
2.06(b) hereof.
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(b) Transfer and Exchange of Beneficial Interests in Global Notes for
Beneficial Interests in Global Notes or for Definitive Notes. The transfer and
exchange of beneficial interests in the Global Notes shall be effected through
the Depositary, in accordance with the provisions of this Indenture and the
Applicable Procedures. Beneficial interests in the Restricted Global Notes shall
be subject to restrictions on transfer comparable to those set forth herein to
the extent required by the Securities Act. Transfers or exchanges of beneficial
interests in Global Notes for Definitive Notes shall also require compliance
with Section 2.06(a), Section 2.06(b)(ii) below and Section 2.06(c), and
transfers or exchanges of beneficial interests in Global Notes for beneficial
interests in Global Notes also shall require compliance with one or more of the
other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred
to Persons who take delivery thereof in the form of a beneficial
interest in the same Restricted Global Note in accordance with the
transfer restrictions set forth in the Private Placement Legend;
provided, however, that, prior to the expiration of the Restricted
Period, a beneficial interest in the Regulation S Temporary Global Note
may be transferred to a person who takes delivery in the form of an
interest in the 144A Global Note only upon receipt by the Registrar of
the certificate specified in Section 2.06(b)(iii)(A). Beneficial
interests in any Unrestricted Global Note may be transferred to Persons
who take delivery thereof in the form of a beneficial interest in the
same Unrestricted Global Note. No written orders or instructions shall
be required to be delivered to the Registrar to effect the transfers
described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in
Global Notes. In connection with all transfers and exchanges of
beneficial interests in a Global Note that are not subject to Section
2.06(b)(i) above (other than an exchange of beneficial interests in a
Regulation S Temporary Global Note for beneficial interests in an
Unrestricted Global Note in accordance with Section 2.01(d)), the owner
of such beneficial interest must deliver to the Registrar either (A)
(1) a written order from a Participant or an Indirect Participant given
to the Depositary in accordance with the Applicable Procedures
directing the Depositary to credit or cause to be credited a beneficial
interest in another Global Note in an amount equal to the beneficial
interest to be transferred or exchanged and (2) instructions given in
accordance with the Applicable Procedures containing information
regarding the Participant account to be credited with such increase or
(B) (1) a written order from a Participant or an Indirect Participant
given to the Depositary in accordance with the Applicable Procedures
directing the Depositary to cause to be issued a Definitive Note in an
amount equal to the beneficial interest to be transferred or exchanged
and (2) instructions given by the Depositary to the Registrar
containing information regarding the Person in whose name such
Definitive Note shall be registered to effect the transfer or exchange
referred to in clause (B)(1) above; provided, however, that in no event
shall Definitive Notes be issued upon the transfer or exchange of
beneficial interests in the Regulation S Temporary Global Note prior to
(x) the expiration of the Restricted Period and (y) the receipt by the
Registrar of any certificates required pursuant to Rule 903 under the
Securities Act. Upon consummation of an Exchange Offer by the Company
in accordance with Section 2.06(f) hereof, the requirements of this
Section 2.06(b)(ii) shall be deemed to have been satisfied upon receipt
by the Registrar of the instructions contained in the Letter of
Transmittal
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delivered by the Holder of such beneficial interests in the Restricted
Global Notes. Upon satisfaction of all of the requirements for transfer
or exchange of beneficial interests in Global Notes contained in this
Indenture and the Notes or otherwise applicable under the Securities
Act, the Trustee shall adjust the principal amount of the relevant
Global Note(s) pursuant to Section 2.06(i) hereof.
(iii) Transfer of Beneficial Interests in a Restricted Global Note
to Beneficial Interests in Another Restricted Global Note. Subject to
Section 2.01(d), a beneficial interest in any Restricted Global Note
may be transferred to a Person who takes delivery thereof in the form
of a beneficial interest in another Restricted Global Note if the
transfer complies with the requirements of Section 2.06(b)(ii) above
and the Registrar receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Note, then the transferor
must deliver a certificate in the form of Exhibit B hereto,
including, without limitation, the certifications in item (1)
thereof; and
(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Temporary Global Note, then
the transferor must deliver a certificate in the form of Exhibit B
hereto, including, without limitation, the certifications in item
(2) thereof.
(iv) Transfer and Exchange of Beneficial Interests in a Restricted
Global Note for Beneficial Interests in the Unrestricted Global Note. A
beneficial interest in any Restricted Global Note may be exchanged by
any holder thereof for a beneficial interest in an Unrestricted Global
Note or transferred to a Person who takes delivery thereof in the form
of a beneficial interest in an Unrestricted Global Note if the exchange
or transfer (x) is an exchange of beneficial interests in a Regulation
S Temporary Global Note for beneficial interests in an Unrestricted
Global Note in accordance with Section 2.01(d) or (y) both (1) complies
with the requirements of Section 2.06(b)(ii) above and (2):
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder of the beneficial interest, in the case of an
exchange, or the transferee, in the case of a transfer, certifies in
the applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of the
Exchange Notes or (3) a Person who is an affiliate (as defined in
Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance
with the Registration Rights Agreement; or
(D) the Registrar receives the following:
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(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a beneficial interest in an Unrestricted Global
Note, a certificate from such holder in the form of Exhibit C
hereto, including, without limitation, the certifications in
item (1)(a) thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form
of a beneficial interest in an Unrestricted Global Note, a
certificate from such holder in the form of Exhibit B hereto,
including, without limitation, the certifications in item (4)
thereof,
and, in each such case set forth in this subparagraph (D), if
the Registrar so requests or if the Applicable Procedures so
require, an Opinion of Counsel in form reasonably acceptable
to the Registrar to the effect that such exchange or transfer
is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
(v) Issuance of Unrestricted Global Note. If any such transfer is
effected pursuant to Section 2.06(b)(iv) (B) or (D) above at a time
when the Unrestricted Global Note has not yet been issued, the Company
shall issue and, upon receipt of an Authentication Order in accordance
with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant
to subparagraph (B) or (D) above.
(c) Transfer and Exchange of Beneficial Interests in Global Notes for
Definitive Notes.
(i) Beneficial Interests in Restricted Global Notes to Restricted
Definitive Notes. Subject to Section 2.06(a), if any holder of a
beneficial interest in a Restricted Global Note proposes to exchange
such beneficial interest for a Restricted Definitive Note or to
transfer such beneficial interest to a Person who takes delivery
thereof in the form of a Restricted Definitive Note, then, upon receipt
by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a
Restricted Definitive Note, a certificate from such holder in the
form of Exhibit C hereto, including, without limitation, the
certifications in item (2)(a) thereof;
(B) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including, without
limitation, the certifications in item (1) thereof;
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(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule
903 or Rule 904 under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including, without limitation,
the certifications in item (2) thereof;
(D) if such beneficial interest is being transferred pursuant to
an exemption from the registration requirements of the Securities
Act in accordance with Rule 144 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including,
without limitation, the certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from
the registration requirements of the Securities Act other than those
listed in subparagraphs (B) through (D) above, a certificate to the
effect set forth in Exhibit B hereto, including, without limitation,
the certifications, certificates and Opinion of Counsel required by
item (3)(d) thereof, if applicable;
(F) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect set
forth in Exhibit B hereto, including, without limitation, the
certifications in item (3)(b) thereof; or
(G) if such beneficial interest is being transferred pursuant to
an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including,
without limitation, the certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the
applicable Global Note to be reduced accordingly pursuant to Section
2.06(i) hereof, and the Company shall execute and the Trustee shall
authenticate and deliver to the Person designated in the instructions a
Definitive Note in the appropriate principal amount. Any Definitive
Note issued in exchange for a beneficial interest in a Restricted
Global Note pursuant to this Section 2.06(c)(i) shall be registered in
such name or names and in such authorized denomination or denominations
as the holder of such beneficial interest shall instruct the Registrar
through instructions from the Depositary and the Participant or
Indirect Participant. The Trustee shall deliver such Definitive Notes
to the Persons in whose names such Notes are so registered. Any
Definitive Note issued in exchange for a beneficial interest in a
Restricted Global Note pursuant to this Section 2.06(c)(i) shall bear
the Private Placement Legend and shall be subject to all restrictions
on transfer contained therein.
(ii) Beneficial Interests in Restricted Global Notes to Unrestricted
Definitive Notes. Subject to Section 2.06(a), a holder of a beneficial
interest in a Restricted Global Note may exchange such beneficial
interest for an Unrestricted Definitive Note or may transfer such
beneficial interest to a Person who takes delivery thereof in the form
of an Unrestricted Definitive Note only if:
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(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder of such beneficial interest, in the case of an
exchange, or the transferee, in the case of a transfer, certifies in
the applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of the
Exchange Notes or (3) a Person who is an affiliate (as defined in
Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance
with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for an Unrestricted Definitive Note, a certificate from
such holder in the form of Exhibit C hereto, including, without
limitation, the certifications in item (1)(b) thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form
of an Unrestricted Definitive Note, a certificate from such
holder in the form of Exhibit B hereto, including, without
limitation, the certifications in item (4) thereof,
and, in each such case set forth in this subparagraph (D), if
the Registrar so requests or if the Applicable Procedures so
require, an Opinion of Counsel in form reasonably acceptable
to the Registrar to the effect that such exchange or transfer
is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
(iii) Beneficial Interests in Unrestricted Global Notes to
Unrestricted Definitive Notes. Subject to Section 2.06(a), if any
holder of a beneficial interest in an Unrestricted Global Note proposes
to exchange such beneficial interest for a Definitive Note or to
transfer such beneficial interest to a Person who takes delivery
thereof in the form of a Definitive Note, then, upon satisfaction of
the conditions set forth in Section 2.06(b)(ii) hereof, the Trustee
shall cause the aggregate principal amount of the applicable Global
Note to be reduced accordingly pursuant to Section 2.06(i) hereof, and
the Company shall execute and the Trustee shall authenticate and
deliver to the Person designated in the instructions a Definitive Note
in the appropriate principal amount. Any Definitive Note issued in
exchange for a beneficial interest pursuant to this Section
2.06(c)(iii) shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such
beneficial interest shall instruct the Registrar through instructions
from the Depositary and the Participant or Indirect
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Participant. The Trustee shall deliver such Definitive Notes to the
Persons in whose names such Notes are so registered. Any Definitive
Note issued in exchange for a beneficial interest pursuant to this
Section 2.06(c)(iii) shall not bear the Private Placement Legend.
(iv) Regulation S Temporary Global Note Restriction. Notwithstanding
Sections 2.06(c)(i) and (ii) hereof, a beneficial interest in the
Regulation S Temporary Global Note may not be exchanged for a
Definitive Note or transferred to a Person who takes delivery thereof
in the form of a Definitive Note prior to (x) the expiration of the
Restricted Period and (y) the receipt by the Registrar of any
certificates required pursuant to Rule 903(c)(3)(ii)(B) under the
Securities Act.
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests
in Global Notes.
(i) Restricted Definitive Notes to Beneficial Interests in
Restricted Global Notes. If any Holder of a Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a
Restricted Global Note or to transfer such Restricted Definitive Note
to a Person who takes delivery thereof in the form of a beneficial
interest in a Restricted Global Note, then, upon receipt by the
Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global
Note, a certificate from such Holder in the form of Exhibit C
hereto, including, without limitation, the certifications in item
(2)(b) thereof;
(B) if such Restricted Definitive Note is being transferred to a
QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including,
without limitation, the certifications in item (1) thereof;
(C) if such Restricted Definitive Note is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule
903 or Rule 904 under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including, without limitation,
the certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being transferred
pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities Act,
a certificate to the effect set forth in Exhibit B hereto,
including, without limitation, the certifications in item (3)(a)
thereof;
(E) if such Restricted Definitive Note is being transferred to
an Institutional Accredited Investor in reliance on an exemption
from the registration requirements of the Securities Act other than
those listed in subparagraphs (B) through (D) above, a certificate
to the effect set forth in
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Exhibit B hereto, including, without limitation, the certifications,
certificates and Opinion of Counsel required by item (3)(d) thereof,
if applicable;
(F) if such Restricted Definitive Note is being transferred to
the Company or any of its Subsidiaries, a certificate to the effect
set forth in Exhibit B hereto, including, without limitation, the
certifications in item (3)(b) thereof; or
(G) if such Restricted Definitive Note is being transferred
pursuant to an effective registration statement under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including, without limitation, the certifications in item (3)(c)
thereof,
the Trustee shall cancel the Restricted Definitive Note and increase or
cause to be increased the aggregate principal amount of the 144A Global
Note.
(ii) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Restricted Definitive Note to a Person who takes
delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance
with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes proposes to
exchange such Notes for a beneficial interest in the
Unrestricted Global Note, a certificate from such Holder in the
form of Exhibit C hereto, including, without limitation, the
certifications in item (1)(c) thereof; or
(2) if the Holder of such Definitive Notes proposes to
transfer such Notes to a Person who shall take delivery thereof
in the form of a beneficial interest in the Unrestricted Global
Note, a certificate from such Holder in the form of Exhibit B
hereto, including, without limitation, the certifications in
item (4) thereof,
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and, in each such case set forth in this subparagraph (D), if
the Registrar so requests or if the Applicable Procedures so
require, an Opinion of Counsel in form reasonably acceptable to
the Registrar to the effect that such exchange or transfer is in
compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend
are no longer required in order to maintain compliance with the
Securities Act.
Upon satisfaction of the conditions of any of the
subparagraphs in this Section 2.06(d)(ii), the Trustee shall cancel the
Definitive Notes and increase or cause to be increased the aggregate
principal amount of the Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note
may exchange such Note for a beneficial interest in an Unrestricted
Global Note or transfer such Definitive Note to a Person who takes
delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note at any time. Upon receipt of a request for
such an exchange or transfer, the Trustee shall cancel the applicable
Unrestricted Definitive Note and increase or cause to be increased the
aggregate principal amount of one of the Unrestricted Global Notes.
(iv) Issuance of Unrestricted Global Note. If any such exchange or
transfer from a Definitive Note to a beneficial interest is effected
pursuant to Section 2.06(c)(ii)(B), (ii)(D) or (iii) above at a time
when an Unrestricted Global Note has not yet been issued, the Company
shall issue and, upon receipt of an Authentication Order in accordance
with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of Definitive Notes so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes.
Upon request by a Holder of Definitive Notes and such Holder's compliance with
the provisions of this Section 2.06(e), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of transfer
or exchange, the requesting Holder shall present or surrender to the Registrar
the Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by his attorney, duly authorized in writing. In addition, the requesting Holder
shall provide any additional certifications, documents and information, as
applicable, required pursuant to the following provisions of this Section
2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive Notes. Any
Restricted Definitive Note may be transferred to and registered in the
name of Persons who take delivery thereof in the form of a Restricted
Definitive Note if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A under the
Securities Act, then the transferor must deliver a certificate in
the form of Exhibit B hereto, including, without limitation, the
certifications in item (1) thereof;
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(B) if the transfer will be made pursuant to Rule 903 or Rule
904, then the transferor must deliver a certificate in the form of
Exhibit B hereto, including, without limitation, the certifications
in item (2) thereof; and
(C) if the transfer will be made pursuant to any other exemption
from the registration requirements of the Securities Act, then the
transferor must deliver a certificate in the form of Exhibit B
hereto, including, without limitation, the certifications,
certificates and Opinion of Counsel required by item (3) thereof, if
applicable.
(ii) Restricted Definitive Notes to Unrestricted Definitive Notes.
Any Restricted Definitive Note may be exchanged by the Holder thereof
for an Unrestricted Definitive Note or transferred to a Person or
Persons who take delivery thereof in the form of an Unrestricted
Definitive Note if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration Statement
in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes
proposes to exchange such Notes for an Unrestricted Definitive
Note, a certificate from such Holder in the form of Exhibit C
hereto, including, without limitation, the certifications in
item (1)(d) thereof; or
(2) if the Holder of such Restricted Definitive Notes
proposes to transfer such Notes to a Person who shall take
delivery thereof in the form of an Unrestricted Definitive Note,
a certificate from such Holder in the form of Exhibit B hereto,
including, without limitation, the certifications in item (4)
thereof,
and, in each such case set forth in this subparagraph (D), if
the Registrar so requests, an Opinion of Counsel in form
reasonably acceptable to the Company to the effect that such
exchange or transfer is in compliance with the Securities Act
and that the restrictions on transfer contained herein and in
the Private Placement Legend are no longer required in order
to maintain compliance with the Securities Act.
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(iii) Unrestricted Definitive Notes to Unrestricted Definitive
Notes. A Holder of Unrestricted Definitive Notes may transfer such
Notes to a Person who takes delivery thereof in the form of an
Unrestricted Definitive Note. Upon receipt of a request to register
such a transfer, the Registrar shall register the Unrestricted
Definitive Notes pursuant to the instructions from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, (i) if the Exchange Offer is
consummated at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02, the Trustee shall authenticate one or more
Unrestricted Global Notes, (ii) the Trustee shall increase or cause to be
increased the aggregate principal amount of the Unrestricted Global Note by an
amount equal to the aggregate principal amount of the beneficial interests in
the Restricted Global Notes tendered for acceptance by Persons that certify in
the applicable Letters of Transmittal that (x) they are not broker-dealers, (y)
they are not participating in a distribution of the Exchange Notes and (z) they
are not affiliates (as defined in Rule 144) of the Company, and accepted for
exchange in the Exchange Offer and (iii) the Company shall issue and, upon
receipt of a Authentication Order in accordance with Section 2.02, the Trustee
shall authenticate Definitive Notes in an aggregate principal amount equal to
the principal amount of the Restricted Definitive Notes accepted for exchange in
the Exchange Offer. Concurrently with the issuance of such Notes, the Trustee
shall cause the aggregate principal amount of the applicable Restricted Global
Notes to be reduced accordingly, and the Company shall execute and the Trustee
shall authenticate and deliver to the Persons designated by the Holders of
Definitive Notes so accepted Definitive Notes in the appropriate principal
amount.
Concurrently with the issuance of Exchange Notes in the Exchange Offer,
the Company shall delivery an Opinion of Counsel to the Trustee to the effect
that the Exchange Notes have been duly authorized and, when executed and
authenticated in accordance with the provisions of the Indenture and delivered
in exchange for Restricted Securities in accordance with the Indenture and the
Exchange Offer, will be entitled to the benefits of the Indenture and will be
valid and binding obligations of the Company, enforceable in accordance with
their terms except as (x) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
(y) rights of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability.
(g) Transfer or Exchange of Beneficial Interests in an Unrestricted
Global Note or Unrestricted Definitive Notes for Beneficial Interests in
Restricted Global Note or Restrictive Definitive Notes. Beneficial interests in
an Unrestricted Global Note or Unrestricted Definitive Notes cannot be exchanged
for, or transferred to Persons who take delivery thereof in the form of, a
beneficial interest in a Restricted Global Note or Restricted Definitive Notes.
(h) Legends. The following legends shall appear on the face of all
Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
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(A) Except as specified in Section 2.06(h)(i) (B) below, each
Global Note and each Definitive Note (and all Notes issued in
exchange therefor or upon registration of transfers or replacement
thereof) shall bear the legend in substantially the following form:
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION
HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER: (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT HAS ACQUIRED THIS NOTE
IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(A) (1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT (AN "IAI")), (2) AGREES THAT IT WILL NOT RESELL OR
OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS
SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE
TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF REGULATION S
OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144 UNDER THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH
TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE
(THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS
THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT
SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN
INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND
"UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF
REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A
PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF
THIS NOTE IN VIOLATION OF THE FOREGOING."
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(B) Notwithstanding the foregoing, any Global Note or Definitive
Note issued (i) upon registration of transfer or replacement of, or
in exchange for, any Unrestricted Global Note or Unrestricted
Definitive Note or (ii) pursuant to Section 2.06(b)(iv), (c)(ii),
(d)(ii), (e)(ii) or (f), and the Global Note issued in exchange for
a Regulation S Temporary Global Note pursuant to clause (x) of the
second paragraph of Section 2.01(d), shall not bear the Private
Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend
(comprising two paragraphs) in substantially the following form:
"Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by
the Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary or by
the Depositary or any such nominee to a successor Depositary or a
nominee of such successor Depositary. Unless this certificate is
presented by an authorized representative of The Depository Trust
Company (55 Water Street, New York, New York) ("DTC"), to the issuer or
its agent for registration of transfer, exchange or payment, and any
certificate issued is registered in the name of Cede & Co. or such
other name as may be requested by an authorized representative of DTC
(and any payment is made to Cede & Co. or such other entity as may be
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 in as much as the registered owner hereof, Cede & Co., has an
interest herein.
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY
PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE
SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF
THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED PURSUANT TO
SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE
DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF
THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A
SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF CONDOR SYSTEMS,
INC."
(iii) Regulation S Temporary Global Note Legend. The Regulation S
Temporary Global Note shall bear a legend in substantially the
following form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND
THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED
NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER
THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY
GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON."
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(i) Cancellation or Adjustment of Global Notes. At such time as all
beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
cancelled in whole and not in part, each such Global Note shall be returned to
or retained and cancelled by the Trustee in accordance with Section 2.11 hereof.
At any time prior to such cancellation, if any beneficial interest in a Global
Note is exchanged for or transferred to a Person who will take delivery thereof
in the form of a beneficial interest in another Global Note or for Definitive
Notes, the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note by the
Trustee or by the Depositary at the direction of the Trustee to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to a Person who will take delivery thereof in the form of a beneficial interest
in another Global Note, such other Global Note shall be increased accordingly
and an endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.
(j) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Global Notes and
Definitive Notes upon the Company's order or at the Registrar's
request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any
such transfer taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 3.06, 3.09, 4.10 and 4.14
hereof).
(iii) The Registrar shall not be required to register the transfer
of or exchange any Note selected for redemption in whole or in part,
except the unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive
Notes shall be the valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits under this Indenture, as
the Global Notes or Definitive Notes surrendered upon such registration
of transfer or exchange.
(v) The Company shall not be required (A) to issue, to register the
transfer of or to exchange any Notes during a period beginning at the
opening of business 15 days before the day of any selection of Notes
for redemption under Section 3.02 hereof and ending at the close of
business on the day of selection, (B) to register the transfer of or to
exchange any Note so selected for redemption in whole or in part,
except the unredeemed portion of any Note being redeemed in part or (c)
to register the transfer of or to exchange a Note between a record date
and the next succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a transfer of
any Note, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any Note is registered as the absolute owner of
such Note for the purpose of receiving
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payment of principal of and interest and Liquidated Damages, if any, on
such Notes and for all other purposes, and none of the Trustee, any
Agent or the Company shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and Definitive
Notes in accordance with the provisions of Section 2.02 hereof.
(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06
to effect a registration of transfer or exchange may be submitted by
facsimile.
SECTION 2.07 REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee or the Company and
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee, upon receipt of an
Authentication Order, shall authenticate a replacement Note if the Trustee's
requirements are met. If required by the Trustee or the Company, an indemnity
bond must be supplied by the Holder that is sufficient in the judgment of the
Trustee and the Company to protect the Company, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a Note is
replaced. The Company may charge for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
SECTION 2.08 OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note; provided, however, Notes held by the Company or a
Subsidiary of the Company shall not be deemed to be outstanding for purposes of
Section 3.07 hereof.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
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SECTION 2.09 TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, including, without
limitation, for purposes of Section 9.02, Notes owned by the Company, or by any
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with the Company, shall be considered as though not
outstanding, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Notes that the Trustee knows are so owned shall be so disregarded.
SECTION 2.10 TEMPORARY NOTES.
Until certificates representing Notes are ready for delivery, the
Company may prepare, and the Trustee, upon receipt of an Authentication Order,
shall authenticate, temporary Notes. Temporary Notes shall be substantially in
the form of certificated Notes but may have variations that the Company
considers appropriate for temporary Notes and as shall be reasonably acceptable
to the Trustee. Without unreasonable delay, the Company shall prepare and the
Trustee shall, as soon as practicable upon receipt of an Authentication Order,
authenticate Definitive Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
SECTION 2.11 CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
cancelled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all cancelled Notes shall be delivered
to the Company. The Company may not issue new Notes to replace Notes that it has
paid or that have been delivered to the Trustee for cancellation.
SECTION 2.12 DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, it shall
pay the defaulted interest in any lawful manner plus, to the extent lawful,
interest payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the Notes
and in Section 4.01 hereof. The Company shall notify the Trustee in writing of
the amount of defaulted interest proposed to be paid on each Note and the date
of the proposed payment. The Company shall fix or cause to be fixed each such
special record date and payment date, provided that no such special record date
shall be less than 10 days prior to the related payment date for such defaulted
interest. At least 15 days before the special record date, the Company (or, upon
the written request of the Company, the Trustee in the name and at the expense
of the Company) shall mail or cause to be mailed to Holders a notice that states
the special record date, the related payment date and the amount of such
interest to be paid.
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Article 3
REDEMPTION AND PREPAYMENT
SECTION 3.01 NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Notes to be redeemed and (iv) the redemption price.
SECTION 3.02 SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed at any time, selection
of Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
SECTION 3.03 NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.09 hereof, notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed and that, after the redemption date upon
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion shall be issued upon cancellation of the original Note;
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(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and after
the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 30 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
SECTION 3.05 DEPOSIT OF REDEMPTION PRICE.
One Business Day prior to the redemption date, the Company shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of and accrued interest on all Notes to be redeemed on that
date. The Trustee or the Paying Agent shall promptly return to the Company any
money deposited with the Trustee or the Paying Agent by the Company in excess of
the amounts necessary to pay the redemption price of, and accrued interest on,
all Notes to be redeemed.
If the Company complies with the provisions of the preceding paragraph,
on and after the redemption date, interest shall cease to accrue on the Notes or
the portions of Notes called for redemption. If a Note is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and unpaid interest shall be paid to the Person in whose name
such Note was registered at the close of business on such record date. If any
Note called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Company to comply with the preceding paragraph,
interest shall be paid on the unpaid principal, from the redemption date until
such principal is paid, and to the extent lawful on any interest and Liquidated
Damages, if any, not paid on such unpaid principal, in each case at the rate
provided in the Notes and in Section 4.01 hereof.
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SECTION 3.06 NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon receipt of the Company's written request, the Trustee shall as
soon as practicable authenticate for the Holder at the expense of the Company a
new Note equal in principal amount to the unredeemed portion of the Note
surrendered.
SECTION 3.07 OPTIONAL REDEMPTION.
Except as provided below, the Notes will not be redeemable at the
Company's option prior to May 1, 2004. Thereafter, the Notes will be subject to
redemption at any time at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice, in cash at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on May 1
of the years indicated below:
Year Percentage
---- ----------
2004............................................... 105.938%
2005............................................... 103.958%
2006............................................... 101.979%
2007 and thereafter................................ 100.000%
Notwithstanding the foregoing, on or prior to May 1, 2002, the Company
may redeem up to 35% of the aggregate principal amount of Notes from time to
time originally issued under this Indenture in cash at a redemption price of
111.875% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption date, with the net cash
proceeds of one or more Public Equity Offerings; provided that at least 65% of
the aggregate principal amount of Notes from time to time originally issued
under this Indenture remains outstanding immediately after the occurrence of any
such redemption; and provided further that such redemption shall occur within 90
days of the date of the closing of any such Public Equity Offering.
Any redemption pursuant to this Section 3.07 shall be made pursuant to
the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08 MANDATORY REDEMPTION.
Except as provided in Sections 4.10 and 4.14, the Company is not
required to make mandatory redemption of, or sinking fund payments with respect
to, the Notes.
SECTION 3.09 OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the Company shall
be required to commence an Asset Sale Offer, it shall follow the procedures
specified below.
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The Asset Sale Offer shall remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Offer Period"). No later than five
Business Days after the termination of the Offer Period (the "Purchase Date"),
the Company shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than
the Offer Amount has been tendered, all Notes tendered in response to the Asset
Sale Offer. Payment for any Notes so purchased shall be made in the same manner
as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall
remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue
to accrete or accrue interest;
(d) that, unless the Company defaults in making such payment, any Note
accepted for payment pursuant to the Asset Sale Offer shall cease to accrete or
accrue interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to an Asset
Sale Offer may only elect to have all of such Note purchased and may not elect
to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, or
transfer by book-entry transfer, to the Company, an exchange agent or
depositary, if appointed by the Company, or a Paying Agent at the address
specified in the notice at least three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if the
Company, the exchange agent or depositary or the Paying Agent, as the case may
be, receives, not later than the expiration of the Offer Period, a telegram,
telex, facsimile transmission or letter setting forth the name of the Holder,
the principal amount of the Note the Holder delivered for purchase and a
statement that such Holder is withdrawing his election to have such Note
purchased;
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(h) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Company shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Company in accordance
with the terms of this Section 3.09. The Company, the Depositary or the Paying
Agent, as the case may be, shall promptly (but in any case not later than five
days after the Purchase Date) mail or deliver to each tendering Holder an amount
equal to the purchase price of the Notes tendered by such Holder and accepted by
the Company for purchase, and the Company shall promptly issue a new Note, and
the Trustee, upon written request from the Company shall authenticate and mail
or deliver such new Note to such Holder, in a principal amount equal to any
unpurchased portion of the Note surrendered. Any Note not so accepted shall be
promptly mailed or delivered by the Company to the Holder thereof. The Company
shall publicly announce the results of the Asset Sale Offer on the Purchase
Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
Article 4
COVENANTS
SECTION 4.01 PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company or a Subsidiary thereof,
(i) holds as of 10:00 a.m. Eastern Time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due and (ii) is not prohibited
from paying such money to the Holders pursuant to the terms of this Indenture or
the Notes. The Company shall pay all Liquidated Damages, if any, in the same
manner on the dates and in the amounts set forth in the Registration Rights
Agreement.
The Company shall pay interest (including, without limitation,
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
principal and premium, if any, from time to time on demand at the rate equal to
1% per annum in excess of the rate then in effect on the Notes to the extent
lawful and shall pay interest (including, without limitation, post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest and
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Liquidated Damages (without regard to any applicable grace period) from time to
time on demand at the same rate to the extent lawful.
SECTION 4.02 MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Company shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee
as one such office or agency of the Company in accordance with Section 2.03
hereof.
SECTION 4.03 REPORTS.
Whether or not required by the rules and regulations of the Commission,
so long as any Notes are outstanding, the Company will furnish to the Holders of
Notes (a) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such Forms, including, without limitation, a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants, and (b) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports, in each case, within the time
periods specified in the Commission's rules and regulations. In addition,
following the consummation of the exchange offer contemplated by the
Registration Rights Agreement, whether or not required by the rules and
regulations of the Commission, the Company will file a copy of all such
information and reports referred to in clauses (a) and (b) above with the
Commission for public availability within the time periods specified in the
Commission's rules and regulations (unless the Commission will not accept such a
filing) and make such information available to securities analysts and
prospective investors upon request. In addition, each of the Company and the
Guarantor has agreed that, for so long as any Notes remain outstanding, it will
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act during any period in which the Company or
the Guarantor, respectively, is not subject to Section 13 or 15(d) of the
Exchange Act.
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SECTION 4.04 COMPLIANCE CERTIFICATE.
(a) The Company and the Guarantor (to the extent the Guarantor is so
required under the TIA) shall deliver to the Trustee, within 90 days after the
end of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal year
have been made under the supervision of the signing Officers with a view to
determining whether the Company have kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action the Company is
taking or propose to take with respect thereto) and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest or Liquidated Damages, if
any, on the Notes is prohibited or if such event has occurred, a description of
the event and what action the Company is taking or proposes to take with respect
thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (which shall
be a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
SECTION 4.05 TAXES.
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies
except such as are contested in good faith and by appropriate proceedings or
where the failure to effect such payment is not adverse in any material respect
to the Holders of the Notes.
SECTION 4.06 STAY, EXTENSION AND USURY LAWS.
Each of the Company and the Guarantor covenants that it shall not at
any time insist upon, plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay, extension or usury law wherever enacted, now
or at any time hereafter in force, that may affect the covenants or the
performance of this Indenture; and each of the Company and the Guarantor hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to
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the Trustee, but shall suffer and permit the execution of every such power as
though no such law has been enacted.
SECTION 4.07 RESTRICTED PAYMENTS.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or make
any other payment or distribution on account of the Company's or any of its
Restricted Subsidiaries' Equity Interests (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company or
dividends or distributions payable to the Company or any Wholly Owned Restricted
Subsidiary of the Company); (b) purchase, redeem or otherwise acquire or retire
for value any Equity Interests of the Company, any of its Restricted
Subsidiaries or any other Affiliate of the Company (other than any such Equity
Interests owned by the Company or any Restricted Subsidiary of the Company); (c)
make any principal payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value, any Indebtedness of the Company that
is subordinated in right of payment to the Notes, except in accordance with the
mandatory redemption or repayment provisions set forth in the original
documentation governing such Indebtedness (but not pursuant to any mandatory
offer to repurchase upon the occurrence of any event); or (d) make any
Restricted Investment (all such payments and other actions set forth in clauses
(a) through (d) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(i) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(ii) the Company would, immediately after giving pro forma effect
thereto as if such Restricted Payment had been made at the beginning of
the applicable four-quarter period, have been permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.09
hereof; and
(iii) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Original Issuance Date (excluding Restricted
Payments permitted by clauses (a) (to the extent that the declaration
of any dividend referred to therein reduces amounts available for
Restricted Payments pursuant to this clause (iii)), (b) through (g),
(i), (j), (m), (n) and (p) of the next succeeding paragraph), is less
than the sum, without duplication, of (A) 50% of the Consolidated Net
Income of the Company for the period (taken as one accounting period)
commencing July 1, 1999 to the end of the Company's most recently ended
fiscal quarter for which internal financial statements are available at
the time of such Restricted Payment (or, if such Consolidated Net
Income for such period is a deficit, less 100% of such deficit), plus
(B) 100% of the Qualified Proceeds received by the Company on or after
the Original Issuance Date from contributions to the Company's capital
or from the issue or sale on or after the Original Issuance Date of
Equity Interests of the Company or of Disqualified Stock or convertible
debt securities of the Company to the extent that they have been
converted into such Equity Interests (other than Equity Interests,
Disqualified Stock or convertible debt securities sold to a Subsidiary
of the Company and other than Disqualified Stock or convertible debt
securities that have been
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converted into Disqualified Stock), plus (C) the amount equal to the
net reduction in Investments in Persons after the Original Issuance
Date who are not Restricted Subsidiaries (other than Permitted
Investments) resulting from (x) Qualified Proceeds received as a
dividend, repayment of a loan or advance or other transfer of assets
(valued at the fair market value thereof) to the Company or any
Restricted Subsidiary from such Persons, (y) Qualified Proceeds
received upon the sale or liquidation of such Investment and (z) the
redesignation of Unrestricted Subsidiaries (excluding any increase in
the amount available for Restricted Payments pursuant to clause (h) or
(l) below arising from the redesignation of such Unrestricted
Subsidiary) whose assets are used or useful in, or which is engaged in,
one or more Permitted Business as Restricted Subsidiaries (valued
(proportionate to the Company's equity interest in such Subsidiary) at
the fair market value of the net assets of such Subsidiary at the time
of such redesignation).
The foregoing provisions will not prohibit:
(a) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of this Indenture;
(b) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Subsidiary of the Company) of, other Equity Interests of
the Company (other than any Disqualified Stock), provided that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from clause
(iii)(B) of the preceding paragraph;
(c) the defeasance, redemption, repurchase, retirement or other
acquisition of subordinated Indebtedness of the Company with the net cash
proceeds from an incurrence of, or in exchange for, Permitted Refinancing
Indebtedness;
(d) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company or held by any member of the
Company's (or any of its Restricted Subsidiaries') management pursuant to any
management equity subscription agreement or stock option agreement, provided
that the aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed (x) $2.0 million in any calendar year
(with unused amounts in any calendar year being carried over to succeeding
calendar years subject to a maximum (without giving effect to the following
clause (y)) of $4.0 million in any calendar year), plus (y) the aggregate net
cash proceeds received by the Company during such calendar year from any
reissuance of Equity Interests by the Company to members of management of the
Company and its Restricted Subsidiaries (provided that the amount of any such
net cash proceeds that are used to permit an acquisition or retirement for value
pursuant to this clause (d) shall be excluded from clause (iii)(B) of the
preceding paragraph) and (ii) no Default or Event of Default shall have occurred
and be continuing immediately after such transaction;
(e) payments and transactions in connection with the Acquisition
(including, without limitation, any purchase price adjustment or any other
payments made pursuant to the Acquisition
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Agreement or the Financial Advisory Agreements or the Termination Agreements),
the Acquisition Financing, the Offering, the New Credit Facility (including,
without limitation, commitment, syndication and arrangement fees payable
thereunder) and the application of the proceeds thereof, and the payment of fees
and expenses with respect thereto, provided, however, that the Qualified
Proceeds of any offering of Equity Securities that results in an "IPO" incentive
payment pursuant to the Acquisition Agreement shall be excluded from clause
(iii)(B) of the preceding paragraph to the extent of the amount of such
incentive payment;
(f) the payment of dividends by a Restricted Subsidiary on any class of
common stock of such Restricted Subsidiary if (i) such dividend is paid pro rata
to all holders of such class of common stock and (ii) at least 51% of such class
of common stock is held by the Company or one or more of its Restricted
Subsidiaries;
(g) the repurchase of any class of common stock of a Restricted
Subsidiary if (i) such repurchase is made pro rata with respect to such class of
common stock and (ii) at least 51% of such class of common stock is held by the
Company or one or more of its Restricted Subsidiaries;
(h) any other Restricted Investment made in a Permitted Business which,
together with all other Restricted Investments made pursuant to this clause (h)
since the Original Issuance Date, does not exceed $15.0 million (in each case,
after giving effect to all subsequent reductions in the amount of any Restricted
Investment made pursuant to this clause (h), either as a result of (i) the
repayment or disposition thereof for cash or (ii) the redesignation of an
Unrestricted Subsidiary as a Restricted Subsidiary (valued proportionate to the
Company's equity interest in such Subsidiary at the time of such redesignation)
at the fair market value of the net assets of such Subsidiary at the time of
such redesignation), in the case of clause (i) and (ii), not to exceed the
amount of such Restricted Investment previously made pursuant to this clause
(h); provided that no Default or Event of Default shall have occurred and be
continuing immediately after making such Restricted Investment;
(i) the declaration and payment of dividends to holders of any class or
series of Disqualified Stock of the Company or any Restricted Subsidiary issued
on or after the Original Issuance Date in accordance with Section 4.09 hereof;
provided that no Default or Event of Default shall have occurred and be
continuing immediately after making such Restricted Payment;
(j) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the exercise price
of such options;
(k) the payment of dividends or distributions on the Company's common
stock, following the first public offering of the Company's common stock after
the Original Issuance Date, of up to 6.0% per annum of the net proceeds received
by the Company from such public offering of its common stock or the net proceeds
received by the Company from such public offering of its common stock as common
equity other than with respect to public offerings with respect to the Company's
common stock registered on Form S-8; provided that no Default or Event of
Default shall have occurred and be continuing immediately after any such payment
of dividends or distributions;
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(l) any other Restricted Payment which, together with all other
Restricted Payments made pursuant to this clause (l) since the Original Issuance
Date, does not exceed $1.0 million (in each case, after giving effect to all
subsequent reductions in the amount of any Restricted Investment made pursuant
to this clause (l) either as a result of (i) the repayment or disposition
thereof for cash or (ii) the redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary (valued proportionate to the Company's equity interest in
such Subsidiary at the time of such redesignation) at the fair market value of
the net assets of such Subsidiary at the time of such redesignation), in the
case of clause (i) and (ii), not to exceed the amount of such Restricted
Investment previously made pursuant to this clause (l); provided that no Default
or Event of Default shall have occurred and be continuing immediately after
making such Restricted Payment;
(m) the pledge by the Company of the Capital Stock of an Unrestricted
Subsidiary of the Company to secure Non-Recourse Debt of such Unrestricted
Subsidiary;
(n) the purchase, redemption or other acquisition or retirement for
value of any Equity Interests of any Restricted Subsidiary issued after the
Original Issuance Date, provided that the aggregate price paid for any such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed the
sum of (x) the amount of cash and Cash Equivalents received by such Restricted
Subsidiary from the issue or sale thereof and (y) any accrued dividends thereon
the payment of which would be permitted pursuant to clause (i) above;
(o) any Investment in an Unrestricted Subsidiary that is funded by
Qualified Proceeds received by the Company on or after the Original Issuance
Date from contributions to the Company's capital or from the issue and sale on
or after the Original Issuance Date of Equity Interests of the Company or of
Disqualified Stock or convertible debt securities to the extent they have been
converted into such Equity Interests (other than Equity Interests, Disqualified
Stock or convertible debt securities sold to a Subsidiary of the Company and
other than Disqualified Stock or convertible debt securities that have been
converted into Disqualified Stock) in an amount (measured at the time such
Investment is made and without giving effect to subsequent changes in value)
that does not exceed the amount of such Qualified Proceeds (excluding any such
Qualified Proceeds to the extent utilized to permit a prior "Restricted Payment"
pursuant to clause (iii)(B) of the preceding paragraph); and
(p) distributions or payments of Receivables Fees.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such designation, all outstanding Investments by the Company
and its Restricted Subsidiaries (except to the extent repaid in cash) in the
Subsidiary so designated will be deemed to be Restricted Payments at the time of
such designation and will reduce the amount available for Restricted Payments
under the first paragraph of this Section 4.07. All such outstanding Investments
will be deemed to constitute Restricted Investments in an amount equal to the
greater of (i) the net book value of such Investments at the time of such
designation and (ii) the fair market value of such Investments at the time of
such designation. Such designation will only be permitted if such Restricted
Investment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
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The amount of (i) all Restricted Payments (other than cash) shall be
the fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment
and (ii) Qualified Proceeds (other than cash) shall be the fair market value on
the date of receipt thereof by the Company of such Qualified Proceeds. The fair
market value of any non-cash Restricted Payment shall be determined by the board
of directors of the Company whose resolution with respect thereto shall be
delivered to the Trustee. Not later than the date of making any Restricted
Payment, the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by this Section 4.07 were computed.
SECTION 4.08 DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (a)(i) pay dividends or make any other distributions to
the Company or any of its Restricted Subsidiaries (A) on its Capital Stock or
(B) with respect to any other interest or participation in, or measured by, its
profits, or (ii) pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries, (b) make loans or advances to the Company or any of its
Restricted Subsidiaries or (c) transfer any of its properties or assets to the
Company or any of its Restricted Subsidiaries. However, the foregoing
restrictions will not apply to encumbrances or restrictions existing under or by
reason of (a) Existing Indebtedness as in effect on the Original Issuance Date,
(b) the New Credit Facility as in effect as of the Original Issuance Date, and
any amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof, (c) this Indenture and the
Notes, (d) applicable law and any applicable rule, regulation or order, (e) any
agreement or instrument of a Person acquired by the Company or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent created in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of this Indenture to be incurred, (f) customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices, (g) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions of
the nature described in clause (e) above on the property so acquired, (h)
contracts for the sale of assets, including, without limitation, customary
restrictions with respect to a Subsidiary pursuant to an agreement that has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Subsidiary, (i) Permitted Refinancing
Indebtedness, provided that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are, in the good faith
judgment of the Company's board of directors, not materially less favorable,
taken as a whole, to the Holders of the Notes than those contained in the
agreements governing the Indebtedness being refinanced, (j) secured Indebtedness
otherwise permitted to be incurred pursuant to Sections 4.09 and 4.12 hereof
that limit the right of the debtor to dispose of the assets securing such
Indebtedness, (k) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business, (l)
other Indebtedness or Disqualified Stock of Restricted Subsidiaries permitted to
be incurred subsequent to the Original Issuance Date pursuant to the provisions
of Section 4.09
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hereof, (m) customary provisions in joint venture agreements and other similar
agreements entered into in the ordinary course of business, and (n) restrictions
created in connection with any Receivables Facility that, in the good faith
determination of the board of directors of the Company, are necessary or
advisable to effect such Receivables Facility.
SECTION 4.09 INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including, without
limitation, Acquired Indebtedness), the Company will not, and will not permit
any of its Restricted Subsidiaries to, issue any shares of Disqualified Stock
and the Company will not permit any of its Restricted Subsidiaries to issue any
shares of preferred stock; provided that the Company or any Restricted
Subsidiary may incur Indebtedness (including, without limitation, Acquired
Indebtedness) or issue shares of Disqualified Stock if the Fixed Charge Coverage
Ratio for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock is
issued would have been at least 2.0 to 1 if such four-quarter period ended on or
prior to December 31, 2001 and 2.25 to 1.0 thereafter, determined on a
consolidated pro forma basis (including, without limitation, a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred, or the Disqualified Stock had been issued, as the case may
be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this Section 4.09 will not
apply to the incurrence of any of the following items of Indebtedness
(collectively, "Permitted Indebtedness"):
(i) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness under the New Credit Facility and the Foreign Credit
Facilities; provided that the aggregate principal amount of all
Indebtedness (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of the Company and such
Restricted Subsidiaries thereunder) then classified as having been
incurred in reliance upon this clause (i) that remains outstanding
under the New Credit Facility and the Foreign Credit Facilities after
giving effect to such incurrence does not exceed an amount equal to
$70.0 million;
(ii) the incurrence by the Company and its Restricted Subsidiaries
of Existing Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by
the Initial Notes and this Indenture and by the Guarantor of
Indebtedness represented by the Note Guarantees;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Expenditure
Indebtedness, Capital Lease Obligations or other obligations, in each
case, the proceeds of which are used solely for the purpose of
financing all or any part of the purchase price or cost of construction
or improvement of property, plant or equipment (including, without
limitation, acquisitions of Capital Stock
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of a Person that becomes a Restricted Subsidiary to the extent of the
fair market value of the property, plant or equipment so acquired) used
in the business of the Company or such Restricted Subsidiary, in an
aggregate principal amount (or accreted value, as applicable) not to
exceed $10.0 million outstanding after giving effect to such
incurrence;
(v) Indebtedness arising from agreements of the Company or any
Restricted Subsidiary providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or
assumed in connection with the disposition of any business, assets or a
Subsidiary, other than guarantees of Indebtedness incurred by any
Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition;
provided that (A) such Indebtedness is not reflected on the balance
sheet of the Company or any Restricted Subsidiary (contingent
obligations referred to in a footnote or footnotes to financial
statements and not otherwise reflected on the balance sheet will not be
deemed to be reflected on such balance sheet for purposes of this
clause (A)) and (B) the maximum assumable liability in respect of such
Indebtedness shall at no time exceed the gross proceeds including,
without limitation, non-cash proceeds (the fair market value of such
non-cash proceeds being measured at the time received and without
giving effect to any subsequent changes in value) actually received by
the Company and/or such Restricted Subsidiary in connection with such
disposition;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or
the net proceeds of which are used to refund, refinance or replace
Indebtedness (other than intercompany Indebtedness) that was permitted
by this Indenture to be incurred;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company
and/or any of its Restricted Subsidiaries; provided that (i) if the
Company is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full in cash of all
Obligations with respect to the Notes and (ii)(A) any subsequent
issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or a
Restricted Subsidiary thereof and (B) any sale or other transfer of any
such Indebtedness to a Person that is not either the Company or a
Restricted Subsidiary thereof shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be, that was not permitted by
this clause (vii);
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose
of fixing or hedging (A) interest rate risk with respect to any
floating rate Indebtedness that is permitted by the terms of this
Indenture to be outstanding and (B) exchange rate risk with respect to
agreements or Indebtedness of such Person payable denominated in a
currency other than U.S. dollars, provided that such agreements do not
increase the Indebtedness of the obligor outstanding at any time other
than as a result of fluctuations in foreign currency exchange rates or
interest rates or by reason of fees, indemnities and compensation
payable thereunder;
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(ix) the guarantee by the Company or any of its Restricted
Subsidiaries of Indebtedness of the Company or a Restricted Subsidiary
of the Company that was permitted to be incurred by another provision
of this Section 4.09;
(x) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness in connection with an acquisition in an
aggregate principal amount (or accreted value, as applicable) not to
exceed $10.0 million outstanding after giving effect to such
incurrence;
(xi) obligations in respect of performance and surety bonds and
completion guarantees (including, without limitation, related letters
of credit) provided by the Company or any Restricted Subsidiary in the
ordinary course of business; and
(xii) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal
amount (or accreted value, as applicable) outstanding after giving
effect to such incurrence, including, without limitation, all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (xii), not to exceed
$10.0 million.
For purposes of determining compliance with this Section 4.09, in the
event that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (i) through (xii)
above or is entitled to be incurred pursuant to the first paragraph of this
Section 4.09, the Company shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this Section 4.09 and such item of
Indebtedness will be treated as having been incurred pursuant to only one of
such clauses or pursuant to the first paragraph of this Section 4.09. In
addition, the Company may, at any time, change the classification of an item of
Indebtedness (or any portion thereof) to any other clause or to the first
paragraph hereof provided that the Company would be permitted to incur such item
of Indebtedness (or such portion thereof) pursuant to such other clause or the
first paragraph hereof of this Section 4.09, as the case may be, at such time of
reclassification. Accrual of interest, accretion or amortization of original
issue discount will not be deemed to be an incurrence of Indebtedness for
purposes of this Section 4.09.
All Indebtedness under the New Credit Facility and the Foreign Credit
Facilities outstanding on the Original Issuance Date shall be deemed to have
been incurred on such date in reliance on the first paragraph of this Section
4.09.
SECTION 4.10 ASSET SALES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (a) the Company or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the board of directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (b) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of (i) cash
or Cash Equivalents or (ii) property or assets that are used or useful in a
Permitted Business, or the Capital Stock of any Person engaged in a Permitted
Business if, as a
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result of the acquisition by the Company or any Restricted Subsidiary thereof,
such Person becomes a Restricted Subsidiary. For purposes of this Section 4.10
each of the following shall be deemed cash: (x) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet), of the
Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Company or such Restricted
Subsidiary from further liability, (y) any securities, notes or other
obligations received by the Company or any such Restricted Subsidiary from such
transferee that are contemporaneously (subject to ordinary settlement periods)
converted by the Company or such Restricted Subsidiary into cash or Cash
Equivalents (to the extent of the cash or Cash Equivalents received), and (z)
any Designated Noncash Consideration received by the Company or any of its
Restricted Subsidiaries in such Asset Sale having an aggregate fair market
value, taken together with all other Designated Noncash Consideration received
pursuant to this clause (z) that is at that time outstanding, not to exceed 15%
of Total Assets at the time of the receipt of such Designated Noncash
Consideration (with the fair market value of each item of Designated Noncash
Consideration being measured at the time received and without giving effect to
subsequent changes in value); provided that the 75% limitation referred to in
clause (b) above will not apply to any Asset Sale in which the cash or Cash
Equivalents portion of the consideration received therefrom, determined in
accordance with subclauses (x), (y) and (z) above, is equal to or greater than
what the after-tax proceeds would have been had such Asset Sale complied with
the aforementioned 75% limitation.
Within 365 days after the receipt of any Net Proceeds from an Asset
Sale, the Company or such Restricted Subsidiary, as the case may be, shall apply
such Net Proceeds, at its option (or to the extent the Company is required to
apply such Net Proceeds pursuant to the terms of the New Credit Facility), to
(a) repay or purchase Senior Indebtedness or Pari Passu Indebtedness of the
Company or any Indebtedness of any Restricted Subsidiary, as the case may be,
provided that, if the Company shall so repay or purchase Pari Passu Indebtedness
of the Company, it will equally and ratably reduce Indebtedness under the Notes
if the Notes are then redeemable, or, if the Notes may not then be redeemed, the
Company shall make an offer (in accordance with the procedures set forth below
for an Asset Sale Offer) to all Holders of Notes to purchase at a purchase price
equal to 100% of the principal amount of the Notes, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of purchase, the
Notes that would otherwise be redeemed, or (b) an investment in property, the
making of a capital expenditure or the acquisition of assets that are used or
useful in a Permitted Business, or Capital Stock of any Person primarily engaged
in a Permitted Business if (i) as a result of the acquisition by the Company or
any Restricted Subsidiary thereof, such Person becomes a Restricted Subsidiary
or (ii) the Investment in such Capital Stock is permitted by clause (f) of the
definition of Permitted Investments. Pending the final application of any such
Net Proceeds, the Company may temporarily reduce Indebtedness or otherwise
invest such Net Proceeds in any manner that is not prohibited by this Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as provided
in the first sentence of this paragraph will be deemed to constitute "Excess
Proceeds". When the aggregate amount of Excess Proceeds exceeds $10.0 million,
the Company will be required to make an offer to all Holders of Notes (an "Asset
Sale Offer") to purchase the maximum principal amount of Notes that may be
purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date of purchase, in accordance
with the procedures set forth in this Indenture. To the extent that any Excess
Proceeds remain
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after consummation of an Asset Sale Offer, the Company may use
such Excess Proceeds for any purpose not otherwise prohibited by this Indenture.
If the aggregate principal amount of Notes surrendered by Holders thereof in
connection with an Asset Sale Offer exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased as set forth under Sections 3.02
and 3.03 hereof. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
this Indenture relating to such Asset Sale Offer, the Company shall comply with
the applicable securities laws and regulations and shall not be deemed to have
breached its obligations described in this Indenture by virtue thereof.
SECTION 4.11 TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate of the Company (each of the foregoing, an "Affiliate
Transaction"), unless (a) such Affiliate Transaction is on terms that are no
less favorable to the Company or such Restricted Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (b) the Company delivers to
the Trustee, with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $7.5
million, either (i) a resolution of the board of directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (a) above and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the board of directors or (ii) an
opinion as to the fairness to the Holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or investment banking
firm of national standing.
Notwithstanding the foregoing, the following items shall not be deemed
to be Affiliate Transactions: (a) customary directors' fees, indemnification or
similar arrangements or any employment agreement or other compensation plan or
arrangement entered into by the Company or any of its Restricted Subsidiaries in
the ordinary course of business (including, without limitation, ordinary course
loans to employees not to exceed (i) $5.0 million outstanding in the aggregate
at any time and (ii) $2.0 million to any one employee) and consistent with the
past practice of the Company or such Restricted Subsidiary; (b) transactions
between or among the Company and/or its Restricted Subsidiaries; (c) payments of
customary fees by the Company or any of its Restricted Subsidiaries to DLJMB and
its Affiliates made for any financial advisory, financing, underwriting or
placement services or in respect of other investment banking activities,
including, without limitation, in connection with acquisitions or divestitures
which are approved by a majority of the board of directors in good faith; (d)
any agreement as in effect on the Original Issuance Date or any amendment
thereto (so long as such amendment is not disadvantageous to the Holders of the
Notes in any material respect) or any transaction contemplated thereby; (e)
payments and transactions in connection with the Acquisition
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(including, without limitation, any purchase price adjustment or any other
payments made pursuant to the Acquisition Agreement or the Financial Advisory
Agreements or the Termination Agreements) and the Acquisition Financing, the New
Credit Facility (including, without limitation, commitment, syndication and
arrangement fees payable thereunder) and the Offering (including, without
limitation, underwriting discounts and commissions in connection therewith) and
the application of the proceeds thereof, and the payment of the fees and
expenses with respect thereto; (f) Restricted Payments that are permitted by
Section 4.07 hereof and any Permitted Investments; (g) payments and transactions
in connection with any GTP Investment or GTP Loan, and the payment of fees and
expenses with respect thereto; (h) any issuance of capital stock of the Company
to GTP other than Disqualified Stock; and (i) sales of accounts receivable, or
participations therein, in connection with any Receivables Facility.
SECTION 4.12 LIENS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien, other than a Permitted Lien, that secures obligations under any
Pari Passu Indebtedness or subordinated Indebtedness of the Company on any asset
or property now owned or hereafter acquired by the Company or any of its
Restricted Subsidiaries, or any income or profits therefrom or assign or convey
any right to receive income therefrom, unless the Notes are equally and ratably
secured with the obligations so secured until such time as such obligations are
no longer secured by a Lien; provided that, in any case involving a Lien
securing subordinated Indebtedness of the Company, such Lien is subordinated to
the Lien securing the Notes to the same extent that such subordinated
Indebtedness is subordinated to the Notes.
SECTION 4.13 CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) the
corporate, partnership or other existence of itself and each of its
Subsidiaries, in accordance with the respective organizational documents (as the
same may be amended from time to time) of the Company or any such Subsidiary and
(ii) the rights (charter and statutory), licenses and franchises of the Company
and its Subsidiaries; provided, however, that the Company shall not be required
to preserve any such right, license or franchise, or the corporate, partnership
or other existence of itself and any of its Subsidiaries, if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its Subsidiaries, taken as a
whole, and that the loss thereof is not adverse in any material respect to the
Holders of the Notes.
SECTION 4.14 OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each Holder of Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to
the offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of
repurchase (the "Change of Control Payment"). Within 60 days following any
Change of Control, the Company will (or will cause the Trustee to) mail a notice
to each Holder describing the transaction or transactions that constitute the
Change of Control and offering to repurchase Notes
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on the date specified in such notice, which date shall be no earlier than 30
days and no later than 60 days from the date such notice is mailed (the "Change
of Control Payment Date"), pursuant to the procedures required by this Indenture
and described in such notice. The Company shall comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Notes as a result of a Change of Control. To the
extent that the provisions of any securities laws or regulations conflict with
the provisions of this Indenture relating to such Change of Control Offer, the
Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations described in this Indenture
by virtue thereof.
On the Change of Control Payment Date, the Company shall, to the extent
lawful, (a) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (b) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (c) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book-entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. Prior to complying with the
provisions of this Section 4.14, but in any event within 90 days following a
Change of Control, the Company shall either repay all outstanding Senior
Indebtedness or obtain the requisite consents, if any, under all agreements
governing outstanding Senior Indebtedness to permit the repurchase of Notes
required by this Section 4.14. The Company shall publicly announce the results
of the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
Notwithstanding anything to the contrary in this Section 4.14, the
Company will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in this
Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
SECTION 4.15 NO SENIOR SUBORDINATED INDEBTEDNESS.
The Company shall not Incur any Indebtedness that is subordinate or
junior in right of payment to any Senior Indebtedness and senior in right of
payment to the Notes and the Guarantor shall not Incur any Indebtedness that is
subordinate or junior in right of payment to any Senior Subordinated
Indebtedness and senior in any respect in right of payment to the Note
Guarantees.
SECTION 4.16 LIMITATION ON SALE AND LEASEBACK TRANSACTIONS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company or any Restricted Subsidiary
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may enter into a sale and leaseback transaction if (a) the Company or such
Restricted Subsidiary, as the case may be, could have (i) incurred Indebtedness
in an amount equal to the Attributable Indebtedness relating to such sale and
leaseback transaction pursuant to the Fixed Charge Coverage Ratio test set forth
in the first paragraph of Section 4.09 hereof and (ii) incurred a Lien to secure
such Indebtedness pursuant to Section 4.12 hereof, (b) the gross cash proceeds
of such sale and leaseback transaction are at least equal to the fair market
value (as determined in good faith by the board of directors and set forth in an
Officers' Certificate delivered to the Trustee) of the property that is the
subject of such sale and leaseback transaction and (c) the transfer of assets in
such sale and leaseback transaction is permitted by, and the Company applies the
proceeds of such transaction in compliance with, Section 4.10 hereof.
SECTION 4.17 PAYMENTS FOR CONSENT.
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of this
Indenture or the Notes unless such consideration is offered to be paid or is
paid to all Holders of the Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
Article 5
SUCCESSORS
SECTION 5.01 MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company may not consolidate or merge with or into (whether or not
the Company is the surviving corporation), or sell, assign, transfer, convey or
otherwise dispose of all or substantially all of its properties or assets in one
or more related transactions to, another Person, unless (a) the Company is the
surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United States, any state
thereof or the District of Columbia, (b) the Person formed by or surviving any
such consolidation or merger (if other than the Company) or the Person to which
such sale, assignment, transfer, conveyance or other disposition shall have been
made assumes all the obligations of the Company under the Registration Rights
Agreement, the Notes and this Indenture pursuant to a supplemental indenture in
a form reasonably satisfactory to the Trustee, (c) immediately after such
transaction no Default or Event of Default exists and (d) the Company or the
Person formed by or surviving any such consolidation or merger (if other than
the Company), or to which such sale, assignment, transfer, conveyance or other
disposition shall have been made (i) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of Section 4.09 hereof or (ii) would
(together with its Restricted Subsidiaries) have a higher Fixed Charge Coverage
Ratio immediately after such transaction (after giving pro forma effect thereto
as if such transaction had occurred at the beginning of the applicable
four-quarter period) than the Fixed Charge Coverage Ratio of the Company and its
Restricted Subsidiaries immediately prior to such transaction. The foregoing
clause (d) will not prohibit the Acquisition or (i) a merger between the Company
and a
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Wholly Owned Restricted Subsidiary or (ii) a merger between the Company and an
Affiliate incorporated solely for the purpose of reincorporating the Company in
another State of the United States so long as, in each case, the amount of
Indebtedness of the Company and its Restricted Subsidiaries is not increased
thereby. The Company shall not lease all or substantially all of its assets to
any Person.
SECTION 5.02 SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation of the Company with or any merger of the Company
into another Person, or any sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of the assets of the Company in
accordance with Section 5.01 hereof, the successor corporation formed by such
consolidation or into or with which the Company is merged or to which such sale,
assignment, transfer, lease, conveyance or other disposition is made shall
succeed to, and be substituted for (so that from and after the date of such
consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and may exercise every right
and power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of and interest or Liquidated Damages, if any, on the Notes except in
the case of a sale of all of the Company's assets that meets the requirements of
Section 5.01 hereof.
Article 6
DEFAULTS AND REMEDIES
SECTION 6.01 EVENTS OF DEFAULT.
Each of the following constitutes an Event of Default:
(a) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by
Article 10 hereof);
(b) default in payment when due of the principal of or premium, if any,
on the Notes (whether or not prohibited by Article 10 hereof);
(c) failure by the Company or any of its Restricted Subsidiaries for 30
days after receipt of notice from the Trustee or Holders of at least 25% in
principal amount of the Notes then outstanding to comply with Sections 4.07,
4.09, 4.10 or 4.14 or Article 5 hereof;
(d) failure by the Company for 60 days after notice from the Trustee or
the Holders of at least 25% in principal amount of the Notes then outstanding to
comply with any of its other agreements in this Indenture or the Notes;
(e) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries), whether such Indebtedness or guarantee now exists, or
is created after the Original Issuance Date, which default (i) is caused by a
failure to pay
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Indebtedness at its stated final maturity (after giving effect to any applicable
grace period provided in such Indebtedness) (a "Payment Default") or (ii)
results in the acceleration of such Indebtedness prior to its stated final
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $10.0 million or more;
(f) failure by the Company or any of its Restricted Subsidiaries to pay
final judgments aggregating in excess of $10.0 million (net of any amounts with
respect to which a reputable and creditworthy insurance company has acknowledged
liability in writing), which judgments are not paid, discharged or stayed for a
period of 60 days;
(g) except as permitted by this Indenture, any Note Guarantee shall be
held in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or the Guarantor, or any Person
acting on behalf of the Guarantor, shall deny or disaffirm its obligations under
the Note Guarantees;
(h) the Company or any of its Restricted Subsidiaries that is a
Significant Subsidiary:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in an
involuntary case,
(iii) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
(iv) makes a general assignment for the benefit of its creditors, or
(v) generally is not paying its debts as they become due; or
(i) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against the Company or any of its Restricted
Subsidiaries that is a Significant Subsidiary in an involuntary case;
(ii) appoints a Custodian of the Company or any of its Restricted
Subsidiaries that is a Significant Subsidiary or for all or
substantially all of the property of the Company or any of its
Restricted Subsidiaries that is a Significant Subsidiary; or
(iii) orders the liquidation of the Company or any of its Restricted
Subsidiaries that is a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60 consecutive days.
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SECTION 6.02 ACCELERATION.
If any Event of Default (other than an Event of Default specified in
clause (h) or (i) of Section 6.01 hereof with respect to the Company or any
Restricted Subsidiary that is a Significant Subsidiary) occurs and is
continuing, the Holders of at least 25% in principal amount of the then
outstanding Notes may direct the Trustee to declare all the Notes to be due and
payable immediately; provided, that so long as any Indebtedness permitted to be
incurred pursuant to the New Credit Facility shall be outstanding, such
acceleration shall not be effective until the earlier of (i) an acceleration
under any such Indebtedness under the New Credit Facility or (ii) five Business
Days after receipt by the Company and the administrative agent under the New
Credit Facility of written notice of such acceleration. Upon any such
declaration, the Notes shall become due and payable immediately. Notwithstanding
the foregoing, if an Event of Default specified in clause (h) or (i) of Section
6.01 hereof occurs with respect to the Company or any of its Restricted
Subsidiaries that is a Significant Subsidiary, (i) all outstanding Notes shall,
ipso facto, be due and payable immediately without further action or notice and
(ii) the Company shall promptly notify the Trustee of such Event of Default
(although the Notes shall become due and payable immediately upon the occurrence
of such Event of Default as specified in clause (i) regardless of whether the
Company so notifies the Trustee). The Holders of a majority in aggregate
principal amount of the then outstanding Notes by written notice to the Trustee
may on behalf of all of the Holders rescind an acceleration and its consequences
if the rescission would not conflict with any judgment or decree and if all
existing Events of Default (except nonpayment of principal, interest or premium
or Liquidated Damages, if any, that has become due solely because of the
acceleration) have been cured or waived, provided that, in the event of a
declaration of acceleration of the Notes because an Event of Default has
occurred and is continuing as a result of the acceleration of any Indebtedness
described in clause (e) of Section 6.01 hereof, the declaration of acceleration
of the Notes shall be automatically annulled if the holders of any Indebtedness
described in clause (e) of Section 6.01 hereof have rescinded the declaration of
acceleration in respect of such Indebtedness within 30 days of the date of such
declaration and if (i) the annulment of the acceleration of the Notes would not
conflict with any judgment or decree of a court of competent jurisdiction and
(ii) all existing Events of Default, except non-payment of principal or interest
on the Notes that became due solely because of the acceleration of the Notes,
have been cured or waived.
SECTION 6.03 OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any, and
interest and Liquidated Damages, if any, on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
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SECTION 6.04 WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes by notice to the Trustee may on behalf of the Holders
of all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of the principal of, premium and Liquidated Damages, if any, or interest
on, the Notes (including, without limitation, in connection with an offer to
purchase) (provided, however, that the Holders of a majority in aggregate
principal amount of the then outstanding Notes may rescind an acceleration and
its consequences, including, without limitation, any related payment default
that resulted from such acceleration). Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereon.
SECTION 6.05 CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding Notes
may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may result in the
incurrence of liability by the Trustee.
SECTION 6.06 LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights
of another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
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SECTION 6.07 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium and Liquidated
Damages, if any, and interest on the Note, on or after the respective due dates
expressed in the Note (including, without limitation, in connection with an
offer to purchase), or to bring suit for the enforcement of any such payment on
or after such respective dates, shall not be impaired or affected without the
consent of such Holder.
SECTION 6.08 COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Company for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on the Notes and interest and Liquidated Damages, if any, on overdue
principal and, to the extent lawful, interest and such further amount as shall
be sufficient to cover the costs and expenses of collection, including, without
limitation, the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
SECTION 6.09 TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee (including, without limitation, any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and the Holders of the Notes allowed in any judicial proceedings
relative to the Company (or any other obligor upon the Notes), its creditors or
its property and shall be entitled and empowered to collect, receive and
distribute any money or other property payable or deliverable on any such claims
and any custodian in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee, and in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.07 hereof. To the extent that the
payment of any such compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof out of the estate in any such proceeding, shall be denied
for any reason, payment of the same shall be secured by a Lien on, and shall be
paid out of, any and all distributions, dividends, money, securities and other
properties that the Holders may be entitled to receive in such proceeding
whether in liquidation or under any plan of reorganization or arrangement or
otherwise. Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder, or to authorize the Trustee to vote in respect of the
claim of any Holder in any such proceeding.
SECTION 6.10 PRIORITIES.
If the Trustee collects any money pursuant to this Article 6, it shall
pay out the money in the following order:
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First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including, without limitation, payment of all compensation,
expense and liabilities incurred, and all advances made, by the Trustee and the
costs and expenses of collection;
Second: to holders of Senior Indebtedness to the extent required by
Article 10 or Section 11.02 hereof;
Third: to Holders of Notes for amounts due and unpaid on the Notes for
principal, premium and Liquidated Damages, if any, and interest, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium and Liquidated Damages, if any and
interest, respectively; and
Fourth: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
SECTION 6.11 UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including, without
limitation, reasonable attorneys' fees, against any party litigant in the suit,
having due regard to the merits and good faith of the claims or defenses made by
the party litigant. This Section does not apply to a suit by the Trustee, a suit
by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of
more than 10% in principal amount of the then outstanding Notes.
Article 7
TRUSTEE
SECTION 7.01 DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
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of this Indenture. However, the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the
requirements of this Indenture but need not verify the contents
thereof.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Sections 6.02, 6.04 or 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), (c), (e) and (f) of this Section 7.01 and Section 7.02 hereof.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.02 RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely and shall be fully protected in
acting or refraining from acting upon any document believed by it to be genuine
and to have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the advice of such counsel or any Opinion of Counsel shall be full
and complete authorization and protection from liability in respect of any
action taken, suffered or omitted by it hereunder in good faith and in reliance
thereon.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
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(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
(g) Except with respect to Section 4.01 hereof, the Trustee shall have
no duty to inquire as to the performance of the Company's covenants in Article 4
hereof. In addition, the Trustee shall not be deemed to have knowledge of any
Default or Event of Default except (i) any Event of Default occurring pursuant
to Sections 6.01(a), 6.01(b) and 4.01 or (ii) any Default or Event of Default of
which the Trustee shall have received written notification or obtained actual
knowledge.
(h) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the Trustee
may, in its discretion, make such further inquiry or investigation into such
facts or matters as it may see fit and if the Trustee shall determine to make
such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company personally or by agent or attorney.
(i) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
(j) Delivery of reports, information and documents to the Trustee under
Section 4.03 is for informational purposes only and the Trustee's receipt of the
foregoing shall not constitute constructive notice of any information contained
therein or determinable from information contained therein, including the
Company's compliance with any of their covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officers' Certificates).
SECTION 7.03 INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee may become the owner or pledgee of Notes and may otherwise
deal with the Company or any Affiliate of the Company with the same rights it
would have if it were not Trustee. However, in the event that the Trustee
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the Commission for permission to continue as trustee or resign.
Any Agent may do the same with like rights and duties. The Trustee is also
subject to Sections 7.10 and 7.11 hereof.
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SECTION 7.04 TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation as
to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
SECTION 7.05 NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the
Default or Event of Default within 90 days after such Default or Event Default
becomes known to the Trustee. Except in the case of a Default or Event of
Default in payment of principal of, premium, if any, or interest or Liquidated
Damages, if any, on any Note, the Trustee may withhold the notice if and so long
as a committee of its Responsible Officers in good faith determines that
withholding the notice is in the interests of the Holders of the Notes.
SECTION 7.06 REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each March 1 beginning with the March 1 following
the Original Issuance Date, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA Section 313(a) (but if no event described
in TIA Section 313(a) has occurred within the twelve months preceding the
reporting date, no report need be transmitted). The Trustee also shall comply
with TIA Section (b)(2). The Trustee shall also transmit by mail all reports as
required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the Commission and each
stock exchange on which the Notes are listed in accordance with TIA Section
313(d). The Company shall promptly notify the Trustee when the Notes are listed
on any stock exchange.
SECTION 7.07 COMPENSATION AND INDEMNITY.
The Company shall pay the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
The Company and the Guarantor shall jointly and severally indemnify the
Trustee and its agents, employees, officers, directors and shareholders for, and
hold the same harmless against, any and all losses, liabilities or expenses
(including, without limitation, reasonable attorneys' fees and expenses)
incurred by it arising out of or in connection with the acceptance or
administration
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of its duties under this Indenture, including, without limitation, the costs and
expenses of enforcing this Indenture against the Company (including, without
limitation, this Section 7.07) and defending itself against any claim (whether
asserted by the Company or any Holder or any other person) or liability in
connection with the exercise or performance of any of its powers or duties
hereunder, except to the extent any such loss, liability or expense may be
attributable to its negligence or bad faith. The Trustee shall notify the
Company promptly of any claim for which it may seek indemnity. Failure by the
Trustee to so notify the Company shall not relieve the Company of its
obligations hereunder. The Company shall defend the claim with counsel
reasonably satisfactory to the Trustee, and the Trustee shall cooperate in the
defense at the Company's expense. The Trustee may have separate counsel and the
Company shall pay the reasonable fees and expenses of such counsel. The Company
need not pay for any settlement made without its consent, which consent shall
not be unreasonably withheld.
The obligations of the Company and the Guarantor under this Section
7.07 shall survive the resignation or removal of the Trustee and/or the
satisfaction and discharge or termination of this Indenture.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the resignation or removal
of the Trustee and/or the satisfaction and discharge or termination of this
Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and the
compensation for the services (including, without limitation, the fees and
expenses of its agents and counsel) are intended to constitute expenses of
administration under any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section 313(b)(2)
to the extent applicable.
SECTION 7.08 REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
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If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10 hereof, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
SECTION 7.09 SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $100 million
as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
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Article 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article 8.
SECTION 8.02 LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company and the Guarantor shall, subject to
the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed
to have been discharged from its obligations with respect to all outstanding
Notes and Note Guarantees on the date the conditions set forth below are
satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance
means that the Company shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Notes, which shall thereafter be
deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the
other Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Notes and this Indenture (and the
Trustee, on demand of and at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following provisions which
shall survive until otherwise terminated or discharged hereunder:
(a) the rights of Holders of outstanding Notes to receive payments in
respect of the principal of, premium, if any, and interest and Liquidated
Damages, if any, on such Notes when such payments are due from the trust
referred to below,
(b) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payment and money
for security payments held in trust,
(c) the rights, powers, trusts, duties and immunities of the Trustee,
and the Company's obligations in connection therewith and
(d) the Legal Defeasance provisions of this Indenture.
SECTION 8.03 COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from its
obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10,
4.11, 4.12, 4.14, 4.15, 4.16 and 4.17 hereof with respect to the outstanding
Notes on and after the date the conditions set forth in Section 8.04 are
satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter
be deemed not "outstanding" for the purposes of any direction, waiver, consent
or declaration or act of Holders (and the consequences of any thereof)
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in connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Notes shall not
be deemed outstanding for accounting purposes). For this purpose, Covenant
Defeasance means that, with respect to the outstanding Notes, the Company may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein or
in any other document and such omission to comply shall not constitute a Default
or an Event of Default under Section 6.01 hereof, but, except as specified
above, the remainder of this Indenture and such Notes shall be unaffected
thereby. In addition, upon the Company's exercise under Section 8.01 hereof of
the option applicable to this Section 8.03 hereof, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, Sections 6.01(d) through
6.01(f) hereof shall not constitute Events of Default.
SECTION 8.04 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance,
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest and
Liquidated Damages, if any, on the outstanding Notes on the stated maturity or
on the applicable redemption date, as the case may be, and the Company must
specify whether the Notes are being defeased to maturity or to a particular
redemption date;
(b) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an Opinion of Counsel in the United States reasonably acceptable
to the Trustee confirming that (i) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (ii) since the
Original Issuance Date, there has been a change in the applicable federal income
tax law, in either case to the effect that, and based thereon such Opinion of
Counsel shall confirm that, subject to customary assumptions and exclusions, the
Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred;
(c) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States reasonably
acceptable to the Trustee confirming that, subject to customary assumptions and
exclusions, the Holders of the outstanding Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
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(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or, insofar
as Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 123rd day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument (other than this Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound;
(f) the Company must have delivered to the Trustee an Opinion of
Counsel to the effect that, subject to customary assumptions and exclusions,
after the 123rd day following the deposit, the trust funds will not be subject
to the effect of Section 547 of the United States Bankruptcy Code or any
analogous New York State law provision or any other applicable federal or New
York bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally;
(g) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders of Notes over the other creditors of the Company with the
intent of defeating, hindering, delaying or defrauding creditors of the Company
or others; and
(h) the Company must deliver to the Trustee an Officers' Certificate
and an Opinion of Counsel (which opinion may be subject to customary assumptions
and exclusions), each stating that all conditions precedent provided for
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with.
SECTION 8.05 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including, without limitation, the proceeds thereof) deposited with
the Trustee (or other qualifying trustee, collectively for purposes of this
Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the
outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including, without limitation, the
Company acting as Paying Agent) as the Trustee may determine, to the Holders of
such Notes of all sums due and to become due thereon in respect of principal,
premium, if any, and interest and Liquidated Damages, if any, but such money
need not be segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or non-callable Government
Securities deposited pursuant to Section 8.04 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
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Anything in this Article 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the request of the
Company any money or non-callable Government Securities held by it as provided
in Section 8.04 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section
8.04(a) hereof), are in excess of the amount thereof that would then be required
to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
SECTION 8.06 REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest or Liquidated Damages, if any, on any Note and remaining unclaimed
for two years after such principal, and premium, if any, or interest or
Liquidated Damages, if any, has become due and payable shall be paid to the
Company on its request or (if then held by the Company) shall be discharged from
such trust; and the Holder of such Note shall thereafter, as a secured creditor,
look only to the Company for payment thereof, and all liability of the Trustee
or such Paying Agent with respect to such trust money, and all liability of the
Company as trustees thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in the New York
Times and The Wall Street Journal (national edition), notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
SECTION 8.07 REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; provided, however, that, if the Company makes any
payment of principal of, premium, if any, or interest or Liquidated Damages, if
any, on any Note following the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of such Notes to receive such
payment from the money held by the Trustee or Paying Agent.
Article 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01 WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 of this Indenture, the Company, the
Guarantor and the Trustee may amend or supplement this Indenture, the Note
Guarantees or the Notes without the consent of any Holder of a Note:
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(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to in place of
certificated Notes or to alter the provisions of Article 2 hereof (including,
without limitation, the related definitions) in a manner that does not
materially adversely affect any Holder;
(c) to provide for the assumption of the Company's or the Guarantor's
obligations to the Holders of the Notes by a successor to the Company or the
Guarantor pursuant to Article 5 hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights hereunder of any Holder of the Note;
(e) to comply with requirements of the Commission in order to effect or
maintain the qualification of this Indenture under the TIA; or
(f) to provide for additional guarantees of the Notes.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon receipt by the Trustee of the documents described in Section
7.02 hereof, the Trustee shall join with the Company in the execution of any
amended or supplemental Indenture authorized or permitted by the terms of this
Indenture and to make any further appropriate agreements and stipulations that
may be therein contained, but the Trustee shall not be obligated to enter into
such amended or supplemental Indenture that affects its own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.02 WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, the Company, the
Guarantor and the Trustee may amend or supplement this Indenture (including,
without limitation, Section 3.09, 4.10 and 4.14 hereof), the Note Guarantees and
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes (including, without
limitation, Additional Notes, if any) then outstanding voting as a single class
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, the Notes), and, subject to Sections
6.04 and 6.07 hereof, any existing Default or Event of Default (other than a
Default or Event of Default in the payment of the principal of, premium, if any,
or interest or Liquidated Damages, if any, on the Notes, except a payment
default resulting from an acceleration that has been rescinded) or compliance
with any provision of this Indenture, the Note Guarantees or the Notes may be
waived with the consent of the Holders of a majority in principal amount of the
then outstanding Notes (including, without limitation, Additional Notes, if any)
voting as a single class (including, without limitation, consents obtained in
connection with the purchase of, or tender offer or exchange offer for, the
Notes). Notwithstanding the foregoing, any (i) amendment to or waiver of Section
4.14 hereof, and (ii) amendment to Article 10 herein will require the consent of
the Holders of at least two-thirds in aggregate principal amount of the Notes
then outstanding if such amendment would
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materially adversely affect the rights of Holders of Notes. Sections 2.08 and
2.09 hereof shall determine which Notes are considered to be "outstanding" for
purposes of this Section 9.02.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by
the Trustee of the documents described in Section 7.02 hereof, the Trustee shall
join with the Company in the execution of such amended or supplemental Indenture
unless such amended or supplemental Indenture directly affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise, in which case
the Trustee may in its discretion, but shall not be obligated to, enter into
such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the
Holders of a majority, or at least two-thirds, as the case may be, in aggregate
principal amount of the Notes (including, without limitation, Additional Notes,
if any) then outstanding voting as a single class may waive compliance in a
particular instance by the Company with any provision of this Indenture or the
Notes. However, without the consent of each Holder affected, an amendment or
waiver under this Section 9.02 may not (with respect to any Notes held by a
non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver,
(b) reduce the principal of or change the fixed maturity of any Note or
alter the provisions with respect to the redemption of the Notes (other than
Sections 4.10 and 4.14 hereof),
(c) reduce the rate of or extend the time for payment of interest on
any Note,
(d) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest or Liquidated Damages, if any, on the Notes
(except a rescission of acceleration of the Notes by the Holders of at least a
majority in aggregate principal amount of the Notes and a waiver of the payment
default that resulted from such acceleration),
(e) make any Note payable in money other than that stated in the Notes,
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults,
(g) waive a redemption payment with respect to any Note (other than
Sections 4.10 and 4.14 hereof),
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(h) release the Guarantor from its obligations under the Note
Guarantees or the Indenture, except in accordance with the terms of the
Indenture, or
(i) make any change in the foregoing amendment and waiver provisions.
SECTION 9.03 COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes shall be
set forth in an amended or supplemental Indenture that complies with the TIA as
then in effect.
SECTION 9.04 REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.05 NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06 TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Company
may not sign an amendment or supplemental Indenture until its Board of Directors
approves it. In executing any amended or supplemental indenture, the Trustee
shall be entitled to receive and (subject to Section 7.01 hereof) shall be fully
protected in relying upon, in addition to the documents required by Section
11.04 hereof, an Officer's Certificate and an Opinion of Counsel stating that
the execution of such amended or supplemental indenture is authorized or
permitted by this Indenture.
Article 10
SUBORDINATION
SECTION 10.01 AGREEMENT TO SUBORDINATE.
The Company agrees, and each Holder by accepting a Note agrees, that
the payment of Subordinated Note Obligations are subordinated in right of
payment, to the extent and in the
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manner set forth in this Article 10, to the prior payment in full in cash or
cash equivalents of all Senior Indebtedness, whether outstanding on the Original
Issuance Date or thereafter incurred and that the subordination is for the
benefit of the holders of Senior Indebtedness. The provisions of this Article 10
shall constitute a continuing offer to all Persons that, in reliance upon such
provisions, become holders of, or continue to hold Senior Indebtedness, and they
or each of them may enforce the rights of holders of Senior Indebtedness
hereunder, subject to the terms and provisions hereof.
SECTION 10.02 CERTAIN DEFINITIONS.
"cash equivalents" means Cash Equivalents of the type described in
clause (i) of the definition thereof maturing not more than 90 days after the
date of the acquisition thereof.
"Designated Senior Indebtedness" means (a) any Indebtedness outstanding
under the New Credit Facility and (b) any other Senior Indebtedness permitted
under this Indenture the principal amount of which is $25.0 million or more and
that has been designated by the Company in writing to the Trustee as "Designated
Senior Indebtedness."
"Permitted Junior Securities" means Equity Interests in the Company or
debt securities of the Company that are subordinated to all Senior Indebtedness
(and any debt securities issued in exchange for Senior Indebtedness) to
substantially the same extent as, or to a greater extent than, the Notes are
subordinated to Senior Indebtedness.
"Representative" means the indenture trustee or other trustee, agent or
representative for any Senior Indebtedness.
"Senior Indebtedness" means, with respect to any Person, (a) all
Obligations of such Person outstanding under the New Credit Facility and all
Hedging Obligations payable to a lender or an Affiliate thereof or to a Person
that was a lender or an Affiliate thereof at the time the contract was entered
into under the New Credit Facility or any of its Affiliates, including, without
limitation, interest accruing subsequent to the filing of, or which would have
accrued but for the filing of, a petition for bankruptcy, whether or not such
interest is an allowable claim in such bankruptcy proceeding, (b) any other
Indebtedness, unless the instrument under which such Indebtedness is incurred
expressly provides that it is subordinated in right of payment to any other
Senior Indebtedness of such Person and (c) all Obligations with respect to the
foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
Indebtedness will not include (i) any liability for federal, state, local or
other taxes, (ii) any Indebtedness of such Person (other than pursuant to the
New Credit Facility) to any of its Subsidiaries or other Affiliates, (iii) any
trade payables or (iv) any Indebtedness that is incurred in violation of this
Indenture.
"Subordinated Note Obligations" means all Obligations with respect to
the Notes, including, without limitation, principal, premium, if any, interest
and Liquidated Damages, if any, payable pursuant to the terms of the Notes
(including, without limitation, upon the acceleration or redemption thereof),
together with and including, without limitation, any amounts received or
receivable upon the exercise of rights of rescission or other rights of action
(including, without limitation, claims for damages) or otherwise.
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A "distribution" or "payment" may consist of a distribution, payment or
other transfer of assets by or on behalf of the Company (including, without
limitation, a redemption, repurchase or other acquisition of the Notes) from any
source, of any kind or character, whether in cash, securities or other property,
by set-off or otherwise.
SECTION 10.03 LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, (a) the holders of Senior Indebtedness will be entitled
to receive payment in full in cash or cash equivalents of all Obligations due in
respect of such Senior Indebtedness (including, without limitation, interest
after the commencement of any such proceeding at the rate specified in the
applicable Senior Indebtedness) before the Holders of Notes will be entitled to
receive any payment with respect to the Subordinated Note Obligations (except
that Holders of Notes may receive and retain Permitted Junior Securities and
payments and other distributions made from the trust described in Section 8.04
hereof), and (b) until all Obligations with respect to Senior Indebtedness are
paid in full in cash or cash equivalents, any distribution to which the Holders
of Notes would be entitled but for this Article 10 shall be made to the holders
of Senior Indebtedness (except that Holders of Notes may receive and retain
Permitted Junior Securities and payments and other distributions made from the
trust described Section 8.04 hereof) as their interests appear.
SECTION 10.04 DEFAULT ON DESIGNATED SENIOR INDEBTEDNESS.
The Company may not make any payment or distribution to the Trustee or
any Holder upon or in respect of the Subordinated Note Obligations (except in
Permitted Junior Securities or from the trust described in Section 8.04 hereof)
until all principal and other obligations with respect to Senior Indebtedness
have been paid in full in cash or cash equivalents, if
(a) a default in the payment of the principal (including, without
limitation, reimbursement obligations in respect of letters of credit) of,
premium, if any, or interest on or commitment, letter of credit or
administrative fees relating to, Designated Senior Indebtedness occurs and is
continuing beyond any applicable period of grace in the agreement, indenture or
other document governing such Designated Senior Indebtedness, or
(b) any other default occurs and is continuing with respect to
Designated Senior Indebtedness that permits holders of the Designated Senior
Indebtedness as to which such default relates to accelerate its maturity and the
Trustee receives a notice of such default (a "Payment Blockage Notice") from the
Company or the holders of any Designated Senior Indebtedness (or their
Representative).
Payments on the Notes may and shall be resumed (a) in the case of a
payment default, upon the date on which such default is cured or waived and (b)
in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
Designated Senior Indebtedness has been accelerated. No new period of payment
blockage may be commenced unless and until 360 days have elapsed since the
effectiveness of the immediately
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prior Payment Blockage Notice. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the Trustee
shall be, or be made, the basis for a subsequent Payment Blockage Notice unless
such default shall have been waived or cured for a period of not less than 90
days.
SECTION 10.05 ACCELERATION OF SECURITIES.
If payment of the Notes is accelerated because of an Event of Default,
the Company shall promptly notify holders of Senior Indebtedness of the
acceleration.
SECTION 10.06 WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Holder receives any payment of any
Subordinated Note Obligations at a time when the Trustee or such Holder, as
applicable, has actual knowledge that such payment is prohibited by Section
10.03 or 10.04 hereof, such payment shall be held by the Trustee or such Holder,
in trust for the benefit of, and shall be paid forthwith over and delivered,
upon written request, to, the holders of Senior Indebtedness as their interests
may appear or their Representative under the indenture or other agreement (if
any) pursuant to which Senior Indebtedness may have been issued, as their
respective interests may appear, for application to the payment of all
Obligations with respect to Senior Indebtedness remaining unpaid to the extent
necessary to pay such Obligations in full in accordance with their terms, after
giving effect to any concurrent payment or distribution to or for the holders of
Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness, and shall not be
liable to any such holders if the Trustee shall pay over or distribute to or on
behalf of Holders or the Company or any other Person money or assets to which
any holders of Senior Indebtedness shall be entitled by virtue of this Article
10, except if such payment is made as a result of the willful misconduct or
gross negligence of the Trustee.
SECTION 10.07 NOTICE BY COMPANY.
The Company shall promptly notify the Trustee and the Paying Agent of
any facts known to the Company that would cause a payment of any Obligations
with respect to the Notes to violate this Article 10, but failure to give such
notice shall not affect the subordination of the Notes to the Senior
Indebtedness as provided in this Article 10.
SECTION 10.08 SUBROGATION.
After all Senior Indebtedness is paid in full in cash or cash
equivalents and until the Notes are paid in full, Holders of Notes shall be
subrogated (equally and ratably with all other Indebtedness pari passu with the
Notes) to the rights of holders of Senior Indebtedness to receive distributions
applicable to Senior Indebtedness to the extent that distributions otherwise
payable to the Holders of Notes have been applied to the payment of Senior
Indebtedness. A distribution
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made under this Article 10 to holders of Senior Indebtedness that otherwise
would have been made to Holders of Notes is not, as between the Company and
Holders, a payment by the Company on the Notes.
SECTION 10.09 RELATIVE RIGHTS.
This Article 10 defines the relative rights of Holders of Notes and
holders of Senior Indebtedness. Nothing in this Indenture shall:
(1) impair, as between the Company and holders of notes, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest and Liquidated Damages, if any, on the Notes
in accordance with their terms;
(2) affect the relative rights of Holders of Notes and creditors
of the Company other than their rights in relation to holders of Senior
Indebtedness; or
(3) prevent the Trustee or any Holder of Notes from exercising
its available remedies upon a Default or Event of Default, subject to
the rights of holders and owners of Senior Indebtedness to receive
distributions and payments otherwise payable to Holders of Notes.
If the Company fails because of this Article 10 to pay principal of or
interest or Liquidated Damages, if any, on a Note on the due date, the failure
is still a Default or Event of Default.
SECTION 10.10 SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
No right of any holder of Senior Indebtedness to enforce the
subordination of the Indebtedness evidenced by the Notes shall be impaired by
any act or failure to act by the Company or any Holder or by the failure of the
Company or any Holder to comply with this Indenture.
SECTION 10.11 DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of
Senior Indebtedness, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of the Company referred to
in this Article 10, the Trustee and the Holders of Notes shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
of Notes for the purpose of ascertaining the Persons entitled to participate in
such distribution, the holders of the Senior Indebtedness and other Indebtedness
of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Article 10.
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SECTION 10.12 RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless the Trustee shall have received at its
Corporate Trust Office at least five Business Days prior to the date of such
payment written notice of facts that would cause the payment of any Obligations
with respect to the Notes to violate this Article 10. Only the Company or a
Representative may give the notice. Nothing in this Article 10 shall impair the
claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof.
The Trustee may hold Senior Indebtedness with the same rights it would
have if it were not Trustee. Any Agent may do the same with like rights.
SECTION 10.13 AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of Notes, by the Holder's acceptance thereof, authorizes
and directs the Trustee on such Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as such Holder's attorney-in-fact
for any and all such purposes. If the Trustee does not file a proper proof of
claim or proof of debt in the form required in any proceeding referred to in
Section 6.09 hereof at least 30 days before the expiration of the time to file
such claim, the Representative is hereby authorized to file an appropriate claim
for and on behalf of the Holders of the Notes.
SECTION 10.14 NO WAIVER OF SUBORDINATION PROVISIONS.
(a) No right of any present or future holder of any Senior Indebtedness
to enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act by any such holder.
(b) Without in any way limiting the generality of paragraph (a) of this
Section 10.14, the holders of Senior Indebtedness may, at any time and from time
to time, without the consent of or notice to the Trustee or any Holder, without
incurring responsibility to any Holder and without impairing or releasing the
subordination provided in this Article 10 or the obligations hereunder of the
Holders to the holders of Senior Indebtedness, do any one or more of the
following: (i) change the manner, place or terms of payment or extend the time
of payment of, or renew or alter, any Senior Indebtedness or any instrument
evidencing the same or any agreement under which Senior Indebtedness is
outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any
Person liable in any manner for the collection of Senior Indebtedness; and (iv)
exercise or refrain from exercising any rights against either Company or any
other Person.
SECTION 10.15 AMENDMENTS.
The provisions of this Article 10 shall not be amended or modified
without the written consent of the holders of all Senior Indebtedness.
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SECTION 10.16 TRUSTEE'S COMPENSATION NOT PREJUDICED.
Nothing in this Article 10 shall apply to amounts due to the Trustee
pursuant to other sections of this Indenture.
Article 11
NOTE GUARANTEES
SECTION 11.01 GUARANTEES.
Subject to this Article 11, the Guarantor hereby unconditionally
guarantees to each Holder of a Note authenticated and delivered by the Trustee
and to the Trustee and its successors and assigns, irrespective of the validity
and enforceability of this Indenture, the Notes or the obligations of the
Company hereunder and thereunder, that: (a) the principal of and interest and
Liquidated Damages, if any, on the Notes will be promptly paid in full when due,
whether at maturity, by acceleration, redemption or otherwise, and interest on
the overdue principal of and interest and Liquidated Damages, if any, on the
Notes, if any, if lawful, and all other obligations of the Company to the
Holders and the Trustee hereunder or thereunder will be promptly paid in full or
performed, all in accordance with the terms hereof and thereof; and (b) in case
of any extension of time of payment or renewal of any Notes or any of such other
obligations, that the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. Failing payment when due of any amount
so guaranteed or any performance so guaranteed for whatever reason, the
Guarantor shall be obligated to pay the same immediately. The Guarantor agrees
that this is a guarantee of payment and not a guarantee of collection.
The Guarantor hereby agrees that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of the
Notes or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Notes with respect to any provisions
hereof or thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a guarantor. The Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a court
in the event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenant that the Note Guarantees shall not be discharged except by complete
performance of the obligations contained in the Notes and this Indenture.
If any Holder or the Trustee is required by any court or otherwise to
return to the Company, the Guarantor or any custodian, trustee, liquidator or
other similar official acting in relation to either the Company or the
Guarantor, any amount paid by either to the Trustee or such Holder, the Note
Guarantees, to the extent theretofore discharged, shall be reinstated in full
force and effect.
The Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all obligations guaranteed hereby. The Guarantor
further agrees that, as between the Guarantor, on the one hand, and the Holders
and the Trustee, on the other hand, (x) the maturity of the obligations
guaranteed hereby may be accelerated as provided in Article 6 hereof for the
purposes
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of the Note Guarantees, notwithstanding any stay, injunction or other
prohibition prevention such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such obligations as proved in Article 6 hereof, such obligations (whether or not
due and payable) shall forthwith become due and payable by the Guarantor for the
purpose of the Note Guarantees.
SECTION 11.02 SUBORDINATION OF NOTE GUARANTEES.
The Guarantor agrees, and each Holder by accepting a Note agrees, that
the Obligations of the Guarantor under the Note Guarantees pursuant to this
Article 11 shall be junior and subordinated to the Senior Indebtedness of the
Guarantor on the same basis as the Notes are junior and subordinated to Senior
Indebtedness of the Company as provided in Article 10 hereof. For the purposes
of the foregoing sentence, the Trustee and the Holders shall have the right to
receive and/or retain payments by the Guarantor only at such times as they may
receive and/or retain payments in respect of the Notes pursuant to this
Indenture, including Section 4.15 hereof.
SECTION 11.03 LIMITATION ON GUARANTOR LIABILITY.
The Guarantor and, by its acceptance of the Notes, each Holder, hereby
confirms that it is the intention of all such parties that the Note Guarantees
not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy
Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act
or any similar federal or state laws to the extent applicable to the Note
Guarantees. To effectuate the foregoing intention, the Trustee, the Holders and
the Guarantor hereby irrevocably agree that the obligations of the Guarantor
under the Note Guarantees and this Article 11 shall be limited to the maximum
amounts as will, after giving effect to such maximum amount and all other
contingent and fixed liabilities of the Guarantor that are relevant under such
laws, result in the obligations of the Guarantor under the Note Guarantees not
constituting a fraudulent transfer or conveyance.
SECTION 11.04 EXECUTION AND DELIVERY OF NOTE GUARANTEES.
To evidence the Note Guarantees set forth in Section 11.01, the
Guarantor hereby agrees that this Indenture shall be executed on its behalf by
the president or one of its vice presidents.
If an officer whose signature is on this Indenture no longer holds that
office at the time the Trustee authenticates the Notes, the Note Guarantees
shall be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Note Guarantees set
forth in this Indenture on behalf of the Guarantor.
SECTION 11.05 GUARANTOR MAY CONSOLIDATE, ETC. ON CERTAIN TERMS.
The Guarantor shall not consolidate with or merge with or into (whether
or not the Guarantor is the surviving Person) another Person whether or not
affiliated with the Guarantor unless:
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(a) subject to Section 11.06 hereof, the Person formed by or surviving
any such consolidation or merger (if other than the Guarantor or the Company)
unconditionally assumes all of the obligations of the Guarantor, pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Indenture, the Registration Rights Agreement and the Note
Guarantees on the terms set forth herein or therein;
(b) immediately after giving effect to such transaction, no Default or
Event of Default exists; and
(c) (i) the Company would be permitted, immediately after giving effect
to such transaction, to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first paragraph of
Section 4.09 hereof or (ii) would (together with its Restricted Subsidiaries)
have a higher Fixed Charge Coverage Ratio immediately after such transaction
(after giving pro forma effect thereto as if such transaction had occurred at
the beginning of the applicable four-quarter period) than the Fixed Charge
Coverage Ratio of Condor and its Restricted Subsidiaries immediately prior to
such transaction.
The requirements of clause (c) above will not apply in the case of (x)
a consolidation with or merger into Condor or (y) a merger of any Person into
the Guarantor or the consolidation of any Person with the Guarantor if the
Guarantor is the surviving Person.
In case of any such consolidation, merger, sale or conveyance and upon
the assumption by the successor Person, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form and substance to the Trustee,
of the Note Guarantees and the due and punctual performance of all of the
covenants and conditions of this Indenture to be performed by the Guarantor,
such successor Person shall succeed to and be substituted for the Guarantor with
the same effect as if it had been named herein as the Guarantor. All of the Note
Guarantees so issued shall in all respects have the same legal rank and benefit
under this Indenture as the Note Guarantees theretofore and thereafter issued in
accordance with the terms of this Indenture as though all of the Note Guarantees
had been issued at the date of the execution hereof.
SECTION 11.06 RELEASES FOLLOWING SALE FOR ASSETS.
In the event of a sale or other disposition of all of the assets of the
Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the capital stock of the Guarantor, then the Guarantor (in
the event of a sale or other disposition, by way of merger, consolidation or
otherwise, of all of the capital stock of the Guarantor) or the corporation
acquiring the property (in the event of a sale or other disposition of all or
substantially all of the assets of the Guarantor) will be released and relieved
of any obligations under the Note Guarantees; provided that the Net Proceeds of
such sale or other disposition are applied in accordance with the applicable
provisions of this Indenture, including, without limitation, Section 4.10
hereof. Upon delivery by the Company to the Trustee of an Officers' Certificate
and an Opinion of Counsel to the effect that such sale or other disposition was
made by the Company in accordance with the applicable provisions of this
Indenture, including without limitation Section 4.10 hereof, the Trustee shall
execute any documents reasonably required in order to evidence the release of
the Guarantor from its obligations under the Note Guarantees.
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SECTION 11.07 TRUSTEE'S COMPENSATION NOT PREJUDICED.
Nothing in Section 11.02 shall apply to amounts due to the Trustee
pursuant to other sections of this Indenture.
Article 12
MISCELLANEOUS
SECTION 12.01 TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties shall control.
SECTION 12.02 NOTICES.
Any notice or communication by the Company, the Guarantor or the
Trustee to the others is duly given if in writing and delivered in Person or
mailed by first class mail (registered or certified, return receipt requested),
telex, telecopier or overnight air courier guaranteeing next day delivery, to
the others' address.
If to the Company or to the Guarantor:
Condor Systems, Inc.
2133 Samaritan Drive
San Jose, California 95124
Telecopier No.: (408) 371-5874
Attention: Chief Financial Officer
With a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopier No.: (212) 450-4800
Attention: Richard D. Truesdell, Jr., Esq.
If to the Trustee:
State Street Bank and Trust Company
Goodwin Square, 225 Asylum Street
23rd Floor
Hartford, Connecticut 06103
Telecopier: (860) 244-1897
Attention: Corporate Trust Administration
With a copy to:
Brown, Rudnick, Freed & Gesmer, P.C.
CityPlace I
85
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Hartford, Connecticut 06103-3402
Telecopier: (860) 509-6501
Attention: David E. Golden, Esq.
The Company, the Guarantor or the Trustee, by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when receipt acknowledged, if telecopied; and the next
Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 12.03 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA Section 312(c).
SECTION 12.04 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in Section 11.05
hereof) stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.
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SECTION 12.05 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA
Section 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 12.06 RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 12.07 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
SHAREHOLDERS; CONSENT TO SHAREHOLDER PAYMENT.
(a) No member, director, officer, employee, incorporator or stockholder
of the Company or the Guarantor, as such, shall have any liability for any
obligations of the Company or the Guarantor under the Notes or this Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder of Notes by accepting a Note waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Notes.
(b) Pursuant to and for purposes of Section 506(b) of the General
Corporation Law of the State of California, each Holder, by accepting a Note,
shall be deemed to have consented to the payment of the Merger Consideration (as
defined in the Acquisition Agreement) to the former shareholders of the Company
pursuant to the Acquisition Agreement.
SECTION 12.08 GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE AND THE NOTES WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
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SECTION 12.09 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 12.10 SUCCESSORS.
All agreements of the Company in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.
SECTION 12.11 SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 12.12 COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 12.13 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
88
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the date first written above.
CONDOR SYSTEMS, INC.
By: /s/ John L. Taft
----------------------------------------
Name: John L. Taft
-----------------------------------
Title: Vice President of Finance
---------------------------------
CEI SYSTEMS, INC.
By: /s/ John L. Taft
----------------------------------------
Name: John L. Taft
-----------------------------------
Title: Vice President of Finance
---------------------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ Dennis Fisher
----------------------------------------
Name: Dennis Fisher
-----------------------------------
Title: Assistant Vice President
---------------------------------
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EXHIBIT A-1
(Face of Global or Definitive Note)
================================================================================
CUSIP ____________
11 7/8% Senior Subordinated Notes due 2009
No. _____ $___________
CONDOR SYSTEMS, INC.
promises to pay to _______________, or registered assigns, the principal sum of
___________ Dollars on May 1, 2009.
Interest Payment Dates: May 1 and November 1
Record Dates: April 15 and October 15
[Insert the Global Note Legend, if applicable, pursuant to Section 2.06(h)(ii)
of the Indenture]
[Insert the Private Placement Legend, if applicable, pursuant to Section
2.06(h)(i) of the Indenture]
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Dated:
CONDOR SYSTEMS, INC.
By:
----------------------------------
Name:
----------------------------
Title:
---------------------------
This is one of the Notes referred to
in the within-mentioned Indenture:
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:
----------------------------------
Name:
----------------------------
Title:
---------------------------
================================================================================
A1-F-1
<PAGE>
(Back of Note)
11 7/8% [Series A] [Series B] Senior Subordinated Notes due 2009
Capitalized terms used herein shall have the meanings assigned to them in the
Indenture referred to below unless otherwise indicated.
1. Interest. Condor Systems, Inc., a California corporation (the
"Company"), promises to pay interest on the principal amount of this Note at 11
7/8% per annum from April 15, 1999 until maturity and shall pay the Liquidated
Damages payable pursuant to Section 5 of the Registration Rights Agreement
referred to below. The Company will pay interest and Liquidated Damages
semi-annually on May 1 and November 1, of each year, or if any such day is not a
Business Day, on the next succeeding Business Day (each, an "Interest Payment
Date"). Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; and provided further
that the first Interest Payment Date shall be November 1, 1999. The Company
shall pay interest (including, without limitation, post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at a rate that is 1% per annum in excess of the rate
then in effect to the extent lawful; it shall pay interest (including, without
limitation, post-petition interest in any proceeding under any Bankruptcy Law)
on overdue installments of interest and Liquidated Damages (without regard to
any applicable grace periods) from time to time on demand at the same rate to
the extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. Method Of Payment. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the April 15 or October
15 next preceding the Interest Payment Date, even if such Notes are cancelled
after such record date and on or before such Interest Payment Date, except as
provided in Section 2.12 of the Indenture with respect to defaulted interest.
The Notes will be payable as to principal, premium and Liquidated Damages, if
any, and interest at the office of the Paying Agent and Registrar. Holders of
Notes must surrender their Notes to the Paying Agent to collect principal
payments, and the Company may pay principal and interest and Liquidated Damages,
if any, by check and may mail checks to a Holder's registered address; provided
that all payments with respect to Global Notes will be paid by wire transfer of
immediately available funds to the account of the Depositary. Such payment shall
be in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
3. Paying Agent And Registrar. Initially, State Street Bank and Trust
Company, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. Indenture. The Company issued the Notes under an Indenture dated as
of April 15, 1999 ("Indenture"), among the Company, CEI Systems, Inc. and the
Trustee. The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code Section 77aaa-77bbbb). The Notes are subject to all such
terms, and Holders are referred to the Indenture and such Act for a statement of
such terms. To the extent any provision of this Note conflicts with the express
provisions of the Indenture, the provisions of the Indenture shall govern and be
controlling. The Notes are obligations of the Company limited in aggregate
principal amount to $100,000,000 plus the aggregate principal amount of any
Additional Notes issued pursuant to Section 2.02 of the Indenture and in
compliance with Section 4.09 thereof.
AR-R-1
<PAGE>
5. Optional Redemption.
(a) Except as provided in subparagraph (b) of this Paragraph 5, the
Notes will not be redeemable at the Company's option prior to May 1,
2004. Thereafter, the Notes will be subject to redemption at any time
at the option of the Company, in whole or in part, upon not less than
30 nor more than 60 days' notice, in cash at the redemption prices
(expressed as percentages of principal amount) set forth below, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to
the applicable redemption date, if redeemed during the twelve-month
period beginning on May 1 of the years indicated below:
Year Percentage
---- ----------
2004........................................... 105.938%
2005........................................... 103.958%
2006........................................... 101.979%
2007 and thereafter............................ 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, on or prior to May 1, 2002, the Company may redeem up to
35% of the aggregate principal amount of Notes from time to time
originally issued under the Indenture in cash at a redemption price of
111.875% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the redemption
date, with the net cash proceeds of one or more Public Equity
Offerings; provided that at least 65% of the aggregate principal amount
of Notes from time to time originally issued under the Indenture
remains outstanding immediately after the occurrence of any such
redemption; and provided further that such redemption shall occur
within 90 days of the date of the closing of any such Public Equity
Offering.
(c) Any redemption pursuant to this subparagraph 5 shall be made
pursuant to the provisions of Section 3.01 through 3.06 of the
Indenture.
6. Mandatory Redemption. Except as set forth in paragraph 7 below, the
Company shall not be required to make mandatory redemption payments with respect
to the Notes.
7. Repurchase At Option Of Holder.
(a) Upon the occurrence of a Change of Control, each Holder of Notes
will have the right to require the Company to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's
Notes pursuant to the offer described in Section 4.14 of the Indenture
(the "Change of Control Offer") at an offer price in cash equal to 101%
of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of
repurchase (the "Change of Control Payment"). Within 60 days following
any Change of Control, the Company will (or will cause the Trustee to)
mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase Notes
on the date specified in such notice, which date shall be no earlier
than 30 days and no later than 60 days from the date such notice is
mailed, pursuant to the procedures required by the Indenture and
described in such notice.
(b) Within 365 days after the receipt of any Net Proceeds from an
Asset Sale, the Company or Restricted Subsidiary, as the case may be,
shall apply such Net Proceeds, at its option (or the extent the Company
is required to apply such Net Proceeds pursuant to the terms of the New
Credit Facility), to (a) repay or repurchase Senior Indebtedness or
Pari Passu Indebtedness of the Company or any Indebtedness of any
Restricted Subsidiary, as the case may be, provided that, if the
Company shall so repay or purchase Pari Passu Indebtedness of the
A1-R-2
<PAGE>
Company, it will equally and ratably reduce Indebtedness under the
Notes if the Notes are then redeemable, or, if the Notes may not then
be redeemed, the Company shall make an offer (in accordance with the
procedures set forth below for an Asset Sale Offer) to all Holders of
Notes to purchase at a purchase price equal to 100% of the principal
amount of the Notes, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase, the Notes that would
otherwise be redeemed, or (b) an investment in property, the making of
a capital expenditure or the acquisition of assets that are used or
useful in a Permitted Business, or Capital Stock of any Person
primarily engaged in a Permitted Business if (i) as a result of the
acquisition by the Company or any Restricted Subsidiary thereof, such
Person becomes a Restricted Subsidiary or (ii) the Investment in such
Capital Stock is permitted by clause (f) of the definition of Permitted
Investments. Pending the final application of any such Net Proceeds,
the Company may temporarily reduce Indebtedness or otherwise invest
such Net Proceeds in any manner that is not prohibited by the
Indenture. Any Net Proceeds from Asset Sales that are not applied or
invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds". When the aggregate amount of
Excess Proceeds exceeds $10.0 million, the Company will be required to
make an offer to all Holders of Notes (an "Asset Sale Offer") to
purchase the maximum principal amount of Notes that may be purchased
out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of
purchase, in accordance with the procedures set forth in the Indenture.
To the extent that any Excess Proceeds remain after consummation of an
Asset Sale Offer, the Company may use any remaining Excess Proceeds for
any purpose not otherwise prohibited by the Indenture. If the aggregate
principal amount of Notes surrendered by Holders thereof in connection
with an Asset Sale Offer exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased as set forth in Sections
3.02 and 3.03 of the Indenture. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset at zero. Holders
of Notes that are the subject of an offer to purchase may elect to have
such Notes purchased by completing the form entitled "Option of Holder
to Elect Purchase" on the reverse of the Notes.
8. Notice Of Redemption. Notice of redemption will be mailed by first
class mail at least 30 days but not more than 60 days before the redemption date
to each Holder of Notes to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes or
portions thereof called for redemption.
9. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Note may be
treated as its owner for all purposes.
11. Amendment, Supplement And Waiver. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the then outstanding
Notes and any existing Default or compliance with any provision of the Indenture
or the Notes may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes. Without the consent of any
Holder of a Note, the
A1-R-3
<PAGE>
Indenture or the Notes may be amended or supplemented to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Notes in addition to or
in place of certificated Notes in a manner that does not materially adversely
affect any Holder, to provide for the assumption of the Company's or Guarantor's
obligations to Holders of the Notes by a successor to the Company or the
Guarantor in case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, to comply with the requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act, or to
provide for additional guarantees of the Notes.
12. Defaults And Remedies. Each of the following constitutes an "Event
of Default": (a) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by
Article 10 of the Indenture); (b) default in payment when due of the principal
of or premium, if any, on the Notes (whether or not prohibited by Article 10 of
the Indenture); (c) failure by the Company or any of its Restricted Subsidiaries
for 30 days after receipt of notice from the Trustee or Holders of at least 25%
in principal amount of the Notes then outstanding to comply with Sections 4.07,
4.09, 4.10 or 4.14 or Article 5 of the Indenture; (d) failure by the Company for
60 days after notice from the Trustee or the Holders of at least 25% in
principal amount of the Notes then outstanding to comply with any of its other
agreements in the Indenture or the Notes; (e) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any
of its Restricted Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Restricted Subsidiaries), whether such Indebtedness or
guarantee now exists, or is created after the Original Issuance Date, which
default (i) is caused by a failure to pay Indebtedness at its stated final
maturity (after giving effect to any applicable grace period provided in such
Indebtedness) (a "Payment Default") or (ii) results in the acceleration of such
Indebtedness prior to its stated final maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $10.0 million or more; (f) failure
by the Company or any of its Restricted Subsidiaries to pay final judgments
aggregating in excess of $10.0 million (net of any amounts with respect to which
a reputable and creditworthy insurance company has acknowledged liability in
writing), which judgments are not paid, discharged or stayed for a period of 60
days; (g) except as permitted by the Indenture, the Note Guarantees shall be
held in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force any effect or the Guarantor, or any Person
acting on behalf of the Guarantor, shall deny or disaffirm its obligations under
the Note Guarantees; and (h) certain events of bankruptcy or insolvency as
described in the Indenture.
If any Event of Default (other than certain events of bankruptcy or
insolvency) occurs and is continuing, the Holders of at least 25% in principal
amount of the then outstanding Notes may direct the Trustee to declare all the
Notes to be due and payable immediately. Upon any such declaration, the Notes
shall become due and payable immediately, provided, that so long as any
Indebtedness permitted to be incurred pursuant to the New Credit Facility shall
be outstanding, such acceleration shall not be effective until the earlier of
(i) an acceleration under any such Indebtedness under the New Credit Facility or
(ii) five Business Days after receipt by the Company and the administrative
agent under the New Credit Facility of written notice of such acceleration.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Notes shall be due
and payable immediately without further action or notice. The Holders of a
majority in aggregate principal amount of the then outstanding Notes by written
notice to the Trustee may on behalf of all of the Holders rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal, interest or premium or Liquidated Damages, if any, that has become
due solely because of the acceleration) have been cured or waived. The Company
is required to deliver to the Trustee annually a statement regarding compliance
A1-R-4
<PAGE>
with the Indenture, and the Company is required upon becoming aware of any
Default or Event of Default to deliver to the Trustee a statement specifying
such Default or Event of Default.
13. Subordination. The payment of Subordinated Note Obligations will be
subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full in cash or cash equivalents of all Senior Indebtedness, whether
outstanding on the Original Issuance Date or thereafter incurred. The Company
agrees, and each Holder by accepting a Note agrees, that the payment of
principal of, premium and interest and Liquidated Damages, if any, on the Notes
is subordinated in right of payment, to the extent and in the manner provided in
the Indenture, to the prior payment in full in cash or cash equivalents of all
Senior Indebtedness (whether outstanding on the date hereof or thereafter
created, incurred, assumed or guaranteed), and that the subordination is for the
benefit of the holders of Senior Indebtedness.
14. Trustee Dealings With Company. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
15. No Recourse Against Others. No member, director, officer, employee
or incorporator of the Company, as such, shall have any liability for any
obligations of the Company under the Notes or the Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the Notes.
Pursuant to and for purposes of Section 506(b) of the General
Corporation Law of the State of California, the Holder of this Note, by
accepting this Note, shall be deemed to have consented to the payment of the
Merger Consideration (as defined in the Acquisition Agreement) to the former
shareholders of the Company pursuant to the Acquisition Agreement.
16. Authentication. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
17. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
18. Additional Rights Of Holders Of Restricted Global Notes And
Restricted Definitive Notes. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement.
19. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture or the Registration Rights Agreement. Requests
may be made to:
CONDOR SYSTEMS, INC.
2133 Samaritan Drive
A1-R-5
<PAGE>
San Jose, California 95124
Telecopier No.: (408) 371-5874
Attention: Chief Financial Officer
A1-R-6
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date: Your Signature: _______________________________
(Sign exactly as your name appears on the Note)
Tax Identification No:_________________________
Signature Guarantee.
A1-R-7
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.14 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.14
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the
amount you elect to have purchased: $________
Date: Your Signature: _______________________________
(Sign exactly as your name appears on the Note)
Tax Identification No: ________________________
Signature Guarantee.
A1-R-8
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or a Definitive Note for an interest in this Global Note,
have been made:
<TABLE>
Principal Amount of Signature of
Amount of decrease Amount of increase this Global Note authorized officer
in Principal Amount in Principal Amount following such of Trustee or Note
Date of Exchange of this Global Note of this Global Note decrease (or increase) Custodian
- ---------------- ------------------- ------------------- ---------------------- ------------------
<S> <C> <C> <C> <C>
</TABLE>
A1-R-9
<PAGE>
NOTE GUARANTEE
CEI Systems, Inc., a Delaware corporation (the "Guarantor") hereby
unconditionally guarantees, to the fullest extent permitted by law, (i) the due
and punctual payment of the principal of, interest and Liquidated Damages, if
any, on the Notes, whether at the maturity or of the principal of, interest and
Liquidated Damages, if any, on the Notes, whether at the maturity or interest
payment date, by acceleration, call for redemption or otherwise, and of interest
on the overdue principal of, interest and Liquidated Damages, if any, on the
Notes and all other obligations of the Issuer to the Holders or the Trustee
under the Indenture or the Notes and (ii) in case of any extension of time of
payment or renewal of any Notes or any of such other obligations, that the same
will be promptly paid in full when due or performed in accordance with the terms
of the extension or renewal, whether at maturity, by acceleration or otherwise.
The obligations of the Guarantor to the Holders and to the Trustee
pursuant to this Note Guarantee and the Indenture are as expressly set forth in
Article 11 of the Indenture and in such other provisions of the Indenture as are
applicable to the Guarantor, and reference is hereby made to such Indenture for
the precise terms of this Note Guarantee. The terms of Article 11 of the
Indenture (including, without limitation, Section 11.03 of the Indenture) and
such other provisions of the Indenture as are applicable to the Guarantor are
incorporated herein by reference.
This is a continuing guarantee and shall remain in full forces and
effect and shall be binding upon the Guarantor and its successors and assigns
until full and final payment of all of the Company's obligations under the Notes
and the Indenture and shall inure to the benefit of the successors and assigns
of the Trustee and the Holders and, in the event of any transfer or assignment
of rights by any Holder or the Trustee, the rights and privileges herein
conferred upon that party shall automatically extend to and be vested in such
transferee or assignee, all subject to the terms and conditions hereof. This is
a guarantee of payment and not a guarantee of collection.
This Note Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Note upon which this Note
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.
In case any provision in this Note Guarantee shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE
THIS NOTE GUARANTEE WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS
OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF OTHER JURISDICTION
WOULD BE REQUIRED THEREBY.
CEI SYSTEMS, INC.
By:
------------------------------------
Name:
Title:
A1-R-10
<PAGE>
EXHIBIT A-2
(Face of Regulation S Temporary Global Note)
================================================================================
CUSIP U20543AA9
11 7/8% Senior Subordinated Notes due 2009
No. _____ $___________
CONDOR SYSTEMS, INC.
promises to pay to _______________, or registered assigns, the principal sum of
___________ Dollars on May 1, 2009.
Interest Payment Dates: May 1 and November 1
Record Dates: April 15 and October 15
[Insert the Regulation S Temporary Global Note Legend pursuant to Section
2.06(h)(iii) of the Indenture]
[Insert the Global Note Legend pursuant to Section 2.06(h)(ii) of the Indenture]
[Insert the Private Placement Legend pursuant to Section 2.06(h)(i) of the
Indenture]
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Dated:
CONDOR SYSTEMS, INC.
By:
---------------------------------------
Name:
---------------------------------
Title:
--------------------------------
This is one of the Notes referred to in the within-mentioned Indenture:
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:
---------------------------------------
Name:
---------------------------------
Title:
--------------------------------
================================================================================
A2-F-1
<PAGE>
(Back of Regulation S Temporary Global Note)
11 7/8% Senior Subordinated Notes due 2009
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. Interest. Condor Systems, Inc., a California corporation (the
"Company"), promises to pay interest on the principal amount of this Note at 11
7/8% per annum from April 15, 1999 until maturity and shall pay the Liquidated
Damages payable pursuant to Section 5 of the Registration Rights Agreement
referred to below. The Company will pay interest and Liquidated Damages
semi-annually on May 1 and November 1 of each year, or if any such day is not a
Business Day, on the next succeeding Business Day (each, an "Interest Payment
Date"). Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; and provided further
that the first Interest Payment Date shall be November 1, 1999. The Company
shall pay interest (including, without limitation, post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at a rate that is 1% per annum in excess of the rate
then in effect to the extent lawful; it shall pay interest (including, without
limitation, post-petition interest in any proceeding under any Bankruptcy Law)
on overdue installments of interest and Liquidated Damages (without regard to
any applicable grace periods) from time to time on demand at the same rate to
the extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. Method Of Payment. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the April 15 or October
15 next preceding the Interest Payment Date, even if such Notes are cancelled
after such record date and on or before such Interest Payment Date, except as
provided in Section 2.12 of the Indenture with respect to defaulted interest.
The Notes will be payable as to principal, premium and Liquidated Damages, if
any, and interest at the office of the Paying Agent and Registrar. Holders of
Notes must surrender their Notes to the Paying Agent to collect principal
payments, and the Company may pay principal and interest and Liquidated Damages,
if any, by check and may mail checks to a Holder's registered address; provided
that all payments with respect to Global Notes will be paid by wire transfer of
immediately available funds to the account of the Depositary. Such payment shall
be in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
3. Paying Agent And Registrar. Initially, State Street Bank and Trust
Company, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. Indenture. The Company issued the Notes under an Indenture dated as
of April 15, 1999 ("Indenture"), between the Company, CEI Systems, Inc. and the
Trustee. The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code Section 77aaa-77bbbb). The Notes are subject to all such
terms, and Holders are referred to the Indenture and such Act for a statement of
such terms. To the extent any provision of this Note conflicts with the express
provisions of the Indenture, the provisions of the Indenture shall govern and be
controlling. The Notes are obligations of the Company limited in aggregate
A2-F-R-1
<PAGE>
principal amount to $100,000,000 plus the aggregate principal of any Additional
Notes issued pursuant to Section 2.02 of the Indenture in compliance with
Section 4.09 thereof.
5. Optional Redemption. Except as provided in subparagraph (b) of this
Paragraph 5, the Notes will not be redeemable at the Company's option prior to
May 1, 2004. Thereafter, the Notes will be subject to redemption at any time at
the option of the Company, in whole or in part, upon not less than 30 nor more
than 60 days' notice, in cash at the redemption prices (expressed as percentages
of principal amount) set forth below, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on May 1 of the years
indicated below:
Year Percentage
---- ----------
2004................................ 105.938%
2005................................ 103.958%
2006................................ 101.979%
2007 and thereafter................. 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, on or prior to May 1, 2002, the Company may redeem up to
35% of the aggregate principal amount of Notes from time to time
originally issued under the Indenture in cash at a redemption price of
111.875% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the redemption
date, with the net cash proceeds of one or more Public Equity
Offerings; provided that at least 65% of the aggregate principal amount
of Notes from time to time originally issued under the Indenture
remains outstanding immediately after the occurrence of any such
redemption; and provided further that such redemption shall occur
within 90 days of the date of the closing of any such Public Equity
Offering.
(c) Any redemption pursuant to this subparagraph 5 shall be made
pursuant to the provisions of Section 3.01 through 3.06 of the
Indenture.
6. Mandatory Redemption. Except as set forth in paragraph 7 below, the
Company shall not be required to make mandatory redemption payments with respect
to the Notes.
7. Repurchase At Option Of Holder.
(a) Upon the occurrence of a Change of Control, each Holder of Notes
will have the right to require the Company to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's
Notes pursuant to the offer described in Section 4.14 of the Indenture
(the "Change of Control Offer") at an offer price in cash equal to 101%
of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of
repurchase (the "Change of Control Payment"). Within 60 days following
any Change of Control, the Company will (or will cause the Trustee to)
mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase Notes
on the date specified in such notice, which date shall be no earlier
than 30 days and no later than 60 days from the date such notice is
mailed, pursuant to the procedures required by the Indenture and
described in such notice.
(b) Within 365 days after the receipt of any Net Proceeds from an
Asset Sale, the Company or Restricted Subsidiary, as the case may be,
shall apply such Net Proceeds, at its option (or the extent the Company
is required to apply such Net Proceeds pursuant to the terms of the New
Credit Facility), to (a) repay or repurchase Senior Indebtedness or
Pari Passu Indebtedness of the
A2-R-2
<PAGE>
Company or any Indebtedness of any Restricted Subsidiary, as the case
may be, provided that, if the Company shall so repay or purchase Pari
Passu Indebtedness of the Company, it will equally and ratably reduce
Indebtedness under the Notes if the Notes are then redeemable, or, if
the Notes may not then be redeemed, the Company shall make an offer (in
accordance with the procedures set forth below for an Asset Sale Offer)
to all Holders of Notes to purchase at a purchase price equal to 100%
of the principal amount of the Notes, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date of purchase, the
Notes that would otherwise be redeemed, or (b) an investment in
property, the making of a capital expenditure or the acquisition of
assets that are used or useful in a Permitted Business, or Capital
Stock of any Person primarily engaged in a Permitted Business if (i) as
a result of the acquisition by the Company or any Restricted Subsidiary
thereof, such Person becomes a Restricted Subsidiary or (ii) the
Investment in such Capital Stock is permitted by clause (f) of the
definition of Permitted Investments. Pending the final application of
any such Net Proceeds, the Company may temporarily reduce Indebtedness
or otherwise invest such Net Proceeds in any manner that is not
prohibited by the Indenture. Any Net Proceeds from Asset Sales that are
not applied or invested as provided in the first sentence of this
paragraph will be deemed to constitute "Excess Proceeds". When the
aggregate amount of Excess Proceeds exceeds $10.0 million, the Company
will be required to make an offer to all Holders of Notes (an "Asset
Sale Offer") to purchase the maximum principal amount of Notes that may
be purchased out of the Excess Proceeds, at an offer price in cash in
an amount equal to 100% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, thereon to the date
of purchase, in accordance with the procedures set forth in the
Indenture. To the extent that any Excess Proceeds remain after
consummation of an Asset Sale Offer, the Company may use any remaining
Excess Proceeds for any purpose not otherwise prohibited by the
Indenture. If the aggregate principal amount of Notes surrendered by
Holders thereof in connection with an Asset Sale Offer exceeds the
amount of Excess Proceeds, the Trustee shall select the Notes to be
purchased as set forth in Sections 3.02 and 3.03 of the Indenture. Upon
completion of such offer to purchase, the amount of Excess Proceeds
shall be reset at zero. Holders of Notes that are the subject of an
offer to purchase may elect to have such Notes purchased by completing
the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Notes.
8. Notice Of Redemption. Notice of redemption will be mailed by first
class mail at least 30 days but not more than 60 days before the redemption date
to each Holder of Notes to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes or
portions thereof called for redemption.
9. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Note may be
treated as its owner for all purposes.
11. Amendment, Supplement And Waiver. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the then outstanding
Notes and any existing Default or compliance with any provision of the Indenture
or the Notes may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes. Without the consent of any
Holder of a Note, the Indenture or the Notes may be amended or supplemented to
cure any ambiguity, defect or inconsistency,
A2-R-3
<PAGE>
to provide for uncertificated Notes in addition to or in place of certificated
Notes in a manner that does not materially adversely affect any Holder, to
provide for the assumption of the Company's or the Guarantor's obligations to
Holders of the Notes by a successor to the Company or the Guarantor in case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of the Notes or that does not adversely affect
the legal rights under the Indenture of any such Holder, to comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act, or to provide for additional
guarantees of the Notes.
12. Defaults And Remedies. Each of the following constitutes an "Event
of Default": (a) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by
Article 10 of the Indenture); (b) default in payment when due of the principal
of or premium, if any, on the Notes (whether or not prohibited by Article 10 of
the Indenture); (c) failure by the Company or any of its Restricted Subsidiaries
for 30 days after receipt of notice from the Trustee or Holders of at least 25%
in principal amount of the Notes then outstanding to comply with Sections 4.07,
4.09, 4.10 or 4.14 or Article 5 of the Indenture; (d) failure by the Company for
60 days after notice from the Trustee or the Holders of at least 25% in
principal amount of the Notes then outstanding to comply with any of its other
agreements in the Indenture or the Notes; (e) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any
of its Restricted Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Restricted Subsidiaries), whether such Indebtedness or
guarantee now exists, or is created after the Original Issuance Date, which
default (i) is caused by a failure to pay Indebtedness at its stated final
maturity (after giving effect to any applicable grace period provided in such
Indebtedness) (a "Payment Default") or (ii) results in the acceleration of such
Indebtedness prior to its stated final maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $10.0 million or more; (f) failure
by the Company or any of its Restricted Subsidiaries to pay final judgments
aggregating in excess of $10.0 million (net of any amounts with respect to which
a reputable and creditworthy insurance company has acknowledged liability in
writing), which judgments are not paid, discharged or stayed for a period of 60
days; (g) except as permitted by the Indenture, the Note Guarantees shall be
held in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force any effect or the Guarantor, or any Person
acting on behalf of the Guarantor, shall deny or disaffirm its obligations under
the Note Guarantees; and (h) certain events of bankruptcy or insolvency as
described in the Indenture.
If any Event of Default (other than certain events of bankruptcy or
insolvency) occurs and is continuing, the Holders of at least 25% in principal
amount of the then outstanding Notes may direct the Trustee to declare all the
Notes to be due and payable immediately, provided, that so long as any
Indebtedness permitted to be incurred pursuant to the New Credit Facility shall
be outstanding, such acceleration shall not be effective until the earlier of
(i) an acceleration under any such Indebtedness under the New Credit Facility or
(ii) five Business Days after receipt by the Company and the administrative
agent under the New Credit Facility of written notice of such acceleration. Upon
any such declaration, the Notes shall become due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Notes shall be due
and payable immediately without further action or notice. The Holders of a
majority in aggregate principal amount of the then outstanding Notes by written
notice to the Trustee may on behalf of all of the Holders rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal, interest or premium or Liquidated Damages, if any, that has become
due solely because of the acceleration) have been cured or waived. The Company
is required to deliver to the Trustee annually a statement regarding compliance
with the Indenture, and the Company is required upon becoming aware of any
Default or Event of Default to deliver to the Trustee a statement specifying
such Default or Event of Default.
A2-R-4
<PAGE>
13. Subordination. The payment of Subordinated Note Obligations will be
subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full in cash or cash equivalents of all Senior Indebtedness, whether
outstanding on the date of the Indenture or thereafter incurred. The Company
agrees, and each Holder by accepting a Note agrees, that the payment of
principal of, premium and interest and Liquidated Damages, if any, on the Notes
is subordinated in right of payment, to the extent and in the manner provided in
the Indenture, to the prior payment in full in cash or cash equivalents of all
Senior Indebtedness (whether outstanding on the date hereof or thereafter
created, incurred, assumed or guaranteed), and that the subordination is for the
benefit of the holders of Senior Indebtedness.
14. Trustee Dealings With Company. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
15. No Recourse Against Others. No member, director, officer, employee
or incorporator of the Company, as such, shall have any liability for any
obligations of the Company under the Notes or the Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the Notes.
Pursuant to and for purposes of Section 506(b) of the General
Corporation Law of the State of California, the Holder of this Note, by
accepting this Note, shall be deemed to have consented to the payment of the
Merger Consideration (as defined in the Acquisition Agreement) to the former
shareholders of the Company pursuant to the Acquisition Agreement.
16. Authentication. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
17. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
18. Additional Rights Of Holders Of Restricted Global Notes And
Restricted Definitive Notes. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement.
19. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture or the Registration Rights Agreement. Requests
may be made to:
CONDOR SYSTEMS, INC.
2133 Samaritan Drive
San Jose, California 95124
Telecopier No.: (408) 371-5874
Attention: Chief Financial Officer
A2-R-5
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date: Your Signature: _______________________________
(Sign exactly as your name appears on the Note)
Tax Identification No: ________________________
Signature Guarantee.
A2-R-6
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.14 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.14
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the
amount you elect to have purchased: $________
Date: Your Signature: _______________________________
(Sign exactly as your name appears on the Note)
Tax Identification No: ________________________
Signature Guarantee.
A2-R-7
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE TEMPORARY GLOBAL NOTE
The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or a Definitive Note for an interest in this Global Note,
have been made:
<TABLE>
Principal Amount of Signature of
Amount of decrease Amount of increase this Global Note authorized officer
in Principal Amount in Principal Amount following such of Trustee or Note
Date of Exchange of this Global Note of this Global Note decrease (or increase) Custodian
- ---------------- ------------------- ------------------- ---------------------- ------------------
<S> <C> <C> <C> <C>
</TABLE>
A2-R-8
<PAGE>
NOTE GUARANTEE
CEI Systems, Inc., a Delaware corporation (the "Guarantor") hereby
unconditionally guarantees, to the fullest extent permitted by law, (i) the due
and punctual payment of the principal of, interest and Liquidated Damages, if
any, on the Notes, whether at the maturity or of the principal of, interest and
Liquidated Damages, if any, on the Notes, whether at the maturity or interest
payment date, by acceleration, call for redemption or otherwise, and of interest
on the overdue principal of, interest and Liquidated Damages, if any, on the
Notes and all other obligations of the Issuer to the Holders or the Trustee
under the Indenture or the Notes and (ii) in case of any extension of time of
payment or renewal of any Notes or any of such other obligations, that the same
will be promptly paid in full when due or performed in accordance with the terms
of the extension or renewal, whether at maturity, by acceleration or otherwise.
The obligations of the Guarantor to the Holders and to the Trustee
pursuant to this Note Guarantee and the Indenture are as expressly set forth in
Article 11 of the Indenture and in such other provisions of the Indenture as are
applicable to the Guarantor, and reference is hereby made to such Indenture for
the precise terms of this Note Guarantee. The terms of Article 11 of the
Indenture (including, without limitation, Section 11.03 of the Indenture) and
such other provisions of the Indenture as are applicable to the Guarantor are
incorporated herein by reference.
This is a continuing guarantee and shall remain in full forces and
effect and shall be binding upon the Guarantor and its successors and assigns
until full and final payment of all of the Company's obligations under the Notes
and the Indenture and shall inure to the benefit of the successors and assigns
of the Trustee and the Holders and, in the event of any transfer or assignment
of rights by any Holder or the Trustee, the rights and privileges herein
conferred upon that party shall automatically extend to and be vested in such
transferee or assignee, all subject to the terms and conditions hereof. This is
a guarantee of payment and not a guarantee of collection.
This Note Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Note upon which this Note
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.
In case any provision in this Note Guarantee shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE
THIS NOTE GUARANTEE WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS
OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF OTHER JURISDICTION
WOULD BE REQUIRED THEREBY.
CEI SYSTEMS, INC.
By:
-------------------------------------------
Name:
Title:
A2-R-9
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
CONDOR SYSTEMS, INC.
2133 Samaritan Drive
San Jose, California 95124
Telecopier No.: (408) 371-5874
Attention: Gary M. Viljoen
State Street Bank and Trust Company
Goodwin Square, 225 Asylum Street
Hartford, Connecticut 06103
Telecopier: (860) 244-1889
Attention: Dennis Fisher
Re: 11 7/8% Senior Subordinated Notes due 2009
Reference is hereby made to the Indenture, dated as of April 15, 1999
(the "Indenture"), between Condor Systems, Inc. (the "Company"), as issuer, CEI
Systems, Inc., as guarantor, and State Street Bank and Trust Company, as
trustee. Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.
______________, (the "Transferor") owns and proposes to transfer the
Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "Transfer"),
to __________ (the "Transferee"), as further specified in Annex A hereto. In
connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] Check if Transferee will take delivery of a beneficial interest
in the 144A Global Note or a Definitive Note Pursuant to Rule 144A. The Transfer
is being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction meeting the requirements of Rule 144A and such Transfer is
in compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the 144A Global Note and/or the Definitive Note and
in the Indenture and the Securities Act.
2. [ ] Check if Transferee will take delivery of a beneficial interest
in the Regulation S Temporary Global Note or a Definitive Note pursuant to
Regulation S. The Transfer is being effected pursuant to and in accordance with
Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor
hereby further certifies that (i) the Transfer is not being made to a Person in
the United
B-1
<PAGE>
States and (x) at the time the buy order was originated, the Transferee was
outside the United States or such Transferor and any Person acting on its behalf
reasonably believed and believes that the Transferee was outside the United
States or (y) the transaction was executed in, on or through the facilities of a
designated offshore securities market and neither such Transferor nor any Person
acting on its behalf knows that the transaction was prearranged with a buyer in
the United States, (ii) no directed selling efforts have been made in
contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S
under the Securities Act and (iii) the transaction is not part of a plan or
scheme to evade the registration requirements of the Securities Act and (iv) if
the proposed transfer is being made prior to the expiration of the Restricted
Period, the transfer is not being made to a U.S. Person or for the account or
benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of
the proposed transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Regulation S Temporary Global Note and/or the Definitive Note and in the
Indenture and the Securities Act.
3. [ ] Check and complete if Transferee will take delivery of a
beneficial interest in a Restricted Definitive Note pursuant to any provision of
the Securities Act other than Rule 144A or Regulation S. The Transfer is being
effected in compliance with the transfer restrictions applicable to beneficial
interests in Restricted Global Notes and Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act and any applicable blue
sky securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):
(a)______ [ ] such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act;
or
(b)______ [ ]such Transfer is being effected to the Company or a
subsidiary thereof;
or
(c)______ [ ] such Transfer is being effected pursuant to an
effective registration statement under the Securities Act and in compliance with
the prospectus delivery requirements of the Securities Act;
or
(d)______ [ ] such Transfer is being effected to an Institutional
Accredited Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904,
and the Transferor hereby further certifies that it has not engaged in any
general solicitation within the meaning of Regulation D under the Securities Act
and the Transfer complies with the transfer restrictions applicable to
beneficial interests in a Restricted Global Note or Restricted Definitive Notes
and the requirements of the exemption claimed, which certification is supported
by (1) a certificate executed by the Transferee in the form of Exhibit D to the
Indenture and (2) if such Transfer is in respect of a principal amount of Notes
at the time of transfer of less than $250,000, an Opinion of Counsel provided by
the Transferor or the Transferee (a copy of which the Transferor has attached to
this certification), to the effect that such Transfer is in compliance with the
Securities Act.
Upon consummation of the proposed Transfer in accordance with the terms
of the Indenture, the transferred beneficial interest or Definitive Note will be
subject to the restrictions on transfer enumerated in the Private Placement
Legend printed on the Restricted Definitive Notes and in the Indenture and the
Securities Act.
B-2
<PAGE>
4. Check if Transferee will take delivery of a beneficial interest in
an Unrestricted Global Note or of an Unrestricted Definitive Note.
(a)______ [ ] Check if Transfer is pursuant to Rule 144. (i) The
Transfer is being effected pursuant to and in accordance with Rule 144 under the
Securities Act and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any state of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.
(b)______ [ ] Check if Transfer is Pursuant to Regulation S. (i)
The Transfer is being effected pursuant to and in accordance with Rule 903 or
Rule 904 under the Securities Act and in compliance with the transfer
restrictions contained in the Indenture and any applicable blue sky securities
laws of any state of the United States and (ii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act. Upon consummation of the
proposed Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes, on Restricted Definitive Notes and in the
Indenture.
(c)______ [ ] Check if Transfer is Pursuant to Other Exemption. (i)
The Transfer is being effected pursuant to and in compliance with an exemption
from the registration requirements of the Securities Act other than Rule 144,
Rule 903 or Rule 904 and in compliance with the transfer restrictions contained
in the Indenture and any applicable blue sky securities laws of any state of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will not be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
--------------------------------------
[Insert Name of Transferor]
By:
-------------------------------------
Name:
Title:
Dated: __________, ____
B-3
<PAGE>
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP 206771AA5), or
(ii) [ ] Regulation S Temporary Global Note (CUSIP
U20543AA9), or
(b) [ ] a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP 206771AA5), or
(ii) [ ] Regulation S Temporary Global Note (CUSIP
U20543AA9), or
(iii) [ ] Unrestricted Global Note (CUSIP 206771AC1), or
(b) [ ] a Restricted Definitive Note, or
(c) [ ] a Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
B-4
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
CONDOR SYSTEMS, INC.
2133 Samaritan Drive
San Jose, California 95124
Telecopier No.: (408) 371-5874
Attention: Gary M. Viljoen
State Street Bank and Trust Company
Goodwin Square, 225 Asylum Street
Hartford, Connecticut 06103
Telecopier: (860) 244-1889
Attention: Dennis Fisher
Re: 11 7/8% Senior Subordinated Notes due 2009
Reference is hereby made to the Indenture, dated as of April 15, 1999
(the "Indenture"), between Condor Systems, Inc. (the "Company"), as issuer, CEI
Systems, Inc., as guarantor, and State Street Bank and Trust Company, as
trustee. Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.
____________, (the "Owner") owns and proposes to exchange the Note[s]
or interest in such Note[s] specified herein, in the principal amount of
$____________ in such Note[s] or interests (the "Exchange"). In connection with
the Exchange, the Owner hereby certifies that:
1. [ ] Exchange of Restricted Definitive Notes or Beneficial Interests
in a Restricted Global Note for Unrestricted Definitive Notes or Beneficial
Interests in an Unrestricted Global Note
(a) [ ] Check if Exchange is from beneficial interest in a Restricted
Global Note to beneficial interest in an Unrestricted Global Note. In connection
with the Exchange of the Owner's beneficial interest in a Restricted Global Note
for a beneficial interest in an Unrestricted Global Note in an equal principal
amount, the Owner hereby certifies (i) the beneficial interest is being acquired
for the Owner's own account without transfer, (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the Global
Notes and pursuant to and in accordance with the United States Securities Act of
1933, as amended (the "Securities Act"), (iii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act and (iv) the beneficial
interest in an Unrestricted Global Note is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
(b) [ ] Check if Exchange is from beneficial interest in a Restricted
Global Note to Unrestricted Definitive Note. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for an Unrestricted
Definitive Note, the Owner hereby certifies (i) the Definitive Note is being
acquired for the Owner's own account without transfer, (ii) such Exchange has
been effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and pursuant to and in accordance with the
C-1
<PAGE>
Securities Act, (iii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the Definitive Note is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(c) [ ] Check if Exchange is from Restricted Definitive Note to
beneficial interest in an Unrestricted Global Note. In connection with the
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an
Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(d) [ ] Check if Exchange is from Restricted Definitive Note to
Unrestricted Definitive Note. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.
2. [ ] Exchange of Restricted Definitive Notes or Beneficial Interests
in Restricted Global Notes for Restricted Definitive Notes or Beneficial
Interests in Restricted Global Notes
(a) [ ] Check if Exchange is from beneficial interest in a Restricted
Global Note to Restricted Definitive Note. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Definitive Note with an equal principal amount, the Owner hereby certifies that
the Restricted Definitive Note is being acquired for the Owner's own account
without transfer. Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the Restricted Definitive Note issued will continue
to be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Note and in the Indenture
and the Securities Act.
(b) [ ] Check if Exchange is from Restricted Definitive Note to
beneficial interest in a Restricted Global Note. In connection with the Exchange
of the Owner's Restricted Definitive Note for a beneficial interest in the
[CHECK ONE] [ ] "144A Global Note" or [ ] "Regulation S Temporary Global
Note", with an equal principal amount, the Owner hereby certifies (i) the
beneficial interest is being acquired for the Owner's own account without
transfer and (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to the Restricted Global Notes and pursuant to
and in accordance with the Securities Act, and in compliance with any applicable
blue sky securities laws of any state of the United States. Upon consummation of
the proposed Exchange in accordance with the terms of the Indenture, the
beneficial interest issued will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the relevant Restricted
Global Note and in the Indenture and the Securities Act.
C-2
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
--------------------------------------
[Insert Name of Transferor]
By:
-------------------------------------
Name:
Title:
Dated: __________, ____
C-3
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
CONDOR SYSTEMS, INC.
2133 Samaritan Drive
San Jose, California 95124
Telecopier No.: (408) 371-5874
Attention: Gary M. Viljoen
State Street Bank and Trust Company
Goodwin Square, 225 Asylum Street
Hartford, Connecticut 06103
Telecopier: (860) 244-1889
Attention: Dennis Fisher
Re: 11 7/8% Senior Subordinated Notes due 2009
Reference is hereby made to the Indenture, dated as of April 15, 1999
(the "Indenture"), among Condor Systems, Inc. (the "Company"), as issuer, CEI
Systems, Inc., as guarantor, and State Street Bank and Trust Company, as
trustee. Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.
In connection with our proposed purchase of $____________ aggregate
principal amount of:
(a) [ ] a beneficial interest in a Global Note, or
(b) [ ] a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes and any interest therein
may not be offered or sold except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are acting
as hereinafter stated, that if we should sell the Notes or any interest therein,
we will do so only (A) to the Company or any subsidiary thereof, (B) in
accordance with Rule 144A under the Securities Act to a "qualified institutional
buyer" (as defined therein), (C) to an institutional "accredited investor" (as
defined below) that, prior to such transfer, furnishes (or has furnished on its
behalf by a U.S. broker-dealer) to you and to the Company a signed letter
substantially in the form of this letter and, if such transfer is in respect of
a principal amount of Notes, at the time of transfer of less than $250,000, an
Opinion of Counsel in form reasonably acceptable to the Company to the effect
that such transfer is in compliance with the
D-1
<PAGE>
Securities Act, (D) outside the United States in accordance with Rule 904 of
Regulation S under the Securities Act, (E) pursuant to the provisions of Rule
144(k) under the Securities Act or (F) pursuant to an effective registration
statement under the Securities Act, and we further agree to provide to any
person purchasing the Definitive Note or beneficial interest in a Global Note
from us in a transaction meeting the requirements of clauses (A) through (E) of
this paragraph a notice advising such purchaser that resales thereof are
restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or
beneficial interest therein, we will be required to furnish to you and the
Company such certifications, legal opinions and other information as you and the
Company may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that the Notes purchased by us
will bear a legend to the foregoing effect. We further understand that any
subsequent transfer by us of the Notes or beneficial interest therein acquired
by us must be effected through one of the Placement Agents.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.
5. We are acquiring the Notes or beneficial interest therein purchased
by us for our own account or for one or more accounts (each of which is an
institutional "accredited investor") as to each of which we exercise sole
investment discretion.
You and the Company are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to the
matters covered hereby.
--------------------------------------
[Insert Name of Transferor]
By:
-------------------------------------
Name:
Title:
Dated: __________, ____
D-2
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture Act Section Indenture Section
310 (a)(1)..........................................................7.10
(a)(2) .........................................................7.10
(a)(3)..........................................................N.A.
(a)(4)..........................................................N.A.
(a)(5)..........................................................7.10
(b).............................................................7.10
(c).............................................................N.A.
311 (a).............................................................7.11
(b).............................................................7.11
(c).............................................................N.A.
312 (a).............................................................2.05
(b)............................................................11.03
(c)............................................................10.03
313 (a).............................................................7.06
(b)(1)..........................................................N.A.
(b)(2)....................................................7.06; 7.07
(c)......................................................7.06; 11.02
(d).............................................................7.06
314 (a)............................................................11.05
(b).............................................................N.A.
(c)(1).........................................................11.04
(c)(2).........................................................11.04
(c)(3)..........................................................N.A.
(d).............................................................N.A.
(e)............................................................11.05
(f).............................................................N.A.
315 (a).............................................................7.01
(b)......................................................7.05; 10.02
(c).............................................................7.01
(d).............................................................7.01
(e).............................................................6.11
316 (a)(last sentence)..............................................2.09
(a)(1)(A).......................................................6.05
(a)(1)(B).......................................................6.04
(a)(2)..........................................................N.A.
(b).............................................................6.07
(c).............................................................2.12
317 (a)(1)..........................................................6.08
(a)(2)..........................................................6.09
(b).............................................................2.04
318 (a)............................................................10.01
(b).............................................................N.A.
(c)............................................................10.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
Article 1 DEFINITIONS AND INCORPORATION BY REFERENCE........................1
SECTION 1.01 DEFINITIONS.................................................1
SECTION 1.02 OTHER DEFINITIONS..........................................18
SECTION 1.03 INCORPORATION OF TIA PROVISIONS............................19
SECTION 1.04 RULES OF CONSTRUCTION......................................19
Article 2 THE NOTES........................................................20
SECTION 2.01 FORM AND DATING............................................20
SECTION 2.02 EXECUTION AND AUTHENTICATION...............................21
SECTION 2.03 REGISTRAR AND PAYING AGENT.................................22
SECTION 2.04 PAYING AGENT TO HOLD MONEY IN TRUST........................22
SECTION 2.05 HOLDER LISTS...............................................23
SECTION 2.06 TRANSFER AND EXCHANGE......................................23
SECTION 2.07 REPLACEMENT NOTES..........................................37
SECTION 2.08 OUTSTANDING NOTES..........................................37
SECTION 2.09 TREASURY NOTES.............................................38
SECTION 2.10 TEMPORARY NOTES............................................38
SECTION 2.11 CANCELLATION...............................................38
SECTION 2.12 DEFAULTED INTEREST.........................................38
Article 3 REDEMPTION AND PREPAYMENT........................................39
SECTION 3.01 NOTICES TO TRUSTEE.........................................39
SECTION 3.02 SELECTION OF NOTES TO BE REDEEMED..........................39
SECTION 3.03 NOTICE OF REDEMPTION.......................................39
SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION.............................40
SECTION 3.05 DEPOSIT OF REDEMPTION PRICE................................40
SECTION 3.06 NOTES REDEEMED IN PART.....................................41
SECTION 3.07 OPTIONAL REDEMPTION........................................41
SECTION 3.08 MANDATORY REDEMPTION.......................................41
SECTION 3.09 OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS........41
Article 4 COVENANTS........................................................43
SECTION 4.01 PAYMENT OF NOTES...........................................43
SECTION 4.02 MAINTENANCE OF OFFICE OR AGENCY............................44
i
<PAGE>
Page
SECTION 4.03 REPORTS....................................................44
SECTION 4.04 COMPLIANCE CERTIFICATE.....................................45
SECTION 4.05 TAXES......................................................45
SECTION 4.06 STAY, EXTENSION AND USURY LAWS.............................45
SECTION 4.07 RESTRICTED PAYMENTS........................................46
SECTION 4.08 DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES...............................................50
SECTION 4.09 INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.51
SECTION 4.10 ASSET SALES................................................53
SECTION 4.11 TRANSACTIONS WITH AFFILIATES...............................55
SECTION 4.12 LIENS......................................................56
SECTION 4.13 CORPORATE EXISTENCE........................................56
SECTION 4.14 OFFER TO REPURCHASE UPON CHANGE OF CONTROL.................56
SECTION 4.15 NO SENIOR SUBORDINATED INDEBTEDNESS........................57
SECTION 4.16 LIMITATION ON SALE AND LEASEBACK TRANSACTIONS..............57
SECTION 4.17 PAYMENTS FOR CONSENT.......................................58
Article 5 SUCCESSORS.......................................................58
SECTION 5.01 MERGER, CONSOLIDATION, OR SALE OF ASSETS...................58
SECTION 5.02 SUCCESSOR CORPORATION SUBSTITUTED..........................59
Article 6 DEFAULTS AND REMEDIES............................................59
SECTION 6.01 EVENTS OF DEFAULT..........................................59
SECTION 6.02 ACCELERATION...............................................61
SECTION 6.03 OTHER REMEDIES.............................................61
SECTION 6.04 WAIVER OF PAST DEFAULTS....................................62
SECTION 6.05 CONTROL BY MAJORITY........................................62
SECTION 6.06 LIMITATION ON SUITS........................................62
SECTION 6.07 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT..............63
SECTION 6.08 COLLECTION SUIT BY TRUSTEE.................................63
SECTION 6.09 TRUSTEE MAY FILE PROOFS OF CLAIM...........................63
ii
<PAGE>
Page
SECTION 6.10 PRIORITIES.................................................63
SECTION 6.11 UNDERTAKING FOR COSTS......................................64
Article 7 TRUSTEE..........................................................64
SECTION 7.01 DUTIES OF TRUSTEE..........................................64
SECTION 7.02 RIGHTS OF TRUSTEE..........................................65
SECTION 7.03 INDIVIDUAL RIGHTS OF TRUSTEE...............................66
SECTION 7.04 TRUSTEE'S DISCLAIMER.......................................67
SECTION 7.05 NOTICE OF DEFAULTS.........................................67
SECTION 7.06 REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.................67
SECTION 7.07 COMPENSATION AND INDEMNITY.................................67
SECTION 7.08 REPLACEMENT OF TRUSTEE.....................................68
SECTION 7.09 SUCCESSOR TRUSTEE BY MERGER, ETC...........................69
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION..............................69
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY..........69
Article 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE.........................70
SECTION 8.01 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE...70
SECTION 8.02 LEGAL DEFEASANCE AND DISCHARGE.............................70
SECTION 8.03 COVENANT DEFEASANCE........................................70
SECTION 8.04 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.................71
SECTION 8.05 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD
IN TRUST; OTHER MISCELLANEOUS PROVISIONS...................72
SECTION 8.06 REPAYMENT TO COMPANY.......................................73
SECTION 8.07 REINSTATEMENT..............................................73
Article 9 AMENDMENT, SUPPLEMENT AND WAIVER.................................73
SECTION 9.01 WITHOUT CONSENT OF HOLDERS OF NOTES........................73
SECTION 9.02 WITH CONSENT OF HOLDERS OF NOTES...........................74
SECTION 9.03 COMPLIANCE WITH TRUST INDENTURE ACT........................76
SECTION 9.04 REVOCATION AND EFFECT OF CONSENTS..........................76
SECTION 9.05 NOTATION ON OR EXCHANGE OF NOTES...........................76
iii
<PAGE>
Page
SECTION 9.06 TRUSTEE TO SIGN AMENDMENTS, ETC............................76
Article 10 SUBORDINATION....................................................76
SECTION 10.01 AGREEMENT TO SUBORDINATE...................................76
SECTION 10.02 CERTAIN DEFINITIONS........................................77
SECTION 10.03 LIQUIDATION; DISSOLUTION; BANKRUPTCY.......................78
SECTION 10.04 DEFAULT ON DESIGNATED SENIOR INDEBTEDNESS..................78
SECTION 10.05 ACCELERATION OF SECURITIES.................................79
SECTION 10.06 WHEN DISTRIBUTION MUST BE PAID OVER........................79
SECTION 10.07 NOTICE BY COMPANY..........................................79
SECTION 10.08 SUBROGATION................................................79
SECTION 10.09 RELATIVE RIGHTS............................................80
SECTION 10.10 SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY...............80
SECTION 10.11 DISTRIBUTION OR NOTICE TO REPRESENTATIVE...................80
SECTION 10.12 RIGHTS OF TRUSTEE AND PAYING AGENT.........................81
SECTION 10.13 AUTHORIZATION TO EFFECT SUBORDINATION......................81
SECTION 10.14 NO WAIVER OF SUBORDINATION PROVISIONS......................81
SECTION 10.15 AMENDMENTS.................................................81
SECTION 10.16 TRUSTEE'S COMPENSATION NOT PREJUDICED......................82
Article 11 NOTE GUARANTEES..................................................82
SECTION 11.01 GUARANTEES.................................................82
SECTION 11.02 SUBORDINATION OF NOTE GUARANTEES...........................83
SECTION 11.03 LIMITATION ON GUARANTOR LIABILITY..........................83
SECTION 11.04 EXECUTION AND DELIVERY OF NOTE GUARANTEES..................83
SECTION 11.05 GUARANTOR MAY CONSOLIDATE, ETC. ON CERTAIN TERMS...........83
SECTION 11.06 RELEASES FOLLOWING SALE FOR ASSETS.........................84
SECTION 11.07 TRUSTEE'S COMPENSATION NOT PREJUDICED......................85
Article 12 MISCELLANEOUS....................................................85
SECTION 12.01 TRUST INDENTURE ACT CONTROLS...............................85
SECTION 12.02 NOTICES....................................................85
iv
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Page
SECTION 12.03 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS
OF NOTES...................................................86
SECTION 12.04 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.........86
SECTION 12.05 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION..............87
SECTION 12.06 RULES BY TRUSTEE AND AGENTS................................87
SECTION 12.07 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES
AND SHAREHOLDERS; CONSENT TO SHAREHOLDER PAYMENT...........87
SECTION 12.08 GOVERNING LAW..............................................87
SECTION 12.09 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS..............88
SECTION 12.10 SUCCESSORS.................................................88
SECTION 12.11 SEVERABILITY...............................................88
SECTION 12.12 COUNTERPART ORIGINALS......................................88
SECTION 12.13 TABLE OF CONTENTS, HEADINGS, ETC...........................88
Exhibit 5.1
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NY 10017
May __, 1999
Condor Systems, Inc.
2133 Samaritan Drive
San Jose, CA 95124
Ladies and Gentlemen:
We have acted as counsel for Condor Systems, Inc., a California
corporation (the "Company") and CEI Systems, Inc., a Delaware corporation (the
"Guarantor") in connection with the Company's offer (the "Exchange Offer") to
exchange its 11 % Series B Senior Subordinated Notes guaranteed by the
Guarantor due 2009 (the "New Notes") for any and all of its outstanding 11 %
Series A Senior Subordinated Notes due 2009 guaranteed by the Guarantor (the
"Old Notes").
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of such documents, corporate records, certificates of public
officials and other instruments as we have deemed necessary for the purposes of
rendering this opinion. We have assumed the capacity of all natural persons and
the genuineness of all signatures.
Based upon the foregoing, we are of the opinion that:
(i) Assuming the New Notes have been duly authorized by the Company, when
executed and authenticated in accordance with the Exchange Offer, the New Notes
will be valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except (x) as such enforcement may be
limited by bankruptcy, insolvency, fraudulent conveyance, or similar laws
affecting creditors' rights generally, (y) as such enforcement is subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) and (z) to the extent that a
waiver of rights under any usury or stay law may be unenforceable; we express
no opinion, however, as to the applicability (and, if applicable, the effect)
of Section 548 of the United States Bankruptcy Code or any comparable provision
of state law to the questions addressed above or on the conclusions expressed
with respect thereto.
(ii) The guarantees of the New Notes provided by the Guarantor (the "New
Note Guarantees") have been duly authorized by the Guarantor and, assuming the
New Notes have been duly authorized by the Company, the New Note Guarantees
will be valid and binding obligations of the Guarantor, enforceable against the
Guarantor in accordance with their terms except (x) as such enforcement may be
limited by bankruptcy, insolvency, fraudulent conveyance, or similar laws
affecting creditors' rights generally, (y) as such enforcement is subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) and (z) to the extent that a
waiver of rights under any usury or stay law may be unenforceable; we express
no opinion, however, as to the applicability (and, if applicable, the effect)
of Section 548 of the United States Bankruptcy Code or any comparable provision
of state law to the questions addressed above or on the conclusions expressed
with respect thereto.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of
the United States of America and the General Corporation Law of the State of
Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
registration statement relating to the Exchange Offer. We also consent to the
reference to us under the caption "Legal Matters" in the prospectus contained
in such registration statement.
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by or furnished to any other person without our prior written
consent.
Very truly yours,
/s/ Davis Polk & Wardwell
Exhibit 10.2.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is entered into as of March
__, 1999, by and between CONDOR SYSTEMS, INC., a California corporation (the
"Company"), and ROBERT E. YOUNG II, an individual resident of the State of
California (the "Employee").
WHEREAS, the Company, WDC Acquisitions Corp. and the Shareholders of
the Company (as defined in the Merger Agreement) have entered into that
certain Agreement and Plan of Merger (the "Merger Agreement") dated as of
March 8, 1999 pursuant to which WDC Acquisition Corp. will merge with and into
the Company at the Effective Time (as defined in the Merger Agreement);
WHEREAS, the Company wishes to assure that it will have the benefit
of the knowledge and experience of Employee, who has been the Chairman of the
Board, President and Chief Executive Officer of the Company; and
WHEREAS, Employee is willing to enter into an agreement to such end
upon the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the parties hereto agree as follows:
1. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts such employment with the Company, upon the terms and
conditions hereinafter set forth.
2. Term of Employment. Unless earlier terminated as provided in
Section 5, the Employee shall be employed by the Company under this Agreement
commencing on the date of the Closing (as defined in the Merger Agreement) and
ending on the third anniversary thereof (the "Employment Period"). On the
third and each succeeding anniversary of the Closing, the Employment Period
shall automatically be extended for one additional year unless, not later than
30 days prior to such anniversary, the Employee or the Company shall have
given notice of his or its intention not to extend the Employment Period. This
Agreement will have no force and effect until or unless the Closing occurs.
<PAGE>
3. Title and Duties.
(a) Employee shall have the titles and positions of Chairman of
the Board of Directors (the "Board"), President and Chief Executive
Officer of the Company.
(b) In his capacities as Chairman of the Board, President and
Chief Executive Officer, Employee shall report to the Board.
Employee's responsibilities shall be as specified by the Board, but,
in general, the Employee shall have such authority and such
responsibilities as are consistent with the authority and
responsibilities of a Chairman of the Board, President and Chief
Executive Officer of a corporation in a similar business and
industry.
(c) Throughout the Employment Period, the Employee shall devote
substantially all of his time, energy, skill and best efforts to the
performance of his duties hereunder in a manner which will faithfully
and diligently further the business and interests of the Company.
Subject to the preceding sentence, the Employee may serve, or
continue to serve, on the boards of directors of other entities and
may engage in appropriate civic or charitable activities as long as
such activities do not interfere or conflict with the performance of
the Employee's duties pursuant to this Agreement, and provided that
any board of directors position is disclosed to the Board in writing
at least 10 days in advance of Employee's election to such board of
directors position.
4. Compensation.
(a) Base Salary. The Company shall pay the Employee as
compensation a salary at the beginning rate of $350,000 per year
("Base Salary"), payable in accordance with the ordinary compensation
practices of the Company. The Compensation Committee of the Board
shall annually review the Base Salary for possible increase, in its
sole discretion; provided that the Base Salary shall never be
decreased after such an annual review.
(b) Bonus. Employee shall be eligible to receive an annual bonus
(the "Bonus") of up to 200% of Base Salary for each calendar year in
accordance with the following:
(i) For an amount of up to 150% of Base Salary:
2
<PAGE>
(A) If EBITDA, as hereunder defined, for any
calendar year is less than the Floor EBITDA for
such year, the Company will pay the Employee no
bonus.
(B) If EBITDA for any calendar year is equal
to the Target EBITDA for such year, the Company
shall pay the Employee a bonus of 90% of the actual
Base Salary paid to the Employee during such
calendar year;
(C) If EBITDA for any calendar year is equal
to or greater than the Ceiling EBITDA for such
year, the Company shall pay the Employee a total of
150% of the actual Base Salary paid to the Employee
during such calendar year;
(D) If EBITDA for any calendar year is greater
than the Floor EBITDA for such year but is less
than the Target EBITDA for such year, the Company
will pay the Employee a bonus calculated by linear
interpolation, as described in Attachment I. If
EBITDA for any calendar year is greater than the
Target EBITDA for such year but is less than the
Ceiling EBITDA for such year, the Company will pay
the Employee a bonus calculated by linear
interpolation, as described in Attachment I;
(ii) For an amount equal to 50% of Base Salary:
(A) For any calendar year, if the Employee
achieves the Major Business Objectives for such
year, the Company will pay the Employee a bonus (in
addition to any bonus paid by the Company to
Employee pursuant to Section 4(b)(i) of this
Agreement) of 50% of the actual Base Salary paid to
the Employee during such calendar year.
(iii) Definitions. for purposes of this Section 4:
(A) "EBITDA" means, for each calendar year,
the EBITDA number achieved by the Company, as
determined annually for purposes of this Agreement
by the Board.
(B) "Floor EBITDA" means, for any applicable
calendar year, a projected EBITDA established
annually for
3
<PAGE>
purposes of this Agreement by the Compensation
Committee of the Board, together with the Employee;
provided that the 1999 Floor EBITDA shall be
$19,000,000.
(C) "Target EBITDA" means, for any applicable
calendar year, a projected EBITDA established
annually for purposes of this Agreement by the
Compensation Committee of the Board, together with
the Employee; provided that the 1999 Target EBITDA
shall be $20,000,000.
(D) "Ceiling EBITDA" means, for any applicable
calendar year, a projected EBITDA established
annually for purposes of this Agreement by the
Compensation Committee of the Board, together with
the Employee; provided that the 1999 Ceiling EBITDA
shall be $21,000,000.
(E) "Major Business Objectives" means, for any
applicable calendar year, the major business
objectives of the Company, as proposed annually by
the Employee, subject to the approval of the
Compensation Committee of the Board.
(c) Reimbursement of Expenses. The Company shall pay or
reimburse the Employee for all reasonable travel and other expenses
(including country club membership costs) incurred by the Employee in
the performance of his obligations under this agreement, provided
that the Employee properly accounts therefor in accordance with the
policies and procedures of the Company.
(d) Vacation. The Employee shall be entitled to a number of paid
vacation days in each calendar year as determined by the Company from
time to time for its employees in accordance with Company policy
(prorated for any calendar year in which the Employee is employed
under this Agreement for less than the entire year).
[(e) Fringe Benefits and Perquisites. The Company, at its
expense, shall provide the Employee with: (i) a term life insurance
policy in the amount of $2 million for the benefit of such
beneficiary or beneficiaries as may be designated from time to time
by the Employee, (ii) a split-dollar life insurance policy to be
owned by the Employee in the
4
<PAGE>
amount of $1 million on terms comparable to those of Employee's
existing policy as of the date of this agreement, (iii) medical,
dental and group life insurance at the levels commensurate with the
Employee's position in the Company but no less than the level of
benefits existing on the date of this agreement, and (iv) disability
insurance, provided that the aggregate annual premium for such
insurance is not in excess of $25,000. In addition, the Employee
shall be eligible during the Employment Period (x) to receive an
automobile allowance in the amount of $1,250 per month or to obtain a
leased car of the Employee's choice(at his option), and (y) to
participate in and receive benefits under any other plan or
arrangement made available by the Company to its employees,
consistent with past practice, except for the Company's ESOP and
other stock-based plans, subject to and on a basis consistent with
the terms, conditions and overall administration of such plans and
arrangements.]
(f) Withholding. All payments under this agreement shall be
subject to withholding for applicable taxes.
5. Termination. The Employee's employment by the Company shall be
terminated upon the occurrence of any of the following:
(a) By Employee Without Cause. The Employee may terminate his
employment under this Agreement upon at least 120 days' prior notice
to the Board of the Company. Upon termination of his employment and
upon experiencing a qualifying event, COBRA coverage shall be made
available to the Employee in compliance with federal law.
(b) By Employee for Good Reason. The Employee may terminate his
employment under this Agreement after the Closing (as defined in the
Merger Agreement), upon at least 30 days' prior notice to the Board
of the Company, for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean the occurrence of the following:
(i) the occurrence of a "Change in Control." For
purposes of this Agreement, a "Change in Control" shall mean
the occurrence of (x) the consolidation or merger of the
Company with or into another corporation or corporations not
controlled by any entity that is an affiliate of the Company
immediately following the Closing, or (y) the conveyance of
all or substantially all of the assets of the Company to
another person or entity not controlled by any entity that
is an affiliate of the Company immediately following the
Closing; provided that a Change in Control shall not
5
<PAGE>
be deemed to occur upon the occurrence of an initial public
offering of the Company's capital stock ("IPO"); or
(ii) the Employee's duties, authority or
responsibilities as Chairman of the Board, President and
Chief Executive Officer, whether managerial or supervisory,
are materially diminished without the prior consent of the
Employee; or
(iii) the Employee is required by the Company to
relocate his residence a distance greater than 20 miles from
his current city of residence, San Jose, California.
(c) By the Company for Cause. The Company may terminate the
Employee's employment for Cause. "Cause" for purposes of this
Agreement shall mean Employee's (i) personal dishonesty; (ii) willful
misconduct; (iii) breach of fiduciary duty involving personal profit;
(iv) intentional failure to perform designated duties or willful
refusal to implement decisions of the Board made in good faith; (v)
willful violation, for personal financial gain, of any law, rule or
regulation; or (vi) material breach of any provision of this
Agreement; provided, however, that prior to any proposed Board action
pursuant to subparagraph (iv) the Board shall give the Employee
reasonable opportunity to respond and, if appropriate, to otherwise
perform as directed.
The Employee's right to compensation and other benefits from the
Company under this agreement shall cease upon the Company's terminating the
Employee's employment under this agreement for Cause. The provisions of this
Section 5(c) shall take precedence over the provisions of Section 5(a)
notwithstanding any prior notice by the Employee to the Company under Section
5(a).
(d) By the Company Without Cause. The Company may terminate the
Employee's employment under this agreement without Cause therefor at
any time.
6. Severance Pay
(a) In the event that the Employee's employment under this
Agreement is terminated pursuant to the provisions of Section 5(b) or
5(d), or if the employee's Employment Period is not renewed by the
Company pursuant to Section 2, as severance pay the Employee shall be
paid the greater of (i) 200% of (A) the Employee's then-current Base
Salary plus (B) the Employee's most recently paid bonus at the date
of Employee's
6
<PAGE>
termination and (ii) $1,400,000. Such severance pay shall be paid in
a lump sum to an escrow account at a bank designated by the Company,
and thereafter shall be paid to the Employee in eight equal
installments on the last business day of each of the eight fiscal
quarters following the quarter during which Employee's employment is
terminated, beginning with such fiscal quarter; provided that the
escrow agreement will provide that all payments of Employee's
severance pay will cease if Employee breaches any of the provisions
of Section 7 of this Agreement. Employee shall also be entitled to
continued eligibility to participate in all health, medical and
dental benefit plans of the Company for which Employee was eligible
immediately prior to the effective time of the termination of
Employee's employment, or comparable coverage, for two years, or, if
sooner, until comparable health insurance coverage is available to
Employee in connection with subsequent employment or self-employment.
(b) In the event that the Employee's employment under this
Agreement is terminated upon the death or disability of the Employee,
then the Employee will not be entitled to the severance benefits set
forth in Section 6(a); however, the Company will pay to the Employee
or the Employee's spouse (if she is then living) the Employee's
then-current Base Salary in accordance with the Company's normal pay
practices until the earlier of (i) the end of the sixth calendar
month following Employee's termination of active service, or (ii)
such time as the Employee's spouse (or a trust for her benefit) has
received proceeds from the insurance policy described in Section
4(e)(i). Any Base Salary paid after the death or disability of the
Employee pursuant to clause (i) above shall be repaid to the Company
upon the receipt of the insurance proceeds described in clause (ii)
by the Employee's spouse (or by a trust for her benefit). The Company
shall also pay to Employee or Employee's spouse the pro rata portion
of Employee's bonus for the year during which the death or disability
of the employee occurs. As of the date of the death or disability of
Employee, all benefits for the Employee pursuant to section 4(c), (d)
and (e) of this Agreement shall cease.
(c) If the Employee terminates his employment pursuant to
Section 5(a) and continues to provide services to the Company, or if
the Employee's Employment under this Agreement is terminated pursuant
to Section 5(c), the Company shall continue to pay the Employee his
then-current Base Salary in equal monthly installments until the
termination of his active service with the Company if the Employee
resigns pursuant to Section 5(a), or until the date of his
termination if the Employee's employment is terminated pursuant to
Section 5(c). As of the effective
7
<PAGE>
date of Employee's termination, Employee shall be entitled to no
bonus or benefits pursuant to this Agreement.
(d) The provisions of this Section 6 and Section 7 of this
Agreement shall survive any termination of this Agreement.
7. Non-Competition and Non-Solicitation
(a) Subject to Section 7(b) below, in consideration of his
employment hereunder and in view of the confidential position to be
held by the Employee hereunder, during the Employment Period and
through the two-year period commencing on the effective date of the
termination of Employee's employment hereunder, the Employee shall
not, directly or indirectly, be employed by, or act as a consultant
or lender to or in association with, or as a director, officer,
employee, partner, owner, joint venturer, member or otherwise of any
person, firm, corporation, partnership, limited liability company,
association or other entity that engages in the same business as, or
competes with, any business actually conducted by the Company or any
or its subsidiaries (other than beneficial ownership of up to 2% of
the outstanding voting stock of a publicly traded company that is or
owns such a competitor);
(b) In the event that the employee is terminated by the Company
for Cause or resigns without Good Reason, during the Employment Period
and through the one-year period commencing on the effective date of
the termination of Employee's employment hereunder, the Employee
shall not, directly or indirectly, be employed by, or act as a
consultant or lender to or in association with, or as a director,
officer, employee, partner, owner, joint venturer, member or
otherwise of any person, firm, corporation, partnership, limited
liability company, association or other entity that engages in the
same business as, or competes with, any business actually conducted
by the Company or any of its subsidiaries (other than beneficial
ownership of up to 2% of the outstanding voting stock of a publicly
traded company that is or owns such a competitor);
(c) In consideration of his employment hereunder and in view of
the confidential position to be held by the Employee hereunder, during
the Employment Period and through the one-year period commencing on
the effective date of the termination of Employee's employment
hereunder, the Employee will not (i) induce or attempt to induce any
employee of the Company or any of its subsidiaries to leave the
employ of the Company or such subsidiary, or in any way interfere
with the relationship between the Company or any of it subsidiaries
and any employee thereof, (ii) hire
8
<PAGE>
directly or indirectly any person who is then an employee of the
Company or any of its subsidiaries, or (iii) induce or attempt to
induce any customer, supplier, licensee or other business relation of
the Company or any of its subsidiaries to cease doing business with
the Company or such subsidiary, or in any way interfere with the
relationship between any such customer, supplier, licensee or
business relation and the Company or such subsidiary; provided,
however, that the Employee will cease to be bound by this Section
7(c) on the six-month anniversary of the effective date of the
termination of Employee's employment hereunder if his employment is
terminated without Cause;
(d) The Employee expressly agrees that the character, duration
and geographic scope of the provisions of this Section 7 are
reasonable in light of the circumstances as they exist on the date
hereof. If any competent court shall determine that the character,
duration or geographic scope of such provisions is unreasonable, then
it is the intention and the agreement of the Employee and the Company
that this Agreement shall be construed by the court in such a manner
as to impose only those restrictions on the Employee's conduct that
are reasonable in the light of the circumstances and that are
necessary to assure to the Company the benefits of this Section 7.
8. Entire Agreement; Amendments. This Agreement (upon its
effectiveness), together with option and other agreements relating to stock of
the Company entered into substantially contemporaneously herewith or with the
Closing, contains the entire understanding of the parties with respect to the
matters set out herein, merging and superseding all prior and contemporaneous
agreements and understandings between the parties with respect to such
matters. This Agreement may be amended only by a written instrument duly
executed by all parties or their respective heirs, successors, assigns or
legal personal representatives.
9. No Conflicts; No Assignments.
(a) Employee represents and warrants to the Company that he is
not as of the date of this Agreement, and will not become during the
Employment Period, a party to any oral or written contract that
prohibits, or materially restricts or limits, or will prohibit or
materially restrict or limit the performance of his duties or the
fulfillment of his obligations as an employee and an officer of
Condor or under this Agreement.
(b) The Employee acknowledges that the services to be rendered
by him are unique and personal and, accordingly, that he shall not
assign
8
<PAGE>
any of his rights or delegate any of his duties or obligations under
this Agreement.
10. Waiver of Breach. Either party may, by written notice to the
other: (i) extend the time for the performance of any of the obligations or
other actions of the other, (ii) waive compliance with any of the covenants of
the other contained in this Agreement, and (iii) waive or modify performance
of any of the obligations of the other. However, mere forbearance or
indulgence by either party in any regard whatsoever shall not constitute a
waiver of the covenant or condition to be performed by the other party to
which the same may apply and, until complete performance of said covenant or
condition, said party shall be entitled to invoke any remedy available under
this Agreement or by law or in equity despite said forbearance or indulgence.
11. Gender Number. Whenever the context of this Agreement so
required the masculine gender shall include the feminine or neuter, the single
number shall include plural, and reference to one or more parties hereto shall
include all assignees of the party.
12. Headings. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
13. Arbitration; Governing Law. To the fullest extent permitted by
law, any dispute, claim or controversy of any kind including but not limited
to, tort, contract and statute arising under, in connection with or related to
this Agreement shall be resolved exclusively by binding arbitration in the
State of California, in accordance with the rules of the American Arbitration
Association. The Company and the Employee hereby waive any objection to
personal jurisdiction or venue in any forum located in the State of
California. No claim, lawsuit or action of any kind may be filed by either
party to this Agreement; arbitration is the exclusive dispute resolution
mechanism between the parties. Judgment may be entered on the arbitrator's
award in any court of relevant jurisdiction. This agreement shall be governed
by and construed in accordance with the laws of the State of California as
such laws are applied to agreements entered into and to be performed entirely
within California by California residents.
14. Severability. In the event that any provision of this Agreement,
or the application thereof to any person or circumstance, is held by a court
of competent jurisdiction to be invalid, illegal or unenforceable in any
respect in any jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement in that jurisdiction or
the application of that provision to any other person or circumstance or in
any other jurisdiction, and this
10
<PAGE>
agreement shall then be construed in that jurisdiction as if such invalid,
illegal or unenforceable provision had not been contained in this Agreement,
but only to the extent of such invalidity, illegality or unenforceability.
15. Further Assurances. Each party shall perform such further acts
and execute and deliver such further documents as may be reasonably necessary
to carry out the provisions of this Agreement.
16. Enforcement. In the event either party hereto fails to perform
any of its obligations under this Agreement or in the event a dispute arises
concerning the meaning or interpretation of any provision of this Agreement,
the defaulting party or the party not prevailing in such dispute as the case
may be, shall pay the reasonable costs and expenses incurred by the other
party in enforcing or establishing its rights hereunder, including without
limitation, court costs and reasonable attorney's fees.
11
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have duly executed
and delivered this Employment Agreement as of the day and year first above
written.
CONDOR SYSTEMS, INC.
By: /s/ Gary M. Viljoen
------------------------------
Title: Chief Financial OFficer
---------------------------
EMPLOYEE:
/s/ Robert E. Young II
---------------------------------
Robert E. Young II
12
Exhibit 10.2.2
AGREEMENT
In exchange for the mutual promises described below and such other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, CONDOR SYSTEMS, INC. ("Condor") and John L. Barnum ("Employee")
hereby enter into the following Agreement ("Agreement") which is effective
upon the Effective Time (as defined in the Agreement and Plan of Merger dated
March 8, 1999 pursuant to which WDC Acquisition Corp. will merge with and into
Condor). The Employee shall be employed by Condor under this Agreement
commencing on the date of the Effective Time and ending on March 31, 2005.
This Agreement is binding upon Condor and its heirs, assignees and successors;
provided that this Agreement will have no force and effect until or unless the
Effective Time occurs.
Condor agrees to employ Employee as Senior Vice President and Chief
Technical Officer and to pay him an annual salary of $220,000 per year, which
will be subject to adjustment based on yearly merit reviews, plus any
discretionary bonuses for which he may be eligible. Such amounts shall be
determined by the Compensation Committee of the Board of Directors of Condor.
During his full-time employment with Condor, Employee will also be eligible to
receive all benefits that Condor offers its full-time employees.
Effective April 1, 2000, Employee will have the option of remaining a
full-time employee, subject to the salary provisions outlined above, or
becoming a part-time employee, subject to the terms and conditions outlined
below. As long as Employee remains continuously employed with Condor after
March 31, 2000 on a full time basis, this part-time employment option will
remain for a period of five (5) years, up to and including April 1, 2005 such
that Employee may elect to become a part-time employee at any time between
April 1, 2000 and April 1, 2005. Regardless of whether Employee elects to
remain a full-time employee or become a part-time employee, this Agreement
will terminate at 11:59 p.m. on April 1, 2005.
Except for the exclusion from its policy of at-will employment, the
terms and conditions of Employee's employment [full-time and part-time]
continue to be governed by the policies and procedures of Condor including
those that are contained in the Employee Handbook. If Condor terminates
Employee's full-time employment without cause prior to March 31, 2000, then
Condor agrees to pay Employee the sum of $300,000. The parties agree that for
purposes of termination "cause" shall mean: (i) Employee's conviction of any
felony or misdemeanor involving embezzlement, fraud, conversion or misuse of
Condor's funds or resources; (ii) Employee's willful failure or refusal to
comply with, or substantial and consistent disregard for, the employment
policies, standards and regulations of Condor and/or any reasonably
<PAGE>
given instructions in the course of employment; (iii) any breach of this
Agreement by Employee; (iv) Employee's failure to obtain or retain any
permits, licenses, or approvals which may be required by any state or local
authorities in the state of California in order to permit Employee to continue
employment as contemplated by this agreement; (v) any physical or mental
incapacity which prevents Employee from performing his duties under this
Agreement for a consecutive period of 120 days, or for at least 140 days in a
period of 200 days; (vi) intentional violations of laws by Employee; and (vii)
Employee's demonstrated performance deficiencies in performing the duties
required of him pursuant to this Agreement.
If Employee terminates his employment with Condor, for any reason,
prior to March 31, 2000, this Agreement will terminate and Condor shall not be
obligated to pay Employee any payment for any period after the termination
date.
As a part-time employee, Employee shall be engaged by Condor to
advise Condor with respect to those issues as Condor shall decide. Employee
shall devote such time, interest, and effort to the performance of this
Agreement as may be fairly and reasonably necessary. It is mutually understood
that Employee's permanent residence may not be in California and that
reasonable reimbursement, in accordance with Condor's standard travel
policies, will be made for work assignments that require travel. During the
part-time employment period of the Agreement, Condor agrees to pay Employee a
yearly part-time employment salary of at least $60,000 for the first year of
his part-time employment, and a minimum variable amount per year thereafter
until the termination of this Agreement. For the remaining years of part-time
employment, the variable amount per year for the part-time employment salary
shall equal the yearly fee of the previous year times a factor equal to (one
plus CPI/100), where "CPI" is the consumer price index of the current year end
percent. For such yearly part-time employment salary, Employee agrees to work
a maximum of ten (10) hours per week on average, over each calendar year. The
yearly part-time employment salary shall be paid bi-weekly and payment of the
salary is not contingent on Condor making a request for advice during the
calendar year.
During the part-time employment period of this Agreement, Employee
will be eligible for all benefits available to part-time employees. Subject to
any specific benefit plan constraints, Condor agrees to maintain Employee's
health and dental benefits at a level equal to the level he received as a
full-time employee. During the part-time employment period of this Agreement,
Employee will also continue to receive, subject to any specific plan
constraints, a pro-rata amount of long term disability and life insurance
benefits that he received as a full-time employee. The pro rata amount of
these benefits shall be dependent upon Employee's part-time employment salary.
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During the term of the part-time employment period of this Agreement,
at the request of Condor, and upon mutual agreement with Employee, Employee
may work more than five hundred twenty (520) hours per year. For hours worked
in excess of five hundred twenty (520) hours per year, Condor agrees to pay
per hour an amount equal to 1.2 times the equivalent hourly rate of the
current year (yearly fee divided by 520).
If Employee voluntarily terminates the part-time employment period of
this Agreement, Condor's obligation for further part-time salary and benefits
shall cease immediately and Condor shall not be obligated to pay Employee any
payment for any period after the termination date. If Condor terminates the
part-time period of this Agreement without cause prior to April 1, 2005,
Condor agrees to pay Employee a lump sum equal to the number of years and any
fraction of year remaining in the part-time employment period of five years,
times the currently yearly consulting fee. For example, if Condor terminates
Employee's part-time employment on September 1, 2001, and the CPI is four
percent (4%), the lump sum paid shall equal ($60,000 x 1.04) x 3.5 years, or
$218,400.
Employee agrees not to consult for other companies which may be
competitors of Condor during this Agreement and for a period of two years
after the conclusion of this Agreement. During the part-time employment period
of this Agreement, Employee agrees to give priority to his employment with
Condor if engaged in consulting work for other non-competitive companies.
Moreover, during the terms of this Agreement, Employee shall not, directly or
indirectly, whether as a consultant, partner, employee, creditor, shareholder,
or otherwise, promote, participate, or engage in any activity or other
business in competition with Condor's business. However, subject to the above
restrictions, during the part-time employment period of this Agreement
Employee shall be free to independently contract with other non-competitive
businesses to provide consulting services. However, in no event shall any
other consulting arrangement interfere with Employee's performance of the
duties under this Agreement.
Employee's failure to comply with the provisions of the preceding
paragraph shall give Condor the right (in addition to all other remedies
Condor may have) to terminate any benefit or compensation to which Employee
may be otherwise entitled following the termination of this Agreement and seek
injunctive relief.
In the course of this Agreement, Employee will have access to
confidential information and trade secrets relating to Condor's business. In
addition, Employee will have access to information regarding other information
which is protected by proprietary, trademark, confidential information and
possibly covered by applicable patents. Employee will not, without Condor's
prior consent, either during the course of this Agreement or after termination
of the agreement, directly or indirectly
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disclose to any third person any such confidential information or trade
secret. Nor shall Employee use such confidential and/or trade secret
information to solicit customers for himself or any other third party.
Employee's failure to comply with the provisions of the preceding sentence
shall give Condor the right (in addition to all other remedies Condor may
have) to terminate any benefit or compensation to which Employee may be
otherwise entitled following the termination of this Agreement and seek
injunctive relief.
If during the term of this Agreement, Employee dies, then the
Agreement shall be terminated on the last day of the calendar month of his
death.
This Agreement is made and entered into in the State of California.
California law shall govern the validity and interpretation of the Agreement.
This Agreement sets forth the entire understanding and agreement
between Condor and Employee with respect to the subject matter herein and
supersedes any prior or contemporaneous oral and/or written agreement or
representations, if any, between Condor and Employee. Its terms may not be
modified or supplemented, except by mutual agreement executed by Condor and
Employee.
DATED: EMPLOYEE:
4/12/99 /s/ John L. Barnum
-----------------------------------
John L. Barnum
DATED: CONDOR SYSTEMS, INC.
By: /s/ Gary M. Viljoen
--------------------------------
Title: Chief Financial Officer
-----------------------------
4
Exhibit 10.2.3
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is entered into as of April
6, 1999, by and between CONDOR SYSTEMS, INC., a California corporation (the
"Company"), and VERNON DALE, an individual resident of the State of California
(the "Employee").
WHEREAS, the Company, WDC Acquisition Corp. and the Shareholders of
the Company (as defined in the Merger Agreement) have entered into that certain
Agreement and Plan of Merger (the "Merger Agreement") dated as of March 8, 1999
pursuant to which WDC Acquisition Corp. will merge with and into the Company at
the Effective Time (as defined in the Merger Agreement);
WHEREAS, the Company wishes to assure that it will have the benefit
of the knowledge and experience of Employee, who has been the Vice President of
Business Development of the Company; and
WHEREAS, Employee is willing to enter into an agreement to such end
upon the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the parties hereto agree as follows:
1. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts such employment with the Company, upon the terms and
conditions hereinafter set forth.
2. Term of Employment. Unless earlier terminated as provided in
Section 5, the Employee shall be employed by the Company under this Agreement
commencing on the date of the Effective Time (as defined in the Merger
Agreement) and ending on the second anniversary thereof (the "Employment
Period"). On the second and each succeeding anniversary of the Effective Time,
the Employment Period shall automatically be extended for one additional year
unless, not later than 30 days prior to such anniversary, the Employee or the
Company shall have given notice of his or its intention not to extend the
Employment Period. This Agreement will have no force and effect (i) until or
unless the Effective Time occurs and (ii) until or unless the stockholders of
the Company shall have approved this Agreement pursuant to Section 8 of this
Agreement. Upon its effectiveness, this Agreement will supercede the Employment
Agreement dated November 1996 between the Company and the Employee, which shall
remain in effect, in accordance with its terms, until it is superceded by this
Agreement.
<PAGE>
3. Title and Duties.
(a) The Employee shall have the title and position of Vice President
of Business Development of the Company. In addition to the foregoing, the
Company's Board of Directors (the "Board") may, in the exercise of its business
judgement, elect the Employee to such other office or offices as it may
determine during the Employment Period.
(b) In such capacities, Employee shall report to the Chief Executive
Officer of the Company. Employee's responsibilities shall be as specified by
the Board or the Chief Executive Officer but, in general, the Employee shall
have such authority and such responsibilities as are consistent with the
foregoing positions.
(c) Throughout the Employment Period, the Employee shall devote
substantially all of his time, energy, skill and best efforts to the
performance of his duties hereunder in a manner which will faithfully and
diligently further the business and interests of the Company. Subject to the
preceding sentence, the Employee may serve, or continue to serve, on the boards
of directors of other entities and may engage in appropriate civic or
charitable activities as long as such activities do not interfere or conflict
with the performance of the Employee's duties pursuant to this agreement, and
provided that any board of directors position is disclosed to the Board in
writing at least 10 days in advance of Employee's election to such board of
directors position.
4. Compensation.
(a) Base Salary. The Company shall pay the Employee as compensation a
salary at the beginning rate of $185,000 per year ("Base Salary"), payable in
accordance with the ordinary compensation practices of the Company. The
Compensation Committee of the Board shall annually review the Base Salary for
possible increase, in its sole discretion.
(b) Bonus. Employee shall be eligible to receive an annual bonus (the
"Bonus") of up to 100% of Base Salary for each calendar year in accordance with
the following:
(i) For an amount up to 75% of Base Salary:
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(A) If EBITDA, as hereunder defined, for any calendar year
is less than the Floor EBITDA for such year, the Company will pay the
Employee no bonus.
(B) If EBITDA for any calendar year is equal to the Target
EBITDA for such year, the Company shall pay the Employee a bonus of
30% of the actual Base Salary paid to the Employee during such
calendar year;
(C) If EBITDA for any calendar year is equal to or greater
than the Ceiling EBITDA for such year, the Company shall pay the
Employee a total of 75% of the actual Base Salary paid to the
Employee during such calendar year;
(D) If EBITDA for any calendar year is greater than the
Floor EBITDA for such year but is less than the Target EBITDA for
such year, the Company will pay the Employee a bonus calculated by
linear interpolation, as described in Attachment I. If EBITDA for any
calendar year is greater than the Target EBITDA for such year but is
less than the Ceiling EBITDA for such year, the Company will pay the
Employee a bonus calculated by linear interpolation, as described in
Attachment I;
(ii) For an amount equal to 25% of Base Salary:
(A) For any calendar year, if the Employee achieves the
Major Business Objectives for such year, the Company will pay the
Employee a bonus (in addition to any bonus paid by the Company to
Employee pursuant to Section 4(b)(i) of this Agreement) of 25% of the
actual Base Salary paid to the Employee during such calendar year.
Therefore, if the Employee achieves his Major Business Objectives for
any calendar year and the Company achieves Target EBITDA for such
year, Employee is eligible for a total bonus of 55% of the actual
Base Salary paid to the Employee during such calendar year.
(iii) Definitions. for purposes of this Section 4:
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(A) "EBITDA" means, for each calendar year, the EBITDA
number achieved by the Company, as determined annually for purposes
of this Agreement by the Compensation Committee of the Board.
(B) "Floor EBITDA" means, for any applicable calendar year,
a projected EBITDA established annually for purposes of this
Agreement by the Compensation Committee of the Board, together with
the Employee; provided that the 1999 Floor EBITDA shall be
$19,000,000.
(C) "Target EBITDA" means, for any applicable calendar
year, a projected EBITDA established annually for purposes of this
Agreement by the Compensation Committee of the Board, together with
the Employee; provided that the 1999 Target EBITDA shall be
$20,000,000.
(D) "Ceiling EBITDA" means, for any applicable calendar
year, a projected EBITDA established annually for purposes of this
Agreement by the Compensation Committee of the Board, together with
the Employee; provided that the 1999 Ceiling EBITDA shall be
$21,000,000.
(E) "Major Business Objectives" means, for any applicable
calendar year, the major business objectives of the Employee, as
determined annually by the Compensation Committee of the Board.
(c) Reimbursement of Expenses. The Company shall pay or reimburse the
Employee for all reasonable travel and other expenses incurred by the Employee
in the performance of his obligations under this agreement, provided that the
Employee properly accounts therefor in accordance with the policies and
procedures of the Company.
(d) Vacation. The Employee shall be entitled to a number of paid
vacation days in each calendar year as determined by the Company from time to
time for its employees in accordance with Company policy (prorated for any
calendar year in which the Employee is employed under this Agreement for less
than the entire year).
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<PAGE>
(e) Employee Benefits. During the Employment Period, Employee shall
be eligible, on the same basis as he is currently eligible, for employee
benefits (including fringe benefits, vacation, automobile allowance, pension
and life, health, accident and disability insurance) no less favorable than
those benefits for which he is eligible immediately prior to the Effective
Time, except for the Company's ESOP and other stock-based plans.
(f) Withholding. All payments under this Agreement shall be subject
to withholding for applicable taxes.
5. Termination. The Employee's employment by the Company shall be
terminated upon the occurrence of any of the following:
(a) By Employee Without Cause. The Employee may terminate his
employment under this Agreement upon at least 120 days' prior notice to the
Board of the Company. Upon termination of his employment and upon experiencing
a qualifying event, COBRA coverage shall be made available to the Employee in
compliance with federal law.
(b) By Employee for Good Reason. The Employee may terminate his
employment under this Agreement after the Effective Time, upon at least 30
days' prior notice to the Board of the Company, for Good Reason. For purposes
of this Agreement, "Good Reason" shall mean the occurrence of the following:
(i) the occurrence of a "Change in Control." For purposes of
this Agreement, a "Change in Control" shall mean the occurrence of (x) the
consolidation, reorganization or merger of the Company with or into
another corporation or corporations or other legal entitie(s) not
controlled by any entity that is an affiliate of the Company immediately
following the Effective Time, or (y) the conveyance of all or
substantially all of the stock or assets of the Company to another person
or entity not controlled by any entity that is an affiliate of the Company
immediately following the Effective Time; provided that a Change in
Control shall not be deemed to occur upon the occurrence of an initial
public offering of the Company's capital stock ("IPO"); or
(ii) the Employee's duties, authority or responsibilities as
Vice President of Business Development of the Company, whether
5
<PAGE>
managerial or supervisory, are materially diminished without the
prior consent of the Employee.
(c) By the Company for Cause. The Company may terminate the
Employee's employment for Cause. "Cause" for purposes of this Agreement shall
mean Employee's (i) personal dishonesty; (ii) willful misconduct; (iii) breach
of fiduciary duty; (iv) failure to perform designated duties or willful refusal
to implement decisions of the Board made in good faith; (v) willful violation,
for financial gain, of any law, rule or regulation; or (vi) material breach of
any provision of this Agreement; provided, however, that prior to any proposed
Board action pursuant to subparagraph (iv) the Board shall give the Employee
reasonable opportunity to respond and, if appropriate, to otherwise perform as
directed.
The Employee's right to compensation and other benefits from the
Company under this agreement shall cease upon the Company's terminating the
Employee's employment under this agreement for Cause. The provisions of this
Section 5(c) shall take precedence over the provisions of Section 5(a)
notwithstanding any prior notice by the Employee to the Company under Section
5(a).
(d) By the Company Without Cause. The Company may terminate the
Employee's employment under this agreement without Cause therefor at any time.
6. Severance Pay
(a) In the event that the Employee's employment under this Agreement
is terminated pursuant to the provisions of Section 5(b) or 5(d), or if the
employee's Employment Period is not renewed by the Company pursuant to Section
2, as severance pay the Employee shall be paid a total of $500,000. Such
severance pay shall be paid in a lump sum to an escrow account at a bank
designated by the Company, and thereafter shall be paid to the Employee in
eight equal installments on the last business day of each of the eight fiscal
quarters following the fiscal quarter during which Employee's employment is
terminated, beginning with such fiscal quarter; provided that the escrow
agreement will provide that all payments of Employee's severance pay will cease
if Employee breaches any of the provisions of Section 7 of this Agreement.
Employee shall also be entitled to continued eligibility to participate in all
health, medical and dental benefit plans of the Company for which Employee was
eligible immediately prior to the effective time of the termination of
Employee's
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<PAGE>
employment, or comparable coverage, for two years, or, if sooner,
until comparable health insurance coverage is available to Employee in
connection with subsequent employment or self-employment. In addition, the
termination of the Employee's employment shall not accelerate vesting of any
unvested Options or Stock Appreciation Rights (as such terms are defined in the
1999 Management Incentive Plan) held by the Employee.
(b) In the event that the Employee's employment under this Agreement
is terminated upon the death or disability of the Employee, then the Employee
will not be entitled to the severance benefits set forth in Section 6(a);
however, the Company will pay to the Employee or the Employee's spouse (if she
is then living) the Employee's then-current Base Salary in accordance with the
Company's normal pay practices until the earlier of (i) the end of the sixth
calendar month following Employee's termination of active service, or (ii) such
time as the Employee's spouse (or a trust for her benefit) has received
proceeds from the life or disability insurance policy, as the case may be,
described in Section 4(e). Any Base Salary paid after the death or disability
of the Employee pursuant to clause (i) above shall be repaid to the Company
upon the receipt of the insurance proceeds described in clause (ii) by the
Employee's spouse (or by a trust for her benefit). The Company shall also pay
to Employee or Employee's spouse the pro rata portion of Employee's bonus for
the year during which the death or disability of the employee occurs which
payment shall not be subject to repayment. As of the date of the death or
disability of Employee, all benefits for the Employee pursuant to section 4(c),
(d) and (e) of this Agreement shall cease. Options and Stock Appreciation
Rights (as such terms are defined in the Company's 1999 Management Incentive
Plan) held by the Employee shall expire on the dates upon which such Options
and Stock Appreciation Rights would have expired had it not been for the
termination of Employee's employment or service. The Employee shall have the
right to exercise such Options and Stock Appreciation Rights prior to such
expiration to the extent such were exercisable at the date of such termination
of employment or service and shall not have been exercised. In addition, the
termination of the Employee's employment shall not accelerate vesting of any
unvested Options or Stock Appreciation Rights held by the Employee.
(c) If the Employee terminates his employment pursuant to Section
5(a) and continues to provide services to the Company, or if the Employee's
Employment under this Agreement is terminated pursuant to Section 5(c), the
Company shall continue to pay the Employee his then- current Base Salary in
equal monthly installments until the termination of his active service with the
Company if the Employee resigns pursuant to
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<PAGE>
Section 5(a), or until the date of his termination if the Employee's
employment is terminated pursuant to Section 5(c). As of the effective date of
Employee's termination pursuant to Section 5(a) or Section 5(c), Employee shall
be entitled to no bonus or benefits pursuant to this Agreement, and the
Employee's right to exercise any Option or Stock Appreciation Right Shall
terminate, and such Option or Stock Appreciation Right shall expire, on the day
of such termination of employment or service. In addition, the Company or its
designee shall have the right to purchase all or a portion of the vested
Options and/or Shares (as defined in the 1999 Management Incentive Plan)
acquired upon the exercise of Options by the Employee at a per share price
equal to the lower of (i) the price paid by Employee for such Shares which have
been issued or which are issuable under vested but unexercised Options and (ii)
the fair market value (as determined in accordance with Section 2.07 of the
Investors Agreement dated as of April 1999 by and between the Company and the
several Shareholders (as defined therein) from time to time parties thereto) of
such Shares which have been issued or which are issuable under vested but
unexercised Options on the date of purchase, less the exercise price in the
case of vested Options. The Company or its designee shall also have the right
to purchase all or a portion of any other Shares, including Rollover Shares (as
defined in the 1999 Management Incentive Plan), previously purchased by the
Employee, at a per share price equal to the fair market value (as determined in
accordance with Section 2.07 of the Investors Agreement dated as of April 1999
by and between the Company and the several Shareholders (as defined therein)
from time to time parties thereto) of the Shares on the date of purchase. If
the Company elects to exercises its right under this Section 6(c), the Company
shall deliver written notice (a"Purchase Notice") to the Employee to such
effect within 30 days of a termination of Employee's employment. For purposes
of this Section 6(c), the "date of purchase" shall mean the third business day
following the receipt of notice by the Employee that the purchase right is to
be exercised. Payment of the purchase price may be made in cash or by certified
check; provided that if the terms of any agreement to which the Company is a
party, or any of the indentures governing any debt securities issued by the
Company or any of its subsidiaries would prohibit the Company from effecting
such payment, payment may be effected through a promissary note having such
commercially reasonable terms and interest rate as may be determined by the
Company in its reasonable discretion, provided that in any event such note
shall become due at such time as the prohibitions described above shall lapse.
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<PAGE>
(d) The provisions of this Section 6 and Section 7 of this Agreement
shall survive any termination of this Agreement.
7. Non-Competition and Non-Solicitation
(a) Subject to Section 7(b) below, in consideration of his employment
hereunder and in view of the confidential position to be held by the Employee
hereunder, during the Employment Period and through the two-year period
commencing on the effective date of the termination of Employee's employment
hereunder, the Employee shall not, directly or indirectly, be employed by, or
act as a consultant or lender to or in association with, or as a director,
officer, employee, partner, owner, joint venturer, member or otherwise of any
person, firm, corporation, partnership, limited liability company, association
or other entity that engages in the same business as, or competes with, any
business actually conducted by the Company or any or its subsidiaries (other
than beneficial ownership of up to 2% of the outstanding voting stock of a
publicly traded company that is or owns such a competitor);
(b) In the event that the employee is terminated by the Company for
Cause or resigns without Good Reason, during the Employment Period and through
the one-year period commencing on the effective date of the termination of
Employee's employment hereunder, the Employee shall not, directly or
indirectly, be employed by, or act as a consultant or lender to or in
association with, or as a director, officer, employee, partner, owner, joint
venturer, member or otherwise of any person, firm, corporation, partnership,
limited liability company, association or other entity that engages in the same
business as, or competes with, any business actually conducted by the Company
or any of its subsidiaries (other than beneficial ownership of up to 2% of the
outstanding voting stock of a publicly traded company that is or owns such a
competitor);
(c) In consideration of his employment hereunder and in view of the
confidential position to be held by the Employee hereunder, during the
Employment Period and through the one-year period commencing on the effective
date of the termination of Employee's employment hereunder, the Employee will
not (i) induce or attempt to induce any employee of the Company or any of its
subsidiaries to leave the employ of the Company or such subsidiary, or in any
way interfere with the relationship between the Company or any of it
subsidiaries and any employee thereof, (ii) hire directly or indirectly any
person who is then an employee of the Company or any of its subsidiaries, or
(iii) induce or attempt to induce any customer, supplier, licensee or other
business relation of the Company or any of its
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subsidiaries to cease doing business with the Company or such subsidiary, or in
any way interfere with the relationship between any such customer, supplier,
licensee or business relation and the Company or such subsidiary; provided,
however, that the Employee will cease to be bound by this Section 7(c) on the
six-month anniversary of the effective date of the termination of Employee's
employment hereunder if his employment is terminated without Cause;
(d) The Employee expressly agrees that the character, duration and
geographic scope of the provisions of this Section 7 are reasonable in light of
the circumstances as they exist on the date hereof. If any competent court
shall determine that the character, duration or geographic scope of such
provisions is unreasonable, then it is the intention and the agreement of the
Employee and the Company that this Agreement shall be construed by the court in
such a manner as to impose only those restrictions on the Employee's conduct
that are reasonable in the light of the circumstances and that are necessary to
assure to the Company the benefits of this Section 7.
8. Stockholder Approval. This Agreement shall be effective upon
submission to and approval by stockholders of the Company holding more than 75%
of the voting power of all outstanding common stock of the Company. In
connection with such submission and approval, the Company represents that it
has provided each stockholder with the disclosure required by Treasury
Regulation Section 1.280G-1-Q&A 7(d).
9. Entire Agreement; Amendments. This Agreement (upon its
effectiveness), together with option and other agreements relating to stock of
the Company entered into substantially contemporaneously herewith or with the
Closing, contains the entire understanding of the parties with respect to the
matters set out herein, merging and superseding all prior and contemporaneous
agreements and understandings between the parties with respect to such matters.
This Agreement may be amended only by a written instrument duly executed by all
parties or their respective heirs, successors, assigns or legal personal
representatives.
10. No Conflicts; No Assignments.
(a) Employee represents and warrants to the Company that he is not as
of the date of this Agreement, and will not become during the Employment
Period, a party to any oral or written contract that prohibits, or materially
restricts or limits, or will prohibit or materially restrict or
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limit the performance of his duties or the fulfillment of his obligations as an
employee and an officer of the Company or under this Agreement.
(b) The Employee acknowledges that the services to be rendered by him
are unique and personal and, accordingly, that he shall not assign any of his
rights or delegate any of his duties or obligations under this Agreement.
11. Waiver of Breach. Either party may, by written notice to the
other: (i) extend the time for the performance of any of the obligations or
other actions of the other, (ii) waive compliance with any of the covenants of
the other contained in this Agreement, and (iii) waive or modify performance of
any of the obligations of the other. However, mere forbearance or indulgence by
either party in any regard whatsoever shall not constitute a waiver of the
covenant or condition to be performed by the other party to which the same may
apply and, until complete performance of said covenant or condition, said party
shall be entitled to invoke any remedy available under this Agreement or by law
or in equity despite said forbearance or indulgence.
12. Gender Number. Whenever the context of this Agreement so required
the masculine gender shall include the feminine or neuter, the single number
shall include plural, and reference to one or more parties hereto shall include
all assignees of the party.
13. Headings. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
14. Arbitration; Governing Law. To the fullest extent permitted by
law, any dispute, claim or controversy of any kind including but not limited
to, tort, contract and statute arising under, in connection with or related to
this Agreement shall be resolved exclusively by binding arbitration in the
State of California, in accordance with the rules of the American Arbitration
Association. The Company and the Employee hereby waive any objection to
personal jurisdiction or venue in any forum located in the State of California.
No claim, lawsuit or action of any kind may be filed by either party to this
Agreement; arbitration is the exclusive dispute resolution mechanism between
the parties. Judgment may be entered on the arbitrator's award in any court of
relevant jurisdiction. This agreement shall be governed by and construed in
accordance with the laws of the State of California as such laws are applied to
agreements entered into and to be performed entirely within California by
California residents.
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15. Severability. In the event that any provision of this Agreement,
or the application thereof to any person or circumstance, is held by a court of
competent jurisdiction to be invalid, illegal or unenforceable in any respect
in any jurisdiction, such invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement in that jurisdiction or the
application of that provision to any other person or circumstance or in any
other jurisdiction, and this agreement shall then be construed in that
jurisdiction as if such invalid, illegal or unenforceable provision had not
been contained in this Agreement, but only to the extent of such invalidity,
illegality or unenforceability.
16. Further Assurances. Each party shall perform such further acts
and execute and deliver such further documents as may be reasonably necessary
to carry out the provisions of this Agreement.
17. Enforcement. In the event either party hereto fails to perform
any of its obligations under this Agreement or in the event a dispute arises
concerning the meaning or interpretation of any provision of this Agreement,
the defaulting party or the party not prevailing in such dispute as the case
may be, shall pay the reasonable costs and expenses incurred by the other party
in enforcing or establishing its rights hereunder, including without
limitation, court costs and reasonable attorney's fees.
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IN WITNESS WHEREOF, the Company and the Employee have duly executed
and delivered this Employment Agreement as of the day and year first above
written.
CONDOR SYSTEMS, INC.
By: /s/ Gary M. Viljoen
---------------------------------
Title: Chief Financial Officer
---------------------------
EMPLOYEE:
/s/ Vernon Dale
------------------------------------
Vernon Dale
13
EXHIBIT 10.2.4
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is entered into as of April 6,
1999, by and between CONDOR SYSTEMS, INC., a California corporation (the
"Company"), and DAVE KLINGLER, an individual resident of the State of California
(the "Employee").
WHEREAS, the Company, WDC Acquisition Corp. and the Shareholders of the
Company (as defined in the Merger Agreement) have entered into that certain
Agreement and Plan of Merger (the "Merger Agreement") dated as of March 8, 1999
pursuant to which WDC Acquisition Corp. will merge with and into the Company at
the Effective Time (as defined in the Merger Agreement);
WHEREAS, the Company wishes to assure that it will have the benefit of
the knowledge and experience of Employee, who has been the Vice President of
Advanced Program Development of the Company; and
WHEREAS, Employee is willing to enter into an agreement to such end
upon the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the parties hereto agree as follows:
1. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts such employment with the Company, upon the terms and
conditions hereinafter set forth.
2. Term of Employment. Unless earlier terminated as provided in
Section 5, the Employee shall be employed by the Company under this Agreement
commencing on the date of the Effective Time (as defined in the Merger
Agreement) and ending on the second anniversary thereof (the "Employment
Period"). On the second and each succeeding anniversary of the Effective Time,
the Employment Period shall automatically be extended for one additional year
unless, not later than 30 days prior to such anniversary, the Employee or the
Company shall have given notice of his or its intention not to extend the
Employment Period. This Agreement will have no force and effect (i) until or
unless the Effective Time occurs and (ii) until or unless the stockholders of
the Company shall have approved this Agreement pursuant to Section 8 of this
Agreement. Upon its effectiveness, this Agreement will supercede the Employment
Agreement dated November 1996 between the Company and the Employee, which shall
remain in effect, in accordance with its terms, until superceded by this
Agreement.
<PAGE>
3. Title and Duties.
(a) The Employee shall have the title and position of Vice
President of Advanced Program Development of the Company. In addition
to the foregoing, the Company's Board of Directors (the "Board") may,
in the exercise of its business judgement, elect the Employee to such
other office or offices as it may determine during the Employment
Period.
(b) In such capacities, Employee shall report to the Chief
Executive Officer of the Company. Employee's responsibilities shall be
as specified by the Board or the Chief Executive Officer but, in
general, the Employee shall have such authority and such
responsibilities as are consistent with the foregoing positions.
(c) Throughout the Employment Period, the Employee shall devote
substantially all of his time, energy, skill and best efforts to the
performance of his duties hereunder in a manner which will faithfully
and diligently further the business and interests of the Company.
Subject to the preceding sentence, the Employee may serve, or continue
to serve, on the boards of directors of other entities and may engage
in appropriate civic or charitable activities as long as such
activities do not interfere or conflict with the performance of the
Employee's duties pursuant to this agreement, and provided that any
board of directors position is disclosed to the Board in writing at
least 10 days in advance of Employee's election to such board of
directors position.
4. Compensation.
(a) Base Salary. The Company shall pay the Employee as
compensation a salary at the beginning rate of $185,000 per year ("Base
Salary"), payable in accordance with the ordinary compensation
practices of the Company. The Compensation Committee of the Board shall
annually review the Base Salary for possible increase, in its sole
discretion.
(b) Bonus. Employee shall be eligible to receive an annual bonus
(the "Bonus") of up to 100% of Base Salary for each calendar year in
accordance with the following:
(i) For an amount up to 75% of Base Salary:
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(A) If EBITDA, as hereunder defined, for any calendar
year is less than the Floor EBITDA for such year, the
Company will pay the Employee no bonus.
(B) If EBITDA for any calendar year is equal to the
Target EBITDA for such year, the Company shall pay the
Employee a bonus of 30% of the actual Base Salary paid to
the Employee during such calendar year;
(C) If EBITDA for any calendar year is equal to or
greater than the Ceiling EBITDA for such year, the Company
shall pay the Employee a total of 75% of the actual Base
Salary paid to the Employee during such calendar year;
(D) If EBITDA for any calendar year is greater than the
Floor EBITDA for such year but is less than the Target
EBITDA for such year, the Company will pay the Employee a
bonus calculated by linear interpolation, as described in
Attachment I. If EBITDA for any calendar year is greater
than the Target EBITDA for such year but is less than the
Ceiling EBITDA for such year, the Company will pay the
Employee a bonus calculated by linear interpolation, as
described in Attachment I;
(ii) For an amount equal to 25% of Base Salary:
(A) For any calendar year, if the employee achieves the
Major Business Objectives for such year, the company will
pay the Employee a bonus (in addition to any bonus paid by
the company to Employee pursuant to Section 4(b)(i) of this
Agreement) of 25% of the actual Base Salary paid to the
employee during such calendar year. Therefore, if the
Employee achieves his Major Business Objectives for any
calendar year and the Company achieves Target EBITDA for
such year, Employee is eligible for a total bonus of 55% of
the actual Base Salary paid to the Employee during such
Calendar year.
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(iii) Definitions. for purposes of this Section 4:
(A) "EBITDA" means, for each calendar year, the EBITDA
number achieved by the Company, as determined annually for
purposes of this Agreement by the Compensation Committee of
the Board.
(B) "Floor EBITDA" means, for any applicable calendar
year, a projected EBITDA established annually for purposes
of this Agreement by the Compensation Committee of the
Board, together with the Employee; provided that the 1999
Floor EBITDA shall be $19,000,000.
(C) "Target EBITDA" means, for any applicable calendar
year, a projected EBITDA established annually for purposes
of this Agreement by the Compensation Committee of the
Board, together with the Employee; provided that the 1999
Target EBITDA shall be $20,000,000.
(D) "Ceiling EBITDA" means, for any applicable calendar
year, a projected EBITDA established annually for purposes
of this Agreement by the Compensation Committee of the
Board, together with the Employee; provided that the 1999
Ceiling EBITDA shall be $21,000,000.
(E) "Major Business Objectives" means, for any applicable
calendar year, the major business objectives of the Employee
as determined annually by the Compensation Committee of the
Board.
(c) Reimbursement of Expenses. The Company shall pay or reimburse
the Employee for all reasonable travel and other expenses incurred by
the Employee in the performance of his obligations under this
agreement, provided that the Employee properly accounts therefor in
accordance with the policies and procedures of the Company.
(d) Vacation. The Employee shall be entitled to a number of paid
vacation days in each calendar year as determined by the Company from
time to time for its employees in accordance with Company policy
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<PAGE>
(prorated for any calendar year in which the Employee is employed under
this Agreement for less than the entire year).
(e) Employee Benefits. During the Employment Period, Employee
shall be eligible, on the same basis as he is currently eligible, for
employee benefits (including fringe benefits, vacation, automobile
allowance, pension and life, health, accident and disability insurance)
no less favorable than those benefits for which he is eligible
immediately prior to the Effective Time, except for the Company's ESOP
and other stock-based plans.
(f) Withholding. All payments under this Agreement shall be
subject to withholding for applicable taxes.
5. Termination. The Employee's employment by the Company shall be
terminated upon the occurrence of any of the following:
(a) By Employee Without Cause. The Employee may terminate his
employment under this Agreement upon at least 120 days' prior notice to
the Board of the Company. Upon termination of his employment and upon
experiencing a qualifying event, COBRA coverage shall be made available
to the Employee in compliance with federal law.
(b) By Employee for Good Reason. The Employee may terminate his
employment under this Agreement after the Effective Time, upon at least
30 days' prior notice to the Board of the Company, for Good Reason. For
purposes of this Agreement, "Good Reason" shall mean the occurrence of
the following:
(i) the occurrence of a "Change in Control." For purposes of
this Agreement, a "Change in Control" shall mean the occurrence of
(x) the consolidation, reorganization or merger of the Company
with or into another corporation or corporations or other legal
entitie(s) not controlled by any entity that is an affiliate of
the Company immediately following the Effective Time, or (y) the
conveyance of all or substantially all of the stock or assets of
the Company to another person or entity not controlled by any
entity that is an affiliate of the Company immediately following
the Effective Time; provided that a Change in Control shall not be
deemed to occur upon the occurrence of an initial public offering
of the Company's capital stock ("IPO"); or
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<PAGE>
(ii) the Employee's duties, authority or responsibilities as
Vice President of Advanced Program Development of the Company,
whether managerial or supervisory, are materially diminished
without the prior consent of the Employee.
(c) By the Company for Cause. The Company may terminate the
Employee's employment for Cause. "Cause" for purposes of this Agreement
shall mean Employee's (i) personal dishonesty; (ii) willful misconduct;
(iii) breach of fiduciary duty; (iv) failure to perform designated
duties or willful refusal to implement decisions of the Board made in
good faith; (v) willful violation, for financial gain, of any law, rule
or regulation; or (vi) material breach of any provision of this
Agreement; provided, however, that prior to any proposed Board action
pursuant to subparagraph (iv) the Board shall give the Employee
reasonable opportunity to respond and, if appropriate, to otherwise
perform as directed.
The Employee's right to compensation and other benefits from the
Company under this agreement shall cease upon the Company's terminating the
Employee's employment under this agreement for Cause. The provisions of this
Section 5(c) shall take precedence over the provisions of Section 5(a)
notwithstanding any prior notice by the Employee to the Company under Section
5(a).
(d) By the Company Without Cause. The Company may terminate the
Employee's employment under this agreement without Cause therefor at
any time.
6. Severance Pay
(a) In the event that the Employee's employment under this
Agreement is terminated pursuant to the provisions of Section 5(b) or
5(d), or if the employee's Employment Period is not renewed by the
Company pursuant to Section 2, as severance pay the Employee shall be
paid a total of $500,000. Such severance pay shall be paid in a lump
sum to an escrow account at a bank designated by the Company, and
thereafter shall be paid to the Employee in eight equal installments on
the last business day of each of the eight fiscal quarters following
the fiscal quarter during which Employee's employment is terminated,
beginning with such fiscal quarter; provided that the escrow agreement
will provide that all payments of Employee's severance pay will cease
if Employee breaches any of the provisions of Section 7 of this
Agreement. Employee shall also be entitled to continued eligibility to
participate in all health, medical and dental
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<PAGE>
benefit plans of the Company for which Employee was eligible
immediately prior to the effective time of the termination of
Employee's employment, or comparable coverage, for two years, or, if
sooner, until comparable health insurance coverage is available to
Employee in connection with subsequent employment or self-employment.
In addition, the termination of the Employee's employment shall not
accelerate vesting of any unvested Options or Stock Appreciation Rights
(as such terms are defined in the 1999 Management Incentive Plan) held
by the Employee.
(b) In the event that the Employee's employment under this
Agreement is terminated upon the death or disability of the Employee,
then the Employee will not be entitled to the severance benefits set
forth in Section 6(a); however, the Company will pay to the Employee or
the Employee's spouse (if she is then living) the Employee's
then-current Base Salary in accordance with the Company's normal pay
practices until the earlier of (i) the end of the sixth calendar month
following Employee's termination of active service, or (ii) such time
as the Employee's spouse (or a trust for her benefit) has received
proceeds from the life or disability insurance policy, as the case may
be, described in Section 4(e). Any Base Salary paid after the death or
disability of the Employee pursuant to clause (i) above shall be repaid
to the Company upon the receipt of the insurance proceeds described in
clause (ii) by the Employee's spouse (or by a trust for her benefit).
The Company shall also pay to Employee or Employee's spouse the pro
rata portion of Employee's bonus for the year during which the death or
disability of the employee occurs which payment shall not be subject to
repayment. As of the date of the death or disability of Employee, all
benefits for the Employee pursuant to section 4(c), (d) and (e) of this
Agreement shall cease. Options and Stock Appreciation Rights (as such
terms are defined in the Company's 1999 Management Incentive Plan) held
by the Employee shall expire on the dates upon which such Options and
Stock Appreciation Rights would have expired had it not been for the
termination of Employee's employment or service. The Employee shall
have the right to exercise such Options and Stock Appreciation Rights
prior to such expiration to the extent such were exercisable at the
date of such termination of employment or service and shall not have
been exercised. In addition, the termination of the Employee's
employment shall not accelerate vesting of any unvested Options or
Stock Appreciation Rights held by the Employee.
(c) If the Employee terminates his employment pursuant to Section
5(a) and continues to provide services to the Company, or if the
Employee's Employment under this Agreement is terminated pursuant to
Section 5(c), the Company shall continue to pay the Employee his
then-
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<PAGE>
current Base Salary in equal monthly installments until the
termination of his active service with the Company if the Employee
resigns pursuant to Section 5(a), or until the date of his termination
if the Employee's employment is terminated pursuant to Section 5(c). As
of the effective date of Employee's termination pursuant to Section
5(a) or Section 5(c), Employee shall be entitled to no bonus or
benefits pursuant to this Agreement, and the Employee's right to
exercise any Option or Stock Appreciation Right Shall terminate, and
such Option or Stock Appreciation Right shall expire, on the day of
such termination of employment or service. In addition, the Company or
its designee shall have the right to purchase all or a portion of the
vested Options and/or Shares (as defined in the 1999 Management
Incentive Plan) acquired upon the exercise of Options by the Employee
at a per share price equal to the lower of (i) the price paid by
Employee for such Shares which have been issued or which are issuable
under vested but unexercised Options and (ii) the fair market value (as
determined in accordance with Section 2.07 of the Investors Agreement
dated as of April 1999 by and between the Company and the several
Shareholders (as defined therein) from time to time parties thereto) of
such Shares which have been issued or which are issuable under vested
but unexercised Options on the date of purchase, less the exercise
price in the case of vested Options. The Company or its designee shall
also have the right to purchase all or a portion of any other Shares,
including Rollover Shares (as defined in the 1999 Management Incentive
Plan), previously purchased by the Employee, at a per share price equal
to the fair market value (as determined in accordance with Section 2.07
of the Investors Agreement dated as of April 1999 by and between the
Company and the several Shareholders (as defined therein) from time to
time parties thereto) of the Shares on the date of purchase. If the
Company elects to exercises its right under this Section 6(c), the
Company shall deliver written notice (a"Purchase Notice") to the
Employee to such effect within 30 days of a termination of Employee's
employment. For purposes of this Section 6(c), the "date of purchase"
shall mean the third business day following the receipt of notice by
the Employee that the purchase right is to be exercised. Payment of the
purchase price may be made in cash or by certified check; provided that
if the terms of any agreement to which the Company is a party, or any
of the indentures governing any debt securities issued by the Company
or any of its subsidiaries would prohibit the Company from effecting
such payment, payment may be effected through a promissary note having
such commercially reasonable terms and interest rate as may be
determined by the Company in its reasonable discretion, provided that
in any event such note shall become due at such time as the
prohibitions described above shall lapse.
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(d) The provisions of this Section 6 and Section 7 of this
Agreement shall survive any termination of this Agreement.
7. Non-Competition and Non-Solicitation
(a) Subject to Section 7(b) below, in consideration of his
employment hereunder and in view of the confidential position to be
held by the Employee hereunder, during the Employment Period and
through the two-year period commencing on the effective date of the
termination of Employee's employment hereunder, the Employee shall not,
directly or indirectly, be employed by, or act as a consultant or
lender to or in association with, or as a director, officer, employee,
partner, owner, joint venturer, member or otherwise of any person,
firm, corporation, partnership, limited liability company, association
or other entity that engages in the same business as, or competes with,
any business actually conducted by the Company or any or its
subsidiaries (other than beneficial ownership of up to 2% of the
outstanding voting stock of a publicly traded company that is or owns
such a competitor);
(b) In the event that the employee is terminated by the Company
for Cause or resigns without Good Reason, during the Employment Period
and through the one-year period commencing on the effective date of the
termination of Employee's employment hereunder, the Employee shall not,
directly or indirectly, be employed by, or act as a consultant or
lender to or in association with, or as a director, officer, employee,
partner, owner, joint venturer, member or otherwise of any person,
firm, corporation, partnership, limited liability company, association
or other entity that engages in the same business as, or competes with,
any business actually conducted by the Company or any of its
subsidiaries (other than beneficial ownership of up to 2% of the
outstanding voting stock of a publicly traded company that is or owns
such a competitor);
(c) In consideration of his employment hereunder and in view of
the confidential position to be held by the Employee hereunder, during
the Employment Period and through the one-year period commencing on the
effective date of the termination of Employee's employment hereunder,
the Employee will not (i) induce or attempt to induce any employee of
the Company or any of its subsidiaries to leave the employ of the
Company or such subsidiary, or in any way interfere with the
relationship between the Company or any of it subsidiaries and any
employee thereof, (ii) hire directly or indirectly any person who is
then an employee of the Company or any of its subsidiaries, or (iii)
induce or attempt to induce any customer,
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<PAGE>
supplier, licensee or other business relation of the Company or any of
its subsidiaries to cease doing business with the Company or such
subsidiary, or in any way interfere with the relationship between any
such customer, supplier, licensee or business relation and the Company
or such subsidiary; provided, however, that the Employee will cease to
be bound by this Section 7(c) on the six-month anniversary of the
effective date of the termination of Employee's employment hereunder if
his employment is terminated without Cause;
(d) The Employee expressly agrees that the character, duration and
geographic scope of the provisions of this Section 7 are reasonable in
light of the circumstances as they exist on the date hereof. If any
competent court shall determine that the character, duration or
geographic scope of such provisions is unreasonable, then it is the
intention and the agreement of the Employee and the Company that this
Agreement shall be construed by the court in such a manner as to impose
only those restrictions on the Employee's conduct that are reasonable
in the light of the circumstances and that are necessary to assure to
the Company the benefits of this Section 7.
8. Stockholder Approval. This Agreement shall be effective upon
submission to and approval by stockholders of the Company holding more than 75%
of the voting power of all outstanding common stock of the Company. In
connection with such submission and approval, the Company represents that it has
provided each stockholder with the disclosure required by Treasury Regulation
Section 1.280G-1-Q&A 7(d).
9. Entire Agreement; Amendments. This Agreement (upon its
effectiveness), together with option and other agreements relating to stock of
the Company entered into substantially contemporaneously herewith or with the
Closing, contains the entire understanding of the parties with respect to the
matters set out herein, merging and superseding all prior and contemporaneous
agreements and understandings between the parties with respect to such matters.
This Agreement may be amended only by a written instrument duly executed by all
parties or their respective heirs, successors, assigns or legal personal
representatives.
10. No Conflicts; No Assignments.
(a) Employee represents and warrants to the Company that he is not
as of the date of this Agreement, and will not become during the
Employment Period, a party to any oral or written contract that
prohibits, or materially restricts or limits, or will prohibit or
materially restrict or
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limit the performance of his duties or the fulfillment of his
obligations as an employee and an officer of the Company or under this
Agreement.
(b) The Employee acknowledges that the services to be rendered by
him are unique and personal and, accordingly, that he shall not assign
any of his rights or delegate any of his duties or obligations under
this Agreement.
11. Waiver of Breach. Either party may, by written notice to the
other: (i) extend the time for the performance of any of the obligations or
other actions of the other, (ii) waive compliance with any of the covenants of
the other contained in this Agreement, and (iii) waive or modify performance of
any of the obligations of the other. However, mere forbearance or indulgence by
either party in any regard whatsoever shall not constitute a waiver of the
covenant or condition to be performed by the other party to which the same may
apply and, until complete performance of said covenant or condition, said party
shall be entitled to invoke any remedy available under this Agreement or by law
or in equity despite said forbearance or indulgence.
12. Gender Number. Whenever the context of this Agreement so required
the masculine gender shall include the feminine or neuter, the single number
shall include plural, and reference to one or more parties hereto shall include
all assignees of the party.
13. Headings. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
14. Arbitration; Governing Law. To the fullest extent permitted by
law, any dispute, claim or controversy of any kind including but not limited to,
tort, contract and statute arising under, in connection with or related to this
Agreement shall be resolved exclusively by binding arbitration in the State of
California, in accordance with the rules of the American Arbitration
Association. The Company and the Employee hereby waive any objection to personal
jurisdiction or venue in any forum located in the State of California. No claim,
lawsuit or action of any kind may be filed by either party to this Agreement;
arbitration is the exclusive dispute resolution mechanism between the parties.
Judgment may be entered on the arbitrator's award in any court of relevant
jurisdiction. This agreement shall be governed by and construed in accordance
with the laws of the State of California as such laws are applied to agreements
entered into and to be performed entirely within California by California
residents.
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15. Severability. In the event that any provision of this Agreement,
or the application thereof to any person or circumstance, is held by a court of
competent jurisdiction to be invalid, illegal or unenforceable in any respect in
any jurisdiction, such invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement in that jurisdiction or the
application of that provision to any other person or circumstance or in any
other jurisdiction, and this agreement shall then be construed in that
jurisdiction as if such invalid, illegal or unenforceable provision had not been
contained in this Agreement, but only to the extent of such invalidity,
illegality or unenforceability.
16. Further Assurances. Each party shall perform such further acts and
execute and deliver such further documents as may be reasonably necessary to
carry out the provisions of this Agreement.
17. Enforcement. In the event either party hereto fails to perform any
of its obligations under this Agreement or in the event a dispute arises
concerning the meaning or interpretation of any provision of this Agreement, the
defaulting party or the party not prevailing in such dispute as the case may be,
shall pay the reasonable costs and expenses incurred by the other party in
enforcing or establishing its rights hereunder, including without limitation,
court costs and reasonable attorney's fees.
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IN WITNESS WHEREOF, the Company and the Employee have duly executed and
delivered this Employment Agreement as of the day and year first above written.
CONDOR SYSTEMS, INC.
By: /s/ Gary M. Viljoen
------------------------------
Title: Chief Financial Officer
---------------------------
EMPLOYEE:
/s/ Dave Klingler
----------------------------------
Dave Klingler
EXHIBIT 10.2.5
AGREEMENT
In exchange for the mutual promises described below and such other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, CONDOR SYSTEMS, INC. ("Condor") and Thomas A. Michalski
("Employee") hereby enter into the following Agreement ("Agreement") which is
effective upon the Closing (as defined in the Agreement and Plan of Merger dated
March 8, 1999 pursuant to which WDC Acquisition Corp. will merge with and into
Condor). The Employee shall be employed by Condor under this Agreement
commencing on the date of the Closing and ending on December 31, 2001. This
Agreement is binding upon Condor and its heirs, assignees and successors;
provided that this Agreement will have no force and effect until or unless the
Closing occurs.
Condor agrees to employ Employee as Vice President of Business
Operations and to pay him an annual salary of [$ ] per year, which will be
subject to adjustment based on yearly merit reviews, plus any discretionary
bonuses for which he may be eligible. During his full-time employment with
Condor, Employee will also be eligible to receive all benefits that Condor
offers its full-time employees.
Effective January 1, 2002, Employee will have the option of remaining a
full-time employee, subject to the salary provisions outlined above, or becoming
a part-time employee, subject to the terms and conditions outlined below. As
long as Employee remains continuously employed with Condor after December 31,
2001, this part-time employment option will remain for a period of five (5)
years, up to and including January 1, 2007 such that Employee may elect to
become a part-time employee at any time between January 1, 2002 and January 1,
2007. Regardless of whether Employee elects to remain a full-time employee or
become a part-time employee, this Agreement will terminate at midnight on
January 1, 2007.
Except for the exclusion from its policy of at-will employment, the
terms and conditions of Employee's employment [full-time and part-time] continue
to be governed by the policies and procedures of Condor including those that are
contained in the Employee Handbook. If Condor terminates Employee's full-time
employment without cause prior to December 31, 2001, then Condor agrees to pay
Employee the sum of [$ ]. The parties agree that for purposes of termination
"cause" shall mean: (i) Employee's conviction of any felony or misdemeanor
involving embezzlement, fraud, conversion or misuse of Condor's funds or
resources; (ii) Employee's willful failure or refusal to comply with, or
substantial and consistent disregard for, the employment policies, standards and
regulations of Condor and/or any reasonably given instructions in the course of
employment; (iii) any breach of this Agreement by Employee; (iv) Employee's
failure to obtain or retain any permits, licenses, or approvals which may be
required by any state or local authorities in the
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state of California in order to permit Employee to continue employment as
contemplated by this agreement; (v) any physical or mental incapacity which
prevents Employee from performing his duties under this Agreement for a
consecutive period of 120 days, or for at least 140 days in a period of 200
days; (vi) intentional violations of laws by Employee; and (vii) Employee's
demonstrated performance deficiencies in performing the duties required of him
pursuant to this Agreement.
If Employee terminates his employment with Condor, for any reason,
prior to December 31, 2001, this Agreement will terminate and Condor shall not
be obligated to pay Employee any payment for any period after the termination
date.
As a part-time employee, Employee shall be engaged by Condor to advise
Condor with respect to those issues as Condor shall decide. Employee shall
devote such time, interest, and effort to the performance of this Agreement as
may be fairly and reasonably necessary. During the part-time employment period
of the Agreement, Condor agrees to pay Employee a yearly part-time employment
salary of at least [$ ]for the first year of his part-time employment, and a
minimum variable amount per year thereafter until the termination of this
Agreement. For the remaining years of part-time employment, the variable amount
per year for the part-time employment salary shall equal the yearly fee of the
previous year times a factor equal to (one plus CPI/100), where "CPI" is the
consumer price index of the current year end percent. For such yearly part-time
employment salary, Employee agrees to work a maximum of ten (10) hours per week
on average, over each calendar year. The yearly part-time employment salary
shall be paid bi-weekly and payment of the salary is not contingent on Condor
making a request for advice during the calendar year.
During the part-time employment period of this Agreement, Employee will
be eligible for all benefits available to part-time employees. Subject to any
specific benefit plan constraints, Condor agrees to maintain Employee's health
and dental benefits at a level equal to the level he received as a full-time
employee. During the part-time employment period of this Agreement, Employee
will also continue to receive, subject to any specific plan constraints, a
pro-rata amount of long term disability and life insurance benefits that he
received as a full-time employee. The pro rata amount of these benefits shall be
dependent upon Employee's part-time employment salary.
During the term of the part-time employment period of this Agreement,
at the request of Condor, and upon mutual agreement with Employee, Employee may
work more than five hundred twenty (520) hours per year. For hours worked in
excess of five hundred twenty (520) hours per year, Condor agrees to pay per
hour an amount
2
<PAGE>
equal to 1.2 times the equivalent hourly rate of the current year (yearly fee
divided by 520).
If Employee voluntarily terminates the part-time employment period of
this Agreement, Condor's obligation for further part-time salary and benefits
shall cease immediately and Condor shall not be obligated to pay Employee any
payment for any period after the termination date. If Condor terminates the
part-time period of this Agreement without cause prior to January 1, 2007,
Condor agrees to pay Employee a lump sum equal to the number of years and any
fraction of year remaining in the part-time employment period of ten years,
times the currently yearly consulting fee. For example, if Condor terminates
Employee's part-time employment on July 1, 2002, and the CPI is four percent
(4%), the lump sum paid shall equal ($[ x 1.04) x 4.5 years, or
$[ ].
Employee agrees not to consult for other companies which may be
competitors of Condor during this Agreement. During the part-time employment
period of this Agreement, Employee agrees to give priority to his employment
with Condor if engaged in consulting work for other non-competitive companies.
Moreover, during the terms of this Agreement, Employee shall not, directly or
indirectly, whether as a consultant, partner, employee, creditor, shareholder,
or otherwise, promote, participate, or engage in any activity or other business
in competition with Condor's business. However, subject to the above
restrictions, during the part-time employment period of this Agreement Employee
shall be free to independently contract with other non-competitive businesses to
provide consulting services. However, in no event shall any other consulting
arrangement interfere with Employee's performance of the duties under this
Agreement.
In the course of this Agreement, Employee will have access to
confidential information and trade secrets relating to Condor's business. In
addition, Employee will have access to information regarding other information
which is protected by proprietary, trademark, confidential information and
possibly covered by applicable patents. Employee will not, without Condor's
prior consent, either during the course of this Agreement or after termination
of the agreement, directly or indirectly disclose to any third person any such
confidential information or trade secret. Nor shall Employee use such
confidential and/or trade secret information to solicit customers for himself or
any other third party. Employee's failure to comply with the provisions of the
preceding sentence shall give Condor the right (in addition to all other
remedies Condor may have) to terminate any benefit or compensation to which
Employee may be otherwise entitled following the termination of this Agreement
and seek injunctive relief.
If during the term of this Agreement, Employee dies, then the Agreement
shall be terminated on the last day of the calendar month of his death.
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<PAGE>
This Agreement is made and entered into in the State of California.
California law shall govern the validity and interpretation of the Agreement.
This Agreement sets forth the entire understanding and agreement
between Condor and Employee with respect to the subject matter herein and
supersedes any prior or contemporaneous oral and/or written agreement or
representations, if any, between Condor and Employee. Its terms may not be
modified or supplemented, except by mutual agreement executed by Condor and
Employee.
DATED: EMPLOYEE:
/s/ Thomas A. Michalski
--------------------------------------
Thomas A. Michalski
DATED: CONDOR SYSTEMS, INC.
4/14/99
By: /s/ Gary M. Viljoen
----------------------------------
Title: Chief Financial Officer
-------------------------------
4
Exhibit 10.2.6
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is entered into as of April
6, 1999, by and between CONDOR SYSTEMS, INC., a California corporation (the
"Company"), and GARY M. VILJOEN, an individual resident of the State of
California (the "Employee").
WHEREAS, the Company, WDC Acquisition Corp. and the Shareholders of
the Company (as defined in the Merger Agreement) have entered into that
certain Agreement and Plan of Merger (the "Merger Agreement") dated as of
March 8, 1999 pursuant to which WDC Acquisition Corp. will merge with and into
the Company at the Effective Time (as defined in the Merger Agreement);
WHEREAS, the Company wishes to assure that it will have the benefit
of the knowledge and experience of Employee, who has been the Chief Financial
Officer and Assistant Secretary of the Company; and
WHEREAS, Employee is willing to enter into an agreement to such end
upon the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the parties hereto agree as follows:
1. Employment. The Company hereby employs the Employee, and the
Employee hereby accepts such employment with the Company, upon the terms and
conditions hereinafter set forth.
2. Term of Employment. Unless earlier terminated as provided in
Section 5, the Employee shall be employed by the Company under this Agreement
commencing on the date of the Effective Time (as defined in the Merger
Agreement) and ending on the second anniversary thereof (the "Employment
Period"). On the second and each succeeding anniversary of the Effective Time,
the Employment Period shall automatically be extended for one additional year
unless, not later than 30 days prior to such anniversary, the Employee or the
Company shall have given notice of his or its intention not to extend the
Employment Period. This Agreement will have no force and effect (i) until or
unless the Effective Time occurs and (ii) until or unless the stockholders of
the Company shall have approved this Agreement pursuant to Section 8 of this
Agreement. Upon its effectiveness, this Agreement will supercede the
Employment Agreement dated November 1996 between the Company and the Employee,
which shall remain in effect, in accordance with its terms, until superceded
by this Agreement.
<PAGE>
3. Title and Duties.
(a) The Employee shall have the titles and positions of Chief
Financial Officer and Assistant Secretary of the Company. In addition
to the foregoing, the Company's Board of Directors (the "Board") may,
in the exercise of its business judgement, elect the Employee to such
other office or offices as it may determine during the Employment
Period.
(b) In such capacities, Employee shall report to the Chief
Executive Officer of the Company. Employee's responsibilities shall
be as specified by the Board or the Chief Executive Officer but, in
general, the Employee shall have such authority and such
responsibilities as are consistent with the foregoing positions.
(c) Throughout the Employment Period, the Employee shall devote
substantially all of his time, energy, skill and best efforts to the
performance of his duties hereunder in a manner which will faithfully
and diligently further the business and interests of the Company.
Subject to the preceding sentence, the Employee may serve, or
continue to serve, on the boards of directors of other entities and
may engage in appropriate civic or charitable activities as long as
such activities do not interfere or conflict with the performance of
the Employee's duties pursuant to this agreement, and provided that
any board of directors position is disclosed to the Board in writing
at least 10 days in advance of Employee's election to such board of
directors position.
4. Compensation.
(a) Base Salary. The Company shall pay the Employee as
compensation a salary at the beginning rate of $200,000 per year
("Base Salary"), payable in accordance with the ordinary compensation
practices of the Company. The Compensation Committee of the Board
shall annually review the Base Salary for possible increase, in its
sole discretion.
(b) Bonus. Employee shall be eligible to receive an annual bonus
(the "Bonus") of up to 100% of Base Salary for each calendar year in
accordance with the following:
(i) For an amount up to 75% of Base Salary:
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<PAGE>
(A) If EBITDA, as hereunder defined, for any
calendar year is less than the Floor EBITDA for
such year, the Company will pay the Employee no
bonus.
(B) If EBITDA for any calendar year is equal
to the Target EBITDA for such year, the Company
shall pay the Employee a bonus of 45% of the actual
Base Salary paid to the Employee during such
calendar year;
(C) If EBITDA for any calendar year is equal
to or greater than the Ceiling EBITDA for such
year, the Company shall pay the Employee a total of
75% of the actual Base Salary paid to the Employee
during such calendar year;
(D) If EBITDA for any calendar year is greater
than the Floor EBITDA for such year but is less
than the Target EBITDA for such year, the Company
will pay the Employee a bonus calculated by linear
interpolation, as described in Attachment I. If
EBITDA for any calendar year is greater than the
Target EBITDA for such year but is less than the
Ceiling EBITDA for such year, the Company will pay
the Employee a bonus calculated by linear
interpolation, as described in Attachment I;
(ii) For an amount equal to 25% of Base Salary
(A) For any calendar year, if the Employee
achieves the Major Business Objectives for such
year, the Company will pay the Employee a bonus (in
addition to any bonus paid by the Company to
Employee pursuant to Section 4(b)(i) of this
Agreement) of 25% of the actual Base Salary paid to
the Employee during such calendar year. Therefore,
if the Employee achieves his Major Business
Objectives for any calendar year and the Company
achieves Target EBITDA for such year, Employee is
eligible for a total bonus of 70% of the actual
Base Salary paid to the Employee during such
calendar year.
(iii) Definitions. for purposes of this Section 4:
3
<PAGE>
(A) "EBITDA" means, for each calendar year,
the EBITDA number achieved by the Company, as
determined annually for purposes of this Agreement
by the Compensation Committee of the Board.
(B) "Floor EBITDA" means, for any applicable
calendar year, a projected EBITDA established
annually for purposes of this Agreement by the
Compensation Committee of the Board, together with
the Employee; provided that the 1999 Floor EBITDA
shall be $19,000,000.
(C) "Target EBITDA" means, for any applicable
calendar year, a projected EBITDA established
annually for purposes of this Agreement by the
Compensation Committee of the Board, together with
the Employee; provided that the 1999 Target EBITDA
shall be $20,000,000.
(D) "Ceiling EBITDA" means, for any applicable
calendar year, a projected EBITDA established
annually for purposes of this Agreement by the
Compensation Committee of the Board, together with
the Employee; provided that the 1999 Ceiling EBITDA
shall be $21,000,000.
(E) "Major Business Objectives" means, for any
applicable calendar year, the major business
objectives of the Employee, as determined annually
by the Compensation Committee of the Board.
(c) Reimbursement of Expenses. The Company shall pay or reimburse
the Employee for all reasonable travel and other expenses incurred by
the Employee in the performance of his obligations under this
agreement, provided that the Employee properly accounts therefor in
accordance with the policies and procedures of the Company.
(d) Vacation. The Employee shall be entitled to a number of paid
vacation days in each calendar year as determined by the Company from
time to time for its employees in accordance with Company policy
(prorated for any calendar year in which the Employee is employed
under this Agreement for less than the entire year).
4
<PAGE>
(e) Employee Benefits. During the Employment Period, Employee
shall be eligible, on the same basis as he is currently eligible, for
employee benefits (including fringe benefits, vacation, automobile
allowance, pension and life, health, accident and disability
insurance) no less favorable than those benefits for which he is
eligible immediately prior to the Effective Time, except for the
Company's ESOP and other stock-based plans.
f) Withholding. All payments under this Agreement shall be
subject to withholding for applicable taxes.
5. Termination. The Employee's employment by the Company shall be
terminated upon the occurrence of any of the following:
(a) By Employee Without Cause. The Employee may terminate his
employment under this Agreement upon at least 120 days' prior notice
to the Board of the Company. Upon termination of his employment and
upon experiencing a qualifying event, COBRA coverage shall be made
available to the Employee in compliance with federal law.
(b) By Employee for Good Reason. The Employee may terminate his
employment under this Agreement after the Effective Time, upon at
least 30 days' prior notice to the Board of the Company, for Good
Reason. For purposes of this Agreement, "Good Reason" shall mean the
occurrence of the following:
(i) the occurrence of a "Change in Control." For
purposes of this Agreement, a "Change in Control" shall mean
the occurrence of (x) the consolidation, reorganization or
merger of the Company with or into another corporation or
corporations or other legal entitie(s) not controlled by any
entity that is an affiliate of the Company immediately
following the Effective Time, or (y) the conveyance of all
or substantially all of the stock or assets of the Company
to another person or entity not controlled by any entity
that is an affiliate of the Company immediately following
the Effective Time; provided that a Change in Control shall
not be deemed to occur upon the occurrence of an initial
public offering of the Company's capital stock ("IPO"); or
(ii) the Employee's duties, authority or
responsibilities as Chief Financial Officer, whether
managerial or supervisory, are materially diminished without
the prior consent of the Employee.
5
<PAGE>
(c) By the Company for Cause. The Company may terminate the
Employee's employment for Cause. "Cause" for purposes of this
Agreement shall mean Employee's (i) personal dishonesty; (ii) willful
misconduct; (iii) breach of fiduciary duty; (iv) failure to perform
designated duties or willful refusal to implement decisions of the
Board made in good faith; (v) willful violation, for financial gain,
of any law, rule or regulation; or (vi) material breach of any
provision of this Agreement; provided, however, that prior to any
proposed Board action pursuant to subparagraph (iv) the Board shall
give the Employee reasonable opportunity to respond and, if
appropriate, to otherwise perform as directed.
The Employee's right to compensation and other benefits from the
Company under this agreement shall cease upon the Company's terminating the
Employee's employment under this agreement for Cause. The provisions of this
Section 5(c) shall take precedence over the provisions of Section 5(a)
notwithstanding any prior notice by the Employee to the Company under Section
5(a).
(d) By the Company Without Cause. The Company may terminate the
Employee's employment under this agreement without Cause therefor at
any time.
6. Severance Pay
(a) In the event that the Employee's employment under this
Agreement is terminated pursuant to the provisions of Section 5(b) or
5(d), or if the employee's Employment Period is not renewed by the
Company pursuant to Section 2, as severance pay the Employee shall be
paid a total of $500,000. Such severance pay shall be paid in a lump
sum to an escrow account at a bank designated by the Company, and
thereafter shall be paid to the Employee in eight equal installments
on the last business day of each of the eight fiscal quarters
following the fiscal quarter during which Employee's employment is
terminated, beginning with such fiscal quarter; provided that the
escrow agreement will provide that all payments of Employee's
severance pay will cease if Employee breaches any of the provisions
of Section 7 of this Agreement. Employee shall also be entitled to
continued eligibility to participate in all health, medical and
dental benefit plans of the Company for which Employee was eligible
immediately prior to the effective time of the termination of
Employee's employment, or comparable coverage, for two years, or, if
sooner, until comparable health insurance coverage is available to
Employee in connection with subsequent employment or self-employment.
In addition,
6
<PAGE>
the termination of the Employee's employment shall not accelerate
vesting of any unvested Options or Stock Appreciation Rights (as such
terms are defined in the 1999 Management Incentive Plan) held by the
Employee.
(b) In the event that the Employee's employment under this
Agreement is terminated upon the death or disability of the Employee,
then the Employee will not be entitled to the severance benefits set
forth in Section 6(a); however, the Company will pay to the Employee
or the Employee's spouse (if she is then living) the Employee's
then-current Base Salary in accordance with the Company's normal pay
practices until the earlier of (i) the end of the sixth calendar
month following Employee's termination of active service, or (ii)
such time as the Employee's spouse (or a trust for her benefit) has
received proceeds from the life or disability insurance policy, as
the case may be, described in Section 4(e). Any Base Salary paid
after the death or disability of the Employee pursuant to clause (i)
above shall be repaid to the Company upon the receipt of the
insurance proceeds described in clause (ii) by the Employee's spouse
(or by a trust for her benefit). The Company shall also pay to
Employee or Employee's spouse the pro rata portion of Employee's
bonus for the year during which the death or disability of the
employee occurs which payment shall not be subject to repayment. As
of the date of the death or disability of Employee, all benefits for
the Employee pursuant to section 4(c), (d) and (e) of this Agreement
shall cease. Options and Stock Appreciation Rights (as such terms are
defined in the Company's 1999 Management Incentive Plan) held by the
Employee shall expire on the dates upon which such Options and Stock
Appreciation Rights would have expired had it not been for the
termination of Employee's employment or service. The Employee shall
have the right to exercise such Options and Stock Appreciation Rights
prior to such expiration to the extent such were exercisable at the
date of such termination of employment or service and shall not have
been exercised. In addition, the termination of the Employee's
employment shall not accelerate vesting of any unvested Options or
Stock Appreciation Rights held by the Employee.
(c) If the Employee terminates his employment pursuant to
Section 5(a) and continues to provide services to the Company, or if
the Employee's Employment under this Agreement is terminated pursuant
to Section 5(c), the Company shall continue to pay the Employee his
then-current Base Salary in equal monthly installments until the
termination of his active service with the Company if the Employee
resigns pursuant to Section 5(a), or until the date of his
termination if the Employee's employment is terminated pursuant to
Section 5(c). As of the effective date of Employee's termination
pursuant to Section 5(a) or Section 5(c),
7
<PAGE>
Employee shall be entitled to no bonus or benefits pursuant to this
Agreement, and the Employee's right to exercise any Option or Stock
Appreciation Right Shall terminate, and such Option or Stock
Appreciation Right shall expire, on the day of such termination of
employment or service. In addition, the Company or its designee shall
have the right to purchase all or a portion of the vested Options
and/or Shares (as defined in the 1999 Management Incentive Plan)
acquired upon the exercise of Options by the Employee at a per share
price equal to the lower of (i) the price paid by Employee for such
Shares which have been issued or which are issuable under vested but
unexercised Options and (ii) the fair market value (as determined in
accordance with Section 2.07 of the Investors Agreement dated as of
April 1999 by and between the Company and the several Shareholders
(as defined therein) from time to time parties thereto) of such
Shares which have been issued or which are issuable under vested but
unexercised Options on the date of purchase, less the exercise price
in the case of vested Options. The Company or its designee shall also
have the right to purchase all or a portion of any other Shares,
including Rollover Shares (as defined in the 1999 Management
Incentive Plan), previously purchased by the Employee, at a per share
price equal to the fair market value (as determined in accordance
with Section 2.07 of the Investors Agreement dated as of April 1999
by and between the Company and the several Shareholders (as defined
therein) from time to time parties thereto) of the Shares on the date
of purchase. If the Company elects to exercises its right under this
Section 6(c), the Company shall deliver written notice (a"Purchase
Notice") to the Employee to such effect within 30 days of a
termination of Employee's employment. For purposes of this Section
6(c), the "date of purchase" shall mean the third business day
following the receipt of notice by the Employee that the purchase
right is to be exercised. Payment of the purchase price may be made
in cash or by certified check; provided that if the terms of any
agreement to which the Company is a party, or any of the indentures
governing any debt securities issued by the Company or any of its
subsidiaries would prohibit the Company from effecting such payment,
payment may be effected through a promissary note having such
commercially reasonable terms and interest rate as may be determined
by the Company in its reasonable discretion, provided that in any
event such note shall become due at such time as the prohibitions
described above shall lapse.
(d) The provisions of this Section 6 and Section 7 of this
Agreement shall survive any termination of this Agreement.
7. Non-Competition and Non-Solicitation
8
<PAGE>
(a) Subject to Section 7(b) below, in consideration of his
employment hereunder and in view of the confidential position to be
held by the Employee hereunder, during the Employment Period and
through the two-year period commencing on the effective date of the
termination of Employee's employment hereunder, the Employee shall
not, directly or indirectly, be employed by, or act as a consultant
or lender to or in association with, or as a director, officer,
employee, partner, owner, joint venturer, member or otherwise of any
person, firm, corporation, partnership, limited liability company,
association or other entity that engages in the same business as, or
competes with, any business actually conducted by the Company or any
or its subsidiaries (other than beneficial ownership of up to 2% of
the outstanding voting stock of a publicly traded company that is or
owns such a competitor);
(b) In the event that the employee is terminated by the Company
for Cause or resigns without Good Reason, during the Employment
Period and through the one-year period commencing on the effective
date of the termination of Employee's employment hereunder, the
Employee shall not, directly or indirectly, be employed by, or act as
a consultant or lender to or in association with, or as a director,
officer, employee, partner, owner, joint venturer, member or
otherwise of any person, firm, corporation, partnership, limited
liability company, association or other entity that engages in the
same business as, or competes with, any business actually conducted
by the Company or any of its subsidiaries (other than beneficial
ownership of up to 2% of the outstanding voting stock of a publicly
traded company that is or owns such a competitor);
(c) In consideration of his employment hereunder and in view of
the confidential position to be held by the Employee hereunder, during
the Employment Period and through the one-year period commencing on
the effective date of the termination of Employee's employment
hereunder, the Employee will not (i) induce or attempt to induce any
employee of the Company or any of its subsidiaries to leave the
employ of the Company or such subsidiary, or in any way interfere
with the relationship between the Company or any of it subsidiaries
and any employee thereof, (ii) hire directly or indirectly any person
who is then an employee of the Company or any of its subsidiaries, or
(iii) induce or attempt to induce any customer, supplier, licensee or
other business relation of the Company or any of its subsidiaries to
cease doing business with the Company or such subsidiary, or in any
way interfere with the relationship between any such customer,
supplier, licensee or business relation and the Company or such
subsidiary; provided, however, that the Employee will cease to be
bound
9
<PAGE>
by this Section 7(c) on the six-month anniversary of the effective
date of the termination of Employee's employment hereunder if his
employment is terminated without Cause;
(d) The Employee expressly agrees that the character, duration
and geographic scope of the provisions of this Section 7 are
reasonable in light of the circumstances as they exist on the date
hereof. If any competent court shall determine that the character,
duration or geographic scope of such provisions is unreasonable, then
it is the intention and the agreement of the Employee and the Company
that this Agreement shall be construed by the court in such a manner
as to impose only those restrictions on the Employee's conduct that
are reasonable in the light of the circumstances and that are
necessary to assure to the Company the benefits of this Section 7.
8. Stockholder Approval. This Agreement shall be effective upon
submission to and approval by stockholders of the Company holding more than
75% of the voting power of all outstanding common stock of the Company. In
connection with such submission and approval, the Company represents that it
has provided each stockholder with the disclosure required by Treasury
Regulation Section 1.280G-1-Q&A 7(d).
9. Entire Agreement; Amendments. This Agreement (upon its
effectiveness), together with option and other agreements relating to stock of
the Company entered into substantially contemporaneously herewith or with the
Closing, contains the entire understanding of the parties with respect to the
matters set out herein, merging and superseding all prior and contemporaneous
agreements and understandings between the parties with respect to such
matters. This Agreement may be amended only by a written instrument duly
executed by all parties or their respective heirs, successors, assigns or
legal personal representatives.
10. No Conflicts; No Assignments.
(a) Employee represents and warrants to the Company that he is
not as of the date of this Agreement, and will not become during the
Employment Period, a party to any oral or written contract that
prohibits, or materially restricts or limits, or will prohibit or
materially restrict or limit the performance of his duties or the
fulfillment of his obligations as an employee and an officer of the
Company or under this Agreement.
(b) The Employee acknowledges that the services to be rendered by
him are unique and personal and, accordingly, that he shall not
assign
10
<PAGE>
any of his rights or delegate any of his duties or obligations under
this Agreement.
11. Waiver of Breach. Either party may, by written notice to the
other: (i) extend the time for the performance of any of the obligations or
other actions of the other, (ii) waive compliance with any of the covenants of
the other contained in this Agreement, and (iii) waive or modify performance
of any of the obligations of the other. However, mere forbearance or
indulgence by either party in any regard whatsoever shall not constitute a
waiver of the covenant or condition to be performed by the other party to
which the same may apply and, until complete performance of said covenant or
condition, said party shall be entitled to invoke any remedy available under
this Agreement or by law or in equity despite said forbearance or indulgence.
12. Gender Number. Whenever the context of this Agreement so
required the masculine gender shall include the feminine or neuter, the single
number shall include plural, and reference to one or more parties hereto shall
include all assignees of the party.
13. Headings. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
14. Arbitration; Governing Law. To the fullest extent permitted by
law, any dispute, claim or controversy of any kind including but not limited
to, tort, contract and statute arising under, in connection with or related to
this Agreement shall be resolved exclusively by binding arbitration in the
State of California, in accordance with the rules of the American Arbitration
Association. The Company and the Employee hereby waive any objection to
personal jurisdiction or venue in any forum located in the State of
California. No claim, lawsuit or action of any kind may be filed by either
party to this Agreement; arbitration is the exclusive dispute resolution
mechanism between the parties. Judgment may be entered on the arbitrator's
award in any court of relevant jurisdiction. This agreement shall be governed
by and construed in accordance with the laws of the State of California as
such laws are applied to agreements entered into and to be performed entirely
within California by California residents.
15. Severability. In the event that any provision of this Agreement,
or the application thereof to any person or circumstance, is held by a court
of competent jurisdiction to be invalid, illegal or unenforceable in any
respect in any jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement in that jurisdiction or
the application of that provision to any other person or circumstance or in
any other jurisdiction, and this
11
<PAGE>
agreement shall then be construed in that jurisdiction as if such invalid,
illegal or unenforceable provision had not been contained in this Agreement,
but only to the extent of such invalidity, illegality or unenforceability.
16. Further Assurances. Each party shall perform such further acts
and execute and deliver such further documents as may be reasonably necessary
to carry out the provisions of this Agreement.
17. Enforcement. In the event either party hereto fails to perform
any of its obligations under this Agreement or in the event a dispute arises
concerning the meaning or interpretation of any provision of this Agreement,
the defaulting party or the party not prevailing in such dispute as the case
may be, shall pay the reasonable costs and expenses incurred by the other
party in enforcing or establishing its rights hereunder, including without
limitation, court costs and reasonable attorney's fees.
12
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have duly executed
and delivered this Employment Agreement as of the day and year first above
written.
CONDOR SYSTEMS, INC.
By: /s/ R.E. Young
------------------------------
Title: Chief Financial Officer
---------------------------
EMPLOYEE:
/s/ Gary M. Viljoen
---------------------------------
Gary M. Viljoen
Exhibit 10.3
[EXECUTION COPY]
CREDIT AGREEMENT
Dated as of April 15, 1999
among
CONDOR SYSTEMS, INC.,
as Borrower,
CERTAIN SUBSIDIARIES OF THE BORROWER
FROM TIME TO TIME PARTY HERETO,
as Guarantors,
THE SEVERAL LENDERS
FROM TIME TO TIME PARTY HERETO
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as Agent,
AND
ANTARES CAPITAL CORPORATION.,
as Documentation Agent
<PAGE>
TABLE OF CONTENTS
SECTION 1 DEFINITIONS........................................................1
1.1 Definitions........................................................1
1.2 Computation of Time Periods.......................................28
1.3 Accounting Terms..................................................29
SECTION 2 CREDIT FACILITIES.................................................30
2.1 Revolving Loans...................................................30
2.2 Letter of Credit Facility.........................................32
2.3 Swingline Loan Subfacility........................................36
SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES....................38
3.1 Default Rate......................................................38
3.2 Extension and Conversion..........................................39
3.3 Prepayments.......................................................39
3.4 Termination and Reduction of Committed Amount;
Increase of Committed Amount......................................40
3.5 Fees..............................................................41
3.6 Capital Adequacy..................................................43
3.7 Limitation on Eurodollar Loans....................................43
3.8 Illegality........................................................43
3.9 Requirements of Law...............................................44
3.10 Treatment of Affected Loans.......................................45
3.11 Taxes.............................................................46
3.12 Compensation......................................................49
3.13 Pro Rata Treatment................................................49
3.14 Sharing of Payments...............................................50
3.15 Payments, Computations, Etc.......................................51
3.16 Evidence of Debt..................................................52
3.17 Mitigation; Replacement of Affected Lenders.......................53
SECTION 4 GUARANTY..........................................................54
4.1 The Guaranty......................................................54
4.2 Obligations Unconditional.........................................55
4.3 Reinstatement.....................................................56
4.4 Certain Additional Waivers........................................56
4.5 Remedies..........................................................56
4.6 Rights of Contribution............................................57
4.7 Guarantee of Payment; Continuing Guarantee........................58
SECTION 5 CONDITIONS........................................................58
5.1 Closing Conditions................................................58
5.2 Conditions to all Extensions of Credit............................62
SECTION 6 REPRESENTATIONS AND WARRANTIES....................................63
6.1 Financial Condition...............................................63
6.2 No Material Change................................................64
6.3 Organization and Good Standing....................................64
6.4 Power; Authorization; Enforceable Obligations.....................65
6.5 No Conflicts......................................................65
6.6 No Default........................................................65
6.7 Ownership.........................................................66
i
<PAGE>
6.8 Taxes.............................................................66
6.9 ERISA.............................................................66
6.10 Subsidiaries......................................................67
6.11 Other Credit Documents............................................68
6.12 Governmental Regulations, Etc.....................................68
6.13 Environmental Matters.............................................68
6.14 Intellectual Property.............................................69
6.15 Solvency..........................................................70
6.16 Location of Collateral............................................70
6.17 Disclosure........................................................70
6.18 Brokers' Fees.....................................................70
6.19 Labor Matters.....................................................70
6.20 Nature of Business................................................70
6.21 Representations and Warranties from Merger Agreement..............70
6.22 Year 2000 Compliance..............................................71
6.23 Litigation........................................................71
SECTION 7 AFFIRMATIVE COVENANTS.............................................71
7.1 Information Covenants.............................................71
7.2 Preservation of Existence and Franchises..........................75
7.3 Books and Records.................................................75
7.4 Compliance with Law...............................................75
7.5 Payment of Taxes and Other Indebtedness...........................75
7.6 Insurance.........................................................75
7.7 Maintenance of Property...........................................76
7.8 Performance of Obligations........................................76
7.9 Use of Proceeds...................................................77
7.10 Audits/Inspections................................................77
7.11 Financial Covenants...............................................77
7.12 Additional Guarantors.............................................78
7.13 Pledged Assets....................................................79
7.14 Year 2000 Compliance..............................................80
7.15 Income and Assets of Credit Parties...............................80
7.16 Further Assurances................................................80
SECTION 8 NEGATIVE COVENANTS................................................82
8.1 Indebtedness......................................................83
8.2 Liens.............................................................83
8.3 Nature of Business................................................84
8.4 Consolidation, Merger, Dissolution, etc...........................84
8.5 Asset Dispositions................................................84
8.6 Investments.......................................................85
8.7 Restricted Payments...............................................85
8.8 Other Indebtedness................................................85
8.9 Transactions with Affiliates......................................86
8.10 Fiscal Year.......................................................86
8.11 Limitation on Restricted Actions..................................86
8.12 Capital Expenditures..............................................87
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<PAGE>
8.13 No Further Negative Pledges.......................................87
8.14 Operating Lease Obligations.......................................87
8.15 Limitation on Bank Accounts, etc..................................87
SECTION 9 EVENTS OF DEFAULT.................................................88
9.1 Events of Default.................................................88
9.2 Acceleration; Remedies............................................90
SECTION 10 AGENCY PROVISIONS.................................................91
10.1 Appointment, Powers and Immunities................................91
10.2 Reliance by Agent.................................................92
10.3 Defaults..........................................................92
10.4 Rights as a Lender................................................92
10.5 Indemnification...................................................93
10.6 Non-Reliance on Agent and Other Lenders...........................93
10.7 Successor Agent...................................................94
10.8 Documentation Agent...............................................94
SECTION 11 MISCELLANEOUS.....................................................94
11.1 Notices...........................................................94
11.2 Right of Set-Off; Adjustments.....................................95
11.3 Benefit of Agreement..............................................95
11.4 No Waiver; Remedies Cumulative....................................97
11.5 Expenses; Indemnification.........................................98
11.6 Amendments, Waivers and Consents..................................98
11.7 Counterparts.....................................................100
11.8 Headings.........................................................100
11.9 Survival.........................................................100
11.10 Governing Law; Submission to Jurisdiction; Venue................100
11.11 Severability....................................................101
11.12 Entirety........................................................101
11.13 Binding Effect; Termination.....................................101
11.14 Confidentiality.................................................102
11.15 Source of Funds.................................................102
11.16 Conflict........................................................103
11.17 California Corporation Code Section 500.........................103
iii
<PAGE>
SCHEDULES
Schedule 1.1A Scheduled Financial Information
Schedule 1.1B Investments
Schedule 1.1C Liens
Schedule 2.1(a) Lenders
Schedule 5.1(c)(i) Form of Opinion of Davis Polk & Wardwell
Schedule 5.1(c)(ii) Form of Opinion of Special California Counsel
Schedule 5.1(h) Corporate Structure
Schedule 6.4 Required Consents, Authorizations, Notices
and Filings
Schedule 6.9 ERISA
Schedule 6.10 Subsidiaries
Schedule 6.13 Environmental Disclosures
Schedule 6.14 Intellectual Property
Schedule 6.16(a) Mortgaged Properties
Schedule 6.16(b) Collateral Locations
Schedule 6.16(c) Chief Executive Offices/Principal Places
of Business
Schedule 6.23 Litigation
Schedule 7.6 Insurance
Schedule 8.1 Indebtedness
EXHIBITS
Exhibit 1.1A Form of Bank Agency Agreement
Exhibit 1.1B Form of Pledge Agreement
Exhibit 1.1C Form of Security Agreement
Exhibit 2.1(b)(i) Form of Notice of Borrowing
Exhibit 2.1(e) Form of Revolving Note
Exhibit 2.3(d) Form of Swingline Note
Exhibit 3.2 Form of Notice of Extension/Conversion
Exhibit 3.4(b) Form of New Commitment Agreement
Exhibit 7.1(c) Form of Officer's Compliance Certificate
Exhibit 7.12 Form of Joinder Agreement
Exhibit 11.3(b) Form of Assignment Agreement
iv
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of April 15, 1999 (as amended,
modified, restated or supplemented from time to time, the "Credit Agreement"),
is by and among CONDOR SYSTEMS, INC., a California corporation (the
"Borrower"), the Guarantors (as defined herein), the Lenders (as defined
herein), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent for
the Lenders (in such capacity, the "Agent") and ANTARES CAPITAL CORPORATION, as
documentation agent for the Lenders (in such capacity, the "Documentation
Agent").
W I T N E S S E T H
WHEREAS, the Borrower has requested that the Lenders provide credit
facilities in an aggregate amount of $40,000,000 (the "Credit Facilities") for
the purposes hereinafter set forth; and
WHEREAS, the Lenders have agreed to make the requested Credit
Facilities available to the Borrower on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITIONS
1.1 Definitions.
As used in this Credit Agreement, the following terms shall have the
meanings specified below unless the context otherwise requires:
"Acquisition", by any Person, means the acquisition by such Person of
a majority of the Capital Stock or an interest that, after the acquisition
thereof, will constitute such Person as a Joint Venture or all or substantially
all of the Property of another Person or a division or a line of business of
another Person, whether or not involving a merger or consolidation with such
other Person.
"Additional Commitment" means, with respect to any lender which
executes a New Commitment Agreement in accordance with Section 3.4(b), the
commitment of such Lender in an aggregate principal amount up to the amount
specified in such New Commitment Agreement (i) to make Loans in accordance with
the provisions of Section 2.1(a), (ii) to purchase Participation Interests in
Letters of Credit in accordance with the provisions of Section 2.2(c) and (iii)
to purchase Participation Interests in Swingline Loans in accordance with the
provisions of Section 2.3(b).
<PAGE>
"Adjusted Base Rate" means the Base Rate plus the Applicable
Percentage.
"Adjusted Eurodollar Rate" means the Eurodollar Rate plus the
Applicable Percentage.
"Affiliate" means, with respect to any Person, any other Person (i)
directly or indirectly controlling or controlled by or under direct or indirect
common control with such Person or (ii) directly or indirectly owning or
holding five percent (5%) or more of the Capital Stock in such Person. For
purposes of this definition, "control" when used with respect to any Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agency Services Address" means Bank of America National Trust and
Savings Association, 1850 Gateway Boulevard, 5th Floor, Concord, California
94520, Attn: Agency Administrative Services #5596, or such other address as may
be identified by written notice from the Agent to the Borrower.
"Agent" shall have the meaning assigned to such term in the heading
hereof, together with any successors or assigns.
"Agent's Fee Letter" means that certain letter agreement, dated as of
the Closing Date, between the Agent and the Borrower, as amended, modified,
restated or supplemented from time to time.
"Applicable Lending Office" means, for each Lender, the office of
such Lender (or of an Affiliate of such Lender) as such Lender may from time to
time specify to the Agent and the Borrower by written notice as the office by
which its Eurodollar Loans are made and maintained.
2
<PAGE>
"Applicable Percentage" means, for purposes of calculating the
applicable interest rate for any day for any Loan, the applicable rate of the
Unused Fee for any day for purposes of Section 3.5(b), the applicable rate of
the Standby Letter of Credit Fee for any day for purposes of Section 3.5(c)(i)
or the applicable rate of the Trade Letter of Credit Fee for any day for
purposes of Section 3.5(c)(ii), the appropriate applicable percentage
corresponding to the Total Leverage Ratio in effect as of the most recent
Calculation Date:
<TABLE>
==================================================================================================================
Applicable Percentages
--------------------------------------------------------------------------------------
Total For For For Standby For Trade Letter For
Pricing Leverage Eurodollar Loans Base Rate Letter of Credit of Credit Fee Unused
Level Ratio Loans Fee Fee
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
I greater than 3.50% 2.25% 3.50% 1.75% 1.50%
or equal to
5.0 to 1.0
II less than or 3.25% 2.00% 3.25% 1.625% 1.25%
equal to 5.0
to 1.0 but
greater than
or equal to
4.5 to 1.0
III less than 4.5 3.00% 1.75% 3.00% 1.50% 1.00%
to 1.0 but
greater than
or equal to
4.0 to 1.0
IV less than 4.0 2.75% 1.50% 2.75% 1.375% 1.00%
to 1.0 but
greater than
or equal to
3.0 to 1.0
V less than 3.0 2.50% 1.25% 2.50% 1.25% 1.00%
to 1.0
</TABLE>
The Applicable Percentages shall be determined and adjusted quarterly on the
date (for any fiscal quarter, the "Calculation Date") which is the earlier of
(a) the date on which the Credit Parties provide the Required Financial
Information for the most recently ended fiscal quarter of the Consolidated
Parties and (b) the date by which the Credit Parties are required pursuant to
Section 7.1 to provide the Required Financial Information for the most recently
ended fiscal quarter of the Consolidated Parties; provided, however, that (i)
the initial Applicable Percentages shall be based on Pricing Level I (as shown
above) and shall remain at Pricing Level I until the Calculation Date for the
fiscal quarter of the Consolidated Parties ending on September 30, 1999, on and
after which time the Pricing Level shall be determined by the Total Leverage
Ratio as of the last day of the most recently ended fiscal quarter of the
Consolidated Parties preceding the applicable Calculation Date, and (ii) if the
Credit Parties fail to provide the Required Financial Information to the Agency
Services Address for the last day of the most recently ended fiscal quarter of
the Consolidated Parties preceding the applicable Calculation Date, the
Applicable Percentage from such Calculation Date shall be based on Pricing
Level I until such time as such Required Financial Information is provided,
whereupon the Pricing Level shall be determined by the Total Leverage Ratio as
of the last day of the most recently ended fiscal quarter of the Consolidated
Parties preceding such Calculation Date. Each Applicable Percentage shall be
effective from one Calculation Date until the next Calculation Date. Any
adjustment in the Applicable Percentages shall be applicable to all existing
Loans and Letters of Credit as well as any new Loans and Letters of Credit made
or issued.
3
<PAGE>
"Asset Disposition" means any disposition, other than pursuant to an
Excluded Asset Disposition, of any or all of the Property (including without
limitation the Capital Stock of a Subsidiary) of any Consolidated Party whether
by sale, lease, transfer or otherwise, but other than pursuant to any casualty
or condemnation event.
"Assignment Agreement" shall have the meaning assigned to such term
in the Section 11.3(b).
"Bank Agency Agreement" means the bank agency agreement dated as of
the Closing Date in the form of Exhibit 1.1A to be executed in favor of the
Agent by Wells Fargo Bank, N.A. and the Borrower, as amended, modified,
restated or supplemented from time to time.
"Bank of America" means Bank of America National Trust and Savings
Association and its successors.
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the United
States Code, as amended, modified, succeeded or replaced from time to time.
"Bankruptcy Event" means, with respect to any Person, the occurrence
of any of the following: (i) a court or governmental agency having jurisdiction
in the premises shall enter a decree or order for relief in respect of such
Person in an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
such Person or for any substantial part of its Property or ordering the winding
up or liquidation of its affairs; or (ii) there shall be commenced against such
Person an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or any case, proceeding or other action
for the appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of such Person or for any substantial part
of its Property or for the winding up or liquidation of its affairs, and such
involuntary case or other case, proceeding or other action shall remain
undismissed, undischarged and unbonded for a period of sixty (60) consecutive
days; or (iii) such Person shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consent to the entry of an order for relief in an involuntary case under any
such law, or consent to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
such Person or for any substantial part of its Property or make any general
assignment for the benefit of creditors; or (iv) such Person shall be unable
to, or shall admit in writing its inability to, pay its debts generally as they
become due.
"Base Rate" means, for any day, the rate per annum equal to the
higher of (a) the Federal Funds Rate for such day plus one-half of one percent
(0.5%) and (b) the Prime Rate for such day. Any change in the Base Rate due to
a change in the Prime Rate or the Federal Funds Rate shall be effective on the
effective date of such change in the Prime Rate or Federal Funds Rate.
4
<PAGE>
"Base Rate Loan" means any Loan bearing interest at a rate determined
by reference to the Base Rate.
"Borrower" means the Person identified as such in the heading hereof,
together with any permitted successors and assigns.
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in San Francisco, California or New York, New York
are authorized or required by law to close, except that, when used in
connection with a Eurodollar Loan, such day shall also be a day on which
dealings between banks are carried on in Dollar deposits in London, England.
"Calculation Date" shall have the meaning assigned to such term in
the definition of "Applicable Percentage" set forth in this Section 1.1.
"Capital Lease" means, as applied to any Person, any lease of any
Property (whether real, personal or mixed) by that Person as lessee which, in
accordance with GAAP, is or should be accounted for as a capital lease on the
balance sheet of that Person.
"Capital Stock" means (i) in the case of a corporation, capital
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of capital stock, (iii) in the case of a partnership, partnership
interests (whether general or limited), (iv) in the case of a limited liability
company, membership interests and (v) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means, as at any date of determination, (i)
marketable securities (a) issued or directly and unconditionally guaranteed as
to interest and principal by the United States or (b) issued by any agency of
the United States the obligations of which are backed by the full faith and
credit of the United States, in each case maturing within one year after such
date; (ii) marketable direct obligations issued by any state of the United
States or any political subdivision of any such state or any public
instrumentality thereof, in each case maturing within one year after such date
and having, at the time of the acquisition thereof, the highest rating
obtainable from either S&P or Moody's; (iii) commercial paper maturing no more
than 270 days from the date of creation thereof and having, at the time of the
acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year after such date and issued or accepted by any Lender or by any
commercial bank (including a U.S. branch of a foreign bank) that has a combined
capital and surplus and undivided profits of at least $500,000,000); (v)
repurchase agreements which (a) are entered into with any entity referred to in
clauses (iii) or (iv) above or any other financial institution whose unsecured
long-term debt (or the unsecured long-term debt of whose holding company) is
rated at least A- or better by S&P or A3 or better by Moody's and maturing not
more than one year after such time; and (b) are secured by a fully perfected
security interest in securities of a type referred to in clauses (i) or (ii)
above and which have a market value at the time such repurchase
5
<PAGE>
agreement is entered into of not less than 100% of the repurchase obligation of
such counterparty entity with whom such repurchase agreement has been entered
into; (vi) short-term tax exempt securities that are rated not lower than MIG
1/1+ by either Moody's or S&P with provisions for liquidity or maturity
accommodations of 183 days or less; (vii) shares of any money market mutual
fund that (a) has at least 95% of its assets invested continuously in the types
of Investments referred to in clauses (i) through (vi) and as to which
withdrawals are permitted at least every 90 days and (viii) in the case of any
Foreign Subsidiary, Investments denominated in the currency of the jurisdiction
in which such Foreign Subsidiary is organized or has its principal place of
business which are similar to the items specified in clauses (i) through (vii)
above.
"Change of Control" means any of the following events: (a) the sale,
lease, transfer or other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Borrower and its Subsidiaries taken as a
whole to any "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act) other than the Sponsors and members of
management of the Borrower, (b) prior to a Qualifying IPO, the Sponsors and
members of management of the Borrower shall fail to own beneficially, directly
or indirectly in the aggregate, common stock of the Borrower carrying at least
51% of the voting power of the outstanding Voting Stock of the Borrower, (c)
after a Qualifying IPO, the Sponsors and members of management of the Borrower
shall fail to own beneficially, directly or indirectly in the aggregate, common
stock of the Borrower carrying a greater percentage of the voting power of all
outstanding Voting Stock of the Borrower than the percentage of such
outstanding Voting Stock which any other "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act), other
than the Sponsors and members of management of the Borrower, (A) shall have
acquired beneficial ownership, directly or indirectly, of, or (B) shall have
acquired by contract or otherwise (or shall have entered into a contract or
arrangement that, upon consummation, will result in acquisition of) control
over, (d) prior to a Qualifying IPO, the failure of the Sponsors and members of
management of the Borrower, in the aggregate, to control, whether through
ownership of Voting Stock, by contract or otherwise, a majority of the seats
(excluding vacant seats) on the Borrower's Board of Directors or (e) the
occurrence of a "Change of Control" under the Subordinated Note Indenture. As
used herein, "beneficial ownership" shall have the meaning provided in Rule
13d-3 of the Securities and Exchange Commission under the Securities Exchange
Act.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute thereto, as interpreted by the rules and regulations issued
thereunder, in each case as in effect from time to time. References to sections
of the Code shall be construed also to refer to any successor sections.
"Collateral" means a collective reference to the collateral which is
identified in, and at any time will be covered by, the Collateral Documents.
6
<PAGE>
"Collateral Documents" means a collective reference to the Security
Agreement, the Pledge Agreement, the Bank Agency Agreement, the Mortgage
Instruments and such other documents executed and delivered in connection with
the attachment and perfection of the Agent's security interests and liens
arising thereunder, including without limitation, UCC financing statements and
patent and trademark filings, and such other security documents as may be
delivered to the Agent from time to time pursuant to Section 7.13.
"Collection Account" means any of the accounts described in the Bank
Agency Agreement or such other account with respect to which a fully executed
bank agency agreement in form and substance satisfactory to the Agent shall
have been entered into among the Agent, the Borrower and Wells Fargo Bank, N.A.
"Commitment" means (i) with respect to each Lender, the commitment of
such Lender in an aggregate principal amount at any time outstanding of up to
such Lender's Commitment Percentage of the Committed Amount, (a) to make
Revolving Loans in accordance with the provisions of Section 2.1(a), (b) to
purchase Participation Interests in Letters of Credit in accordance with the
provisions of Section 2.2(c) and (c) to purchase Participation Interests in the
Swingline Loans in accordance with the provisions of Section 2.3(b)(iii), (ii)
with respect to the Issuing Lender(s), the commitment of the Issuing Lender(s)
to issue Letters of Credit in an aggregate face amount at any time outstanding
(together with the amounts of any unreimbursed drawings thereon) of up to the
Committed Amount and (iii) with respect to the Swingline Lender, the commitment
of the Swingline Lender to make Swingline Loans in an aggregate principal
amount at any time outstanding of up to the Swingline Committed Amount.
"Commitment Percentage" means, for any Lender, the percentage
identified as its Commitment Percentage on Schedule 2.1(a), as such percentage
may be modified in connection with any Additional Commitments created pursuant
to Section 3.4 or any assignment made in accordance with the provisions of
Section 11.3.
"Committed Amount" means $40,000,000, as such amount may be reduced
or increased from time to time as provided in Section 3.4.
"Consolidated Capital Expenditures" means, as of any date for the
four fiscal quarter period ending on such date with respect to the Consolidated
Parties on a consolidated basis (subject to the terms of Section 1.3), all
expenditures (whether paid in cash or other consideration or accrued as a
liability and including that capitalized portion of Capital Leases) that are
included in "additions to property, plant or equipment" or comparable items
reflected in the consolidated statement of cash flows of Borrower and its
Subsidiaries for such period, as determined in accordance with GAAP; provided
that Consolidated Capital Expenditures shall not include (i) any such
expenditures funded with the proceeds of any Asset Disposition, Excluded Asset
Disposition, Involuntary Disposition or Equity Issuance occurring subsequent to
the Closing Date or any such expenditure consisting of the acquisition of
Eligible Assets which have been received as consideration for an Asset
Disposition permitted under Section 8.5 or an Excluded Asset Disposition and
(ii) any Permitted Investment described in clauses (xii) and (xvi) of the
definition thereof.
7
<PAGE>
"Consolidated Cash Interest Expense" means, as of any date for the
four fiscal quarter period ending on such date with respect to the Consolidated
Parties on a consolidated basis (subject to the terms of Section 1.3), interest
expense (including the interest component under Capital Leases and the implied
interest component under Synthetic Leases, but excluding up-front fees and
expenses and the amortization of debt discount and premium), as determined in
accordance with GAAP, to the extent the same are payable on a current basis in
cash; provided, however, that Consolidated Cash Interest Expense for the four
fiscal quarter period ending on March 31, 1999, June 30, 1999, September 30,
1999 and December 31, 1999 shall be equal to the amount indicated for
Consolidated Cash Interest Expense for such period on Schedule 1.1A.
"Consolidated Cash Taxes" means, as of any date for the four fiscal
quarter period ending on such date with respect to the Consolidated Parties on
a consolidated basis (subject to the terms of Section 1.3), the aggregate of
all taxes, as determined in accordance with GAAP, to the extent the same are
payable on a current basis in cash.
"Consolidated EBITDA" means, as of any date for the four fiscal
quarter period ending on such date with respect to the Consolidated Parties on
a consolidated basis (subject to the terms of Section 1.3), the sum (without
duplication) of (i) Consolidated Net Income, plus (ii) an amount which, in the
determination of Consolidated Net Income, has been deducted for (A) interest
expense, (B) total federal, state, local and foreign income, value added and
similar taxes, (C) depreciation and amortization expense and other charges and
expenses (other than in connection with any write-downs of accounts receivable)
reducing Consolidated Net Income for such period which do not represent a cash
item in such period or in any future period, (D) any non-capitalized
transaction costs incurred in connection with actual or proposed financings,
acquisitions or divestitures (including, but not limited to, financing and
refinancing fees and costs incurred in connection with the Transaction), (E)
the amount of any net loss (or minus the amount of any net gain) realized in
connection with any Asset Disposition and (F) the amount of any extraordinary
or unusual loss (or minus the amount of any extraordinary or unusual gain), all
as determined in accordance with GAAP; provided, however, that Consolidated
EBITDA for the four fiscal quarter period ending on March 31, 1999, June 30,
1999, September 30, 1999 and December 31, 1999 shall be equal to the sum of (i)
the amount determined pursuant to the first clause of this definition for such
period then plus (ii) the Consolidated EBITDA Adjustment for each fiscal
quarter occuring during such period.
"Consolidated EBITDA Adjustment" means, for each of the fiscal
quarters ended June 30, 1998, September 30, 1998, December 31, 1998 and March
31, 1999, the amount indicated for such fiscal quarter on Schedule 1.1A.
"Consolidated Net Income" means, as of any date for the four fiscal
quarter period ending on such date with respect to the Consolidated Parties on
a consolidated basis (subject to the terms of Section 1.3), net income after
interest expense, income taxes and depreciation and amortization, all as
determined in accordance with GAAP.
8
<PAGE>
"Consolidated Parties" means a collective reference to the Borrower
and its Subsidiaries, and "Consolidated Party" means any one of them.
"Consolidated Scheduled Funded Debt Payments" means, as of any date
for the four fiscal quarter period ending on such date with respect to the
Consolidated Parties on a consolidated basis (subject to the terms of Section
1.3), the sum of all scheduled payments of principal on Funded Indebtedness
(including the principal component of payments due on Capital Leases, but
excluding voluntary prepayments or mandatory prepayments required pursuant to
Section 3.3), as determined in accordance with GAAP.
"Consolidated Total Assets" means, as of any date with respect to the
Consolidated Parties on a consolidated basis (subject to the terms of Section
1.3), total assets, as determined in accordance with GAAP.
"Continue", "Continuation", and "Continued" shall refer to the
continuation pursuant to Section 3.2 hereof of a Eurodollar Loan from one
Interest Period to the next Interest Period.
"Convert", "Conversion", and "Converted" shall refer to a conversion
pursuant to Section 3.2 or Sections 3.7 through 3.12, inclusive, of a Base Rate
Loan into a Eurodollar Loan.
"Credit Documents" means a collective reference to this Credit
Agreement, the Notes, the LOC Documents, each Joinder Agreement, the Agent's
Fee Letter, the Collateral Documents and all other agreements and documents
issued or delivered by any Credit Party pursuant to Section 7.12 or Section
7.13 (in each case as the same may be amended, modified, restated,
supplemented, extended, renewed or replaced from time to time), and "Credit
Document" means any one of them.
"Credit Parties" means a collective reference to the Borrower and the
Guarantors, and "Credit Party" means any one of them.
"Credit Party Obligations" means, without duplication, (i) all of the
obligations of the Credit Parties to the Lenders (including the Issuing
Lender(s)) and the Agent, whenever arising, under this Credit Agreement, the
Notes, the Collateral Documents or any of the other Credit Documents
(including, but not limited to, any interest accruing after the occurrence of a
Bankruptcy Event with respect to any Credit Party, regardless of whether such
interest is an allowed claim under the Bankruptcy Code), (ii) all liabilities
and obligations, whenever arising, owing from any Credit Party to any Lender,
or any Affiliate of a Lender, arising under any Hedging Agreement and (iii) all
liabilities and obligations, whenever arising, owing from any Credit Party to
any Lender, or any Affiliate of a Lender, arising in respect of any deposit
accounts maintained by such Credit Party with such Lender or Affiliate of a
Lender.
"Default" means any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
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"Defaulting Lender" means, at any time, any Lender that (a) has
failed to make a Loan or purchase a Participation Interest required pursuant to
the term of this Credit Agreement within one Business Day of when due, (b)
other than as set forth in (a) above, has failed to pay to the Agent or any
Lender an amount owed by such Lender pursuant to the terms of this Credit
Agreement within one Business Day of when due, unless such amount is subject to
a good faith dispute or (c) has been deemed insolvent or has become subject to
a bankruptcy or insolvency proceeding or with respect to which (or with respect
to any of the assets of which) a receiver, trustee or similar official has been
appointed.
"DLJMB" means DLJ Merchant Banking Partners II, L.P.
"Documentation Agent" shall have the meaning assigned to such term in
the heading hereof, together with any successors or assigns.
"Dollars" and "$" means dollars in lawful currency of the United
States.
"Domestic Joint Venture" means any Joint Venture which is
incorporated or organized under the laws of any State of the United States or
the District of Columbia.
"Domestic Subsidiary" means any direct or indirect Subsidiary of the
Borrower which is incorporated or organized under the laws of any State of the
United States or the District of Columbia.
"EBITDA" means, for any Person or Property for any period, the net
income (excluding extraordinary items) of such Person or Property for such
period before (without duplication) interest expense, income taxes and
depreciation and amortization, all as determined in accordance with GAAP.
"Eligible Assets" means any assets or any business (or any
substantial part thereof) used or useful in the business of defense electronics
(or any reasonable extensions or expansions thereof).
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a Lender
or any fund that invests in bank loans and is managed by an investment advisor
to a Lender; and (iii) any other Person approved by the Agent and, unless an
Event of Default has occurred and is continuing at the time any assignment is
effected in accordance with Section 11.3, the Borrower (such approval by the
Agent or the Borrower not to be unreasonably withheld or delayed and such
approval to be deemed given by the Borrower if no objection is received by the
assigning Lender and the Agent from the Borrower within two Business Days after
notice of such proposed assignment has been provided by the assigning Lender to
the Borrower) and has actually been received by an Executive Officer of the
Borrower; provided, however, that neither the Borrower nor an Affiliate of the
Borrower shall qualify as an Eligible Assignee.
"Eligible Real Property" means, with respect to any Consolidated
Party, including any Person that becomes a Consolidated Party after the Closing
Date as contemplated by Section 7.12, any real property owned or leased by such
Consolidated Party (i) which is
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located in the United States, (ii) which has a fair market value of at least
$1,000,000, and, in the case of leased real property, with respect to which the
remaining term of the related lease exceeds 2 years and (iii) which is not
Excluded Property.
"Eligible Reinvestment" means (i) any acquisition (whether or not
constituting a capital expenditure, but not constituting an Acquisition) of
Eligible Assets and (ii) any Permitted Acquisition.
"Environmental Laws" means any and all lawful and applicable Federal,
state, local and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees, permits, concessions, grants, franchises, licenses,
agreements or other governmental restrictions relating to the environment or to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern into the environment including, without limitation,
ambient air, surface water, ground water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling Materials of Environmental Concern.
"Equity Issuance" means any issuance by any Consolidated Party to any
Person of (a) shares of its Capital Stock, (b) any shares of its Capital Stock
pursuant to the exercise of options or warrants, (c) any shares of its Capital
Stock pursuant to the conversion of any debt securities to equity or (d) any
options or warrants relating to its Capital Stock.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute thereto, as interpreted by the rules and
regulations thereunder, all as the same may be in effect from time to time.
References to sections of ERISA shall be construed also to refer to any
successor sections.
"ERISA Affiliate" means an entity which is under common control with
any Consolidated Party within the meaning of Section 4001(a)(14) of ERISA, or
is a member of a group which includes any Consolidated Party and which is
treated as a single employer under Sections 414(b) or (c) of the Code.
"ERISA Event" means (i) with respect to any Plan, the occurrence of a
Reportable Event or the substantial cessation of operations (within the meaning
of Section 4062(e) of ERISA); (ii) the withdrawal by any Consolidated Party or
any ERISA Affiliate from a Multiple Employer Plan during a plan year in which
it was a substantial employer (as such term is defined in Section 4001(a)(2) of
ERISA), or the termination of a Multiple Employer Plan; (iii) the distribution
of a notice of intent to terminate or the actual termination of a Plan pursuant
to Section 4041(a)(2) or 4041A of ERISA; (iv) the institution of proceedings to
terminate or the actual termination of a Plan by the PBGC under Section 4042 of
ERISA; (v) any event or condition which might constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan; (vi) the complete or partial withdrawal of any
Consolidated Party or any ERISA Affiliate from a Multiemployer Plan; (vii) the
conditions for imposition of a lien under Section 302(f) of ERISA exist with
respect to any Plan; or (viii) the adoption of an amendment to any Plan
requiring the provision of security to such Plan pursuant to Section 307 of
ERISA.
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"Eurodollar Loan" means any Loan that bears interest at a rate based
upon the Eurodollar Rate.
"Eurodollar Rate" means, for any Eurodollar Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) determined by the Agent to be equal to the quotient
obtained by dividing (a) the Interbank Offered Rate for such Eurodollar Loan
for such Interest Period by (b) 1 minus the Eurodollar Reserve Requirement for
such Eurodollar Loan for such Interest Period.
"Eurodollar Reserve Requirement" means, at any time, the maximum rate
at which reserves (including, without limitation, any marginal, special,
supplemental, or emergency reserves) are required to be maintained under
regulations issued from time to time by the Board of Governors of the Federal
Reserve System (or any successor) by member banks of the Federal Reserve System
against "Eurocurrency liabilities" (as such term is used in Regulation D).
Without limiting the effect of the foregoing, the Eurodollar Reserve
Requirement shall reflect any other reserves required to be maintained by such
member banks with respect to (i) any category of liabilities which includes
deposits by reference to which the Adjusted Eurodollar Rate is to be
determined, or (ii) any category of extensions of credit or other assets which
include Eurodollar Loans. The Adjusted Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in the Eurodollar
Reserve Requirement.
"Event of Default" shall have the meaning assigned to such term in
Section 9.1.
"Excess Proceeds" shall have the meaning assigned to such term in
Section 7.6(b).
"Excluded Asset Disposition" means, with respect to any Consolidated
Party, (i) the sale of inventory in the ordinary course of such Consolidated
Party's business, (ii) the sale or disposition of machinery and equipment no
longer used or useful in the conduct of such Consolidated Party's business,
(iii) any Equity Issuance by such Consolidated Party and (iv) any sale, lease,
transfer or other disposition of Property by such Consolidated Party to any
other Consolidated Party.
"Excluded Property" means, with respect to any Consolidated Party,
including any Person that becomes a Consolidated Party after the Closing Date
as contemplated by Section 7.12, any Property of such Consolidated Party which
(a) subject to the terms of Section 8.11 and Section 8.13, is subject to a Lien
of the type described in clauses (vii) or (viii) of the definition of
"Permitted Liens" set forth in Section 1.1 pursuant to documents which prohibit
such Consolidated Party from granting any other Liens in such Property, (b) any
contract, license or similar Property of any Consolidated Party which prohibits
such Consolidated Party from granting any other Liens in such Property or
provides that such contract, license or Property can be terminated (or is
automatically terminated), or a default occurs thereunder, if any such Liens
are granted or (c) any motor vehicles to the extent the filing of a UCC-1
financing statement in the appropriate jurisdiction is not sufficient under
applicable law to perfect a security interest therein.
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"Executive Officer" of any Person means any of the chief executive
officer, chief operating officer, president, vice president, chief financial
officer or treasurer of such Person.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day; provided that (a) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business
Day, and (b) if no such rate is so published on such next succeeding Business
Day, the Federal Funds Rate for such day shall be the average rate charged to
the Agent (in its individual capacity) on such day on such transactions as
determined by the Agent.
"Fees" means all fees payable pursuant to Section 3.5.
"Fixed Charge Coverage Ratio" means, as of the end of any fiscal
quarter of the Consolidated Parties for the four fiscal quarter period ending
on such date with respect to the Consolidated Parties on a consolidated basis,
the ratio of (a) the sum of (i) Consolidated EBITDA for such period minus (iii)
Consolidated Capital Expenditures for such period minus (iv) Consolidated Cash
Taxes for such period to (b) the sum of (i) Consolidated Cash Interest Expense
for such period plus (ii) Consolidated Scheduled Funded Debt Payments for such
period.
"Foreign Joint Venture" means any Joint Venture which is not a
Domestic Joint Venture.
"Foreign Subsidiary" means any direct or indirect Subsidiary of the
Borrower which is not a Domestic Subsidiary.
"Funded Indebtedness" means, with respect to any Person, without
duplication, (a) all Indebtedness of such Person other than Indebtedness of the
types referred to in clause (e), (f), (g), (i) and (m) of the definition of
"Indebtedness" set forth in this Section 1.1, (b) all Funded Indebtedness of
others of the type referred to in clause (a) above secured by (or for which the
holder of such Funded Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on, or payable out of the proceeds of
production from, Property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (c) all Guaranty Obligations of
such Person with respect to Funded Indebtedness of the type referred to in
clause (a) above of another Person and (d) Funded Indebtedness of the type
referred to in clause (a) above of any partnership or unincorporated joint
venture in which such Person is a general partner or a joint venturer to the
extent such Person is liable therefor.
"GAAP" means generally accepted accounting principles in the United
States applied on a consistent basis and subject to the terms of Section 1.3.
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"Global" means Global Technology Partners.
"Global Advances" shall have the meaning assigned to such term in
Section 5.1(h).
"Governmental Authority" means any Federal, state, local or foreign
court or governmental agency, authority, instrumentality or regulatory body.
"Guarantors" means each of the Persons identified as a "Guarantor" on
the signature pages hereto and each Person which may hereafter execute a
Joinder Agreement pursuant to Section 7.12, together with their successors and
permitted assigns, and "Guarantor" means any one of them.
"Guaranty Obligations" means, with respect to any Person, without
duplication, any obligations of such Person (other than endorsements in the
ordinary course of business of negotiable instruments for deposit or
collection) guaranteeing or intended to guarantee any Indebtedness of any other
Person in any manner, whether direct or indirect, and including without
limitation any obligation, whether or not contingent, (i) to purchase any such
Indebtedness or any Property constituting security therefor, (ii) to advance or
provide funds or other support for the payment or purchase of any such
Indebtedness or to maintain working capital, solvency or other balance sheet
condition of such other Person (including without limitation keep well
agreements, maintenance agreements, comfort letters or similar agreements or
arrangements) for the benefit of any holder of Indebtedness of such other
Person, (iii) to lease or purchase Property, securities or services primarily
for the purpose of assuring the holder of such Indebtedness of the payment
thereof, or (iv) to otherwise assure or hold harmless the holder of such
Indebtedness against loss in respect thereof. The amount of any Guaranty
Obligation hereunder shall (subject to any limitations set forth therein) be
deemed to be an amount equal to the outstanding principal amount (or maximum
principal amount, if larger) of the Indebtedness in respect of which such
Guaranty Obligation is made.
"Hedging Agreements" means any interest rate protection agreement or
foreign currency exchange agreement.
"Indebtedness" means, with respect to any Person, without
duplication, (a) all obligations of such Person for borrowed money, (b) all
obligations of such Person evidenced by bonds, debentures, notes or similar
instruments, or upon which interest payments are customarily made, (c) all
obligations of such Person under conditional sale or other title retention
agreements relating to Property purchased by such Person (other than customary
reservations or retentions of title under agreements with suppliers entered
into in the ordinary course of business), (d) all obligations of such Person
issued or assumed as the deferred purchase price of Property or services
purchased by such Person (other than trade debt incurred in the ordinary course
of business) which would appear as liabilities on a balance sheet of such
Person, (e) all obligations of such Person under take-or-pay or similar
arrangements or under commodities agreements, (f) all Indebtedness of others
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on, or payable out of the
proceeds of production from, Property owned or acquired by such Person, whether
or not the obligations secured thereby have
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been assumed, (g) all Guaranty Obligations of such Person with respect to
Indebtedness of another Person, (h) the principal portion of all obligations of
such Person under Capital Leases, (i) all obligations of such Person under
Hedging Agreements, (j) (1) the maximum undrawn amount of all standby letters
of credit issued or bankers' acceptances facilities created for the account of
such Person (other than any such letters of credit not issued pursuant to this
Credit Agreement to the extent that the payment of reimbursement obligations
with respect thereto is supported by one or more Letters of Credit (each, a
"Fronting LC") and (2) without duplication of any item referred to in clause
(1) above, all unreimbursed drafts drawn under any standby letters of credit
issued or bankers' acceptances facilities created for the account of such
Person other than Fronting LCs, (k) all preferred Capital Stock issued by such
Person and which by the terms thereof could be (at the request of the holders
thereof or otherwise) subject to mandatory sinking fund payments, redemption or
other acceleration (other than as a result of a Change of Control or an Asset
Disposition that does not in fact result in a redemption of such preferred
Capital Stock) at any time prior to the final Maturity Date hereunder, (l) the
principal portion of all obligations of such Person under Synthetic Leases and
(m) the Indebtedness of any partnership or unincorporated joint venture in
which such Person is a general partner or a joint venturer to the extent such
Person is liable therefor.
"Interbank Offered Rate" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor
page) as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two Business Days prior to the first day
of such Interest Period for a term comparable to such Interest Period. If for
any reason such rate is not available, the term "Interbank Offered Rate" shall
mean, for any Eurodollar Loan for any Interest Period therefor, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Reuters Screen LIBO Page as the London interbank offered rate for deposits in
Dollars at approximately 11:00 a.m. (London time) two Business Days prior to
the first day of such Interest Period for a term comparable to such Interest
Period; provided, however, if more than one rate is specified on Reuters Screen
LIBO Page, the applicable rate shall be the arithmetic mean of all such rates
(rounded upwards, if necessary, to the nearest 1/100 of 1%); and provided
further, however, that if no such rate is specified, the applicable rate shall
be the rate at which deposits in Dollars are offered to the Agent in the London
interbank market at approximately 11:00 A.M. (London time) two Business Days
prior to the first day of such Interest Period in an amount approximately equal
to the principal amount of such Eurodollar Loan and for a period of time
comparable to such Interest Period.
"Interest Payment Date" means (a) as to Base Rate Loans (including
Swingline Loans which are Base Rate Loans), the last Business Day of each
March, June, September and December and the Maturity Date, and (b) as to
Eurodollar Loans, the last day of each applicable Interest Period and the
Maturity Date, and in addition where the applicable Interest Period for a
Eurodollar Loan is greater than three months, then also the date three months
from the beginning of the Interest Period and each three months thereafter.
"Interest Period" means, as to Eurodollar Loans, a period of one,
two, three or six (or, to the extent available, nine or twelve) months'
duration, as the Borrower may elect,
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commencing, in each case, on the date of the borrowing (including continuations
thereof and conversions of Base Rate Loans into Eurodollar Loans); provided,
however, (a) if any Interest Period would end on a day which is not a Business
Day, such Interest Period shall be extended to the next succeeding Business Day
(except that where the next succeeding Business Day falls in the next
succeeding calendar month, then on the next preceding Business Day), (b) no
Interest Period shall extend beyond the Maturity Date and (c) where an Interest
Period begins on the last Business Day of a calendar month or on a day for
which there is no numerically corresponding day in the calendar month in which
the Interest Period is to end, such Interest Period shall end on the last
Business Day of the calendar month in which such interest period is to end.
"Investment" in any Person means (a) the acquisition (whether for
cash, property, services, assumption of Indebtedness, securities or otherwise)
of assets (other than equipment, inventory, supplies and intellectual property
in the ordinary course of business and other than any acquisition of assets
constituting a Consolidated Capital Expenditure or an expenditure excluded from
the definition thereof by the proviso thereto), Capital Stock, bonds, notes,
debentures, partnership, joint ventures or other ownership interests or other
securities of such other Person or (b) any deposit with, or advance, loan or
other extension of credit to, such Person (other than (i) deposits made in
connection with the purchase of equipment, inventory and supplies in the
ordinary course of business and (ii) advances to employees for moving,
entertainment and travel expenses, drawing accounts and similar expenditures in
the ordinary course of business) or (c) any other capital or other contribution
to or investment in such Person, including, without limitation, any (i)
Guaranty Obligations (including any support for a letter of credit issued on
behalf of such Person) incurred for the benefit of such Person and (ii) any
Asset Disposition to such Person for consideration less than the fair market
value of the Property disposed in such transaction (the amount of any such
Investment under this subclause (c)(ii) to be the excess of the fair market
value of the Property subject to such Asset Disposition over the value of the
consideration received in respect of such Asset Disposition), but excluding any
Restricted Payment to such Person.
"Involuntary Disposition" shall have the meaning assigned to such
term in Section 7.6(b).
"Issuing Lender" means (i) Bank of America, in its capacity as issuer
of any Letter of Credit or (ii) if Bank of America shall be unwilling to issue
any Letter of Credit in the form requested by the Borrower in accordance with
the terms of Section 2.2, such other Lender selected by the Borrower from time
to time to issue such Letter of Credit.
"Joinder Agreement" means a Joinder Agreement substantially in the
form of Exhibit 7.12 hereto, executed and delivered by a new Guarantor in
accordance with the provisions of Section 7.12.
"Joint Venture" means a Person (other than a Subsidiary of the
Borrower or a Governmental Authority) which meets the following criteria:
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(a) such Person is engaged in, or its Property is used or useful
in, the business of defense electronics (or any reasonable extensions
or expansions thereof);
(b) the Borrower, either directly or through one or more
Subsidiaries, holds an equity interest in such Person; and
(c) the Borrower, either directly or through one or more
Subsidiaries, has a right, whether through it ownership of equity
interests in such Person, by contract or otherwise, to control or
exert significant influence over (either itself or jointly with
others with whom it has a contractual or other arrangement with
respect thereto) the management and the conduct of the business of
such Person.
"Lender" means any of the Persons identified as a "Lender" on the
signature pages hereto, and any Person which has become a Lender by way of
assignment in accordance with the terms hereof, together with their successors
and permitted assigns.
"Letter of Credit" means any letter of credit issued by the
applicable Issuing Lender for the account of the Borrower in accordance with
the terms of Section 2.2.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, security interest, encumbrance, lien (statutory or otherwise),
preference or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any
financing or similar statement or notice filed under the Uniform Commercial
Code as adopted and in effect in the relevant jurisdiction or other similar
recording or notice statute, and any lease in the nature thereof).
"Loan" or "Loans" means the Revolving Loans (or a portion of any
Revolving Loan bearing interest at the Adjusted Base Rate or the Adjusted
Eurodollar Rate) and/or the Swingline Loans, individually or collectively, as
appropriate.
"LOC Documents" means, with respect to any Letter of Credit, such
Letter of Credit, any amendments thereto, any documents delivered in connection
therewith and any application therefor.
"LOC Obligations" means, at any time, without duplication, the sum of
(i) the maximum amount which is, or at any time thereafter may become,
available to be drawn under Letters of Credit then outstanding, assuming
compliance with all requirements for drawings referred to in such Letters of
Credit plus (ii) the aggregate amount of all drawings under Letters of Credit
honored by the Issuing Lender(s) but not theretofore reimbursed by the
Borrower.
"Material Adverse Effect" means a material adverse effect on (i) the
business, assets, properties, operations or financial condition of the
Consolidated Parties taken as a whole, (ii) the ability of any Credit Party to
perform any material obligation under the Credit Documents to which it is a
party or (iii) the material rights and remedies of the Agent and the Lenders
under the Credit Documents.
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"Material Foreign Joint Venture" means, as of any date of
determination, any Foreign Joint Venture with respect to which at any time on
or after the Closing Date the percentage of the total assets (determined in
accordance with GAAP) of such Joint Venture corresponding to the percentage of
the aggregate equity interests of such Joint Venture held directly or
indirectly by the Borrower is equal to or greater than $1,000,000, as
determined as of the most recent fiscal quarter end preceding such date of
determination with respect to which the Agent has received the Required
Financial Information.
"Material Foreign Subsidiary" means, as of any date of determination,
any direct or indirect Foreign Subsidiary of the Borrower other than Condor
Data Management, Ltd. which at any time on or after the Closing Date has total
assets (determined in accordance with GAAP) equal to or greater than
$1,000,000, as determined as of the most recent fiscal quarter end preceding
such date of determination with respect to which the Agent has received the
Required Financial Information.
"Materials of Environmental Concern" means any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials, pollutants or wastes, defined or
regulated as such in or under any Environmental Laws, including, without
limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde
insulation.
"Maturity Date" means April 15, 2004.
"Merger Agreement" means that certain Agreement and Plan of Merger,
dated as of March 8, 1999, by and among the Borrower, Mergersub and the
Shareholders defined therein, as the same may be amended on or prior to the
Closing Date.
"Mergersub" means WDC Acquisition Corp., a Delaware corporation.
"Moody's" means Moody's Investors Service, Inc., or any successor or
assignee of the business of such company in the business of rating securities.
"Mortgage Instruments" shall have the meaning assigned such term in
Section 7.15(b).
"Mortgage Policies" shall have the meaning assigned such term in
Section 7.15(b).
"Mortgaged Properties" shall have the meaning assigned such term in
Section 7.15(b).
"Multiemployer Plan" means a Plan which is a "multiemployer plan" as
defined in Sections 3(37) or 4001(a)(3) of ERISA.
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"Multiple Employer Plan" means a Plan (other than a Multiemployer
Plan) which any Consolidated Party or any ERISA Affiliate and at least one
employer other than the Consolidated Parties or any ERISA Affiliate are
contributing sponsors.
"New Commitment Agreement" shall have the meaning assigned to such
term in Section 3.4(b).
"Net Cash Proceeds" means the aggregate proceeds paid in cash or Cash
Equivalents received by any Consolidated Party in respect of any Asset
Disposition or Involuntary Disposition, net of (a) direct costs (including,
without limitation, legal, accounting and investment banking fees, and sales
commissions) and (b) taxes paid or payable as a result thereof; it being
understood that "Net Cash Proceeds" shall include, without limitation, any cash
or Cash Equivalents received upon the sale or other disposition of any non-cash
consideration received by any such Consolidated Party in any Asset Disposition
or Involuntary Disposition.
"Net Senior Funded Indebtedness" means, as of any date with respect
to the Consolidated Parties on a consolidated basis (subject to the terms of
Section 1.3), all Funded Indebtedness minus (i) Funded Indebtedness outstanding
under the Subordinated Notes and any other Funded Indebtedness which is
subordinated to the Credit Party Obligations to at least the same extent of the
Funded Indebtedness under the Subordinated Notes and (ii) all cash on hand and
Investments consisting of Cash Equivalents, all as determined in accordance
with GAAP.
"Non-Consenting Lender" means any Lender that, in a response to any
request by the Borrower or the Agent to a departure from, waiver of or
amendment to any provision of any Credit Document that requires the agreement
of all Lenders or all Lenders holding Commitments or Loans (and Participations
in Letters of Credit), which departure, waiver or amendment received the
consent of the Required Lenders, shall not have given its consent to such
departure, waiver or amendment.
"Note" or "Notes" means the Revolving Notes and/or the Swingline
Note, individually or collectively, as appropriate.
"Notice of Borrowing" means a written notice of borrowing in
substantially the form of Exhibit 2.1(b)(i), as required by Section 2.1(b)(i).
"Notice of Extension/Conversion" means the written notice of
extension or conversion in substantially the form of Exhibit 3.2, as required
by Section 3.2.
"Operating Lease" means, as applied to any Person, any lease
(including, without limitation, leases which may be terminated by the lessee at
any time) of any Property (whether real, personal or mixed) which is not a
Capital Lease other than any such lease in which that Person is the lessor.
"Other Taxes" shall have the meaning assigned to such term in Section
3.11.
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"Participation Interest" means a purchase by a Lender of a
participation in Letters of Credit or LOC Obligations as provided in Section
2.2, in Swingline Loans as provided in Section 2.3(b)(iii) or in any Loans as
provided in Section 3.14.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA and any successor thereof.
"Permitted Acquisition" means an Acquisition by the Borrower or any
Subsidiary of the Borrower, provided that (i) the Property acquired (or the
Property of the Person acquired) in such Acquisition is used or useful in the
business of defense electronics (or any reasonable extensions or expansions
thereof), (ii) the Agent shall have received all items in respect of the
Capital Stock or Property acquired in such Acquisition (and/or the seller
thereof) required to be delivered by the terms of Section 7.12 and/or Section
7.13 within the time periods provided therein, (iii) in the case of an
Acquisition of the Capital Stock of another Person, the board of directors (or
other comparable governing body) of such other Person shall not have taken (and
not rescinded) any action to oppose such Acquisition, (iv) if the aggregate
consideration paid with respect to such Acquisition exceeds $2,500,000, the
Borrower shall have delivered to the Agent a Pro Forma Compliance Certificate
demonstrating that, upon giving effect to such Acquisition on a Pro Forma
Basis, the Credit Parties shall be in compliance with all of the Total Leverage
Ratio and the Senior Leverage Ratio, (v) if the EBITDA of the Person or
Property to be acquired in such Acquisition for the most recent 12
calendar-month period preceding the date of such Acquisition is greater than
25% of Consolidated EBITDA for the most recent fiscal year preceding the date
of such Acquisition with respect to which the Agent has received the Required
Financial Information, then the EBITDA of such Person or Property for such
period shall be audited in accordance with GAAP by independent certified public
accountants of recognized national standing reasonably acceptable to the Agent
(whose opinion shall not be limited as to the scope or qualified as to going
concern status), (vi) the representations and warranties made by the Credit
Parties in any Credit Document shall be true and correct in all material
respects at and as if made as of the date of such Acquisition (after giving
effect thereto) except to the extent such representations and warranties
expressly relate to an earlier date, (vii) after giving effect to such
Acquisition, there shall be at least $3,500,000 of availability existing under
the Committed Amount and (viii) the aggregate consideration (including cash and
non-cash consideration and any assumption of Indebtedness, but excluding
consideration consisting of any Capital Stock of the Parent issued to the
seller of the Capital Stock or Property acquired in such Acquisition, the
proceeds of any Equity Issuance by the Parent occurring subsequent to the
Closing Date and the proceeds of any Asset Disposition, Excluded Asset
Disposition or Involuntary Disposition by any Consolidated Party occurring
subsequent to the Closing Date) for all such Acquisitions occurring after the
Closing Date shall not exceed $35,000,000 plus the amount of any increase in
the Committed Amount pursuant to Section 3.4(b).
"Permitted Investments" means Investments which are (i) cash and Cash
Equivalents; (ii) accounts receivable acquired by any Consolidated Party in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments consisting of Capital Stock,
obligations, securities or other property
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received by any Consolidated Party in settlement of accounts receivable
(created in the ordinary course of business) from bankrupt obligors; (iv)
Investments existing as of the Closing Date and set forth in Schedule 1.1B and
extensions or renewals thereof, provided that no such extension or renewal
shall increase the amount of such Investment as of the Closing Date; (vi)
advances or loans to directors, officers, employees, agents, customers or
suppliers that do not exceed $1,000,000 in the aggregate at any one time
outstanding for all of the Consolidated Parties; (vii) Investments in any
Credit Party; (viii) Investments in Joint Ventures and Consolidated Parties
which are not Credit Parties in an aggregate principal amount not to exceed an
amount equal to the sum of (A) $7,500,000 plus (B) 50% of net income (or minus
100% of the net loss) for the period from the Closing Date through the most
recent fiscal quarter end for which the Lenders have received the Required
Financial Information prior to the date of such Investment; (ix) Investments
arising pursuant to Hedging Agreements permitted under Section 8.1(d); (x)
Investments funded with the proceeds of Equity Issuance occurring subsequent to
the Closing Date; (xi) Investments consisting of Eligible Reinvestments made
pursuant to Section 7.6 or Section 8.5; (xii) Permitted Acquisitions; (xiii)
Investments constituting consideration received in connection with an Asset
Disposition permitted by Section 8.5, (xiv) Investments consisting of the
Global Advances, (xv) Investments consisting of notes payable issued by any
officer, director or employee of the Borrower or any of its Subsidiaries as
payment for Capital Stock of the Borrower purchased by such officer, director
or employee pursuant to the exercise of options and (xvi) other Investments in
an aggregate principal amount not to exceed $2,500,000 at any time outstanding.
"Permitted Liens" means:
(i) Liens in favor of the Agent to secure the Credit Party
Obligations;
(ii) Liens (other than Liens created or imposed under ERISA) for
taxes, assessments or governmental charges or levies not yet due or Liens for
taxes being contested in good faith by appropriate proceedings for which
adequate reserves determined in accordance with GAAP have been established (and
as to which, in the case of any Lien securing any obligations in excess of
$2,000,000, the Property subject to any such Lien is not yet subject to
foreclosure, sale or loss on account thereof);
(iii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and suppliers and other Liens imposed by
law or pursuant to customary reservations or retentions of title arising in the
ordinary course of business, provided that such Liens secure only amounts not
yet due and payable or, if due and payable, are unfiled and no other action has
been taken to enforce the same or are being contested in good faith by
appropriate proceedings for which adequate reserves determined in accordance
with GAAP have been established (and as to which, in the case of any Lien
securing any obligations in excess of $2,000,000, the Property subject to any
such Lien is not yet subject to foreclosure, sale or loss on account thereof);
(iv) Liens (other than Liens created or imposed under ERISA) incurred
or deposits made by any Consolidated Party in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, or
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to secure the performance of tenders, statutory obligations, bids, leases,
government contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(v) judgment Liens with respect to judgments which do not constitute
an Event of Default under Section 9.1(h), and Liens securing bonds covering the
payment of such judgments and reimbursement obligations with respect to letters
of credit supporting any such bonds or any such judgments;
(vi) easements, rights-of-way, restrictions (including zoning
restrictions), minor defects or irregularities in title and other similar
charges or encumbrances not, in any material respect, impairing the use of the
encumbered Property for its intended purposes;
(vii) Liens on Property of any Person securing purchase money
Indebtedness (including Capital Leases and Synthetic Leases) of such Person to
the extent permitted under Section 8.1(c), provided that any such Lien attaches
to such Property concurrently with or within 120 days after the acquisition
thereof;
(viii) Liens securing Indebtedness permitted under Section 8.1(g)
and, to the extent encumbering cash and Cash Equivalents, Liens securing
Indebtedness permitted under Section 8.1(d);
(ix) Liens of the United States or any agency or instrumentality
thereof on unliquidated advance and progress payments made by such Person under
any contract providing for the sale of goods to such Person, together with any
related work-in-process;
(x) leases or subleases granted to others not interfering in any
material respect with the business of any Consolidated Party;
(xi) any interest of title of a lessor under, and Liens arising from
UCC financing statements (or equivalent filings, registrations or agreements in
foreign jurisdictions) relating to, leases permitted by this Credit Agreement;
(xii) Liens deemed to exist in connection with Investments in
repurchase agreements permitted under Section 8.6;
(xiii) normal and customary rights of setoff upon deposits of cash in
favor of banks or other depository institutions;
(xiv) trustee's Liens granted to State Street Bank and Trust Company
pursuant to the Subordinated Note Indenture;
(xv) Liens of a collection bank arising under Section 4-210 of the
Uniform Commercial Code on items in the course of collection;
(xvi) Liens of sellers of goods to the Borrower and any of its
Subsidiaries arising under Article 2 of the Uniform Commercial Code or similar
provisions of
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applicable law in the ordinary course of business, covering only the goods sold
and securing only the unpaid purchase price for such goods and related expenses;
(xvii) Liens consisting of rights of first refusal and similar rights
with respect to the Capital Stock of Joint Ventures and Consolidated Parties
that are not Wholly Owned Subsidiaries of the Borrower; and
(xviii) Liens existing as of the Closing Date and set forth on
Schedule 1.1C and Liens securing extensions or renewals of the Indebtedness
which such identified Liens secure; provided that no such extension or renewal
shall (a) extend such Lien to or cover any Property other than the Property
subject thereto on the Closing Date, (b) increase the principal amount of the
Indebtedness secured by such Liens as of the Closing Date or (c) otherwise
result in a Default or Event of Default.
"Person" means any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other enterprise
(whether or not incorporated) or any Governmental Authority.
"Plan" means any employee benefit plan (as defined in Section 3(3) of
ERISA) which is covered by ERISA and with respect to which any Consolidated
Party or any ERISA Affiliate is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer" within the
meaning of Section 3(5) of ERISA.
"Pledge Agreement" means the pledge agreement dated as of the Closing
Date in the form of Exhibit 1.1B to be executed in favor of the Agent by each
of the Credit Parties, as amended, modified, restated or supplemented from time
to time.
"Prime Rate" means the per annum rate of interest established from
time to time by Bank of America as its prime rate, which rate may not be the
lowest rate of interest charged by Bank of America to its customers.
"Pro Forma Basis" means, for purposes of calculating (utilizing the
principles set forth in the second paragraph of Section 1.3) compliance with
each of the financial covenants set forth in Section 7.11 in respect of a
proposed transaction, that such transaction shall be deemed to have occurred as
of the first day of the four fiscal-quarter period ending as of the most recent
fiscal quarter end preceding the date of such transaction with respect to which
the Agent has received the Required Financial Information. As used herein,
"transaction" shall mean (i) any Asset Disposition as referred to in Section
8.5 or (ii) any Acquisition as referred to in the definition of "Permitted
Acquisition" set forth in this Section 1.1. In connection with any calculation
of the financial covenants set forth in Section 7.11 upon giving effect to a
transaction on a Pro Forma Basis:
(A) for purposes of any such calculation in respect of any Asset
Disposition as referred to in Section 8.5, (1) income statement items
(whether positive or negative) attributable to the Property disposed of in
such Asset Disposition shall be excluded and (2) any Indebtedness which is
retired in
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connection with such Asset Disposition shall be excluded and deemed to have been
retired as of the first day of the applicable period; and
(B) for purposes of any such calculation in respect of any
Acquisition as referred to in the definition of "Permitted Acquisition"
set forth in this Section 1.1, (1) any Indebtedness incurred by any
Consolidated Party in connection with such transaction (x) shall be deemed
to have been incurred as of the first day of the applicable period and (y)
if such Indebtedness has a floating or formula rate, shall have an implied
rate of interest for the applicable period for purposes of this definition
determined by utilizing the rate which is or would be in effect with
respect to such Indebtedness as at the relevant date of determination, (2)
income statement items (whether positive or negative) attributable to the
Property acquired in such transaction or to the Acquisition comprising
such transaction, as applicable, shall be included beginning as of the
first day of the applicable period, (3) any Indebtedness which is retired
in connection with such transaction shall be excluded and deemed to have
been retired as of the first day of the applicable period and (4) pro
forma adjustments may be included to the extent determined by the Borrower
in good faith to be appropriate (including, whether or not such inclusion
would be permitted under GAAP or Regulation S-X of the Securities and
Exchange Commission, cost savings that would have been realized had such
transaction occurred on the first day of such period).
"Pro Forma Compliance Certificate" means a certificate of an
Executive Officer of the Borrower delivered to the Agent in connection with (i)
any Asset Disposition as referred to in Section 8.5 or (ii) any Acquisition as
referred to in the definition of "Permitted Acquisition" set forth in this
Section 1.1, as applicable, and containing reasonably detailed calculations,
upon giving effect to the applicable transaction on a Pro Forma Basis, of the
Total Leverage Ratio and Senior Leverage Ratio as of the most recent fiscal
quarter end preceding the date of the applicable transaction with respect to
which the Agent shall have received the Required Financial Information.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Qualifying IPO" means an underwritten primary public offering (other
than a public offering pursuant to a registration statement on Form S-8) of the
common Capital Stock of the Borrower (i) pursuant to an effective registration
statement filed with the Securities and Exchange Commission in accordance with
the Securities Act (whether alone or in connection with a secondary public
offering) and (ii) resulting in proceeds to the Borrower of at least $25
million.
"Register" shall have the meaning assigned to such term in Section
11.3(c).
"Regulation D, T, U, or X" means Regulation D, T, U or X,
respectively, of the Board of Governors of the Federal Reserve System as from
time to time in effect and any successor to all or a portion thereof.
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"Reportable Event" means any of the events set forth in Section
4043(c) of ERISA, other than those events as to which the notice requirement
has been waived by regulation.
"Required Financial Information" means, with respect to the
applicable Calculation Date, (i) the financial statements of the Consolidated
Parties required to be delivered pursuant to Section 7.1(a) or (b) for the
fiscal period or quarter ending as of such Calculation Date, and (ii) the
certificate of an Executive Officer of the Borrower required by Section 7.1(c)
to be delivered with the financial statements described in clause (i) above.
"Required Lenders" means, at any time, Lenders other than Defaulting
Lenders which are then in compliance with their obligations hereunder (as
determined by the Agent) and holding in the aggregate at least a majority of
(i) the Commitments (and, without duplication, Participation Interests therein)
or (ii) if the Commitments have been terminated, the outstanding Loans and,
without duplication, Participation Interests therein (including the
Participation Interests of the applicable Issuing Lender in any Letters of
Credit issued by such Issuing Lender and the Participation Interests of the
Swingline Lender in any Swingline Loans).
"Requirement of Law" means, as to any Person, the articles or
certificate of incorporation and by-laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or to which any of its
material property is subject.
"Restricted Payment" means (i) any dividend or other payment or
distribution, direct or indirect, on account of any shares of any class of
Capital Stock of any Consolidated Party, now or hereafter outstanding
(including without limitation any payment in connection with any dissolution,
merger or consolidation involving any Consolidated Party), or to the holders,
in their capacity as such, of any shares of any class of Capital Stock of any
Consolidated Party, now or hereafter outstanding (other than dividends or
distributions payable in the same or a junior class of Capital Stock of the
applicable Person or to any Credit Party (directly or indirectly through
Subsidiaries)), (ii) any redemption, retirement, sinking fund or similar
payment, purchase or other acquisition for value, direct or indirect, of any
shares of any class of Capital Stock of any Consolidated Party, now or
hereafter outstanding, (iii) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of Capital Stock of any Consolidated Party, now or
hereafter outstanding and (iv) any payment or prepayment of principal of,
premium, if any, or interest on, including any redemption, purchase,
retirement, defeasance, sinking fund or similar payment with respect to, the
Subordinated Notes.
"Revolving Loans" shall have the meaning assigned to such term in
Section 2.1(a).
"Revolving Note" or "Revolving Notes" means the promissory notes of
the Borrower in favor of each Lender provided pursuant to Section 2.1(e) and
evidencing the Revolving Loans of such Lender, individually or collectively, as
appropriate, as such
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promissory notes may be amended, modified, restated, supplemented, extended,
renewed or replaced from time to time.
"S&P" means Standard & Poor's Ratings Group, a division of The McGraw
Hill Companies, Inc., or any successor or assignee of the business of such
division in the business of rating securities.
"Sale and Leaseback Transaction" means any arrangement pursuant to
which any Consolidated Party, directly or indirectly, becomes liable as lessee,
guarantor or other surety with respect to any lease, whether an Operating Lease
or a Capital Lease, of any Property (a) which such Consolidated Party has sold
or transferred (or is to sell or transfer) to a Person which is not a
Consolidated Party or (b) which such Consolidated Party intends to use for
substantially the same purpose as any other Property which has been sold or
transferred (or is to be sold or transferred) by such Consolidated Party to
another Person which is not a Consolidated Party in connection with such lease.
"Securities Exchange Act" means the Securities Exchange Act of 1934.
"Security Agreement" means the security agreement dated as of the
Closing Date in the form of Exhibit 1.1C to be executed in favor of the Agent
by each of the Credit Parties, as amended, modified, restated or supplemented
from time to time.
"Senior Leverage Ratio" means, as of the end of any fiscal quarter of
the Consolidated Parties for the four fiscal quarter period ending on such date
with respect to the Consolidated Parties on a consolidated basis, the ratio of
(a) Net Senior Funded Indebtedness of the Consolidated Parties on a
consolidated basis on the last day of such period to (b) Consolidated EBITDA
for such period.
"Single Employer Plan" means any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan or a Multiple Employer Plan.
"Solvent" or "Solvency" means, with respect to any Person as of a
particular date, that on such date (i) such Person is able to pay its debts and
other liabilities, contingent obligations and other commitments as they become
due, (ii) such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Person's ability to pay as such debts
and liabilities mature, (iii) such Person is not engaged in a business or a
transaction, and is not about to engage in a business or a transaction, for
which such Person's Property would constitute unreasonably small capital after
giving due consideration to the prevailing practice in the industry in which
such Person is engaged or is to engage, (iv) the fair value of the Property of
such Person is greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of such Person and (v) the present fair
salable value of the assets of such Person is not less than the amount that
will be required to pay the probable liability of such Person on its debts as
they become absolute and matured. In computing the amount of contingent
liabilities at any time, it is intended that such liabilities will be computed
at the amount which, in light of all the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become an
actual or matured liability.
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"Sponsors" means a collective reference to DLJMB, Global, Behrman
Capital and their respective affiliates.
"Standby Letter of Credit Fee" shall have the meaning assigned to
such term in Section 3.5(c)(i).
"Subordinated Note" means any one of the 11 7/8% Senior Subordinated
Notes due 2009, issued by the Borrower pursuant to the Subordinated Note
Indenture, as such Subordinated Notes may be amended, modified, restated or
supplemented and in effect from time to time.
"Subordinated Note Indenture" means the Indenture, dated as of the
Closing Date, by and between the Borrower and State Street Bank and Trust
Company, as trustee, as such Subordinated Note Indenture may be amended,
modified, restated or supplemented and in effect from time to time.
"Subsidiary" means, as to any Person at any time, (a) any corporation
more than 50% of whose Capital Stock of any class or classes having by the
terms thereof ordinary voting power to elect a majority of the directors of
such corporation (irrespective of whether or not at such time, any other class
or classes of securities of such corporation shall have or might have voting
power by reason of the happening of any contingency) is at such time owned by
such Person directly or indirectly through Subsidiaries, and (b) any
partnership, association, joint venture or other entity of which such Person
directly or indirectly through Subsidiaries owns at such time more than 50% of
the Capital Stock.
"Swingline Committed Amount" shall have the meaning assigned to such
term in Section 2.3(a).
"Swingline Lender" means Bank of America.
"Swingline Loan" shall have the meaning assigned to such term in
Section 2.3(a).
"Swingline Note" means the promissory note of the Borrower in favor
of the Swingline Lender provided pursuant to Section 2.3(d) and evidencing the
Swingline Loans, as such promissory note may be amended, modified, restated,
supplemented, extended, renewed or replaced from time to time.
"Synthetic Lease" means any synthetic lease, tax retention operating
lease, off-balance sheet loan or similar off-balance sheet financing product
where such transaction is considered borrowed money indebtedness for tax
purposes but is classified as an Operating Lease under GAAP.
"Taxes" shall have the meaning assigned to such term in Section 3.11.
"Total Leverage Ratio" means, as of the end of any fiscal quarter of
the Consolidated Parties for the four fiscal quarter period ending on such date
with respect to
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the Consolidated Parties on a consolidated basis, the ratio of (a) Total Net
Funded Indebtedness of the Consolidated Parties on a consolidated basis on the
last day of such period to (b) Consolidated EBITDA for such period.
"Total Net Funded Indebtedness" means, as of any date with respect to
the Consolidated Parties on a consolidated basis (subject to the terms of
Section 1.3), all Funded Indebtedness other than Indebtedness of the type
referred to in clause (j)(1) of the definition of "Indebtedness" set forth in
Section 1.1 minus all cash on hand and Investments consisting of Cash
Equivalents, all as determined in accordance with GAAP.
"Trade Letter of Credit Fee" shall have the meaning assigned to such
term in Section 3.5(c)(ii).
"Transaction" means the recapitalization of the Borrower pursuant to
the Merger Agreement and the related financings and other transactions
contemplated by this Credit Agreement and the Merger Agreement, including the
merger of Mergersub into the Borrower, with the Borrower being the surviving
entity.
"Unused Fee" shall have the meaning assigned to such term in Section
3.5(b).
"Unused Fee Calculation Period" shall have the meaning assigned to
such term in Section 3.5(b).
"Unused Committed Amount" means, for any day, the amount by which (a)
the then applicable Committed Amount exceeds (b) the sum on such day of (i) the
outstanding aggregate principal amount of all Revolving Loans (but not
including any Swingline Loans) plus (ii) the outstanding aggregate principal
amount of all LOC Obligations.
"Voting Stock" means, with respect to any Person, Capital Stock
issued by such Person the holders of which are ordinarily, in the absence of
contingencies, entitled to vote for the election of directors (or persons
performing similar functions) of such Person, even though the right so to vote
has been suspended by the happening of such a contingency.
"Wholly Owned Domestic Subsidiary" of any Person means any Wholly
Owned Subsidiary of such Person which is a Domestic Subsidiary.
"Wholly Owned Subsidiary" of any Person means any Subsidiary 100% of
whose Voting Stock is at the time owned by such Person directly or indirectly
through other Wholly Owned Subsidiaries.
"Year 2000 Compliant" shall have the meaning assigned to such term in
Section 6.22.
1.2 Computation of Time Periods.
For purposes of computation of periods of time hereunder, the word
"from" means "from and including" and the words "to" and "until" each mean "to
but excluding."
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1.3 Accounting Terms.
Except as otherwise expressly provided herein, all accounting terms
used herein shall be interpreted, and all financial statements and certificates
and reports as to financial matters required to be delivered to the Lenders
hereunder shall be prepared, in accordance with GAAP applied on a consistent
basis. All calculations made for the purposes of determining compliance with
this Credit Agreement shall (except as otherwise expressly provided herein) be
made by application of GAAP applied on a basis consistent with the most recent
annual or quarterly financial statements delivered pursuant to Section 7.1 (or,
prior to the delivery of the first financial statements pursuant to Section
7.1, consistent with the financial statements as at December 31, 1998);
provided, however, if (a) the Credit Parties shall object to determining such
compliance on such basis at the time of delivery of such financial statements
due to any change in GAAP or the rules promulgated with respect thereto or (b)
the Agent or the Required Lenders shall so object in writing within 60 days
after delivery of such financial statements, then such calculations shall be
made on a basis consistent with the most recent financial statements delivered
by the Credit Parties to the Lenders as to which no such objection shall have
been made.
Notwithstanding the above, the parties hereto acknowledge and agree
that, for purposes of all calculations made under the financial covenants set
forth in Section 7.11 (including without limitation for purposes of the
definitions of "Applicable Percentage" and "Pro Forma Basis" set forth in
Section 1.1), (i) in connection with any Asset Disposition as contemplated by
Section 8.5, (A) income statement items (whether positive or negative)
attributable to the Property disposed of shall be excluded to the extent
relating to any period occurring prior to the date of such transaction and (B)
Indebtedness which is retired shall be excluded and deemed to have been retired
as of the first day of the applicable period and (ii) in connection with any
Acquisition as referred to in the definition of "Permitted Acquisition" set
forth in Section 1.1, (A) income statement items (whether positive or negative,
but excluding capital expenditures) attributable to any Person or Property
acquired in any Permitted Acquisition shall, to the extent not otherwise
included in such income statements items for the Consolidated Parties in
accordance with GAAP or in accordance with any defined terms set forth in
Section 1.1, be included to the extent relating to any period applicable in
such calculations and (B) pro forma adjustments may be included to the extent
determined by the Borrower in good faith to be appropriate (including, whether
or not such inclusion would be permitted under GAAP or Regulation S-X of the
Securities and Exchange Commission), cost savings that would have been realized
had such transaction occurred on the first day of such period. In addition, the
calculation of (i) Consolidated Capital Expenditures, (ii) Consolidated Cash
Interest Expense, (iii) Consolidated Cash Taxes, (iv) Consolidated EBITDA, (v)
Consolidated Total Assets, (vi) Net Senior Funded Indebtedness (to the extent
not otherwise included in Net Senior Funded Indebtedness of the Borrower and
its Subsidiaries) and (vii) Total Net Funded Indebtedness (to the extent not
otherwise included in Total Net Funded Indebtedness of the Borrower and its
Subsidiaries) shall include the portion of each component of Consolidated
EBITDA and the portion of Consolidated Capital Expenditures, Consolidated Cash
Interest Expense, Consolidated Cash Taxes, Consolidated Total Assets, Net
Senior Funded Indebtedness and Total Net Funded Indebtedness attributable to
each Joint Venture or Consolidated Party which is not a Credit Party in which
the Borrower held a direct or indirect equity interest during the relevant
period or at the relevant time, as the case may be. Such portion shall be equal
to the percentage of each such
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component of Consolidated EBITDA or the portion of Consolidated Capital
Expenditures, Consolidated Cash Interest Expense, Consolidated Cash Taxes,
Consolidated Total Assets, Net Senior Funded Indebtedness or Total Net Funded
Indebtedness, as the case may be, equal to the percentage of the aggregate
equity interests of such Joint Venture or Consolidated Party which is not a
Credit Party held directly or indirectly by the Borrower.
SECTION 2
CREDIT FACILITIES
2.1 Revolving Loans.
(a) Commitment. Subject to the terms and conditions hereof and in
reliance upon the representations and warranties set forth herein, each Lender
severally agrees to make available to the Borrower such Lender's Commitment
Percentage of revolving credit loans requested by the Borrower in Dollars
("Revolving Loans") from time to time from the Closing Date until the Maturity
Date, or such earlier date as the Commitments shall have been terminated as
provided herein; provided, however, that the sum of the aggregate outstanding
principal amount of Revolving Loans shall not exceed the Committed Amount;
provided, further, (A) with regard to each Lender individually, such Lender's
outstanding principal amount of Revolving Loans shall not exceed such Lender's
Commitment Percentage of the Committed Amount, and (B) the sum of the aggregate
outstanding principal amount of Revolving Loans plus LOC Obligations plus
Swingline Loans shall not exceed the Committed Amount. Revolving Loans may
consist of Base Rate Loans or Eurodollar Loans, or a combination thereof, as
the Borrower may request; provided, however, that no more than 10 Eurodollar
Loans shall be outstanding hereunder at any time (it being understood that, for
purposes hereof, Eurodollar Loans with different Interest Periods shall be
considered as separate Eurodollar Loans, even if they begin on the same date,
although borrowings, extensions and conversions may, in accordance with the
provisions hereof, be combined at the end of existing Interest Periods to
constitute a new Eurodollar Loan with a single Interest Period). Revolving
Loans hereunder may be repaid and reborrowed in accordance with the provisions
hereof.
(b) Revolving Loan Borrowings.
(i) Notice of Borrowing. The Borrower shall request a Revolving
Loan borrowing by written notice (or telephonic notice promptly confirmed
in writing) to the Agent not later than 9:00 A.M. (San Francisco,
California time) on the Business Day of the requested borrowing in the
case of Base Rate Loans, and on the third Business Day prior to the date
of the requested borrowing in the case of Eurodollar Loans. Each such
request for borrowing shall be irrevocable and shall specify (A) that a
Revolving Loan is requested, (B) the date of the requested borrowing
(which shall be a Business Day), (C) the aggregate principal amount to be
borrowed, and (D) whether the borrowing shall be comprised of Base Rate
Loans or Eurodollar Loans, and if Eurodollar Loans are requested, the
Interest Period(s) therefor. If the Borrower shall fail to specify in any
such Notice of Borrowing (I) an applicable
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Interest Period in the case of a Eurodollar Loan, then such notice shall
be deemed to be a request for an Interest Period of one month, or (II) the
type of Loan requested, then such notice shall be deemed to be a request
for a Base Rate Loan hereunder. The Agent shall give notice to each Lender
promptly upon receipt of each Notice of Borrowing pursuant to this Section
2.1(b)(i), the contents thereof and each such Lender's share of any
borrowing to be made pursuant thereto.
(ii) Minimum Amounts. Each Eurodollar Loan or Base Rate Loan
that is a Loan shall be in a minimum aggregate principal amount of
$1,000,000 and integral multiples of $100,000 in excess thereof (or the
remaining amount of the Committed Amount, if less), subject to Sections
2.2(e) and 2.3(b)(iii).
(iii) Advances. Each Lender will make its Commitment Percentage
of each Revolving Loan borrowing available to the Agent for the account of
the Borrower as specified in Section 3.15(a), or in such other manner as
the Agent may specify in writing, by 10:00 A.M. (San Francisco, California
time) on the date specified in the applicable Notice of Borrowing in
Dollars and in funds immediately available to the Agent. Such borrowing
will then be made available to the Borrower by the Agent by crediting the
account of the Borrower on the books of such office (or such other account
of the Borrower as the Borrower shall specify to the Agent from time to
time) with the aggregate of the amounts made available to the Agent by the
Lenders and in like funds as received by the Agent.
(c) Repayment. The principal amount of all Revolving Loans shall be
due and payable in full on the Maturity Date, unless accelerated sooner
pursuant to Section 9.2.
(d) Interest. Subject to the provisions of Section 3.1,
(i) Rate of Interest.
(A) Base Rate Loans. During such periods as Revolving Loans
shall be comprised in whole or in part of Base Rate Loans, such Base
Rate Loans shall bear interest at a per annum rate equal to the
Adjusted Base Rate.
(B) Eurodollar Loans. During such periods as Revolving
Loans shall be comprised in whole or in part of Eurodollar Loans,
such Eurodollar Loans shall bear interest at a per annum rate equal
to the Adjusted Eurodollar Rate.
(ii) Payment of Interest. Interest on Revolving Loans shall be
payable in arrears on each applicable Interest Payment Date (or at such
other times as may be specified herein).
(e) Revolving Notes. The Revolving Loans made by each Lender shall be
evidenced by a duly executed promissory note of the Borrower to such Lender in
an original principal amount equal to such Lender's Commitment Percentage of
the Committed Amount and in substantially the form of Exhibit 2.1(e).
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2.2 Letter of Credit Facility.
(a) Issuance. Subject to the terms and conditions hereof and in
reliance upon the representations and warranties set forth herein, the
applicable Issuing Lender agrees to issue, and each Lender severally agrees to
participate in the issuance by each Issuing Lender of, standby and trade
Letters of Credit in Dollars from time to time from the Closing Date until the
date thirty (30) days prior to the Maturity Date as the Borrower may request,
in a form reasonably acceptable to the applicable Issuing Lender; provided,
however, that the sum of the aggregate outstanding principal amount of
Revolving Loans plus LOC Obligations plus Swingline Loans shall not at any time
exceed the Committed Amount. No Letter of Credit shall (x) have an original
expiry date more than three years from the date of issuance (provided that any
such Letter of Credit may contain customary "evergreen" provisions pursuant to
which the expiry date is automatically extended by a specific time period
unless the applicable Issuing Lender gives notice to the beneficiary of such
Letter of Credit at least a specified time period prior to the expiry date then
in effect) or (y) as originally issued or as extended, have an expiry date
extending beyond the date thirty (30) days prior to the Maturity Date. The
issuance and expiry dates of each Letter of Credit shall be a Business Day.
(b) Notice and Reports. The request for the issuance of a Letter of
Credit shall be submitted by the Borrower to the applicable Issuing Lender and
the Agent at least three (3) Business Days prior to the requested date of
issuance. The applicable Issuing Lender will provide to the Agent, at least
quarterly, who will in turn, disseminate to each of the Lenders a detailed
report specifying the Letters of Credit which are then issued and outstanding
and any activity with respect thereto which may have occurred since the date of
the prior report, and including therein, among other things, the beneficiary,
the face amount and the expiry date, as well as any payment or expirations
which may have occurred.
(c) Participation. Each Lender, upon issuance of a Letter of Credit,
shall be deemed to have purchased without recourse a Participation Interest
from the applicable Issuing Lender in such Letter of Credit and the obligations
arising thereunder and any collateral relating thereto, in each case in an
amount equal to its pro rata share of the obligations under such Letter of
Credit (based on the respective Commitment Percentages of the Lenders) and
shall absolutely, unconditionally and irrevocably assume and be obligated to
pay to the applicable Issuing Lender and discharge when due, its pro rata share
of the obligations arising under such Letter of Credit. Without limiting the
scope and nature of each Lender's Participation Interest in any Letter of
Credit, to the extent that the applicable Issuing Lender has not been
reimbursed as required hereunder or under any such Letter of Credit, each such
Lender shall pay to the Agent for the account of the applicable Issuing Lender
its pro rata share of such unreimbursed drawing in same day funds on the day of
notification by the Agent of an unreimbursed drawing pursuant to the provisions
of subsection (d) below. The obligation of each Lender to so reimburse the
applicable Issuing Lender shall be absolute and unconditional and shall not be
affected by the occurrence of a Default, an Event of Default or any other
occurrence or event. Any such reimbursement shall not relieve or otherwise
impair the obligation of the Borrower to reimburse the applicable Issuing
Lender under any Letter of Credit, together with interest as hereinafter
provided.
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(d) Reimbursement. In the event of any drawing under any Letter of
Credit, the applicable Issuing Lender will promptly notify the Borrower and the
Agent. Unless the Borrower shall promptly notify the Agent and the applicable
Issuing Lender that the Borrower intends to otherwise reimburse the applicable
Issuing Lender for such drawing, the Borrower shall be deemed to have requested
that the Lenders make a Revolving Loan in the amount of such drawing as
provided in subsection (e) below, the proceeds of which will be used to satisfy
the related reimbursement obligations. The Borrower promises to reimburse the
applicable Issuing Lender for each drawing under any Letter of Credit (either
with the proceeds of a Revolving Loan obtained hereunder or otherwise) in same
day funds (i) if it shall receive notice of such drawing from the applicable
Issuing Lender prior to 8:30 a.m. (San Francisco, California time) on any
Business Day, on such Business Day and (ii) if it shall receive such notice
after 8:30 a.m. (San Francisco, California time) on any day, on the next
Business Day after it shall receive such notice. The unreimbursed amount of any
drawing shall bear interest from the date of such drawing through the date upon
which reimbursement thereof is required as provided above at the Federal Funds
Rate. If the Borrower shall fail to reimburse the applicable Issuing Lender as
provided hereinabove, the unreimbursed amount of such drawing shall thereafter
bear interest at a per annum rate equal to the Adjusted Base Rate plus 2%. The
Borrower's reimbursement obligations hereunder shall be absolute and
unconditional under all circumstances irrespective of any rights of setoff,
counterclaim or defense to payment the Borrower may claim or have against the
applicable Issuing Lender, the Agent, the Lenders, the beneficiary of the
Letter of Credit drawn upon or any other Person, including without limitation
any defense based on any failure of the Borrower or any other Credit Party to
receive consideration or the legality, validity, regularity or unenforceability
of the Letter of Credit. The applicable Issuing Lender will promptly notify the
Agent, who shall, in turn, promptly notify the other Lenders of the amount of
any unreimbursed drawing and each Lender shall promptly pay to the Agent for
the account of the applicable Issuing Lender in Dollars and in immediately
available funds, the amount of such Lender's pro rata share of such
unreimbursed drawing. Such payment shall be made on the day such notice is
received by such Lender from the Agent if such notice is received at or before
11:00 A.M. (San Francisco, California time), and otherwise such payment shall
be made at or before 9:00 A.M. (San Francisco, California time) on the Business
Day next succeeding the day such notice is received. If such Lender does not
pay such amount to the Agent for the account of the applicable Issuing Lender
in full upon such request, such Lender shall, on demand, pay to the Agent for
the account of the applicable Issuing Lender interest on the unpaid amount
during the period from the date of such drawing until such Lender pays such
amount to the Agent for the account of the applicable Issuing Lender in full at
a rate per annum equal to, if paid within two (2) Business Days of the date
that such Lender is required to make payments of such amount pursuant to the
preceding sentence, the Federal Funds Rate and thereafter at a rate equal to
the Base Rate. Each Lender's obligation to make such payment to the applicable
Issuing Lender, and the right of the applicable Issuing Lender to receive the
same, shall be absolute and unconditional, shall not be affected by any
circumstance whatsoever and without regard to the termination of this Credit
Agreement or the Commitments hereunder, the existence of a Default or Event of
Default or the acceleration of the obligations of the Borrower hereunder and
shall be made without any offset, abatement, withholding or reduction
whatsoever. Simultaneously with the making of each
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such payment by a Lender to the Agent for the account of the applicable Issuing
Lender, such Lender shall, automatically and without any further action on the
part of the Agent, the applicable Issuing Lender or such Lender, acquire a
Participation Interest in an amount equal to such payment (excluding the
portion of such payment constituting interest owing to the applicable Issuing
Lender) in the related unreimbursed drawing portion of the LOC Obligation and
in the interest thereon, and shall have a claim against the Borrower with
respect thereto.
(e) Repayment with Revolving Loans. On any day on which the Borrower
shall have requested, or been deemed to have requested, a Revolving Loan
advance to reimburse a drawing under a Letter of Credit, the Agent shall give
notice to the Lenders that a Revolving Loan has been requested or deemed
requested by the Borrower to be made in connection with a drawing under a
Letter of Credit, in which case a Revolving Loan advance comprised of Base Rate
Loans shall be immediately made to the Borrower by all Lenders (notwithstanding
any termination of the Commitments pursuant to Section 9.2) pro rata based on
the respective Commitment Percentages of the Lenders (determined before giving
effect to any termination of the Commitments pursuant to Section 9.2) and the
proceeds thereof shall be paid directly to the Agent for the account of the
applicable Issuing Lender for application to the respective LOC Obligations.
Each such Lender hereby irrevocably agrees to make its pro rata share of each
such Revolving Loan immediately upon any such request or deemed request in the
amount, in the manner and on the date specified in the preceding sentence
notwithstanding (i) the amount of such borrowing may not comply with the
minimum amount for advances of Revolving Loans otherwise required hereunder,
(ii) whether any conditions specified in Section 5.2 are then satisfied, (iii)
whether a Default or an Event of Default then exists, (iv) failure of any such
request or deemed request for Revolving Loan to be made by the time otherwise
required hereunder, (v) whether the date of such borrowing is a date on which
Revolving Loans are otherwise permitted to be made hereunder or (vi) any
termination of the Commitments immediately prior to or contemporaneously with
such borrowing. In the event that any Revolving Loan cannot for any reason be
made on the date otherwise required above (including, without limitation, as a
result of the commencement of a proceeding under the Bankruptcy Code with
respect to the Borrower or any other Credit Party), then each such Lender
hereby agrees that it shall forthwith purchase (as of the date such borrowing
would otherwise have occurred, but adjusted for any payments received from the
Borrower on or after such date and prior to such purchase) from the applicable
Issuing Lender such Participation Interests in the outstanding LOC Obligations
as shall be necessary to cause each such Lender to share in such LOC
Obligations ratably (based upon the respective Commitment Percentages of the
Lenders (determined before giving effect to any termination of the Commitments
pursuant to Section 9.2)), provided that at the time any purchase of
Participation Interests pursuant to this sentence is actually made, the
purchasing Lender shall be required to pay to the Agent for the account of the
applicable Issuing Lender, to the extent not paid to the applicable Issuing
Lender by the Borrower in accordance with the terms of subsection (d) above,
interest on the principal amount of Participation Interests purchased for each
day from and including the day upon which such borrowing would otherwise have
occurred to but excluding the date of payment for such Participation Interests,
at the rate equal to, if paid within two (2) Business Days of the date of the
Revolving Loan advance, the Federal Funds Rate, and thereafter at a rate equal
to the Base Rate.
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(f) Designation of Consolidated Parties as Account Parties.
Notwithstanding anything to the contrary set forth in this Credit Agreement,
including without limitation Section 2.2(a), a Letter of Credit issued
hereunder may be issued for the account of a Consolidated Party other than the
Borrower, provided that notwithstanding such statement, the Borrower shall be
the actual account party for all purposes of this Credit Agreement for such
Letter of Credit and such statement shall not affect the Borrower's
reimbursement obligations hereunder with respect to such Letter of Credit.
(g) Renewal, Extension. The renewal or extension of any Letter of
Credit shall, for purposes hereof, be treated in all respects the same as the
issuance of a new Letter of Credit hereunder.
(h) Uniform Customs and Practices. The applicable Issuing Lender may
have the Letters of Credit be subject to The Uniform Customs and Practice for
Documentary Credits, as published as of the date of issue by the International
Chamber of Commerce (the "UCP"), in which case the UCP may be incorporated
therein and deemed in all respects to be a part thereof. Standby Letters of
Credit may also be subject to IFP98 (International Standby Practice).
(i) Indemnification; Nature of Issuing Lender's Duties.
(i) In addition to its other obligations under this Section 2.2,
the Borrower hereby agrees to pay, and protect, indemnify and save each
Lender harmless from and against, any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including
reasonable attorneys' fees) that such Lender may incur or be subject to as
a consequence, direct or indirect, of (A) the issuance of any Letter of
Credit or (B) the failure of such Lender to honor a drawing under a Letter
of Credit as a result of any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto government or
Governmental Authority (all such acts or omissions, herein called
"Government Acts").
(ii) As between the Borrower and the Lenders (including the
applicable Issuing Lender), the Borrower shall assume all risks of the
acts, omissions or misuse of any Letter of Credit by the beneficiary
thereof. No Lender (including the applicable Issuing Lender) shall be
responsible: (A) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party in
connection with the application for and issuance of any Letter of Credit,
even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (B) for the validity or
sufficiency of any instrument transferring or assigning or purporting to
transfer or assign any Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, that may prove to be
invalid or ineffective for any reason; (C) for errors, omissions,
interruptions or delays in transmission or delivery of any messages, by
mail, cable, telegraph, telex or otherwise, whether or not they be in
cipher; (D) for any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under a Letter of Credit or
of the proceeds thereof; and (E) for any
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consequences arising from causes beyond the control of such Lender,
including, without limitation, any Government Acts. None of the above
shall affect, impair, or prevent the vesting of the applicable Issuing
Lender's rights or powers hereunder.
(iii) Nothing in this subsection (i) is intended to limit the
reimbursement obligations of the Borrower contained in subsection (d)
above. The obligations of the Borrower under this subsection (i) shall
survive the termination of this Credit Agreement. No act or omission of
any current or prior beneficiary of a Letter of Credit shall in any way
affect or impair the rights of the Lenders (including the applicable
Issuing Lender) to enforce any right, power or benefit under this Credit
Agreement.
(iv) Notwithstanding anything to the contrary contained in this
subsection (i), the Borrower shall have no obligation to indemnify any
Lender (including the applicable Issuing Lender) in respect of any
liability incurred by such Lender (A) arising solely out of the gross
negligence or willful misconduct of such Lender, or (B) caused by such
Lender's failure to pay under any Letter of Credit after presentation to
it of a request strictly complying with the terms and conditions of such
Letter of Credit, unless such payment is prohibited by any law,
regulation, court order or decree.
(j) Responsibility of Issuing Lender. It is expressly understood and
agreed that the obligations of the applicable Issuing Lender hereunder to the
Lenders are only those expressly set forth in this Credit Agreement and that
the applicable Issuing Lender shall be entitled to assume that the conditions
precedent set forth in Section 5.2 have been satisfied unless it shall have
acquired actual knowledge that any such condition precedent has not been
satisfied; provided, however, that nothing set forth in this Section 2.2 shall
be deemed to prejudice the right of any Lender to recover from the applicable
Issuing Lender any amounts made available by such Lender to the applicable
Issuing Lender pursuant to this Section 2.2 in the event that it is determined
by a court of competent jurisdiction that the payment with respect to a Letter
of Credit constituted gross negligence or willful misconduct on the part of the
applicable Issuing Lender.
(k) Conflict with LOC Documents. In the event of any conflict between
this Credit Agreement and any LOC Document (including any letter of credit
application), this Credit Agreement shall control.
2.3 Swingline Loan Subfacility.
(a) Swingline Commitment. Subject to the terms and conditions hereof
and in reliance upon the representations and warranties set forth herein, the
Swingline Lender, in its individual capacity, agrees to make certain revolving
credit loans requested by the Borrower in Dollars to the Borrower (each a
"Swingline Loan" and, collectively, the "Swingline Loans") from time to time
from the Closing Date until the Maturity Date for the purposes hereinafter set
forth; provided, however, (i) the aggregate principal amount of Swingline Loans
outstanding at any time shall not exceed FIVE MILLION DOLLARS
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($5,000,000) (the "Swingline Committed Amount"), and (ii) the sum of the
aggregate outstanding principal amount of Revolving Loans plus LOC Obligations
plus Swingline Loans shall not exceed the Committed Amount. Swingline Loans
hereunder shall be made as Base Rate Loans and may be repaid and reborrowed in
accordance with the provisions hereof.
(b) Swingline Loan Advances.
(i) Notices; Disbursement. Whenever the Borrower desires a
Swingline Loan advance hereunder it shall give written notice (or
telephonic notice promptly confirmed in writing) to the Swingline Lender
and the Agent not later than 11:00 A.M. (San Francisco, California time)
on the Business Day of the requested Swingline Loan advance. Each such
notice shall be irrevocable and shall specify (A) that a Swingline Loan
advance is requested, (B) the date of the requested Swingline Loan advance
(which shall be a Business Day) and (C) the principal amount of the
Swingline Loan advance requested. Each Swingline Loan shall be made as a
Base Rate Loan and shall have such maturity date as the Swingline Lender
and the Borrower shall agree upon receipt by the Swingline Lender of any
such notice from the Borrower (subject to clause (iii) below). The
Swingline Lender shall initiate the transfer of funds representing the
Swingline Loan advance to the Borrower by 2:00 P.M. (San Francisco,
California time) on the Business Day of the requested borrowing.
(ii) Minimum Amounts. Each Swingline Loan advance shall be in a
minimum principal amount of $100,000 and integral multiples of $100,000
(or the remaining amount of the Swingline Committed Amount, if less).
(iii) Repayment of Swingline Loans. The principal amount of all
Swingline Loans shall be due and payable on the earlier of (A) the
maturity date agreed to by the Swingline Lender and the Borrower with
respect to such Loan (which maturity date shall not be a date more than
seven (7) Business Days from the date of advance thereof) or (B) the
Maturity Date. The Swingline Lender may, at any time, in its sole
discretion, by written notice to the Borrower and the Lenders, demand
repayment of its Swingline Loans by way of a Revolving Loan advance, in
which case the Borrower shall be deemed to have requested a Revolving Loan
advance comprised solely of Base Rate Loans in the amount of such
Swingline Loans; provided, however, that any such demand shall be deemed
to have been given one Business Day prior to the Maturity Date and on the
date of the occurrence of any Event of Default described in Section 9.1
and upon acceleration of the indebtedness hereunder and the exercise of
remedies in accordance with the provisions of Section 9.2. Each Lender
hereby irrevocably agrees to make its pro rata share of each such
Revolving Loan in the amount, in the manner and on the date specified in
the preceding sentence notwithstanding (I) the amount of such borrowing
may not comply with the minimum amount for advances of Revolving Loans
otherwise required hereunder, (II) whether any conditions specified in
Section 5.2 are then satisfied, (III) whether a Default or an Event of
Default then exists, (IV) failure of any such request or deemed request
for Revolving Loan to be
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made by the time otherwise required hereunder, (V) whether the date of
such borrowing is a date on which Revolving Loans are otherwise permitted
to be made hereunder or (VI) any termination of the Commitments
immediately prior to or contemporaneously with such borrowing. In the
event that any Revolving Loan cannot for any reason be made on the date
otherwise required above (including, without limitation, as a result of
the commencement of a proceeding under the Bankruptcy Code with respect to
the Borrower or any other Credit Party), then each Lender hereby agrees
that it shall forthwith purchase (as of the date such borrowing would
otherwise have occurred, but adjusted for any payments received from the
Borrower on or after such date and prior to such purchase) from the
Swingline Lender such Participation Interests in the outstanding Swingline
Loans as shall be necessary to cause each such Lender to share in such
Swingline Loans ratably based upon its Commitment Percentage of the
Committed Amount (determined before giving effect to any termination of
the Commitments pursuant to Section 3.4), provided that (A) all interest
payable on the Swingline Loans shall be for the account of the Swingline
Lender until the date as of which the respective Participation Interest is
purchased and (B) at the time any purchase of Participation Interests
pursuant to this sentence is actually made, the purchasing Lender shall be
required to pay to the Swingline Lender, to the extent not paid to the
Swingline Lender by the Borrower in accordance with the terms of
subsection (c)(ii) below, interest on the principal amount of
Participation Interests purchased for each day from and including the day
upon which such borrowing would otherwise have occurred to but excluding
the date of payment for such Participation Interests, at the rate equal to
the Federal Funds Rate.
(c) Interest on Swingline Loans.
(i) Rate of Interest . Subject to the provisions of Section 3.1,
each Swingline Loan shall bear interest at a per annum rate equal to the
Adjusted Base Rate less the rate of the Unused Fee, in each case as in
effect from time to time.
(ii) Payment of Interest. Interest on Swingline Loans shall be
payable in arrears on each applicable Interest Payment Date (or at such
other times as may be specified herein), unless accelerated sooner
pursuant to Section 9.2.
(d) Swingline Note. The Swingline Loans shall be evidenced by a duly
executed promissory note of the Borrower to the Swingline Lender in an original
principal amount equal to the Swingline Committed Amount substantially in the
form of Exhibit 2.3(d).
SECTION 3
OTHER PROVISIONS RELATING TO CREDIT FACILITIES
3.1 Default Rate.
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Upon the occurrence, and during the continuance, of default in the
payment of any amount hereunder, under the Notes or under any of the other
Credit Documents, such overdue amount shall bear interest, payable on demand,
at a per annum rate 2% greater than the rate which would otherwise be
applicable (or if no rate is applicable, whether in respect of interest, fees
or other amounts, then the Adjusted Base Rate plus 2%).
3.2 Extension and Conversion.
The Borrower shall have the option, on any Business Day, to extend
existing Loans into a subsequent permissible Interest Period or to convert
Loans into Loans of another interest rate type; provided, however, that (i)
except as provided in Section 3.8, Eurodollar Loans may be converted into Base
Rate Loans or extended as Eurodollar Loans for new Interest Periods only on the
last day of the Interest Period applicable thereto, (ii) Loans extended as, or
converted into, Eurodollar Loans shall be subject to the terms of the
definition of "Interest Period" set forth in Section 1.1 and shall be in such
minimum amounts as provided in Section 2.1(b)(ii), (iii) no more than 10
Eurodollar Loans shall be outstanding under this Credit Agreement at any time
(it being understood that, for purposes hereof, Eurodollar Loans with different
Interest Periods shall be considered as separate Eurodollar Loans, even if they
begin on the same date, although borrowings, extensions and conversions may, in
accordance with the provisions hereof, be combined at the end of existing
Interest Periods to constitute a new Eurodollar Loan with a single Interest
Period), (iv) any request for extension or conversion of a Eurodollar Loan
which shall fail to specify an Interest Period shall be deemed to be a request
for an Interest Period of one month and (v) Swingline Loans may not be extended
or converted pursuant to this Section 3.2. Each such extension or conversion
shall be effected by the Borrower by giving a Notice of Extension/Conversion
(or telephonic notice promptly confirmed in writing) to the office of the Agent
specified in Schedule 2.1(a), or at such other office as the Agent may
designate in writing, prior to 9:00 A.M. (San Francisco, California time) on
the Business Day of, in the case of the conversion of a Eurodollar Loan into a
Base Rate Loan, and on the third Business Day prior to, in the case of the
extension of a Eurodollar Loan as, or conversion of a Base Rate Loan into, a
Eurodollar Loan, the date of the proposed extension or conversion, specifying
the date of the proposed extension or conversion, the Loans to be so extended
or converted, the types of Loans into which such Loans are to be converted and,
if appropriate, the applicable Interest Periods with respect thereto. Each
request for extension or conversion shall be irrevocable. In the event the
Borrower fails to request extension or conversion of any Eurodollar Loan in
accordance with this Section, or any such conversion or extension is not
permitted or required by this Section, then such Eurodollar Loan shall be
automatically converted into a Base Rate Loan at the end of the Interest Period
applicable thereto. The Agent shall give each Lender notice as promptly as
practicable of any such proposed extension or conversion affecting any Loan.
3.3 Prepayments.
The Borrower shall have the right to prepay Loans in whole or in part
from time to time; provided, however, that each partial prepayment of Loans
(other than Swingline Loans) shall be in a minimum principal amount of
$1,000,000 and integral multiples of $100,000 in excess thereof (or the then
remaining principal balance of the Revolving Loans, if less). Subject to the
foregoing terms, amounts prepaid under this Section 3.3(a) shall be applied as
the Borrower may elect; provided that if the Borrower fails to specify a
voluntary
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prepayment then such prepayment shall be applied to Loans, first to Base Rate
Loans and then to Eurodollar Loans in direct order of Interest Period
maturities. All prepayments under this Section 3.3(a) shall be subject to
Section 3.12, but otherwise without premium or penalty, and, in the case of
Eurodollar Loans, shall be accompanied by interest on the principal amount
prepaid through the date of prepayment.
3.4 Termination and Reduction of Committed Amount; Increase of
Committed Amount.
(a) Reductions in Committed Amount.
(i) General. The Borrower may from time to time permanently
reduce or terminate the Committed Amount in whole or in part (in minimum
aggregate amounts of $1,000,000 or in integral multiples of $100,000 in
excess thereof (or, if less, the full remaining amount of the then
applicable Committed Amount)) upon three Business Days' prior written
notice to the Agent; provided, however, no such termination or reduction
shall be made which would cause the sum of the aggregate outstanding
principal amount of Revolving Loans plus LOC Obligations plus Swingline
Loans to exceed the Committed Amount, unless, concurrently with such
termination or reduction, the Loans are repaid to the extent necessary to
eliminate such excess. The Agent shall promptly notify each affected
Lender of receipt by the Agent of any notice from the Borrower pursuant to
this Section 3.4(a).
(ii) Maturity Date. The Commitments of the Lenders, the Issuing
Lender(s) and the Swingline Lender shall automatically terminate on the
Maturity Date.
(iii) Payment of Fees. The Borrower shall pay to the Agent for
the account of the Lenders in accordance with the terms of Section 3.5(b),
on the date of the termination of the Committed Amount in its entirety,
the Unused Fee accrued through the date of such termination.
(b) Increase in Committed Amount. The Borrower shall have the right,
upon at least ten (10) Business Days' prior written notice to the Agent, to
increase the Committed Amount by up to $25,000,000, in up to two (2) increases,
at any time on or after the Closing Date and prior to the Maturity Date,
subject, however, in any such case, to satisfaction of the following conditions
precedent:
(1) no Event of Default shall have occurred and be continuing on
the date on which such Committed Amount increase is to become effective;
(2) the representations and warranties set forth in Section 6 of
this Credit Agreement shall be true and correct in all material respects
on and as of the date on which such Committed Amount increase is to become
effective;
(3) on or before the date on which such Committed Amount
increase is to become effective, the Agent shall have received, for its
own account, the
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mutually acceptable fees and expenses required by separate agreement of
the Borrower and the Agent to be paid in connection with such increase;
(4) such Committed Amount increase shall be an integral multiple
of $1,000,000 and shall in no event be less than $5,000,000;
(5) the Borrower shall have delivered to the Agent a certificate
of the chief financial officer or the chief accounting officer of the
Borrower certifying that the Indebtedness of the Borrower under the Credit
Documents as in effect after giving effect to such increase in the
Committed Amount (including, without limitation, any Loan made thereafter
and any reimbursement obligations with respect to Letters of Credit issued
thereafter) constitute "Designated Senior Indebtedness" under the
Subordinated Note Indenture; and
(6) such requested Committed Amount increase shall be effective
on such date only to the extent that, on or before such date, the Agent
shall have received and accepted from one or more lenders reasonably
acceptable to the Agent and, with respect to any lender that is not at
such time a Lender hereunder, the Borrower an agreement in the form of
Exhibit 3.4(b) hereto (each such agreement a "New Commitment Agreement"),
with respect to the Additional Commitment of such Lender.
(c) Upon the effectiveness of the increase in the Committed Amount
pursuant to subsection (b), the Commitment Percentage of each Lender shall be
automatically adjusted so that, after giving effect to such adjustment, the
Commitment Percentage of each Lender (other than a Lender whose Commitment
shall have been increased in connection with such increase in the Committed
Amount) multiplied by the Committed Amount shall, before and after giving
effect to such increase, be equal.
(d) If and when any adjustment is made to the Commitment Percentage
of any Lender pursuant to subsection (c) at any time when any Loans are
outstanding, the Borrower, the Agent and the Lenders will use all commercially
reasonable efforts to assign and assume outstanding Loans to conform the
respective amounts thereof held by each Lender to the respective Commitment
Percentages as so adjusted, it being understood that the parties hereto shall
use commercially reasonable efforts to avoid prepayment or assignment of any
Loan that is a Eurodollar Loan on a day other than the last day of the Interest
Period applicable thereto.
3.5 Fees.
(a) Underwriting Fees. The Borrower agrees to pay to the Agent for
the benefit of the Lenders in immediately available funds on or before the
Closing Date the underwriting fees in the amount provided in the Agent's Fee
Letter.
(b) Unused Fee. In consideration of the Commitments of the Lenders
hereunder, the Borrower agrees to pay to the Agent for the account of each
Lender a fee (the "Unused Fee") on the Unused Committed Amount computed at a
per annum rate for each
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day during the applicable Unused Fee Calculation Period (hereinafter defined)
at a rate equal to the Applicable Percentage in effect from time to time. The
Unused Fee shall commence to accrue on the Closing Date and shall be due and
payable in arrears on the last Business Day of each March, June, September and
December (and on any date that the Committed Amount is reduced to zero and on
the Maturity Date) for the immediately preceding quarter (or portion thereof)
(each such quarter or portion thereof for which the Unused Fee is payable
hereunder being herein referred to as an "Unused Fee Calculation Period"),
beginning with the first of such dates to occur after the Closing Date.
(c) Letter of Credit Fees.
(i) Standby Letter of Credit Issuance Fee. In consideration of
the issuance of standby Letters of Credit hereunder, the Borrower promises
to pay to the Agent for the account of each Lender a fee (the "Standby
Letter of Credit Fee"), computed at a per annum rate for each day from the
date of issuance to the date of expiration equal to the Applicable
Percentage, on such Lender's Commitment Percentage of the maximum amount
available to be drawn under each such standby Letter of Credit on such
day. The Standby Letter of Credit Fee will be payable quarterly in arrears
on the last Business Day of each March, June, September and December (and
on any date that the Committed Amount is reduced to zero and on the
Maturity Date) for the immediately preceding quarter (or a portion
thereof).
(ii) Trade Letter of Credit Drawing Fee. In consideration of the
issuance of trade Letters of Credit hereunder, the Borrower promises to
pay to the Agent for the account of each Lender a fee (the "Trade Letter
of Credit Fee"), computed at a per annum rate for each day from the date
of issuance to the date of expiration equal to the Applicable Percentage,
on such Lender's Commitment Percentage of the maximum amount available to
be drawn under each such trade Letter of Credit on such day. The Trade
Letter of Credit Fee will be payable quarterly in arrears on the last
Business Day of each March, June, September and December (and on any date
that the Committed Amount is reduced to zero and on the Maturity Date) for
the immediately preceding quarter (or a portion thereof).
(iii) Issuing Lender Fees. In addition to the Standby Letter of
Credit Fee payable pursuant to clause (i) above and the Trade Letter of
Credit Fee payable pursuant to clause (ii) above, the Borrower promises to
pay to the applicable Issuing Lender for its own account without sharing
by the other Lenders (A) a letter of credit fronting fee, computed at a
per annum rate for each day from the date of issuance to the date of
expiration of each Letter of Credit of 0.125% on the maximum amount
available to be drawn under each Letter of Credit on such day, which fee
shall be payable quarterly in arrears on the last Business Day of each
March, June, September and December (and on any date that the Committed
Amount is reduced to zero and on the Maturity Date) for the immediately
preceding quarter (or a portion thereof) and (B) the customary charges
from time to time of the applicable Issuing Lender with respect to the
issuance, amendment, transfer, administration, cancellation and conversion
of, and drawings under, such Letters of Credit.
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(d) Administrative Fees. The Borrower agrees to pay to the Agent, for
its own account, the administrative fees referred to in the Agent's Fee Letter.
3.6 Capital Adequacy.
If any Lender has determined, after the date hereof, that the
adoption or the becoming effective of, or any change in, or any change by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof in the interpretation or
administration of, any applicable law, rule or regulation regarding capital
adequacy, or compliance by such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on such Lender's capital or assets as a consequence
of its commitments or obligations hereunder to a level below that which such
Lender could have achieved but for such adoption, effectiveness, change or
compliance (taking into consideration such Lender's policies with respect to
capital adequacy), then, upon notice from such Lender to the Borrower, the
Borrower shall be obligated to pay to such Lender such additional amount or
amounts as will compensate such Lender for such reduction. Any Lender claiming
compensation under this Section 3.6 shall furnish to the Borrower and the Agent
a statement setting forth in reasonable detail a calculation of the additional
amount or amounts to be paid to it hereunder which shall be conclusive in the
absence of manifest error. In determining such amount, such Lender may use any
reasonable averaging and attribution methods
3.7 Limitation on Eurodollar Loans.
If on or prior to the first day of any Interest Period for any
Eurodollar Loan:
(a) the Agent determines (which determination shall be
conclusive) that by reason of circumstances affecting the relevant market,
adequate and reasonable means do not exist for ascertaining the Eurodollar
Rate for such Interest Period; or
(b) the Required Lenders determine (which determination shall be
conclusive) and notify the Agent that the Eurodollar Rate will not
adequately and fairly reflect the cost to the Lenders of funding
Eurodollar Loans for such Interest Period;
then the Agent shall give the Borrower prompt notice thereof, and so long as
such condition remains in effect, the Lenders shall be under no obligation to
make additional Eurodollar Loans, Continue Eurodollar Loans, or to Convert Base
Rate Loans into Eurodollar Loans and the Borrower shall, on the last day(s) of
the then current Interest Period(s) for the outstanding Eurodollar Loans,
either prepay such Eurodollar Loans or Convert such Eurodollar Loans into Base
Rate Loans in accordance with the terms of this Credit Agreement.
3.8 Illegality.
Notwithstanding any other provision of this Credit Agreement, in the
event that it becomes unlawful for any Lender or its Applicable Lending Office
to make, maintain, or fund Eurodollar Loans hereunder, then such Lender shall
promptly notify the Borrower thereof and such Lender's
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obligation to make or Continue Eurodollar Loans and to Convert Base Rate Loans
into Eurodollar Loans shall be suspended until such time as such Lender may
again make, maintain, and fund Eurodollar Loans (in which case the provisions
of Section 3.10 shall be applicable).
3.9 Requirements of Law.
If, after the date hereof, the adoption of any applicable law, rule,
or regulation, or any change in any applicable law, rule, or regulation, or any
change in the interpretation or administration thereof by any Governmental
Authority, central bank, or comparable agency charged with the interpretation
or administration thereof, or compliance by any Lender (or its Applicable
Lending Office) with any request or directive (whether or not having the force
of law) of any such Governmental Authority, central bank, or comparable agency:
(i) shall subject such Lender (or its Applicable Lending Office)
to any tax, duty, or other charge with respect to any Eurodollar Loans,
its Notes, or its obligation to make Eurodollar Loans, or change the basis
of taxation of any amounts payable to such Lender (or its Applicable
Lending Office) under this Credit Agreement or its Notes in respect of any
Eurodollar Loans (other than amounts excluded from the definition of
"Taxes" and Taxes and Other Taxes, the payment of which is governed by
Section 3.11);
(ii) shall impose, modify, or deem applicable any reserve,
special deposit, assessment, or similar requirement (other than the
Eurodollar Reserve Requirement utilized in the determination of the
Adjusted Eurodollar Rate) relating to any extensions of credit or other
assets of, or any deposits with or other liabilities or commitments of,
such Lender (or its Applicable Lending Office), including the Commitment
of such Lender hereunder; or
(iii) shall impose on such Lender (or its Applicable Lending
Office) or the London interbank market any other condition affecting this
Credit Agreement or its Notes or any of such extensions of credit or
liabilities or commitments;
and the result of any of the foregoing is to increase the cost to such Lender
(or its Applicable Lending Office) of making, Converting into, Continuing, or
maintaining any Eurodollar Loans or to reduce any sum received or receivable by
such Lender (or its Applicable Lending Office) under this Credit Agreement or
its Notes with respect to any Eurodollar Loans, then the Borrower shall pay to
such Lender on demand such amount or amounts as will compensate such Lender for
such increased cost or reduction. If any Lender requests compensation by the
Borrower under this Section 3.9, the Borrower may, by notice to such Lender
(with a copy to the Agent), suspend the obligation of such Lender to make or
Continue Eurodollar Loans, or to Convert Base Rate Loans into Eurodollar Loans,
until the event or condition giving rise to such request ceases to be in effect
(in which case the provisions of Section 3.10 shall be applicable); provided
that such suspension shall not affect the right of such Lender to receive the
compensation so requested. Each Lender shall promptly notify the Borrower and
the Agent of any event of which it has knowledge, occurring after the date
hereof, which will entitle such Lender to compensation pursuant to this Section
3.9 and will designate a different Applicable Lending Office if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the judgment of such Lender, be otherwise disadvantageous to
it. Any Lender claiming compensation under this Section 3.9 shall furnish to
the Borrower and the Agent a statement setting forth in reasonable detail a
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calculation of the additional amount or amounts to be paid to it hereunder
which shall be conclusive in the absence of manifest error. In determining such
amount, such Lender may use any reasonable averaging and attribution methods.
3.10 Treatment of Affected Loans.
If the obligation of any Lender to make any Eurodollar Loan or to
Continue, or to Convert Base Rate Loans into, Eurodollar Loans shall be
suspended pursuant to Section 3.7, 3.8 or 3.9 hereof, such Lender's Eurodollar
Loans shall be automatically Converted into Base Rate Loans on the last day(s)
of the then current Interest Period(s) for such Eurodollar Loans (or, in the
case of a Conversion, on such earlier date as such Lender may specify to the
Borrower with a copy to the Agent) and, unless and until such Lender gives
notice as provided below that the circumstances specified in Section 3.7, 3.8
or 3.9 hereof that gave rise to such Conversion no longer exist:
(a) to the extent that such Lender's Eurodollar Loans have been
so Converted, all payments and prepayments of principal that would
otherwise be applied to such Lender's Eurodollar Loans shall be applied
instead to its Base Rate Loans; and
(b) all Loans that would otherwise be made or Continued by such
Lender as Eurodollar Loans shall be made or Continued instead as Base Rate
Loans, and all Base Rate Loans of such Lender that would otherwise be
Converted into Eurodollar Loans shall remain as Base Rate Loans.
If such Lender gives notice to the Borrower (with a copy to the Agent) that the
circumstances specified in Section 3.7, 3.8 or 3.9 hereof that gave rise to the
Conversion of such Lender's Eurodollar Loans pursuant to this Section 3.10 no
longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans made by other Lenders are
outstanding, such Lender's Base Rate Loans shall be automatically Converted, on
the first day(s) of the next succeeding Interest Period(s) for such outstanding
Eurodollar Loans, to the extent necessary so that, after giving effect thereto,
all Loans held by the Lenders holding Eurodollar Loans and by such Lender are
held pro rata (as to principal amounts, interest rate basis, and Interest
Periods) in accordance with their respective Commitments.
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3.11 Taxes.
(a) Any and all payments by any Credit Party to or for the account of
any Lender or the Agent hereunder or under any other Credit Document shall be
made free and clear of and without deduction for any and all present or future
taxes, duties, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Lender and the
Agent, (i) taxes imposed on its income and franchise or similar taxes imposed
on it, by the jurisdiction under the laws of which such Lender (or its
principal executive office or Applicable Lending Office) or the Agent (as the
case may be) is organized or any political subdivision thereof and (ii) with
respect to each Lender or the Agent, taxes imposed by reason of any present or
former connection between such Lender or the Agent (as the case may be) and the
jurisdiction imposing such taxes, other than solely as a result of this Credit
Agreement or under any other Credit Document or any transaction contemplated
hereby (all such non-excluded taxes, duties, levies, imposts, deductions,
charges, withholdings, and liabilities being hereinafter referred to as
"Taxes"). If any Credit Party shall be required by law to deduct any Taxes from
or in respect of any sum payable under this Credit Agreement or any other
Credit Document to any Lender or the Agent, (i) the sum payable shall be
increased as necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 3.11) such
Lender or the Agent receives an amount equal to the sum it would have received
had no such deductions been made, (ii) such Credit Party shall make such
deductions and (iii) such Credit Party shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with
applicable law; provided that no such additional sums shall be required to be
paid to any Lender or the Agent under clause (i) above except to the extent
that any change after the date hereof (in the case of the Agent and each Lender
listed on the signature pages hereof) or after the date of the Assignment
Agreement pursuant to which such Person became a Lender (in the case of each
other Lender) in any such requirement for a deduction, withholding or payment
as is mentioned therein shall result in an increase in the rate of such
deduction, withholding or payment from that in effect at the date of this
Credit Agreement or at the date of such Assignment Agreement, as the case may
be, in respect of payments to such Person.
(b) In addition, the Borrower agrees to pay any and all present or
future stamp or documentary taxes and any other excise taxes or charges or
similar levies which arise from any payment made under this Credit Agreement or
any other Credit Document or from the execution or delivery of, or otherwise
with respect to, this Credit Agreement or any other Credit Document
(hereinafter referred to as "Other Taxes").
(c) The Borrower agrees to indemnify each Lender and the Agent for
the full amount of Taxes and Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable
under this Section 3.11) paid by such Lender or the Agent (as the case may be)
and any liability (including penalties, interest, and expenses) arising
therefrom or with respect thereto; provided, however, that the Borrower shall
not be obligated to make payment to any Person pursuant to this sentence in
respect of penalties or interest attributable to any Taxes or Other Taxes, if
written demand therefor has not been made by such Person within 45 days from
the date
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on which such Person knew of the imposition of Taxes or Other Taxes by
the relevant taxing authority or for any additional imposition which may arise
from the failure of such Person to apply payments in accordance with the
applicable tax law after the Borrower has made the payments required hereunder;
provided further, however, that the Borrower shall not be required to pay any
such additional amounts except to the extent that any change after the date
hereof (in the case of the Agent and each Lender listed on the signature pages
hereof) or after the date of the Assignment Agreement pursuant to which such
Person became a Lender (in the case of each other Lender) in any such
requirement for the deduction, withholding or payment of Taxes or Other Taxes
shall result in an increase in the rate of such deduction, withholding or
payment from that in effect at the date of this Credit Agreement or at the date
of such Assignment Agreement, as the case may be, in respect of payments to
such Person. After a Lender or the Agent (as the case may be) learns of the
imposition of Taxes or Other Taxes, such Person will act in good faith to
notify the Borrower of its obligations hereunder as soon as reasonably
possible.
(d) Each Lender that is not a United States person under Section
7701(a)(30) of the Code, on or prior to the date of its execution and delivery
of this Credit Agreement in the case of each Lender listed on the signature
pages hereof and on or prior to the date on which it becomes a Lender in the
case of each other Lender, and from time to time thereafter before the date any
such form expires or becomes obsolete or invalid, or if requested in writing by
the Borrower or the Agent (but only so long as such Lender remains lawfully
able to do so), shall provide the Borrower and the Agent with (i) Internal
Revenue Service Form W-8 BEN or W-8 ECI, as appropriate, or any successor form
prescribed by the Internal Revenue Service, certifying that such Lender is
entitled to benefits under an income tax treaty to which the United States is a
party which reduces the rate of withholding tax on payments of interest to zero
or certifying that the income receivable pursuant to this Credit Agreement is
effectively connected with the conduct of a trade or business in the United
States, (ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any
successor form prescribed by the Internal Revenue Service, and/or (iii) any
other form or certificate required by any taxing authority (including any
certificate required by Sections 871(h) and 881(c) of the Internal Revenue
Code), certifying that such Lender is entitled to an exemption from or a
reduced rate of tax on payments pursuant to this Credit Agreement or any of the
other Credit Documents.
(e) For any period with respect to which a Lender has failed to
provide the Borrower and the Agent with the appropriate form described in
Section 3.11(d) (except to the extent such failure is due solely to a change in
treaty, law, or regulation occurring subsequent to the date on which a form
originally was required to be provided), such Lender shall not be entitled to
indemnification under Section 3.11(a) or 3.11(b) with respect to Taxes imposed
by the United States; provided, however, that should a Lender, which is
otherwise exempt from or subject to a reduced rate of withholding tax, become
subject to Taxes because of its failure to deliver a form required hereunder,
the Borrower shall take such reasonable steps as such Lender shall reasonably
request to assist such Lender to recover such Taxes.
(f) If any Credit Party is required to pay additional amounts to or
for the account of any Lender pursuant to this Section 3.11, then such Lender
will agree to use
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reasonable efforts to change the jurisdiction of its Applicable Lending Office
so as to eliminate or reduce any such additional payment which may thereafter
accrue if such change, in the sole judgment of such Lender, is not otherwise
disadvantageous to such Lender.
(g) Within thirty (30) days after the date of any payment of Taxes or
Other Taxes, the applicable Credit Party shall furnish to the Agent the
original or a certified copy of a receipt evidencing such payment.
(h) If the Borrower determines in good faith that a reasonable basis
exists for contesting the imposition of a Tax or Other Tax with respect to a
Lender or the Agent, if requested by the Borrower, the relevant Lender or the
Agent, as the case may be, shall reasonably cooperate with the Borrower in
challenging such Tax or Other Tax at the Borrower's expense; provided, however,
that nothing in this subsection (h) shall require any Lender to submit to the
Borrower or any other Person any tax returns or any part thereof, or to prepare
or file any tax returns other than as such Lender in its sole discretion shall
determine.
(i) If a Lender or the Agent (as the case may be) shall receive a
refund (including any offset or credits against Taxes or Other Taxes) from a
taxing authority of any Taxes or Other Taxes paid or reimbursed by the Borrower
pursuant to Sections 3.11(a), 3.11(b) or 3.11(c), such Person shall promptly
pay the Borrower the amount so received, with interest, if any, from the taxing
authority with respect to such refund, net of any tax liability incurred by
such Person that is attributable to the receipt of such refund and such
interest; provided that such Person shall be entitled to use reasonable methods
to calculate the allocation of any such refund payable to the Borrower.
(j) Each of the Lenders and the Agent agree, to the extent reasonable
and without material cost to it, to cooperate with the Borrower to minimize any
amounts payable by the Borrower under this Section 3.11; provided, however,
that nothing in this Section 3.11 shall require the Agent or any Lender to take
any action which, in the sole discretion of such Lender, is inconsistent with
its internal policy and legal and regulatory restrictions.
(k) The Borrower shall not be obligated to compensate the Agent or
any Lender for any costs or additional amounts with respect to which such
Person may request compensation pursuant to this Section 3.11 to the extent
such costs have accrued, or have been incurred, prior to 90 days prior to the
date on which such Person demands compensation therefor hereunder.
(l) Without prejudice to the survival of any other agreement of the
Credit Parties hereunder, the agreements and obligations of the Credit Parties
contained in this Section 3.11 shall survive the repayment of the Loans, LOC
Obligations and other obligations under the Credit Documents and the
termination of the Commitments hereunder.
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3.12 Compensation.
Upon the request of any Lender, the Borrower shall pay to such Lender
such amount or amounts as shall be sufficient (in the reasonable opinion of
such Lender) to compensate it for any loss, cost, or expense (other than loss
of margin after the date of such payment, prepayment, Conversion, Continuation
or failure to borrow, Convert, Continue or prepay) incurred by it as a result
of:
(a) any payment, prepayment, or Conversion of a Eurodollar Loan
for any reason (including, without limitation, the acceleration of the
Loans pursuant to Section 9.2) on a date other than the last day of the
Interest Period for such Loan; or
(b) any failure by the Borrower for any reason (including,
without limitation, the failure of any condition precedent specified in
Section 5 to be satisfied) to borrow, Convert, Continue, or prepay a
Eurodollar Loan on the date for such borrowing, Conversion, Continuation,
or prepayment specified in the relevant notice of borrowing, prepayment,
Continuation, or Conversion under this Credit Agreement.
With respect to Eurodollar Loans, such indemnification may include an amount
equal to the excess, if any, of (a) the amount of interest which would have
accrued on the amount so prepaid, or not so borrowed, Converted or Continued,
for the period from the date of such prepayment or of such failure to borrow,
Convert or Continue to the last day of the applicable Interest Period (or, in
the case of a failure to borrow, Convert or Continue, the Interest Period that
would have commenced on the date of such failure) in each case at the
applicable rate of interest for such Eurodollar Loans provided for herein
(excluding, however, the Applicable Percentage included therein, if any) over
(b) the amount of interest (as reasonably determined by such Lender) which
would have accrued to such Lender on such amount by placing such amount on
deposit for a comparable period with leading banks in the interbank Eurodollar
market. The covenants of the Borrower set forth in this Section 3.12 shall
survive the repayment of the Loans, LOC Obligations and other obligations under
the Credit Documents and the termination of the Commitments hereunder.
3.13 Pro Rata Treatment.
Except to the extent otherwise provided herein:
(a) Loans. Each Loan, each payment or (subject to the terms of
Section 3.3) prepayment of principal of any Loan, each payment of interest
on the Loans or reimbursement obligations arising from drawings under
Letters of Credit, each payment of Unused Fees, each payment of the
Standby Letter of Credit Fee, each payment of the Trade Letter of Credit
Fee, each reduction of the Committed Amount and each conversion or
extension of any Loan, shall be allocated pro rata among the Lenders in
accordance with the respective principal amounts of their outstanding
Loans of the applicable type and Participation Interests in Loans of the
applicable type and Letters of Credit.
(b) Advances. No Lender shall be responsible for the failure or
delay by any other Lender in its obligation to make its ratable share of a
borrowing hereunder; provided, however, that the failure of any Lender to
fulfill its obligations hereunder shall not relieve
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any other Lender of its obligations hereunder. Unless the Agent shall have
been notified by any Lender prior to the date of any requested borrowing
that such Lender does not intend to make available to the Agent its
ratable share of such borrowing to be made on such date, the Agent may
assume that such Lender has made such amount available to the Agent on the
date of such borrowing, and the Agent in reliance upon such assumption,
may (in its sole discretion but without any obligation to do so) make
available to the Borrower a corresponding amount. If such corresponding
amount is not in fact made available to the Agent, the Agent shall be able
to recover such corresponding amount from such Lender. If such Lender does
not pay such corresponding amount forthwith upon the Agent's demand
therefor, the Agent will promptly notify the Borrower, and the Borrower
shall immediately pay such corresponding amount to the Agent. The Agent
shall also be entitled to recover from the Lender or the Borrower, as the
case may be, interest on such corresponding amount in respect of each day
from the date such corresponding amount was made available by the Agent to
the Borrower to the date such corresponding amount is recovered by the
Agent at a per annum rate equal to (i) from the Borrower at the applicable
rate for the applicable borrowing pursuant to the Notice of Borrowing and
(ii) from a Lender at the Federal Funds Rate.
3.14 Sharing of Payments.
The Lenders agree among themselves that, in the event that any Lender
shall obtain payment in respect of any Loan, LOC Obligations or any other
obligation owing to such Lender under this Credit Agreement through the
exercise of a right of setoff, banker's lien or counterclaim, or pursuant to a
secured claim under Section 506 of Title 11 of the United States Code or other
security or interest arising from, or in lieu of, such secured claim, received
by such Lender under any applicable bankruptcy, insolvency or other similar law
or otherwise, or by any other means, in excess of its pro rata share of such
payment as provided for in this Credit Agreement, such Lender shall promptly
purchase from the other Lenders a Participation Interest in such Loans, LOC
Obligations and other obligations in such amounts, and make such other
adjustments from time to time, as shall be equitable to the end that all
Lenders share such payment in accordance with their respective ratable shares
as provided for in this Credit Agreement. The Lenders further agree among
themselves that if payment to a Lender obtained by such Lender through the
exercise of a right of setoff, banker's lien, counterclaim or other event as
aforesaid shall be rescinded or must otherwise be restored, each Lender which
shall have shared the benefit of such payment shall, by repurchase of a
Participation Interest theretofore sold, return its share of that benefit
(together with its share of any accrued interest payable with respect thereto)
to each Lender whose payment shall have been rescinded or otherwise restored.
The Borrower agrees that any Lender so purchasing such a Participation Interest
may, to the fullest extent permitted by law, exercise all rights of payment,
including setoff, banker's lien or counterclaim, with respect to such
Participation Interest as fully as if such Lender were a holder of such Loan,
LOC Obligations or other obligation in the amount of such Participation
Interest. Except as otherwise expressly provided in this Credit Agreement, if
any Lender or the Agent shall fail to remit to the Agent or any other Lender an
amount payable by such Lender or the Agent to the Agent or such other Lender
pursuant to this Credit Agreement on the date when such amount is due, such
payments shall be made together with interest thereon for each date from the
date such amount is due until the date such amount is paid to the Agent or such
other Lender at a rate per annum equal to the Federal Funds Rate. If under any
applicable bankruptcy, insolvency or other similar law, any Lender receives a
secured claim in lieu
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of a setoff to which this Section 3.14 applies, such Lender shall, to the extent
practicable, exercise its rights in respect of such secured claim in a manner
consistent with the rights of the Lenders under this Section 3.14 to share in
the benefits of any recovery on such secured claim.
3.15 Payments, Computations, Etc.
(a) Generally. Except as otherwise specifically provided herein,
all payments hereunder shall be made to the Agent in Dollars in
immediately available funds, without setoff, deduction, counterclaim or
withholding of any kind, at the Agent's office specified in Schedule
2.1(a) not later than 11:00 A.M. (San Francisco, California time) on the
date when due. Payments received after such time may, in the Agent's
discretion, be deemed to have been received on the next succeeding
Business Day. The Borrower shall, at the time it makes any payment under
this Credit Agreement, specify to the Agent the Loans, LOC Obligations,
Fees, interest or other amounts payable by the Borrower hereunder to which
such payment is to be applied (and in the event that it fails so to
specify, or if such application would be inconsistent with the terms
hereof, the Agent shall distribute such payment to the Lenders in such
manner as the Agent may determine to be appropriate in respect of
obligations then due and owing by the Borrower hereunder, subject to the
terms of Section 3.13(a)). The Agent will distribute such payments to such
Lenders, if any such payment is received prior to 11:00 A.M. (San
Francisco, California time) on a Business Day in like funds as received
prior to the end of such Business Day and otherwise the Agent may, in the
Agent's discretion, distribute such payment to such Lenders either on such
Business Day or on the next succeeding Business Day. Whenever any payment
hereunder shall be stated to be due on a day which is not a Business Day,
the due date thereof shall be extended to the next succeeding Business Day
(subject to accrual of interest and Fees for the period of such
extension), except that in the case of Eurodollar Loans, if the extension
would cause the payment to be made in the next following calendar month,
then such payment shall instead be made on the next preceding Business
Day. Except as expressly provided otherwise herein, all computations of
interest and fees shall be made on the basis of actual number of days
elapsed over a year of 360 days, except with respect to computation of
interest on Base Rate Loans which shall be calculated based on a year of
365 or 366 days, as appropriate. Interest shall accrue from and include
the date of borrowing, but exclude the date of payment.
(b) Allocation of Payments After Event of Default.
Notwithstanding any other provisions of this Credit Agreement to the
contrary, after the occurrence and during the continuance of an Event of
Default, all amounts collected or received by the Agent or any Lender on
account of the Credit Party Obligations or any other amounts outstanding
under any of the Credit Documents or in respect of the Collateral shall be
paid over or delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation reasonable attorneys' fees) of the
Agent in connection with enforcing the rights of the Lenders under the
Credit Documents and any protective advances made by the Agent with
respect to the Collateral under or pursuant to the terms of the Collateral
Documents;
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SECOND, to payment of any fees owed to the Agent;
THIRD, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation, reasonable attorneys' fees) of the
Agent in connection with enforcing its rights, for the benefit of itself
and the benefit of each of the Lenders, under the Credit Documents
(without duplication of any amounts satisfied pursuant to clause "FIRST"
above);
FOURTH, to the payment of all of the Credit Party Obligations
consisting of accrued fees and interest;
FIFTH, to the payment of the outstanding principal amount of the
Credit Party Obligations (including the payment or cash collateralization
of the outstanding LOC Obligations);
SIXTH, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation, reasonable attorneys' fees) of
each of the Lenders in connection with enforcing its rights under the
Credit Documents;
SEVENTH, to all other Credit Party Obligations and other
obligations which shall have become due and payable under the Credit
Documents or otherwise and not repaid pursuant to clauses "FIRST" through
"SIXTH" above; and
EIGHTH, to the payment of the surplus, if any, to whoever may be
lawfully entitled to receive such surplus.
In carrying out the foregoing, (i) amounts received shall be applied in
the numerical order provided until exhausted prior to application to the
next succeeding category; (ii) each of the Lenders shall receive an amount
equal to its pro rata share (based on the proportion that the then
outstanding Loans and LOC Obligations held by such Lender bears to the
aggregate then outstanding Loans and LOC Obligations) of amounts available
to be applied pursuant to clauses "FOURTH", "FIFTH", "SIXTH" and "SEVENTH"
above; and (iii) to the extent that any amounts available for distribution
pursuant to clause "SIXTH" above are attributable to the issued but
undrawn amount of outstanding Letters of Credit, such amounts shall be
held by the Agent in a cash collateral account and applied (A) first, to
reimburse the Issuing Lender(s) from time to time for any drawings under
such Letters of Credit and (B) then, following the expiration of all
Letters of Credit, to all other obligations of the types described in
clauses "SIXTH" and "SEVENTH" above in the manner provided in this Section
3.15(b).
3.16 Evidence of Debt.
(a) Each Lender shall maintain an account or accounts evidencing
each Loan made by such Lender to the Borrower from time to time, including
the amounts of principal and interest payable and paid to such Lender from
time to time under this Credit Agreement. Each Lender will make reasonable
efforts to maintain the accuracy of its
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account or accounts and to promptly update its account or accounts from
time to time, as necessary.
(b) The Agent shall maintain the Register pursuant to Section
11.3(c), and a subaccount for each Lender, in which Register and
subaccounts (taken together) shall be recorded (i) the amount, type and
Interest Period of each Loan hereunder, (ii) the amount of any principal
or interest due and payable or to become due and payable to each Lender
hereunder and (iii) the amount of any sum received by the Agent hereunder
from or for the account of any Credit Party and each Lender's share
thereof. The Agent will make reasonable efforts to maintain the accuracy
of the subaccounts referred to in the preceding sentence and to promptly
update such subaccounts from time to time, as necessary.
(c) The entries made in the accounts, Register and subaccounts
maintained pursuant to subsection (b) of this Section 3.16 (and, if
consistent with the entries of the Agent, subsection (a)) shall be prima
facie evidence of the existence and amounts of the obligations of the
Credit Parties therein recorded; provided, however, that the failure of
any Lender or the Agent to maintain any such account, such Register or
such subaccount, as applicable, or any error therein, shall not in any
manner affect the obligation of the Credit Parties to repay the Credit
Party Obligations owing to such Lender.
3.17 Mitigation; Replacement of Affected Lenders.
(a) Each Lender agrees that, as promptly as practicable after
the officer of such Lender responsible for administering the Loans of such
Lender becomes aware of the occurrence of an event or the existence of a
condition that would entitle such Lender to receive payments under Section
3.8, Section 3.9, Section 3.6 or Section 3.11, it will, to the extent not
inconsistent with the internal policies of such Lender and any applicable
legal or regulatory restrictions, use reasonable efforts (i) to make,
issue, fund or maintain the Commitments of such Lender or the affected
Loans of such Lender through another lending office of such Lender, or
(ii) take such other measures as such Lender may deem reasonable, if as a
result thereof the additional amounts which would otherwise be required to
be paid to such Lender pursuant to Section 3.8, Section 3.9, Section 3.6
or Section 3.11 would be reduced and if, as determined by such Lender in
its sole discretion, the making, funding or maintaining of such
Commitments or Loans through such other lending office or in accordance
with such other measures, as the case may be, would not otherwise
materially adversely affect such Commitments or Loans or the interests of
such Lender; provided that such Lender will not be obligated to utilize
such other lending office pursuant to this Section 3.17(a) unless the
Borrower agrees to pay all incremental expenses incurred by such Lender as
a result of utilizing such other lending office as described in clause (i)
above. A certificate as to the amount of any such expenses payable by the
Borrower pursuant to this Section 3.17(a) (setting forth in reasonable
detail the basis for requesting such amount) submitted by such Lender to
the Borrower (with a copy to Agent) shall be conclusive absent manifest
error.
(b) If any Lender having a Commitment becomes a Defaulting
Lender or otherwise defaults in its Commitment or if the obligation of any
Lender to make Eurodollar Loans is suspended under Section 3.8 or if any
Lender is owed increased costs under Section 3.6 or Section 3.9, or the
Borrower is required to make any payments under
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Section 3.11 to any Lender in excess of those to the other Lenders or if
any Lender becomes a Non-Consenting Lender, the Borrower shall have the
right to replace such Lender (the "Replaced Lender") with one or more
other Eligible Assignee or Eligible Assignees, none of whom shall
constitute a Defaulting Lender at the time of such replacement
(collectively, the "Replacement Lender") reasonably acceptable to the
Agent, provided that (i) at the time of any replacement pursuant to this
Section 3.17, the Replaced Lender and Replacement Lender shall enter into
one or more Assignment Agreements, in form and substance reasonably
satisfactory to such parties and the Agent, pursuant to which the
Replacement Lender shall acquire all or a portion, as the case may be, of
the Commitments and outstanding Loans of, and participation in Letters of
Credit by, the Replaced Lender and (ii) all obligations of the Borrower
owing to the Replaced Lender relating to the Loans so replaced (including,
without limitation, such increased costs and excluding those specifically
described in clause (i) above in respect of which the assignment purchase
price has been, or is concurrently being paid) shall be paid in full to
such Replaced Lender concurrently with such replacement. Upon the
execution of the respective assignment documentation, the payment of
amounts referred to in clauses (i) and (ii) above and, if so requested by
the Replacement Lender, delivery to the Replacement Lender of the
appropriate Note or Notes executed by the Borrower, the Replacement Lender
shall become a Lender hereunder and the Replaced Lender shall cease to
constitute a Lender hereunder with respect to such replaced Loans, except
with respect to indemnification provisions under this Agreement, which
shall survive as to such Replaced Lender. Notwithstanding anything to the
contrary contained above, (1) any Lender that is an Issuing Lender may not
be replaced hereunder at any time that it has Letters of Credit
outstanding hereunder unless arrangements satisfactory to such Issuing
Lender (including the furnishing of a back-up standby letter of credit in
form and substance, and issued by an issuer satisfactory to such Issuing
Lender or the depositing of cash collateral into a cash collateral account
maintained with the Agent in amounts and pursuant to arrangements
satisfactory to such Issuing Lender) have been made with respect to such
outstanding Letters of Credit and (2) the Lender that acts as the Agent
may not be replaced hereunder except in accordance with the terms of
Section 10.7. The Replaced Lender shall be required to deliver for
cancellation its applicable Notes to be canceled on the date of
replacement, or if any such Note is lost or unavailable, such other
assurances or indemnification therefor as the Borrower may reasonably
request.
SECTION 4
GUARANTY
4.1 The Guaranty.
Each of the Guarantors hereby jointly and severally guarantees to
each Lender, each Affiliate of a Lender that enters into a Hedging Agreement,
and the Agent as hereinafter provided, as primary obligor and not as surety,
the prompt payment of the Credit Party Obligations in full when due (whether at
stated maturity, as a mandatory prepayment, by acceleration, as a mandatory
cash collateralization or otherwise) strictly in accordance with the terms
thereof. The Guarantors hereby further agree that if any of the Credit Party
Obligations are not paid in full when due
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(whether at stated maturity, as a mandatory prepayment, by acceleration, as a
mandatory cash collateralization or otherwise), the Guarantors will, jointly
and severally, promptly pay the same, without any demand or notice whatsoever,
and that in the case of any extension of time of payment or renewal of any of
the Credit Party Obligations, the same will be promptly paid in full when due
(whether at extended maturity, as a mandatory prepayment, by acceleration, as a
mandatory cash collateralization or otherwise) in accordance with the terms of
such extension or renewal.
Notwithstanding any provision to the contrary contained herein or in
any other of the Credit Documents or Hedging Agreements, the obligations of
each Guarantor under this Credit Agreement and the other Credit Documents shall
be limited to an aggregate amount equal to the largest amount that would not
render such obligations subject to avoidance under Section 548 of the
Bankruptcy Code or any comparable provisions of any applicable state law.
4.2 Obligations Unconditional.
The obligations of the Guarantors under Section 4.1 are joint and
several, absolute and unconditional, irrespective of the value, genuineness,
validity, regularity or enforceability against any other party thereto of any
of the Credit Documents or Hedging Agreements, or any other agreement or
instrument referred to therein, or any substitution, release, impairment or
exchange of any other guarantee of or security for any of the Credit Party
Obligations, and, to the fullest extent permitted by applicable law,
irrespective of any other circumstance whatsoever which might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor,
it being the intent of this Section 4.2 that the obligations of the Guarantors
hereunder shall be absolute and unconditional under any and all circumstances.
Each Guarantor agrees that such Guarantor shall have no right of subrogation,
indemnity, reimbursement or contribution against the Borrower or any other
Guarantor for amounts paid under this Section 4 until such time as the Lenders
(and any Affiliates of Lenders entering into Hedging Agreements) have been paid
in full in respect of all Credit Party Obligations described in clause (i) of
the definition thereof, and all Commitments under this Credit Agreement have
been terminated. Without limiting the generality of the foregoing, it is agreed
that, to the fullest extent permitted by law, the occurrence of any one or more
of the following shall not alter or impair the liability of any Guarantor
hereunder which shall remain absolute and unconditional as described above:
(a) at any time or from time to time, without notice to any
Guarantor, the time for any performance of or compliance with any of the
Credit Party Obligations shall be extended, or such performance or
compliance shall be waived;
(b) any of the acts mentioned in any of the provisions of any of
the Credit Documents, any Hedging Agreement between any Consolidated Party
and any Lender, or any Affiliate of a Lender, or any other agreement or
instrument referred to in the Credit Documents or such Hedging Agreements
shall be done or omitted;
(c) the maturity of any of the Credit Party Obligations shall be
accelerated, or any of the Credit Party Obligations shall be modified,
supplemented or amended in any respect, or any right under any of the
Credit Documents, any Hedging Agreement between any Consolidated Party and
any Lender, or any Affiliate of a Lender, or any other agreement or
instrument referred to in the Credit Documents or such Hedging Agreements
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shall be waived or any other guarantee of any of the Credit Party
Obligations or any security therefor shall be released, impaired or
exchanged in whole or in part or otherwise dealt with;
(d) any Lien granted to, or in favor of, the Agent or any Lender
or Lenders as security for any of the Credit Party Obligations shall fail
to attach or be perfected; or
(e) any of the Credit Party Obligations (other than the
obligations of such Guarantor under this Section 4) shall be determined to
be void or voidable (including, without limitation, for the benefit of any
creditor of any Guarantor) or shall be subordinated to the claims of any
Person (including, without limitation, any creditor of any Guarantor).
With respect to its obligations hereunder, each Guarantor hereby expressly
waives diligence, presentment, demand of payment, protest and all notices
whatsoever, and any requirement that the Agent or any Lender exhaust any right,
power or remedy or proceed against any Person under any of the Credit
Documents, any Hedging Agreement between any Consolidated Party and any Lender,
or any Affiliate of a Lender, or any other agreement or instrument referred to
in the Credit Documents or such Hedging Agreements, or against any other Person
under any other guarantee of, or security for, any of the Credit Party
Obligations.
4.3 Reinstatement.
The obligations of the Guarantors under this Section 4 shall be
automatically reinstated if and to the extent that for any reason any payment
by or on behalf of any Person in respect of the Credit Party Obligations is
rescinded or must be otherwise restored by any holder of any of the Credit
Party Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, and each Guarantor agrees that it will indemnify
the Agent and each Lender on demand for all reasonable costs and expenses
(including, without limitation, fees and expenses of counsel) incurred by the
Agent or such Lender in connection with such rescission or restoration,
including any such costs and expenses incurred in defending against any claim
alleging that such payment constituted a preference, fraudulent transfer or
similar payment under any bankruptcy, insolvency or similar law.
4.4 Certain Additional Waivers.
Without limiting the generality of the provisions of this Section 4,
each Guarantor hereby specifically waives the benefits of N.C. Gen. Stat.
ss.ss. 26-7 through 26-9, inclusive, to the extent applicable. Each Guarantor
further agrees that such Guarantor shall have no right of recourse to security
for the Credit Party Obligations, except through the exercise of rights of
subrogation pursuant to Section 4.2 and through the exercise of rights of
contribution pursuant to Section 4.6.
4.5 Remedies.
The Guarantors agree that, to the fullest extent permitted by law, as
between the Guarantors, on the one hand, and the Agent and the Lenders, on the
other hand, the Credit Party Obligations may be declared to be forthwith due
and payable as provided in Section 9.2 (and shall be deemed to have become
automatically due and payable in the circumstances provided in said Section
9.2) for
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purposes of Section 4.1 notwithstanding any stay, injunction or other
prohibition preventing such declaration (or preventing the Credit Party
Obligations from becoming automatically due and payable) as against any other
Person and that, in the event of such declaration (or the Credit Party
Obligations being deemed to have become automatically due and payable), the
Credit Party Obligations (whether or not due and payable by any other Person)
shall forthwith become due and payable by the Guarantors for purposes of
Section 4.1. The Guarantors acknowledge and agree that their obligations
hereunder are secured in accordance with the terms of the Security Agreements
and the other Collateral Documents and that the Lenders may exercise their
remedies thereunder in accordance with the terms thereof.
4.6 Rights of Contribution.
The Guarantors hereby agree as among themselves that, if any
Guarantor shall make an Excess Payment (as defined below), such Guarantor shall
have a right of contribution from each other Guarantor in an amount equal to
such other Guarantor's Contribution Share (as defined below) of such Excess
Payment. The payment obligations of any Guarantor under this Section 4.6 shall
be subordinate and subject in right of payment to the prior payment in full to
the Agent and the Lenders of the Guaranteed Obligations, and none of the
Guarantors shall exercise any right or remedy under this Section 4.6 against
any other Guarantor until payment and satisfaction in full of all of such
Guaranteed Obligations. For purposes of this Section 4.6, (a) "Guaranteed
Obligations" shall mean any obligations arising under the other provisions of
this Section 4; (b) "Excess Payment" shall mean the amount paid by any
Guarantor in excess of its Pro Rata Share of any Guaranteed Obligations; (c)
"Pro Rata Share" shall mean, for any Guarantor in respect of any payment of
Guaranteed Obligations, the ratio (expressed as a percentage) as of the date of
such payment of Guaranteed Obligations of (i) the amount by which the aggregate
present fair salable value of all of its assets and properties exceeds the
amount of all debts and liabilities of such Guarantor (including contingent,
subordinated, unmatured, and unliquidated liabilities, but excluding the
obligations of such Guarantor hereunder) to (ii) the amount by which the
aggregate present fair salable value of all assets and other properties of all
of the Credit Parties exceeds the amount of all of the debts and liabilities
(including contingent, subordinated, unmatured, and unliquidated liabilities,
but excluding the obligations of the Credit Parties hereunder) of the Credit
Parties; provided, however, that, for purposes of calculating the Pro Rata
Shares of the Guarantors in respect of any payment of Guaranteed Obligations,
any Guarantor that became a Guarantor subsequent to the date of any such
payment shall be deemed to have been a Guarantor on the date of such payment
and the financial information for such Guarantor as of the date such Guarantor
became a Guarantor shall be utilized for such Guarantor in connection with such
payment; and (d) "Contribution Share" shall mean, for any Guarantor in respect
of any Excess Payment made by any other Guarantor, the ratio (expressed as a
percentage) as of the date of such Excess Payment of (i) the amount by which
the aggregate present fair salable value of all of its assets and properties
exceeds the amount of all debts and liabilities of such Guarantor (including
contingent, subordinated, unmatured, and unliquidated liabilities, but
excluding the obligations of such Guarantor hereunder) to (ii) the amount by
which the aggregate present fair salable value of all assets and other
properties of the Credit Parties other than the maker of such Excess Payment
exceeds the amount of all of the debts and liabilities (including contingent,
subordinated, unmatured, and unliquidated liabilities, but excluding the
obligations of the Credit Parties) of the Credit Parties other than the maker
of such Excess Payment; provided, however, that, for purposes of calculating
the Contribution Shares of the Guarantors in respect of any Excess Payment, any
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Guarantor that became a Guarantor subsequent to the date of any such Excess
Payment shall be deemed to have been a Guarantor on the date of such Excess
Payment and the financial information for such Guarantor as of the date such
Guarantor became a Guarantor shall be utilized for such Guarantor in connection
with such Excess Payment. This Section 4.6 shall not be deemed to affect any
right of subrogation, indemnity, reimbursement or contribution that any
Guarantor may have under applicable law against the Borrower in respect of any
payment of Guaranteed Obligations. Notwithstanding the foregoing, all rights of
contribution against any Guarantor shall terminate from and after such time, if
ever, that such Guarantor shall be relieved of its obligations pursuant to
Section 8.4.
4.7 Guarantee of Payment; Continuing Guarantee.
The guarantee in this Section 4 is a guaranty of payment and not of
collection, is a continuing guarantee, and shall apply to all Credit Party
Obligations whenever arising.
SECTION 5
CONDITIONS
5.1 Closing Conditions.
The obligation of the Lenders to make the initial Loans or the
applicable Issuing Lender to issue the initial Letter of Credit, whichever
shall occur first, shall be subject to satisfaction of the following
conditions:
(a) Executed Credit Documents. Receipt by the Agent of duly
executed copies of: (i) this Credit Agreement, (ii) the Notes, (iii) the
Pledge Agreement, (iv) the Security Agreement, (v) the Bank Agency
Agreement and (vi) the Agent's Fee Letter.
(b) Corporate Documents. Receipt by the Agent of the following:
(i) Charter Documents. Copies of the articles or
certificates of incorporation or other charter documents of each
Credit Party certified to be true and complete as of a recent date by
the appropriate Governmental Authority of the state or other
jurisdiction of its incorporation and certified by a secretary or
assistant secretary of such Credit Party to be true and correct as of
the Closing Date.
(ii) Bylaws. A copy of the bylaws of each Credit Party
certified by a secretary or assistant secretary of such Credit Party
to be true and correct as of the Closing Date.
(iii) Resolutions. Copies of resolutions of the Board of
Directors of each Credit Party approving and adopting the Credit
Documents to which it is a party, the transactions contemplated
therein and authorizing execution and delivery thereof,
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certified by a secretary or assistant secretary of such Credit
Party to be true and correct and in force and effect as of the
Closing Date.
(iv) Good Standing. Copies of (A) certificates of good
standing, existence or its equivalent with respect to each Credit
Party certified as of a recent date by the appropriate Governmental
Authorities of the state or other jurisdiction of incorporation and
each other jurisdiction in which the failure to so qualify and be in
good standing could reasonably be expected to have a Material Adverse
Effect and (B) to the extent available, a certificate indicating
payment of all corporate or comparable franchise taxes certified as
of a recent date by the appropriate governmental taxing authorities
in each such jurisdiction.
(v) Incumbency. An incumbency certificate of each Credit
Party certified by a secretary or assistant secretary to be true and
correct as of the Closing Date.
(c) Opinions of Counsel. The Agent shall have received, in each
case dated as of the Closing Date:
(i) a legal opinion of Davis Polk & Wardwell, substantially
in the form of Schedule 5.1(c)(i); and
(ii) a legal opinion of special California counsel for each
Credit Party, substantially in the form of Schedule 5.1(c)(ii).
(d) Personal Property Collateral. The Agent shall have received:
(i) searches of Uniform Commercial Code filings in the
jurisdiction of the chief executive office of each Credit Party and
each jurisdiction where any Collateral is located or where a filing
would need to be made in order to perfect the Agent's security
interest in the Collateral, copies of the financing statements on
file in such jurisdictions and evidence that no Liens exist other
than Permitted Liens and Liens that will be released on the Closing
Date pursuant to the terms of the payoff letters described in Section
5.1(q);
(ii) duly executed UCC financing statements for each
appropriate jurisdiction as is necessary, in the Agent's reasonable
discretion, to perfect the Agent's security interest in the
Collateral;
(iii) searches of ownership of, and Liens on, intellectual
property of each Credit Party in the appropriate governmental offices
and such patent/trademark/copyright filings as requested by the Agent
in order to perfect the Agent's security interest in the Collateral;
(iv) all certificates evidencing any certificated Capital
Stock pledged to the Agent pursuant to the Pledge Agreement, together
with duly executed in blank, undated stock powers attached thereto
(unless, with respect to the pledged
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Capital Stock of any Material Foreign Subsidiary, such stock powers
are deemed unnecessary by the Agent in its reasonable discretion
under the law of the jurisdiction of incorporation of such Person);
(v) all instruments and chattel paper evidencing
obligations in an amount in excess of $50,000 in the possession of
any of the Credit Parties, together with allonges or assignments as
may be necessary or appropriate to perfect the Agent's security
interest in the Collateral;
(vi) in the case of any personal property Collateral
located at a premises leased by a Credit Party, such estoppel
letters, consents and waivers from the landlords on such real
property as may be required by the Agent; and
(vii) satisfactory evidence that each of the account
debtors of any Consolidated Party has been notified that all payments
due in respect accounts receivable owing by such account debtor to
the applicable Consolidated Party are to be made directly to the
Collection Account.
(e) Evidence of Insurance. Receipt by the Agent of copies of
insurance policies or certificates of insurance of the Consolidated
Parties evidencing liability and casualty insurance meeting the
requirements set forth in the Credit Agreement, including, but not limited
to, naming the Agent as additional insured (in the case of liability
insurance) or sole loss payee (in the case of hazard insurance) on behalf
of the Lenders.
(f) Government Consent. Receipt by the Agent of evidence that
all governmental, shareholder and material third party consents (including
Hart-Scott-Rodino clearance), all consents required pursuant to Section
9.02(e) of the Merger Agreement and approvals required to be provided as a
condition precedent to Mergersub's obligations under the Merger Agreement
or otherwise necessary or, in the reasonable opinion of the Agent,
desirable in connection with the Transaction and expiration of all
applicable waiting periods without any action being taken by any authority
that would reasonably be expected to restrain, prevent or impose any
material adverse conditions on the Transaction, and no law or regulation
shall be applicable which in the reasonable judgment of the Agent would
reasonably be expected to have such effect.
(g) Merger Agreement. The Merger Agreement (i) shall have been
consummated materially in accordance with the terms thereof and in
compliance with applicable law and regulatory approvals, and all
conditions precedent to the obligations of the buyer thereunder shall have
been satisfied in all material respects and (ii) shall not have been
altered, amended or otherwise changed or supplemented or any condition
therein waived, in each case, in any material respect without the prior
written consent of the Agent. The Agent shall have received a copy,
certified by an Executive Officer of the Borrower as true and complete, of
the Merger Agreement as originally executed and delivered, together with
all exhibits and schedules.
(h) Corporate Structure, etc. On the Closing Date, the corporate
capital and ownership structure of the Consolidated Parties (after giving
effect to the Transaction) shall
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be as set forth in Schedule 5.1(h) and the Agent shall be satisfied that
(i) the aggregate amount of payments in respect of the Transaction will
not exceed $150.9 million, (ii) DLJMB, Global and Behrman Capital shall
have contributed approximately $44.5 million (which shall include the
Global Advances referred to below) to purchase common stock of the
Borrower from existing shareholders of the Borrower or to purchase stock
of Mergersub not less than $29.5 million of which shall have been
contributed by DLJMB and Global (including in the case of Global, the
proceeds of not more than $1.6 million of advances by the Borrower to
Global (the "Global Advances")), (iii) existing management of the Borrower
shall have retained approximately $6.4 million of capital stock of the
Borrower (the "Rollover Stock") and (iv) the Borrower shall have received
gross proceeds of at least $100 million from the issuance by the Borrower
of the Subordinated Notes. The Agent shall have received a copy, certified
by an Executive Officer of the Borrower as true and complete, of the
Subordinated Note Indenture as originally executed and delivered, together
with all exhibits and schedules thereto.
(i) Officer's General Closing Certificate. The Agent shall have
received a certificate executed by an Executive Officer of the Borrower as
of the Closing Date, in form and substance satisfactory to the Agent,
stating that (A) each Credit Party is in compliance with all existing
financial obligations (after giving effect to the Transaction), (B) the
conditions precedent set forth in clauses (g) and (h) have been satisfied,
(C) no action, suit, investigation or proceeding is pending or threatened
in any court or before any arbitrator or Governmental Authority that
purports to affect any Credit Party or any transaction contemplated by the
Credit Documents, if such action, suit, investigation or proceeding would
reasonably be expected to have a Material Adverse Effect, (D) no material
adverse change has occurred since December 31, 1997 in the business,
assets, properties, operations, financial condition or prospects of the
Consolidated Parties taken as a whole and (E) immediately after giving
effect to the Transaction, (1) no Default or Event of Default exists, (2)
all representations and warranties contained in Section 6 are true and
correct in all material respects subject to the limitations set forth
therein as of the Closing Date (or, if any such representation and
warranty is made as of an earlier date, as of such date), (3) after giving
effect to the Transaction, the Credit Parties are in pro forma compliance
with each of the financial covenants set forth in Section 7.11 (assuming
for purposes hereof that such financial covenants were measured as of, and
for the 12-month period ending on, the last day of the most recent
calendar month ending at least 30 days prior to the Closing Date) and (4)
the sum of the aggregate outstanding principal amount of Revolving Loans
plus LOC Obligations plus Swingline Loans shall not exceed $20,000,000.
(j) Officer's Solvency Certificate. The Agent shall have
received a certificate executed by an Executive Officer of the Borrower as
of the Closing Date, in form and substance reasonably satisfactory to the
Agent, regarding the Solvency of each of the Credit Parties.
(k) Solvency Opinion. Receipt by the Agent of an opinion from
Houlihan, Lokey, Howard & Zukin as to the solvency of the Credit Parties
on a consolidated basis after giving effect to the Transaction.
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(l) Material Adverse Effect. No material adverse change shall
have occurred since December 31, 1997 in the business, assets, properties,
operations, financial condition or prospects of the Consolidated Parties
taken as a whole.
(m) Litigation. There shall not exist (i) any order, decree,
judgment, ruling or injunction which restrains the consummation of the
Transaction in the manner contemplated by the Merger Agreement or (ii) any
pending or threatened action, suit, investigation or proceeding against a
Consolidated Party in any court or before any arbitrator or Governmental
Authority that would reasonably be expected to have a Material Adverse
Effect.
(n) Other Indebtedness. Receipt by the Agent of evidence that,
after giving effect to the Transaction, the Consolidated Parties shall
have no Funded Indebtedness other than (i) the Indebtedness under the
Credit Documents and (ii) the Indebtedness under the Subordinated Note
Indenture and Subordinated Notes and other Indebtedness permitted under
Section 8.1.
(o) Availability. After giving effect to the Transaction,
including the initial Loans made and Letters of Credit issued hereunder on
the Closing Date, the sum of the aggregate outstanding principal amount of
Revolving Loans plus LOC Obligations plus Swingline Loans shall not exceed
$18,000,000.
(p) Fees and Expenses. Payment by the Credit Parties of all fees
and expenses owed by them to the Lenders and the Agent, including, without
limitation, payment to the Agent of the fees set forth in the Agent's Fee
Letter to the extent invoiced not less than one Business Day prior to the
Closing Date.
(q) Payoff Letters. Receipt by the Agent of executed payoff
letters with respect to each item of Indebtedness of the Credit Parties
which will be repaid in full on the Closing Date and which contain
agreements to release all Liens securing such Indebtedness.
(r) Other. Receipt by the Lenders of such other documents,
instruments, agreements or information as reasonably requested by the
Agent.
5.2 Conditions to all Extensions of Credit.
The obligations of each Lender to make any Loan (other than Revolving
Loans pursuant to Sections 2.2(c) and 2.3(b)) and of the Issuing Lender to
issue or extend any Letter of Credit (including the initial Loans and the
initial Letter of Credit) are subject to satisfaction of the following
conditions in addition to satisfaction on the Closing Date of the conditions
set forth in Section 5.1:
(a) The Borrower shall have delivered in the case of any
Revolving Loan, an appropriate Notice of Borrowing or (ii) in the case of
any Letter of Credit, the Issuing Lender shall have received an
appropriate request for issuance in accordance with the provisions of
Section 2.2(b);
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(b) The representations and warranties set forth in Section 6
shall, subject to the limitations set forth therein, be true and correct
in all material respects as of such date (except for those which expressly
relate to an earlier date);
(c) There shall not have been commenced against any Consolidated
Party an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or any case, proceeding or
other action for the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of such Person or
for any substantial part of its Property or for the winding up or
liquidation of its affairs, and such involuntary case or other case,
proceeding or other action shall remain undismissed, undischarged or
unbonded;
(d) No Default or Event of Default shall exist and be continuing
either prior to or after giving effect thereto;
(e) Immediately after giving effect to the making of such Loan
(and the application of the proceeds thereof) or to the issuance of such
Letter of Credit, as the case may be, the sum of the aggregate outstanding
principal amount of Revolving Loans plus LOC Obligations plus Swingline
Loans shall not exceed the Committed Amount.
The delivery of each Notice of Borrowing and each request for a Letter of
Credit pursuant to Section 2.2(b) shall constitute a representation and
warranty by the Credit Parties of the correctness of the matters specified in
subsections (b), (c), (d) and (e) above as of the date of the proposed
borrowing or issuance, as the case may be.
SECTION 6
REPRESENTATIONS AND WARRANTIES
The Credit Parties hereby represent to the Agent and each Lender
that:
6.1 Financial Condition.
(a) The audited consolidated balance sheet and statement of
operations of the Consolidated Parties as of and for the fiscal year ended
December 31, 1998 (including the notes thereto) copies of which have
heretofore been furnished to each Lender, (i) have been prepared in
accordance with GAAP consistently applied throughout the periods covered
thereby and (ii) present fairly (on the basis disclosed in the footnotes
to such financial statements) the consolidated financial condition,
results of operations and cash flows of the Consolidated Parties as of
such date and for such periods. The unaudited interim consolidated balance
sheets of the Consolidated Parties as at the end of, and the related
unaudited interim consolidated statements of operations of the
Consolidated Parties for, each calendar month ended during the period
after December 31, 1998 and prior to the date thirty (30) days prior to
the Closing Date, copies of which have heretofore been furnished to each
Lender, (i) have been prepared in a manner consistent with the audited
financial statements referred to in the preceding sentence and (ii)
present fairly the consolidated
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financial condition and results of operations of the Consolidated Parties
as of such date and for such periods. During the period from December 31,
1998 to and including the Closing Date, except pursuant to the
Transaction, there has been no sale, transfer or other disposition by any
Consolidated Party of any material part of the business or property of the
Consolidated Parties, taken as a whole, and no purchase or other
acquisition by any of them of any business or property (including any
capital stock of any other person) material in relation to the
consolidated financial condition of the Consolidated Parties, taken as a
whole, in each case, which is not reflected in the foregoing financial
statements or in the notes thereto and has not otherwise been disclosed in
writing to the Lenders on or prior to the Closing Date. As of the Closing
Date, the Borrower and its Subsidiaries have no material liabilities
(contingent or otherwise) that are not reflected in the foregoing
financial statements or in the notes thereto and are required to be so
reflected.
(b) The pro forma consolidated balance sheet of the Consolidated
Parties as of December 31, 1998 giving effect to the Transaction in
accordance with the terms of the Merger Agreement, a copy of which has
heretofore been furnished to each Lender is based upon reasonable
assumptions made known to the Lenders and upon information not known to be
incorrect or misleading in any material respect.
(c) The financial statements delivered to the Lenders pursuant
to Section 7.1(a) and (b), (i) have been prepared in accordance with GAAP
(except as may otherwise be permitted under Section 7.1(a) and (b)) and
(ii) present fairly (on the basis disclosed in the footnotes to such
financial statements, in the case of audited financial statements) the
consolidated financial condition and cash flows of the Consolidated
Parties as of such date and for such periods, subject (in the case of
unaudited financial statements) to the absence of footnotes and changes
resulting from audit, and normal year end audit adjustments.
6.2 No Material Change.
Since December 31, 1998, there has been no development or event
relating to or affecting a Consolidated Party which has had a Material Adverse
Effect.
6.3 Organization and Good Standing.
Each of the Consolidated Parties (a) is duly organized, validly
existing and is in good standing under the laws of the jurisdiction of its
incorporation or organization, (b) has the corporate or other necessary power
and authority, and the legal right, to own and operate its property, to lease
the property it operates as lessee and to conduct the business in which it is
currently engaged and (c) is duly qualified as a foreign entity and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification, except to the extent that the failure to be so qualified or in
good standing or a lack of such corporate power and authority would not
reasonably be expected to have a Material Adverse Effect.
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6.4 Power; Authorization; Enforceable Obligations.
Each of the Credit Parties has the corporate or other necessary power
and authority, and the legal right, to make, deliver and perform the Credit
Documents to which it is a party, and in the case of the Borrower, to obtain
extensions of credit hereunder, and has taken all necessary corporate or other
necessary action to authorize the borrowings and other extensions of credit on
the terms and conditions of this Credit Agreement and to authorize the
execution, delivery and performance of the Credit Documents to which it is a
party. No consent or authorization of, filing with, notice to or other similar
act by or in respect of, any Governmental Authority or any other Person is
required to be obtained or made by or on behalf of any Credit Party in
connection with the borrowings or other extensions of credit hereunder or with
the execution, delivery, performance, validity or enforceability of the Credit
Documents to which such Credit Party is a party, except for (i) consents,
authorizations, notices and filings described in Schedule 6.4, all of which
have been obtained or made, (ii) filings to perfect the Liens created by the
Collateral Documents or (iii) consents, authorizations, notices and filings,
the failure of which to make, obtain or take would not reasonably be expected
to have a Material Adverse Effect. This Credit Agreement has been, and each
other Credit Document to which any Credit Party is a party will be, duly
executed and delivered on behalf of each Credit Party which is a party thereto.
This Credit Agreement constitutes, and each other Credit Document to which any
Credit Party is a party when executed and delivered will constitute, a legal,
valid and binding obligation of such Credit Party enforceable against such
party in accordance with its terms, subject to applicable bankruptcy,
insolvency and other similar laws affecting creditors' rights generally and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law).
6.5 No Conflicts.
Neither the execution and delivery of the Credit Documents by any
Credit Party which is a party thereto, nor the consummation of the transactions
contemplated therein, nor performance of and compliance with the terms and
provisions thereof by any such Credit Party will (a) violate, contravene or
materially conflict with any Requirement of Law or any other law, regulation
(including, without limitation, Regulation U or Regulation X), order, writ,
judgment, injunction, decree or permit applicable to such Credit Party the
violation or contravention of or conflict with, in the aggregate, would
reasonably be expected to have a Material Adverse Effect, (b) violate,
contravene or conflict with contractual provisions of, or cause an event of
default under, any indenture, loan agreement, mortgage, deed of trust, contract
or other agreement or instrument to which it is a party or by which it may be
bound, the violation of or contravention of or conflict with, in the aggregate,
would have a Material Adverse Effect, or (c) result in or require the creation
of any Lien (other than those contemplated in or created in connection with the
Credit Documents) upon or with respect to its properties.
6.6 No Default.
No Consolidated Party is in default in any respect under any
contract, lease, loan agreement, indenture, mortgage, security agreement or
other agreement or obligation to which it is a party or by which any of its
properties is bound which default would have a Material Adverse Effect.
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6.7 Ownership.
Except to the extent that failure to do so has not had and would not
reasonably be expected to have a Material Adverse Effect, each Consolidated
Party is the owner of, and has good and marketable title to, all of its
respective assets.
6.8 Taxes.
Each Consolidated Party has filed, or caused to be filed, all federal
income and all other material tax returns (federal, state, local and foreign)
required to be filed and paid (a) all amounts of taxes shown thereon to be due
(including interest and penalties) and (b) all other taxes, fees, assessments
and other governmental charges (including mortgage recording taxes, documentary
stamp taxes and intangibles taxes) owing by it, except for such taxes (i) which
are not yet delinquent or (ii) that are being contested in good faith and by
proper proceedings, and against which adequate reserves are being maintained in
accordance with GAAP or (iii) the failure to pay which would not reasonably be
expected to have a Material Adverse Effect. No Credit Party is aware as of the
Closing Date of any proposed material tax assessments against it or any other
Consolidated Party.
6.9 ERISA.
Except as disclosed and described in Schedule 6.9 attached hereto or
as have not had, and would not reasonably be expected to have, a Material
Adverse Effect:
(a) During the five-year period prior to the date on which this
representation is made or deemed made: (i) no ERISA Event has occurred,
and, to the best knowledge of the Executive Officers of the Credit
Parties, no event or condition has occurred or exists as a result of which
any ERISA Event could reasonably be expected to occur, with respect to any
Plan; (ii) no "accumulated funding deficiency," as such term is defined in
Section 302 of ERISA and Section 412 of the Code, whether or not waived,
has occurred with respect to any Plan; (iii) each Plan has been
maintained, operated, and funded in compliance with its own terms and in
material compliance with the provisions of ERISA, the Code, and any other
applicable federal or state laws; and (iv) no lien in favor of the PBGC or
a Plan has arisen or is reasonably likely to arise on account of any Plan.
(b) The actuarial present value of all "benefit liabilities" (as
defined in Section 4001(a)(16) of ERISA), whether or not vested, under
each Single Employer Plan, as of the last annual valuation date prior to
the date on which this representation is made or deemed made (determined,
in each case, in accordance with Financial Accounting Standards Board
Statement 87, utilizing the actuarial assumptions used in such Plan's most
recent actuarial valuation report), did not exceed as of such valuation
date the fair market value of the assets of such Plan.
(c) Neither any Consolidated Party nor any ERISA Affiliate has
incurred, or, to the best knowledge of the Executive Officers of the
Credit Parties, could be reasonably expected to incur, any withdrawal
liability under ERISA to any Multiemployer Plan or Multiple Employer Plan.
Neither any Consolidated Party nor any ERISA Affiliate would
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become subject to any withdrawal liability under ERISA if any Consolidated
Party or any ERISA Affiliate were to withdraw completely from all
Multiemployer Plans and Multiple Employer Plans as of the valuation date
most closely preceding the date on which this representation is made or
deemed made. Neither any Consolidated Party nor any ERISA Affiliate has
received any notification that any Multiemployer Plan is in reorganization
(within the meaning of Section 4241 of ERISA), is insolvent (within the
meaning of Section 4245 of ERISA), or has been terminated (within the
meaning of Title IV of ERISA), and no Multiemployer Plan is, to the best
knowledge of the Executive Officers of the Credit Parties, reasonably
expected to be in reorganization, insolvent, or terminated.
(d) No prohibited transaction (within the meaning of Section 406
of ERISA or Section 4975 of the Code) or breach of fiduciary
responsibility has occurred with respect to a Plan which has subjected or
may subject any Consolidated Party or any ERISA Affiliate to any liability
under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the
Code, or under any agreement or other instrument pursuant to which any
Consolidated Party or any ERISA Affiliate has agreed or is required to
indemnify any Person against any such liability.
(e) Neither any Consolidated Party nor any ERISA Affiliates has
any liability with respect to "expected post-retirement benefit
obligations" within the meaning of the Financial Accounting Standards
Board Statement 106. Each Plan which is a welfare plan (as defined in
Section 3(1) of ERISA) to which Sections 601-609 of ERISA and Section
4980B of the Code apply has been administered in compliance in all
material respects of such sections.
(f) Neither the execution and delivery of this Credit Agreement
nor the consummation of the financing transactions contemplated thereunder
will involve any transaction which is subject to the prohibitions of
Sections 404, 406 or 407 of ERISA or in connection with which a tax could
be imposed pursuant to Section 4975 of the Code. The representation by the
Credit Parties in the preceding sentence is made in reliance upon and
subject to the accuracy of the Lenders' representation in Section 11.15
with respect to their source of funds and is subject, in the event that
the source of the funds used by the Lenders in connection with this
transaction is an insurance company's general asset account, to the
application of Prohibited Transaction Class Exemption 95-60, 60 Fed. Reg.
35,925 (1995), compliance with the regulations issued under Section
401(c)(1)(A) of ERISA, or the issuance of any other prohibited transaction
exemption or similar relief, to the effect that assets in an insurance
company's general asset account do not constitute assets of an "employee
benefit plan" within the meaning of Section 3(3) of ERISA of a "plan"
within the meaning of Section 4975(e)(1) of the Code.
6.10 Subsidiaries.
Set forth on Schedule 6.10 is a complete and accurate list of all
Subsidiaries of each Consolidated Party as of the Closing Date. The information
on Schedule 6.10 includes, as of the Closing Date, the jurisdiction of
incorporation, the number of shares of each class of Capital Stock outstanding,
the number and percentage of outstanding shares of each class owned (directly
or indirectly) by such Consolidated Party and the number and effect, if
exercised, of all outstanding
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options, warrants, rights of conversion or purchase and all other similar
rights with respect thereto. As of the Closing Date the outstanding Capital
Stock of all such Subsidiaries is validly issued, fully paid and non-assessable
and is owned by each such Consolidated Party, directly or indirectly, free and
clear of all Liens (other than Permitted Liens). Other than as set forth in
Schedule 6.10, no Consolidated Party has outstanding on the Closing Date any
securities convertible into or exchangeable for its Capital Stock nor does any
such Person have outstanding as of the Closing Date any rights to subscribe for
or to purchase or any options for the purchase of, or any agreements providing
for the issuance (contingent or otherwise) of, or any calls, commitments or
claims of any character relating to its Capital Stock.
6.11 Other Credit Documents.
The representations and warranties made by each Credit Party in any
other Credit Document are true and correct, in each case as of the date each
such representation and warranty is made or deemed made thereunder.
6.12 Governmental Regulations, Etc.
(a) No part of the Letters of Credit or proceeds of the Loans
will be used, directly or indirectly in violation of Regulation U or X.
(b) No Consolidated Party is subject to regulation under the
Public Utility Holding Company Act of 1935 or the Federal Power Act, each
as amended. In addition, no Consolidated Party is (i) an "investment
company" registered or required to be registered under the Investment
Company Act of 1940, as amended, and is not controlled by such a company,
or (ii) a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary" of
a "holding company", within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
(c) Each Consolidated Party has obtained and holds in full force
and effect, all franchises, licenses, permits, certificates,
authorizations, qualifications, accreditations, easements, rights of way
and other rights, consents and approvals which are necessary for the
ownership of its respective Property and to the conduct of its respective
businesses as presently conducted, except to the extent that the failure
to obtain or hold any of the foregoing has not had and would not
reasonably be expected to have a Material Adverse Effect.
6.13 Environmental Matters.
Except as disclosed and described in Schedule 6.13 attached hereto or
as have not resulted and would not reasonably be expected to result in a
Material Adverse Effect:
(a) Each of the facilities and properties owned, leased or
operated by the Consolidated Parties (the "Real Properties") and all
operations at the Properties are in compliance with all applicable
Environmental Laws, and there is no violation of any Environmental Law
with respect to the Real Properties or the businesses operated by the
Consolidated Parties (the "Businesses"), and there are no conditions
relating to the
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Businesses or Real Properties that would reasonably be expected to give
rise to liability under any applicable Environmental Laws.
(b) None of the Real Properties contains, or has previously
contained, any Materials of Environmental Concern at, on or under the Real
Properties in amounts or concentrations that constitute or constituted a
violation of, or would reasonably be expected to give rise to liability
under, Environmental Laws.
(c) No Consolidated Party has received any written or verbal
notice of, or inquiry from any Governmental Authority regarding, any
violation, alleged violation, non-compliance, liability or potential
liability regarding environmental matters or compliance with Environmental
Laws with regard to any of the Real Properties or the Businesses, nor does
any Executive Officer of any Credit Party have actual knowledge or reason
to believe that any such notice will be received or is being threatened.
(d) Materials of Environmental Concern have not been transported
or disposed of from the Real Properties, or generated, treated, stored or
disposed of at, on or under any of the Real Properties or any other
location, in each case by or on behalf of any Consolidated Party in
violation of, or in a manner that would reasonably be expected to give
rise to liability under, any applicable Environmental Law.
(e) No judicial proceeding or governmental or administrative
action is pending or, to the best knowledge of the Executive Officers of
the Credit Parties, threatened, under any Environmental Law to which any
Consolidated Party is or will be named as a party, nor are there any
consent decrees or other decrees, consent orders, administrative orders or
other orders, or other administrative or judicial requirements outstanding
under any Environmental Law with respect to the Consolidated Parties, the
Real Properties or the Businesses.
(f) There has been no release, or threat of release, of
Materials of Environmental Concern at or from the Real Properties, or
arising from or related to the operations (including, without limitation,
disposal) of any Consolidated Party in connection with the Real Properties
or otherwise in connection with the Businesses, in violation of or in
amounts or in a manner that would reasonably be expected to give rise to
liability under Environmental Laws.
6.14 Intellectual Property.
Each Consolidated Party owns, or has the legal right to use, all
trademarks, tradenames, copyrights, technology, know-how and processes (the
"Intellectual Property") necessary for each of them to conduct its business as
currently conducted except for those the failure to own or have such legal
right to use would not have a Material Adverse Effect. Set forth on Schedule
6.14 is a list of all Intellectual Property owned by each Consolidated Party or
that any Consolidated Party has the right to use on the Closing Date. Except as
provided on Schedule 6.14, on the Closing Date no claim has been asserted and
is pending by any Person challenging or questioning the use of any such
Intellectual Property or the validity or effectiveness of any such Intellectual
Property, nor does any Credit Party know of any such claim, and, to the
knowledge of the Executive Officers of the
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Credit Parties, the use of such Intellectual Property by any Consolidated Party
does not infringe on the rights of any Person, except for such claims and
infringements that, in the aggregate, would not have a Material Adverse Effect.
6.15 Solvency.
Each Credit Party is and, after consummation of the transactions
contemplated by this Credit Agreement (including without limitation the
Transaction), will be solvent (as reasonably determined by the Borrower).
6.16 Location of Collateral.
Set forth on Schedule 6.16(a) is a list as of the Closing Date of all
material real property located in the United States and owned or leased by any
Credit Party with street address and state where located. Set forth on Schedule
6.16(b) is a list as of the Closing Date of all locations where any material
tangible personal property of a Consolidated Party is located, including street
address and state where located. Set forth on Schedule 6.16(c) is the chief
executive office and principal place of business of each Consolidated Party as
of the Closing Date.
6.17 Disclosure.
This Credit Agreement, the financial statements delivered to the
Lenders and the other documents, certificates or statements furnished to the
Lenders by or on behalf of any Consolidated Party in connection with the
transactions contemplated hereby, taken as a whole, do not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements contained therein or herein in light of the
circumstances under which they were made not materially misleading.
6.18 Brokers' Fees.
No Consolidated Party has any obligation to any Person in respect of
any finder's, broker's, investment banking or other similar fee in connection
with any of the transactions contemplated under the Credit Documents.
6.19 Labor Matters.
There are no collective bargaining agreements or Multiemployer Plans
covering the employees of a Consolidated Party as of the Closing Date.
6.20 Nature of Business.
As of the Closing Date, the Consolidated Parties are engaged in the
business of manufacturing and supplying tactical electronic defense warfare
products and systems.
6.21 Representations and Warranties from Merger Agreement.
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As of the Closing Date, each of the representations and warranties
made in the Merger Agreement by each of the parties thereto is true and correct
in all material respects (or, if any such representation and warranty is made
as of an earlier date, as of such date).
6.22 Year 2000 Compliance.
Each of the Credit Parties has (i) initiated a review and assessment
of all areas within its and each of its Subsidiaries' businesses and operations
(including those affected by suppliers, vendors and customers) that would
reasonably be expected to be adversely affected by the "Year 2000 Problem"
(that is, the risk that computer applications may not be able to recognize and
properly perform date-sensitive functions after December 31, 1999) except to
the extent that the failure to do so would not reasonably be expected to have a
Material Adverse Effect, (ii) developed a plan and timeline for addressing the
Year 2000 Problem on a timely basis, and (iii) to date, implemented that plan
in accordance with that timetable. Based on the foregoing, each Credit Party
believes that all computer applications (including those of its suppliers,
vendors and customers except the United States or any agency or instrumentality
thereof) that are material to its or any of its Subsidiaries' business and
operations are reasonably expected on a timely basis to be able to perform
properly date-sensitive functions for all dates before and after January 1,
2000 (that is, be "Year 2000 Compliant"), except to the extent that a failure
to do so could not reasonably be expected to have a Material Adverse Effect.
6.23 Litigation.
Except as disclosed in Schedule 6.23, there are no actions, suits or
legal, equitable, arbitration or administrative proceedings, pending or, to the
actual knowledge of any Executive Officer of any Credit Party, threatened
against any Consolidated Party which would reasonably be expected to have a
Material Adverse Effect.
SECTION 7
AFFIRMATIVE COVENANTS
Each Credit Party hereby covenants and agrees that, so long as this
Credit Agreement is in effect or any amounts payable hereunder or under any
other Credit Document shall remain outstanding or any Letter of Credit is
outstanding, and until all of the Commitments hereunder shall have terminated:
7.1 Information Covenants.
The Credit Parties will furnish, or cause to be furnished, to the
Agent and each of the Lenders:
(a) Annual Financial Statements. As soon as available, and in
any event within 90 days after the close of each fiscal year of the
Consolidated Parties, a consolidated balance sheet of the Consolidated
Parties as of the end of such fiscal year, together with related
consolidated statements of operations and shareholders' equity (deficit)
and of cash
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flows for such fiscal year, in each case setting forth in comparative form
consolidated figures for the preceding fiscal year, all such financial
information described above to be audited by Pricewaterhouse Coopers or
other independent certified public accountants of recognized national
standing reasonably acceptable to the Agent and whose opinion shall be to
the effect that such financial statements have been prepared in accordance
with GAAP (except for changes with which such accountants concur) and
shall not be limited as to the scope of the audit or qualified as to the
status of the Consolidated Parties as a going concern or as to the limited
scope of examinations as to matters relevant to such financial statements
or as to the limited books and records with respect thereto (except, in
the case of matters relating to any acquired business or assets or any
books and records related thereto, in respect of the period prior to the
acquisition thereof by any Consolidated Party).
(b) Quarterly Financial Statements. As soon as available, and in
any event within 45 days after the close of each of the first three fiscal
quarters of the Consolidated Parties, a consolidated balance sheet of the
Consolidated Parties as of the end of such fiscal quarter, together with
related consolidated statements of operations and shareholders' equity
(deficit) for such fiscal quarter and the related statements of cash flows
for the portion of the fiscal year ended at the end of such fiscal
quarter, in each case setting forth in comparative form consolidated
figures for the corresponding period of the preceding fiscal year, all
such financial information described above to be in form and detail
consistent with the audited financial statements delivered pursuant to
Section 7.1(a) and accompanied by a certificate of an Executive Officer of
the Borrower to the effect that such quarterly financial statements fairly
present in all material respects the financial condition of the
Consolidated Parties and have been prepared in accordance with GAAP,
subject to the absence of footnotes and changes resulting from audit and
normal year-end audit adjustments.
(c) Officer's Certificate. At the time of delivery of the
financial statements provided for in Sections 7.1(a) and 7.1(b) above, a
certificate of an Executive Officer of the Borrower substantially in the
form of Exhibit 7.1(c), (i) demonstrating compliance with the financial
covenants contained in Section 7.11 by calculation thereof as of the end
of each such fiscal period and (ii) stating that no Default or Event of
Default exists, or if any Default or Event of Default does exist,
specifying the nature and extent thereof and what action the Credit
Parties propose to take with respect thereto.
(d) Annual Business Plan and Budgets. Not more than 45 days
after the end of each fiscal year of the Borrower, beginning with the
fiscal year ending December 31, 1999, an annual business plan and budget
of the Consolidated Parties for the next fiscal year.
(e) Accountant's Certificate. Within the period for delivery of
the annual financial statements provided in Section 7.1(a), a certificate
of the accountants conducting the annual audit stating that they have
reviewed this Credit Agreement and stating further whether, in the course
of their audit, they have become aware of any Default or Event of Default
and, if any such Default or Event of Default exists, specifying the nature
and extent thereof.
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(f) Auditor's Reports. Promptly upon receipt thereof, a copy of
any other report or "management letter" submitted by independent
accountants to any Consolidated Party in connection with any annual,
interim or special audit of the books of such Person.
(g) Reports. Promptly (i) upon the filing thereof, copies of all
registration statements (other than the exhibits thereto and any
registration statements on Form S-8 or its equivalent) and reports on
Forms 10-K, 10-Q and 8-K (or their equivalents) which any Consolidated
Party shall have filed with the Securities and Exchange Commission and
(ii) upon transmission thereof, copies of all financial information,
notices and reports as any Consolidated Party shall send to the holders
(other than an Affiliate) of any Indebtedness owed by any Consolidated
Party, in their capacities as such holders.
(h) Notices. Within 5 Business Days after any Executive Officer
of the Borrower obtaining knowledge thereof, the Borrower will give
written notice to the Agent immediately of (i) (if it is then continuing)
the occurrence of an event or condition consisting of a Default or Event
of Default, specifying the nature and existence thereof and what action
the Credit Parties propose to take with respect thereto, and (ii) the
occurrence of any of the following with respect to any Consolidated Party
(A) the pendency or commencement of any litigation, arbitral or
governmental proceeding against such Person which would reasonably be
expected to have a Material Adverse Effect or (B) the institution of any
proceedings against such Person with respect to, or the receipt of notice
by such Person of potential liability or responsibility for violation, or
alleged violation of any federal, state or local law, rule or regulation,
including but not limited to, Environmental Laws, the violation of which
would reasonably be expected to have a Material Adverse Effect.
(i) ERISA. Upon any Executive Officer of a Credit Party
obtaining knowledge thereof, the Credit Parties will give written notice
to the Agent promptly (and in any event within five Business Days) of: (i)
any event or condition, including, but not limited to, any Reportable
Event, that constitutes, or might reasonably lead to, an ERISA Event; (ii)
with respect to any Multiemployer Plan, the receipt of notice as
prescribed in ERISA or otherwise of any withdrawal liability assessed
against the Credit Parties or any ERISA Affiliates, or of a determination
that any Multiemployer Plan is in reorganization or insolvent (both within
the meaning of Title IV of ERISA); (iii) the failure to make full payment
on or before the due date (including extensions) thereof of all amounts
which any Consolidated Party or any ERISA Affiliate is required to
contribute to each Plan pursuant to its terms and as required to meet the
minimum funding standard set forth in ERISA and the Code with respect
thereto; or (iv) any change in the funding status of any Plan that could
have a Material Adverse Effect, together with a description of any such
event or condition or a copy of any such notice and a statement by an
Executive Officer of the Borrower briefly setting forth the details
regarding such event, condition, or notice, and the action, if any, which
has been or is being taken or is proposed to be taken by the Credit
Parties with respect thereto. Promptly upon request, the Credit Parties
shall furnish the Agent and the Lenders with such additional information
concerning any Plan as may be reasonably requested, including, but not
limited to, copies of each annual report/return (Form 5500 series), as
well as all schedules and attachments thereto required to be filed with the
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Department of Labor and/or the Internal Revenue Service pursuant to
ERISA and the Code, respectively, for each "plan year" (within the meaning
of Section 3(39) of ERISA).
(j) Environmental.
(i) Upon the reasonable written request of the Agent
following the occurrence of any event or the discovery of any
condition which event or condition the Agent or the Required Lenders
reasonably believe has caused any of the representations and
warranties set forth in Section 6.13 to be untrue in any material
respect, the Credit Parties will furnish or cause to be furnished to
the Agent, at the Credit Parties' expense, a report of an
environmental assessment of reasonable scope, form and depth,
(including, where appropriate, invasive soil or groundwater sampling)
by a consultant reasonably acceptable to the Agent as to the nature
and extent of the presence of any Materials of Environmental Concern
on any Real Properties (as defined in Section 6.13) and as to the
compliance by any Consolidated Party with Environmental Laws at such
Real Properties. If the Credit Parties fail to deliver such an
environmental report within seventy-five (75) days after receipt of
such written request then the Agent may arrange for same, and the
Consolidated Parties hereby grant to the Agent and their
representatives access to the Real Properties to reasonably undertake
such an assessment (including, where appropriate, invasive soil or
groundwater sampling). The reasonable cost of any assessment arranged
for by the Agent pursuant to this provision will be payable by the
Credit Parties on demand and added to the obligations secured by the
Collateral Documents.
(ii) The Consolidated Parties will conduct and complete all
investigations, studies, sampling, and testing and all remedial,
removal, and other actions necessary to address all Materials of
Environmental Concern on or from any of the Real Properties to the
extent necessary to be in compliance with all Environmental Laws and
with the validly issued orders and directives of all Governmental
Authorities with jurisdiction over such Real Properties, to the
extent any failure to take such action would reasonably be expected
to have a Material Adverse Effect.
(k) Additional Patents and Trademarks. At the time of delivery
of the financial statements and reports provided for in Section 7.1(a) and
(b), a report signed by an Executive Officer of the Borrower setting forth
(i) a list of registration numbers for all federally registered patents,
trademarks, service marks, tradenames and copyrights awarded to any
Consolidated Party since the last day of the immediately preceding fiscal
year and (ii) a list of all patent applications, trademark applications,
service mark applications, trade name applications and copyright
applications submitted to the U.S. Patent and Trademark Office or U.S.
Copyright Office by any Consolidated Party since the last day of the
immediately preceding fiscal year and the status of each such application,
all in such form as shall be reasonably satisfactory to the Agent.
(l) Other Information. With reasonable promptness upon any such
request, such other information regarding the business, properties or
financial condition of any
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Consolidated Party as the Agent or the Required Lenders may reasonably
request but subject to any limitations arising under applicable laws,
rules and regulations (including, without limitation, any regulations of
the United States Department of Defense or any agency of any foreign
government) and any contract to which any Consolidated Party is a party
(including, without limitation, any contract with the United States
Department of Defense or any branch of the United States military or any
foreign government or any agency or instrumentality thereof).
7.2 Preservation of Existence and Franchises.
Except as a result of or in connection with a dissolution, merger or
disposition of a Subsidiary permitted under Section 8.4 or Section 8.5, each
Credit Party will, and will cause each of its Subsidiaries to, do all things
necessary to preserve and keep in full force and effect its existence, rights,
franchises and authority except (other than with respect to existence of the
Borrower) where the failure to do so would not reasonably be expected to have a
Material Adverse Effect.
7.3 Books and Records.
Each Credit Party will, and will cause each of its Subsidiaries to,
keep complete and accurate books and records of its transactions in accordance
with good accounting practices on the basis of GAAP (including the
establishment and maintenance of appropriate reserves).
7.4 Compliance with Law.
Each Credit Party will, and will cause each of its Subsidiaries to,
comply with all laws, rules, regulations and orders, and all applicable
restrictions imposed by all Governmental Authorities, applicable to it and its
Property if noncompliance with any such law, rule, regulation, order or
restriction would reasonably be expected to have a Material Adverse Effect.
7.5 Payment of Taxes and Other Indebtedness.
Each Credit Party will, and will cause each of its Subsidiaries to,
pay and discharge (a) all taxes, assessments and governmental charges or levies
imposed upon it, or upon its income or profits, or upon any of its properties,
before they shall become delinquent and (b) all lawful claims (including claims
for labor, materials and supplies) which, if unpaid, might give rise to a Lien
upon any of its properties, provided, however, that no Consolidated Party shall
be required to pay any such tax, assessment, charge, levy or claim (i) which is
being contested in good faith by appropriate proceedings and as to which
adequate reserves therefor have been established in accordance with GAAP or
(ii) if the failure to do so would not reasonably be expected to have a
Material Adverse Effect.
7.6 Insurance.
(a) Each Credit Party will, and will cause each of its
Subsidiaries to, at all times maintain in full force and effect insurance
(including worker's compensation insurance, liability insurance, casualty
insurance and business interruption insurance) in such amounts,
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covering such risks and liabilities and with such deductibles or
self-insurance retentions as are in accordance with normal industry
practice. The Agent shall be named as loss payee or mortgagee, as its
interest may appear, and/or additional insured with respect to any such
insurance providing coverage in respect of any Collateral, and each
provider of any such insurance shall agree, by endorsement upon the policy
or policies issued by it or by independent instruments furnished to the
Agent, that it will give the Agent thirty (30) days prior written notice
before any such policy or policies shall be altered or canceled, and that
no act or default of any Consolidated Party or any other Person shall
affect the rights of the Agent or the Lenders under such policy or
policies. The insurance coverage of the Consolidated Parties as of the
Closing Date is outlined as to carrier, policy number, expiration date,
type and amount on Schedule 7.6.
(b) In the event that the Consolidated Parties receive Net Cash
Proceeds in excess of $2,000,000 in aggregate amount during any fiscal
year of the Consolidated Parties ("Excess Proceeds") on account of any
loss of, damage to or destruction of, or any condemnation or other taking
for public use of, any Property of the Consolidated Parties (with respect
to any Consolidated Party, an "Involuntary Disposition"), the Credit
Parties shall, within the period of 180 days following the date of receipt
of such Excess Proceeds, either (i) apply (or cause to be applied) an
amount equal to such Excess Proceeds to make Eligible Reinvestments,
including but not limited to the repair or replacement of the related
Property or (ii) retain such Excess Proceeds of such Involuntary
Disposition as cash on hand. All excess proceeds received by any Credit
Party shall be subject to the security interest of the Agent (for the
ratable benefit of the Lenders) under the Collateral Documents. Pending
final application of the Net Cash Proceeds of any Involuntary Disposition,
the Consolidated Parties may apply such Net Cash Proceeds to temporarily
reduce the Revolving Loans or to make Investments in Cash Equivalents.
7.7 Maintenance of Property.
Each Credit Party will, and will cause each of its Subsidiaries to,
maintain and preserve its properties and equipment material to the conduct of
its business in good repair, working order and condition, normal wear and tear
and casualty and condemnation excepted, and will make, or cause to be made, in
such properties and equipment from time to time all repairs, renewals,
replacements, extensions, additions, betterments and improvements thereto as
may be needed or proper, to the extent and in the manner customary for
companies in similar businesses except, in each case, where the failure to do
so would not reasonably be expected to have a Material Adverse Effect.
7.8 Performance of Obligations.
Each Credit Party will, and will cause each of its Subsidiaries to,
perform in all material respects all of its obligations under the terms of all
material agreements, indentures, mortgages, security agreements or other debt
instruments to which it is a party or by which it is bound except, in each
case, where the failure to do so would not reasonably be expected to have a
Material Adverse Effect.
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7.9 Use of Proceeds.
The Borrower will use the proceeds of the Loans solely to effect the
Transaction, to pay fees and expenses related to the Transaction and to provide
for working capital and general corporate purposes. The Borrower will use the
Letters of Credit only for or in connection with appeal bonds, reimbursement
obligations arising in connection with surety and reclamation bonds,
reinsurance, domestic or international trade transactions and obligations not
otherwise aforementioned relating to transactions entered into by the
applicable account party in the ordinary course of business.
7.10 Audits/Inspections.
Upon reasonable notice and during normal business hours (but in no
event, unless an Event of Default has occurred and is continuing, more than
once in each fiscal year), each Credit Party will, and will cause each of its
Subsidiaries to, permit representatives appointed by the Agent, including,
without limitation, independent accountants, agents, attorneys, and appraisers,
to, at the expense of the Lenders (or, if an Event of Default has occurred and
is continuing, at the expense of the Credit Parties) visit and inspect its
property, including its books and records, its accounts receivable and
inventory, its facilities and its other business assets, and to make
photocopies or photographs thereof and to write down and record any information
such representative obtains and shall permit the Agent or its representatives
to investigate and verify the accuracy of information provided to the Lenders
and to discuss all such matters with the officers, employees and
representatives of such Person; provided that the obligations of each Credit
Party under this Section 7.10 shall be subject to applicable laws, rules and
regulations (including, without limitation, any regulations of the United
States Department of Defense or any agency of any foreign government) and any
contract to which any Consolidated Party is a party (including, without
limitation, any contract with the United States Department of Defense or any
branch of the United States military or any foreign government or any agency or
instrumentality thereof). The Credit Parties agree that the Agent, and its
representatives, may conduct an annual audit of the Collateral, at the expense
of the Credit Parties.
7.11 Financial Covenants.
(a) Total Leverage Ratio. The Total Leverage Ratio, as of the
last day of each fiscal quarter of the Borrower, shall be less than or
equal to:
(i) for any fiscal quarter ending in the period from the
Closing Date to and including December 31, 2000, 6.25 to 1.00;
(ii) for any fiscal quarter ending in the period from
January 1, 2001 to and including December 31, 2001, 5.50 to 1.00;
(iii) for any fiscal quarter ending in the period from
January 1, 2002 to and including December 31, 2002, 4.75 to 1.00;
(iv) for any fiscal quarter ending in the period from
January 1, 2003 to and including December 31, 2003, 4.25 to 1.00; and
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(v) for any fiscal quarter ending in the period from
January 1, 2004 and at all times thereafter, 4.00 to 1.00.
(b) Senior Leverage Ratio. The Senior Leverage Ratio, as of the
last day of each fiscal quarter of the Borrower, shall be less than or
equal to 2.25 to 1.00.
(c) Fixed Charge Coverage Ratio. The Fixed Charge Coverage
Ratio, as of the last day of each fiscal quarter of the Borrower, shall be
greater than or equal to:
(i) for any fiscal quarter ending in the period from the
Closing Date to and including December 31, 2000, 1.00 to 1.00;
(ii) for any fiscal quarter ending in the period from
January 1, 2001 to and including December 31, 2001, 1.10 to 1.00; and
(iii) for any fiscal quarter ending in the period from
January 1, 2002 and at all times thereafter, 1.20 to 1.00.
7.12 Additional Guarantors.
As soon as practicable and in any event within 60 days after any
Person becomes a direct or indirect Subsidiary of the Borrower or a Joint
Venture, the Borrower shall provide the Agent with written notice thereof and
shall (a) if such Person is a Wholly Owned Domestic Subsidiary, cause such
Person to execute a Joinder Agreement in substantially the same form as Exhibit
7.12, (b) if such Person is a Domestic Subsidiary or a Domestic Joint Venture,
cause 100% of the issued and outstanding Capital Stock of such Person held
directly by the Borrower or a Wholly Owned Subsidiary of the Borrower to be
delivered to the Agent (together with undated stock powers signed in blank) and
pledged to the Agent pursuant to an appropriate pledge agreement(s) in
substantially the form of the Pledge Agreement, (c) if such Person is a direct
Material Foreign Subsidiary of a Credit Party or a Material Foreign Joint
Venture, cause 65% (or such greater percentage which would not result in all or
any portion of the undistributed earnings of such Material Foreign Subsidiary
for federal income tax purposes to be treated as a deemed dividend to such
Material Foreign Subsidiary's United States parent or would otherwise have any
adverse effect on the Credit Parties with respect to Taxes or Other Taxes or
any taxes excluded from the definition of "Taxes") of the issued and
outstanding Capital Stock entitled to vote (within the meaning of Treas. Reg.
Section 1.956-2(c)(2)) and 100% of the issued and outstanding Capital Stock not
entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) or,
in each case, such lesser percentage thereof as is owned directly by the Credit
Parties, of such Person to be delivered to the Agent (together with undated
stock powers signed in blank (unless, with respect to a Material Foreign
Subsidiary or Material Foreign Joint Venture, such stock powers are deemed
unnecessary by the Agent in its reasonable discretion under the law of the
jurisdiction of incorporation of such Person)) and pledged to the Agent
pursuant to an appropriate pledge agreement(s) in substantially the form of the
Pledge Agreement and (d) if such Person is a Wholly Owned Domestic Subsidiary,
cause such Person to (i) if such Person has any Eligible Real Property, deliver
to the Agent (or, in the case of items relating to leased property, use
commercially reasonable efforts to deliver to the Agent), with respect to such
Eligible Real
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Property, documents, instruments and other items of the types required to be
delivered pursuant to Section 7.15(b) all in form, content and scope reasonably
satisfactory to the Agent and (ii) deliver (or, in the case of items relating
to leased property, use commercially reasonable efforts to deliver to the
Agent) such other documentation as the Agent may reasonably request in
connection with the foregoing, including, without limitation, items of the
types required to be delivered pursuant to Section 5.1(b), (c) and (d) and
Section 7.15(b), all in form, content and scope reasonably satisfactory to the
Agent.
7.13 Pledged Assets.
Each Credit Party will cause (or, in the case of items relating to
leased Eligible Real Property, will use commercially reasonable efforts to
cause) (i) all of its owned personal property located in the United States
other than Excluded Property and (ii) all of its Eligible Real Property, to be
subject at all times to perfected and, in the case of Eligible Real Property
(whether leased or owned), title insured Liens in favor of the Agent to secure
the Credit Party Obligations pursuant to the terms and conditions of the
Collateral Documents or, with respect to any such property acquired subsequent
to the Closing Date, such other additional security documents as the Agent
shall reasonably request, subject in any case only to Permitted Liens;
provided, that (i) with respect to Eligible Real Property acquired by a Credit
Party after the Closing Date, such Lien need not attach or be perfected prior
to the date 60 days after the acquisition of such Eligible Real Property and
(ii) filings in respect of federally registered intellectual property need not
be made more frequently than once in each fiscal quarter. With respect to any
Eligible Real Property acquired by any Credit Party subsequent to the Closing
Date and required by this Section 7.13 to be pledged to the Agent, such Person
will cause to be delivered to the Agent with respect to such Eligible Real
Property documents, instruments and other items of the types required to be
delivered pursuant to Section 7.15(b) in form acceptable to the Agent. Without
limiting the generality of the above, the Credit Parties will cause (i) 100% of
the issued and outstanding Capital Stock of each Domestic Subsidiary and
Domestic Joint Venture owned by them and (ii) 65% (or such greater percentage
which would not result in all or any portion of the undistributed earnings of
such Material Foreign Subsidiary or Material Foreign Joint Venture for federal
income tax purposes to be treated as a deemed dividend to such Material Foreign
Subsidiary's United States parent or would otherwise have any adverse effect on
the Credit Parties with respect to Taxes or Other Taxes or any taxes excluded
from the definition of "Taxes") of the issued and outstanding Capital Stock
entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) and
100% of the issued and outstanding Capital Stock not entitled to vote (within
the meaning of Treas. Reg. Section 1.956-2(c)(2)) or, in each case, such lesser
percentage thereof as is owned directly by the Credit Parties, of each Material
Foreign Subsidiary and Material Foreign Joint Venture directly owned by any
Credit Party, to be subject at all times to a perfected Lien in favor of the
Agent pursuant to the terms and conditions of the Collateral Documents or such
other security documents as the Agent shall reasonably request subject in each
case only to Permitted Liens.
If, subsequent to the Closing Date, a Credit Party shall (a) acquire
any federally registered intellectual property, securities, instruments,
chattel paper or other personal property required to be pledged to the Agent as
Collateral hereunder or under any of the Collateral Documents or (b) acquire or
lease any Eligible Real Property, the Credit Parties shall promptly (or, in the
case of federally registered intellectual property, not less than once in each
fiscal quarter) notify the
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Agent of same. Each Credit Party shall take such action (including but not
limited to the actions set forth in Section 5.1(d) and Section 7.15(b)) at its
own expense as requested by the Agent to ensure (or, in the case of any leased
Eligible Real Property, use commercially reasonable efforts to ensure) that the
Agent has a perfected Lien to secure the Credit Party Obligations in (i) all
owned personal property (other than Excluded Property) of the Credit Parties
located in the United States and (ii) all Eligible Real Property, subject in
each case only to Permitted Liens. Each Credit Party shall adhere to the
covenants regarding the location of personal property as set forth in the
Security Agreement; provided, that (i) with respect to Eligible Real Property
acquired by a Credit Party after the Closing Date, such Lien need not attach or
be perfected prior to the date 60 days after the acquisition of such Eligible
Real Property and (ii) filings in respect of federally registered intellectual
property need not be made more frequently than once in each fiscal quarter.
7.14 Year 2000 Compliance.
The Borrower will promptly notify the Agent in the event any Credit
Party discovers or determines that any computer application (including those of
its suppliers, vendors and customers (other than the United States or any
foreign government or any agency or instrumentality of any of the foregoing))
that is material to its or any of its Subsidiaries' business and operations
will not be Year 2000 Compliant, except to the extent that such failure could
not reasonably be expected to have a Material Adverse Effect.
7.15 Income and Assets of Credit Parties.
The Credit Parties will (i) at all times own at least 80% of
Consolidated Total Assets and (ii) as of as of the last day of each fiscal
quarter of the Consolidated Parties for the four quarter period then ended,
cause the portion of Consolidated EBITDA attributable to the Credit Parties to
be at least 80% of Consolidated EBITDA for such period.
7.16 Further Assurances.
(a) Within 60 days following the Closing Date, the Borrower
shall cause Condor Data Management, Ltd. to be dissolved.
(b) In the case of Eligible Real Property (subject to the
provisions of subclause (iii) below), the Borrower shall deliver to the
Agent, within 60 days following the Closing Date:
(i) fully executed and notarized mortgages, deeds of trust
or deeds to secure debt (each, as the same may be amended, modified,
restated or supplemented from time to time, a "Mortgage Instrument"
and collectively the "Mortgage Instruments") encumbering the fee
interest and/or leasehold interest of any Credit Party in the
Eligible Real Property set forth on Schedule 6.16(a) (each a
"Mortgaged Property" and collectively the "Mortgaged Properties");
(ii) a title report obtained by the Credit Parties in
respect of each of the Mortgaged Properties;
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(iii) in the case of each real property leasehold interest
of any Credit Party constituting Mortgaged Property, (a) such
estoppel letters, consents and waivers from the landlords on such
real property as may be required by the Agent and which can be
obtained by the Borrower through the use of commercially reasonable
efforts (such efforts not to include the payment of money or the
granting of concessions), which estoppel letters shall be in the form
and substance reasonably satisfactory to the Agent, and if the
Borrower is unable to obtain such estoppel letters, consents and
waivers containing at a minimum the landlord's consent to a mortgage
by the Borrower of its leasehold interest after using commercially
reasonable efforts and as a result, such leased Eligible Real
Property cannot be pledged to the Agent, then the requirements of
this Section 7.15(b) shall not be applicable to such leased Eligible
Real Property and (b) evidence that the applicable lease, a
memorandum of lease with respect thereto, or other evidence of such
lease in form and substance reasonably satisfactory to the Agent, has
been or will be recorded in all places to the extent necessary or
desirable and which can be obtained by the Borrower through the use
of commercially reasonable efforts (such efforts not to include the
payment of money or the granting of other concessions), in the
reasonable judgment of the Agent, so as to enable the Mortgage
Instrument encumbering such leasehold interest to effectively create
a valid and enforceable first priority lien (subject to Permitted
Liens) on such leasehold interest in favor of the Agent (or such
other Person as may be required or desired under local law) for the
benefit of Lenders;
(iv) maps or plats of an as-built survey of the sites of
the Eligible Real Property covered by the Mortgage Instruments
certified to the Agent and the title insurance company issuing the
policy referred to in Section 7.15(b)(v) (the "Title Insurance
Company") in a manner reasonably satisfactory to each of the Agent
and the Title Insurance Company, dated a date reasonably satisfactory
to each of the Agent and the Title Insurance Company by an
independent professional licensed land surveyor, which maps or plats
and the surveys on which they are based shall be sufficient to delete
any standard printed survey exception contained in the applicable
title policy and be made in accordance with the Minimum Standard
Detail Requirements for Land Title Surveys jointly established and
adopted by the American Land Title Association and the American
Congress on Surveying and Mapping in 1992, and, without limiting the
generality of the foregoing, there shall be surveyed and shown on
such maps, plats or surveys the following: (A) the locations on such
sites of all the buildings, structures and other improvements and the
established building setback lines; (B) the lines of streets abutting
the sites and width thereof; (C) all access and other easements
appurtenant to the sites necessary to use the sites; (D) all
roadways, paths, driveways, easements, encroachments and overhanging
projections and similar encumbrances affecting the site, whether
recorded, apparent from a physical inspection of the sites or
otherwise known to the surveyor; (E) any encroachments on any
adjoining property by the building structures and improvements on the
sites; and (F) if the site is described as being on a filed map, a
legend relating the survey to said map;
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(v) ALTA mortgagee title insurance policies issued by the
Title Insurance Company (the "Mortgage Policies"), in amounts not
less than 120% of the fair market value (as reasonably determined by
the Agent) of the Mortgaged Properties with respect to any particular
Mortgaged Property, assuring the Agent that each of the Mortgage
Instruments creates a valid and enforceable first priority mortgage
lien on the applicable Mortgaged Property, free and clear of all
defects and encumbrances except Permitted Liens, which Mortgage
Policies shall be in form and substance reasonably satisfactory to
the Agent and shall provide for affirmative insurance and such
reinsurance as the Agent may reasonably request, all of the foregoing
in form and substance reasonably satisfactory to the Agent;
(vi) evidence as to (A) whether any Mortgaged Property is
in an area designated by the Federal Emergency Management Agency as
having special flood or mud slide hazards (a "Flood Hazard Property")
and (B) if any Mortgaged Property is a Flood Hazard Property, (1)
whether the community in which such Mortgaged Property is located is
participating in the National Flood Insurance Program, (2) the
applicable Credit Party's written acknowledgment of receipt of
written notification from the Agent (a) as to the fact that such
Mortgaged Property is a Flood Hazard Property and (b) as to whether
the community in which each such Flood Hazard Property is located is
participating in the National Flood Insurance Program and (3) copies
of insurance policies or certificates of insurance of the
Consolidated Parties evidencing flood insurance satisfactory to the
Agent and naming the Agent as sole loss payee on behalf of the
Lenders; and
(vii) evidence reasonably satisfactory to the Agent that
each of the Mortgaged Properties, and the uses of the Mortgaged
Properties, are in compliance in all material respects with all
applicable laws, regulations and ordinances including without
limitation health and environmental protection laws, erosion control
ordinances, storm drainage control laws, doing business and/or
licensing laws, zoning laws (the evidence submitted as to zoning
should include the zoning designation made for each of the Mortgaged
Properties, the permitted uses of each such Mortgaged Properties
under such zoning designation and zoning requirements as to parking,
lot size, ingress, egress and building setbacks) and laws regarding
access and facilities for disabled persons including, but not limited
to, the federal Architectural Barriers Act, the Fair Housing
Amendments Act of 1988, the Rehabilitation Act of 1973 and the
Americans with Disabilities Act of 1990.
SECTION 8
NEGATIVE COVENANTS
Each Credit Party hereby covenants and agrees that, so long as this
Credit Agreement is in effect or any amounts payable hereunder or under any
other Credit Document shall remain outstanding or any Letter of Credit is
outstanding, and until all of the Commitments hereunder shall have terminated:
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8.1 Indebtedness.
The Credit Parties will not permit any Consolidated Party to
contract, create, incur, assume or permit to exist any Indebtedness, except:
(a) Indebtedness arising under this Credit Agreement and the
other Credit Documents;
(b) Indebtedness of the Borrower and its Subsidiaries set forth
in Schedule 8.1, and renewals, refinancings and extensions thereof,
provided that no such renewal, refinancing or extension shall (i) be on
terms and conditions less favorable to the obligor thereof than the terms
and conditions of such Indebtedness as of the Closing Date or (ii) shall
increase the amount of such Indebtedness as of the Closing Date;
(c) purchase money Indebtedness (including obligations in
respect of Capital Leases or Synthetic Leases) hereafter incurred to
finance the purchase of fixed assets provided that (i) the total of all
such Indebtedness shall not exceed an aggregate principal amount of
$2,000,000 at any one time outstanding; (ii) such Indebtedness when
incurred shall not exceed the purchase price of the asset(s) financed; and
(iii) no such Indebtedness shall be refinanced for a principal amount in
excess of the principal balance outstanding thereon at the time of such
refinancing;
(d) obligations of the Borrower in respect of Hedging Agreements
entered into in order to manage existing or anticipated interest rate or
exchange rate risks and not for speculative purposes;
(e) intercompany Indebtedness arising out of loans, advances and
Guaranty Obligations permitted under Section 8.6; and
(f) Indebtedness arising under the Subordinated Note Indenture
and the Subordinated Notes in an aggregate principal amount not to exceed
$100,000,000 at any one time outstanding; and
(g) other secured or unsecured Indebtedness hereafter incurred
by any Consolidated Party provided that the total of all such Indebtedness
shall not exceed an aggregate principal amount of $5,000,000 at any one
time outstanding; and
(h) other unsecured Indebtedness hereafter incurred by any
Consolidated Party provided that the total of all such Indebtedness shall
not exceed an aggregate principal amount of $5,000,000 at any one time
outstanding.
8.2 Liens.
The Credit Parties will not permit any Consolidated Party to
contract, create, incur, assume or permit to exist any Lien with respect to any
of its Property, whether now owned or after acquired, except for Permitted
Liens.
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8.3 Nature of Business.
The Credit Parties will not permit any Consolidated Party to
substantively alter the character or conduct of the business conducted by such
Person as of the Closing Date, provided that any Consolidated Party may engage
in similar lines of business to the business engaged in by the Consolidated
Parties on the Closing Date, and in any business reasonably related thereto.
8.4 Consolidation, Merger, Dissolution, etc.
Except in connection with an Asset Disposition permitted by the terms
of Section 8.5, the Credit Parties will not permit any Consolidated Party to
enter into any transaction of merger or consolidation or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution); provided that,
notwithstanding the foregoing provisions of this Section 8.4, (a) the Borrower
may merge or consolidate with any of its Subsidiaries provided that the
Borrower shall be the continuing or surviving corporation, (b) any Credit Party
other than the Borrower may merge or consolidate with any other Credit Party
other than the Borrower or with the Borrower subject to compliance with clause
(a), (c) any Consolidated Party which is not a Credit Party may be merged or
consolidated with or into any Credit Party provided that (i) such Credit Party
shall be the continuing or surviving corporation and (ii) upon giving effect to
such transaction, no Default or Event of Default would exist, (d) any
Consolidated Party which is not a Credit Party may be merged or consolidated
with or into any other Consolidated Party which is not a Credit Party, (e) the
Borrower or any Subsidiary of the Borrower may merge with any Person other than
a Consolidated Party in connection with a Permitted Acquisition provided that
if the Borrower is a party to such merger, the Borrower shall be the continuing
or surviving corporation, and (f) any Wholly-Owned Subsidiary of the Borrower
may dissolve, liquidate or wind up its affairs at any time provided that such
dissolution, liquidation or winding up, as applicable, would not have a
Material Adverse Effect.
8.5 Asset Dispositions.
The Credit Parties will not permit any Consolidated Party to make any
Asset Disposition (including, without limitation, any Sale and Leaseback
Transaction) unless (a) at least 75% of the consideration paid in connection
therewith shall be cash or Cash Equivalents or Eligible Assets, (b) the
aggregate net book value of all of the assets sold or otherwise disposed of by
the Consolidated Parties in all such transactions after the Closing Date (other
than any such transaction to the extent that the consideration received
consists of Eligible Assets or the Net Cash Proceeds thereof are used to make
Eligible Reinvestments within 180 days of receipt of the proceeds thereof)
shall not exceed $10,000,000, and (c) if the aggregate net book value of the
assets sold or otherwise disposed of in any such transactions exceeds
$2,000,000, the Borrower shall have delivered to the Agent a Pro Forma
Compliance Certificate demonstrating that, upon giving effect on a Pro Forma
Basis to such transaction, no Event of Default under Section 7.11 would exist
hereunder.
Upon a sale of assets or the sale of Capital Stock of a Consolidated
Party permitted by this Section 8.5, the Agent shall (to the extent applicable)
deliver to the Credit Parties, upon the Credit Parties' request and at the
Credit Parties' expense, such documentation as is reasonably necessary to
evidence the release of the Agent's security interest, if any, in such assets
or Capital Stock, including, without limitation, amendments or terminations of
UCC financing statements, if any, the
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return of stock certificates, if any, and the release of such Consolidated Party
from all of its obligations, if any, under the Credit Documents.
8.6 Investments.
The Credit Parties will not permit any Consolidated Party to make
Investments in or to any Person, except for Permitted Investments; provided,
however, that any Investment which when made complies with the requirements of
the definition of the term "Cash Equivalent" may continue to be held,
notwithstanding that such Investment if made thereafter would not comply with
such requirements.
8.7 Restricted Payments.
The Credit Parties will not permit any Consolidated Party to,
directly or indirectly, declare, order, make or set apart any sum for or pay
any Restricted Payment, except (a) to make dividends payable solely in the same
class of Capital Stock of such Person, (b) in the case of any Consolidated
Party other than the Borrower, to make dividends or other distributions payable
ratably to the holders of all shares of any class of Capital Stock of such
Consolidated Party, (c) payments by the Borrower to redeem or repurchase shares
of its common stock following the death, termination, disability, retirement or
other separation of employment of any employee of any Consolidated Party (or
the heirs, estate or legal representative of such employee) that is the
beneficial holder thereof and (d) as permitted by Section 8.8 or Section 8.9.
8.8 Other Indebtedness.
The Credit Parties will not permit any Consolidated Party to (a) if
any Event of Default has occurred and is continuing or would be directly or
indirectly caused as a result thereof, (i) after the issuance thereof, amend or
modify (or permit the amendment or modification of) any of the terms of any
Indebtedness of such Consolidated Party if such amendment or modification would
add or change any terms in a manner materially adverse to such Consolidated
Party, or shorten the final maturity or average life to maturity or require any
payment to be made sooner than originally scheduled or increase the interest
rate applicable thereto or change any subordination provision thereof, or (ii)
except for the exchange of the Subordinated Notes for notes with identical
terms registered pursuant to the registration rights agreement referred to in
the Subordinated Note Indenture and for exchanges of temporary Subordinated
Notes for permanent global Subordinated Notes or definitive Subordinated Notes
or other exchanges of Subordinated Notes for other Subordinated Notes, all as
set forth in the Subordinated Note Indenture, make (or give any notice with
respect thereto) any voluntary or optional payment or prepayment or redemption
or acquisition for value of (including without limitation, by way of depositing
money or securities with the trustee with respect thereto before due for the
purpose of paying when due), refund, refinance or exchange of any other
Indebtedness of such Consolidated Party, (b) amend or modify (or permit the
amendment or modification of) any of the subordination provisions of the
Subordinated Note Indenture, (c) make interest payments (including payment of
accrued interest and premium, if any, payable in connection with a redemption
of the Subordinated Notes permitted under this Section 8.8) in respect of the
Indebtedness arising under the Subordinated Note Indenture in violation of the
subordination provisions of the Subordinated Note Indenture or (d) except for
the exchange of the Subordinated Notes for notes with identical terms
registered pursuant to the registration rights
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agreement referred to in the Subordinated Note Indenture and for exchanges of
temporary Subordinated Notes for permanent global Subordinated Notes or
definitive Subordinated Notes or other exchanges of Subordinated Notes for
other Subordinated Notes, all as set forth in the Subordinated Note Indenture,
make (or give any notice with respect thereto) any voluntary or optional
payment or prepayment, redemption, acquisition for value or defeasance of
(including without limitation, by way of depositing money or securities with
the trustee with respect thereto before due for the purpose of paying when
due), refund, refinance or exchange of any Indebtedness arising under the
Subordinated Note Indenture and the Subordinated Notes.
8.9 Transactions with Affiliates.
The Credit Parties will not permit any Consolidated Party to enter
into or permit to exist any transaction or series of transactions with any
officer, director, shareholder, Subsidiary or Affiliate of such Person other
than (a) advances of working capital to any Credit Party, (b) transfers of cash
and assets to any Credit Party, (c) transactions permitted by Section 8.1,
Section 8.4, Section 8.5, Section 8.6, or Section 8.7, (d) normal compensation
and reimbursement of expenses of officers and directors, (e) payments by the
Borrower to the Sponsors on the Closing Date of an investment banking fee of up
to $2,100,000, (f) provided that no Default or Event of Default has occurred
and is continuing, payments by the Borrower to the Sponsors of reasonable
expenses from time to time of the Sponsors, (g) the arrangements listed on
Schedule 8.9 hereto and (h) except as otherwise specifically limited in this
Credit Agreement, other transactions which are entered into on terms and
conditions substantially as favorable to such Person as would be obtainable by
it in a comparable arms-length transaction with a Person other than an officer,
director, shareholder, Subsidiary or Affiliate.
8.10 Fiscal Year.
The Credit Parties will not permit any Consolidated Party to change
its fiscal year.
8.11 Limitation on Restricted Actions.
The Credit Parties will not permit any Consolidated Party to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any such Person to
(a) pay dividends or make any other distributions to any Credit Party on its
Capital Stock or with respect to any other interest or participation in, or
measured by, its profits, (b) pay any Indebtedness or other obligation owed to
any Credit Party, (c) make loans or advances to any Credit Party, (d) sell,
lease or transfer any of its properties or assets to any Credit Party, or (e)
act as a Credit Party and pledge its assets pursuant to the Credit Documents or
any renewals, refinancings, exchanges, refundings or extension thereof, except
(in respect of any of the matters referred to in clauses (a)-(d) above) for
such encumbrances or restrictions existing under or by reason of (i) this
Credit Agreement and the other Credit Documents, (ii) the Subordinated Note
Indenture and the Subordinated Notes, in each case as in effect as of the
Closing Date, (iii) applicable law or (iv) any Permitted Lien or any document
or instrument governing any Permitted Lien, provided that any such restriction
contained therein relates only to the asset or assets subject to such Permitted
Lien.
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8.12 Capital Expenditures.
The Credit Parties will not permit Consolidated Capital Expenditures
for any fiscal year to exceed the sum of (i) $5,000,000 plus (ii) 4% of the
revenues of the Person or Property acquired in each Permitted Acquisition
consummated prior to the applicable date of determination under this Section
8.12 (in respect of any fiscal year, the "Base Capex Amount"); provided that,
if the aggregate amount of Consolidated Capital Expenditures actually made in
any such fiscal year shall be less than the Base Capex Amount for such fiscal
year (before giving effect to any increase therein pursuant to this proviso),
then the amount of such shortfall (up to an amount equal to 50% of the Base
Capex Amount for such fiscal year, without giving effect to this proviso) shall
be available for Consolidated Capital Expenditures for the immediately
succeeding fiscal year (but not for any future period) and shall be deemed to
be used prior to using the amount of Consolidated Capital Expenditures
permitted by this Section 8.12 in such succeeding fiscal year, without giving
effect to such carry-forward.
8.13 No Further Negative Pledges.
The Credit Parties will not permit any Consolidated Party to enter
into, assume or become subject to any agreement prohibiting or otherwise
restricting the creation or assumption of any Lien upon its properties or
assets for the purpose of securing the Credit Party Obligations of the types
described in clauses (i) and (ii) of the definition of such term set forth in
Section 1.1, whether now owned or hereafter acquired, or requiring the grant of
any security for any obligation if security is given for the Credit Party
Obligations of the types described in clauses (i) and (ii) of the definition of
such term set forth in Section 1.1, except (a) pursuant to this Credit
Agreement and the other Credit Documents, (b) pursuant to the Subordinated Note
Indenture and the Subordinated Notes, in each case as in effect as of the
Closing Date, (c) pursuant to any document or instrument governing Indebtedness
incurred pursuant to Section 8.1(c), provided that any such restriction
contained therein relates only to the asset or assets constructed or acquired
in connection therewith and (d) in connection with any Permitted Lien or any
document or instrument governing any Permitted Lien, provided that any such
restriction contained therein relates only to the asset or assets subject to
such Permitted Lien.
8.14 Operating Lease Obligations.
The Credit Parties will not permit any Consolidated Party to enter
into, assume or permit to exist any obligations for the payment of rental under
Operating Leases which in the aggregate for all such Persons in any fiscal year
would exceed the sum of (i) $3,500,000 plus (ii) 4% of the revenues of the
Person or Property acquired in each Permitted Acquisition consummated prior to
the applicable date of determination under this Section 8.14.
8.15 Limitation on Bank Accounts, etc.
The Credit Parties will not permit any Credit Party to (i) open,
maintain or otherwise have any checking, savings or other accounts at any bank
or other financial institution, or any other account where money is or may be
deposited or maintained with any Person, other than (A) the Collection Account,
(B) payroll accounts and (C) any other account subject to a bank agency
agreement having substantially the same effect as the Bank Agency Agreement or
(ii) take any action to cause the account debtors of such Credit Party to make
any payments due in respect of
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any accounts receivable owing to the Borrower from such Person other than
directly to the Collection Account or an account described in clause (C).
SECTION 9
EVENTS OF DEFAULT
9.1 Events of Default.
An Event of Default shall exist upon the occurrence of any of the
following specified events (each an "Event of Default"):
(a) Payment. Any Credit Party shall
(i) default in the payment when due of any principal of any
of the Loans or of any reimbursement obligations arising from
drawings under Letters of Credit, or
(ii) default, and such default shall continue for five (5)
or more days, in the payment when due of any interest on the Loans or
on any reimbursement obligations arising from drawings under Letters
of Credit, or of any Fees or other amounts owing hereunder, under any
of the other Credit Documents or in connection herewith or therewith;
or
(b) Representations. Any representation, warranty or statement
made or deemed to be made by any Credit Party herein, in any of the other
Credit Documents, or in any statement or certificate delivered or required
to be delivered pursuant hereto or thereto shall prove untrue in any
material respect on the date as of which it was deemed to have been made;
or
(c) Covenants. Any Credit Party shall
(i) default in the due performance or observance of any
term, covenant or agreement contained in Sections 7.2 (with respect
to the existence of the Borrower), 7.9, 7.11, 7.12, 7.13 or 8.1
through 8.15, inclusive;
(ii) default in the due performance or observance of any
term, covenant or agreement contained in Sections 7.1(a), (b), (c) or
(d) and such default shall continue unremedied for a period of at
least 15 days after the earlier of an Executive Officer of a Credit
Party becoming aware of such default or notice thereof by the Agent;
or
(iii) default in the due performance or observance by it of
any term, covenant or agreement (other than those referred to in
subsections (a), (b), (c)(i) or (c)(ii) of this Section 9.1)
contained in this Credit Agreement or any other Credit
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Document and such default shall continue unremedied for a period of
at least 30 days after notice thereof by the Agent; or
(d) Other Credit Documents. Except as a result of or in
connection with a dissolution, merger or disposition of a Subsidiary
permitted under Section 8.4 or Section 8.5, any Credit Document shall fail
to be in full force and effect or to give the Agent and/or the Lenders the
Liens purported to be created thereby, or any Credit Party shall so state
in writing; or
(e) Guaranties. Except as the result of or in connection with a
dissolution, merger or disposition of a Subsidiary permitted under Section
8.4 or Section 8.5, the guaranty given by any Guarantor hereunder
(including any Person after the Closing Date in accordance with Section
7.12) or any provision thereof shall cease to be in full force and effect,
or any Guarantor (including any Person after the Closing Date in
accordance with Section 7.12) hereunder or any Person acting by or on
behalf of such Guarantor shall deny or disaffirm such Guarantor's
obligations under such guaranty, or any Guarantor shall default in the due
performance or observance of any term, covenant or agreement on its part
to be performed or observed pursuant to any guaranty; or
(f) Bankruptcy, etc. Any Bankruptcy Event shall occur with
respect to any Consolidated Party; or
(g) Defaults under Other Agreements.
(i) One or more material contracts with the United States
government or any agency or instrumentality thereof to which any
Consolidated Party is a party shall be terminated (other than as a
result of the expiration of the terms thereof) and not replaced and
(A) such contracts, in the aggregate, constitute at least 25% of
Consolidated EBITDA for the period of four consecutive fiscal
quarters most recently ended and with respect to which the Borrower
has delivered the Required Financial Information and (B) such
terminations, in the aggregate, would reasonably be expected to have
a Material Adverse Effect; or
(ii) With respect to any Indebtedness (other than
Indebtedness outstanding under this Credit Agreement) in excess of
$2,000,000 in the aggregate for the Consolidated Parties taken as a
whole, (A) either (1) a default in any payment shall occur and
continue (beyond the applicable grace period with respect thereto, if
any) with respect to any such Indebtedness or (2) a default in the
observance or performance relating to such Indebtedness or contained
in any instrument or agreement evidencing, securing or relating
thereto, or any other event or condition shall occur or exist and, in
each case, be continuing, the effect of which default or other event
or condition is to cause, or permit, the holder or holders of such
Indebtedness (or trustee or agent on behalf of such holders) to
cause, any such Indebtedness to become due prior to its stated
maturity; or (B) any such Indebtedness shall be declared due and
payable, or required to be prepaid other than by a regularly
scheduled required prepayment, prior to the stated maturity thereof;
or
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(h) Judgments. One or more judgments or decrees shall be entered
against one or more of the Consolidated Parties involving a liability of
$2,000,000 or more in the aggregate (to the extent not paid or fully
covered by insurance provided by a carrier who has not contested coverage
and has the ability to perform) and any such judgments or decrees shall
not have been vacated, discharged or stayed or bonded pending appeal
within 60 days from the entry thereof; or
(i) ERISA. Any of the following events or conditions, if such
event or condition has had a Material Adverse Effect: (i) any "accumulated
funding deficiency," as such term is defined in Section 302 of ERISA and
Section 412 of the Code, whether or not waived, shall exist with respect
to any Plan, or any lien shall arise on the assets of any Consolidated
Party or any ERISA Affiliate in favor of the PBGC or a Plan; (ii) an ERISA
Event shall occur with respect to a Single Employer Plan, which is, in the
reasonable opinion of the Agent, likely to result in the termination of
such Plan for purposes of Title IV of ERISA; (iii) an ERISA Event shall
occur with respect to a Multiemployer Plan or Multiple Employer Plan,
which is, in the reasonable opinion of the Agent, likely to result in (A)
the termination of such Plan for purposes of Title IV of ERISA, or (B) any
Consolidated Party or any ERISA Affiliate incurring any liability in
connection with a withdrawal from, reorganization of (within the meaning
of Section 4241 of ERISA), or insolvency (within the meaning of Section
4245 of ERISA) of such Plan; or (iv) any prohibited transaction (within
the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach
of fiduciary responsibility shall occur which may subject any Consolidated
Party or any ERISA Affiliate to any liability under Sections 406, 409,
502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any
agreement or other instrument pursuant to which any Consolidated Party or
any ERISA Affiliate has agreed or is required to indemnify any person
against any such liability; or
(j) Subordinated Note Indentures. (i) There shall occur and be
continuing any Event of Default under and as defined in the Subordinated
Note Indenture, (ii) any of the Credit Party Obligations for any reason
shall cease to be "Designated Senior Indebtedness" under and as defined in
the Subordinated Note Indenture or (iii) any Indebtedness other than the
Credit Party Obligations shall constitute "Designated Senior Indebtedness"
under and as defined in the Subordinated Note Indenture; or
(k) Ownership. There shall occur a Change of Control.
9.2 Acceleration; Remedies.
Upon the occurrence of an Event of Default, and at any time
thereafter unless and until such Event of Default has been waived by the
requisite Lenders (pursuant to the voting requirements of Section 11.6) or
cured, the Agent shall, upon the request and direction of the Required Lenders,
by written notice to the Credit Parties take any of the following actions:
(a) Termination of Commitments. Declare the Commitments
terminated whereupon the Commitments shall be immediately terminated.
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(b) Acceleration. Declare the unpaid principal of and any
accrued interest in respect of all Loans, any reimbursement obligations
arising from drawings under Letters of Credit and any and all other
indebtedness or obligations of any and every kind owing by the Credit
Parties to the Agent and/or any of the Lenders hereunder to be due
whereupon the same shall be immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Credit Parties.
(c) Cash Collateral. Direct the Borrower to pay (and the
Borrower agrees that upon receipt of such notice, or upon the occurrence
of an Event of Default under Section 9.1(f), it will immediately pay) to
the Agent additional cash, to be held by the Agent, for the benefit of the
Lenders, in a cash collateral account as additional security for the LOC
Obligations in respect of subsequent drawings under all then outstanding
Letters of Credit in an amount equal to the maximum aggregate amount which
may be drawn under all Letters of Credits then outstanding.
(d) Enforcement of Rights. Enforce any and all rights and
interests created and existing under the Credit Documents including,
without limitation, all rights and remedies existing under the Collateral
Documents, all rights and remedies against a Guarantor and all rights of
set-off.
Notwithstanding the foregoing, if an Event of Default specified in
Section 9.1(f) shall occur with respect to the Borrower, then the Commitments
shall automatically terminate and all Loans, all reimbursement obligations
arising from drawings under Letters of Credit, all accrued interest in respect
thereof, all accrued and unpaid Fees and other indebtedness or obligations
owing to the Agent and/or any of the Lenders hereunder automatically shall
immediately become due and payable without the giving of any notice or other
action by the Agent or the Lenders.
SECTION 10
AGENCY PROVISIONS
10.1 Appointment, Powers and Immunities.
Each Lender hereby irrevocably appoints and authorizes the Agent to
act as its agent under this Credit Agreement and the other Credit Documents
with such powers and discretion as are specifically delegated to the Agent by
the terms of this Credit Agreement and the other Credit Documents, together
with such other powers as are reasonably incidental thereto. The Agent (which
term as used in this sentence and in Section 10.5 and the first sentence of
Section 10.6 hereof shall include its Affiliates and its own and its
Affiliates' officers, directors, employees, and agents): (a) shall not have any
duties or responsibilities except those expressly set forth in this Credit
Agreement and shall not be a trustee or fiduciary for any Lender; (b) shall not
be responsible to the Lenders for any recital, statement, representation, or
warranty (whether written or oral) made in or in connection with any Credit
Document or any certificate or other document referred to or provided for in,
or received by any of them under, any Credit Document, or for the value,
validity, effectiveness, genuineness, enforceability, or sufficiency of any
Credit Document, or any other document referred to or provided for therein or
for any failure by any
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Credit Party or any other Person to perform any of its obligations thereunder;
(c) shall not be responsible for or have any duty to ascertain, inquire into,
or verify the performance or observance of any covenants or agreements by any
Credit Party or the satisfaction of any condition or to inspect the property
(including the books and records) of any Credit Party or any of its
Subsidiaries or Affiliates; (d) shall not be required to initiate or conduct
any litigation or collection proceedings under any Credit Document; and (e)
shall not be responsible for any action taken or omitted to be taken by it
under or in connection with any Credit Document, except for its own gross
negligence or willful misconduct. The Agent may employ agents and
attorneys-in-fact and shall not be responsible for the negligence or misconduct
of any such agents or attorneys-in-fact selected by it with reasonable care.
10.2 Reliance by Agent.
The Agent shall be entitled to rely upon any certification, notice,
instrument, writing, or other communication (including, without limitation, any
thereof by telephone or telecopy) believed by it to be genuine and correct and
to have been signed, sent or made by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel (including counsel for
any Credit Party), independent accountants, and other experts selected by the
Agent. The Agent may deem and treat the payee of any Note as the holder thereof
for all purposes hereof unless and until the Agent receives and accepts an
Assignment and Acceptance executed in accordance with Section 11.3(b) hereof.
As to any matters not expressly provided for by this Credit Agreement, the
Agent shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully
protected in so acting or refraining from acting) upon the instructions of the
Required Lenders, and such instructions shall be binding on all of the Lenders;
provided, however, that the Agent shall not be required to take any action that
exposes the Agent to personal liability or that is contrary to any Credit
Document or applicable law or unless it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking any such action.
10.3 Defaults.
The Agent shall not be deemed to have knowledge or notice of the
occurrence of a Default or Event of Default unless the Agent has received
written notice from a Lender or a Credit Party specifying such Default or Event
of Default and stating that such notice is a "Notice of Default". In the event
that the Agent receives such a notice of the occurrence of a Default or Event
of Default, the Agent shall give prompt notice thereof to the Lenders. The
Agent shall (subject to Section 10.2 hereof) take such action with respect to
such Default or Event of Default as shall reasonably be directed by the
Required Lenders (or such other Lenders as required by Section 11.6), provided
that, unless and until the Agent shall have received such directions, the Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Default or Event of Default as it shall deem
advisable in the best interest of the Lenders.
10.4 Rights as a Lender.
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With respect to its Commitment and the Loans made by it, Bank of
America (and any successor acting as Agent) in its capacity as a Lender
hereunder shall have the same rights and powers hereunder as any other Lender
and may exercise the same as though it were not acting as the Agent, and the
term "Lender" or "Lenders" shall, unless the context otherwise indicates,
include the Agent in its individual capacity. Bank of America (and any
successor acting as Agent) and its Affiliates may (without having to account
therefor to any Lender) accept deposits from, lend money to, make investments
in, provide services to, and generally engage in any kind of lending, trust, or
other business with any Credit Party or any of its Subsidiaries or Affiliates
as if it were not acting as Agent, and Bank of America (and any successor
acting as Agent) and its Affiliates may accept fees and other consideration
from any Credit Party or any of its Subsidiaries or Affiliates for services in
connection with this Credit Agreement or otherwise without having to account
for the same to the Lenders.
10.5 Indemnification.
The Lenders agree to indemnify the Agent (to the extent not
reimbursed under Section 11.5 hereof, but without limiting the obligations of
the Credit Parties under such Section) ratably (in accordance with their
respective Commitments (or, if the Commitments have been terminated, the
outstanding Revolving Loans, Swingline Loans and Participation Interests in
Letters of Credit and Swingline Loans (including the Participation Interests of
the Issuing Lender in Letters of Credit and the Participation Interests of the
Swingline Lender in Swingline Loans)) for any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
(including attorneys' fees), or disbursements of any kind and nature whatsoever
that may be imposed on, incurred by or asserted against the Agent (including by
any Lender) in any way relating to or arising out of any Credit Document or the
transactions contemplated thereby or any action taken or omitted by the Agent
under any Credit Document; provided that no Lender shall be liable for any of
the foregoing to the extent they arise from the gross negligence or willful
misconduct of the Person to be indemnified. Without limitation of the
foregoing, each Lender agrees to reimburse the Agent promptly upon demand for
its ratable share of any costs or expenses payable by the Credit Parties under
Section 11.5, to the extent that the Agent is not promptly reimbursed for such
costs and expenses by the Credit Parties. The agreements in this Section 10.5
shall survive the repayment of the Loans, LOC Obligations and other obligations
under the Credit Documents and the termination of the Commitments hereunder.
10.6 Non-Reliance on Agent and Other Lenders.
Each Lender agrees that it has, independently and without reliance on
the Agent or any other Lender, and based on such documents and information as
it has deemed appropriate, made its own credit analysis of the Credit Parties
and their Subsidiaries and decision to enter into this Credit Agreement and
that it will, independently and without reliance upon the Agent or any other
Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under the Credit Documents. Except for notices,
reports, and other documents and information expressly required to be furnished
to the Lenders by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition, or business of any Credit Party or
any of its Subsidiaries or Affiliates that may come into the possession of the
Agent or any of its Affiliates.
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10.7 Successor Agent.
The Agent may resign at any time by giving notice thereof to the
Lenders and the Credit Parties. Upon any such resignation, the Required Lenders
shall, with the consent of the Borrower unless an Event of Default has occurred
and is continuing, have the right to appoint a successor Agent. If no successor
Agent shall have been so appointed by the Required Lenders and shall have
accepted such appointment within thirty (30) days after the retiring Agent's
giving of notice of resignation, then the retiring Agent may, on behalf of the
Lenders, with the consent of the Borrower unless an Event of Default has
occurred and is continuing, appoint a successor Agent which shall be a
commercial bank organized under the laws of the United States having combined
capital and surplus of at least $100,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor, such successor shall thereupon
succeed to and become vested with all the rights, powers, discretion,
privileges, and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Section 10 shall
continue in effect for its benefit in respect of any actions taken or omitted
to be taken by it while it was acting as Agent.
10.8 Documentation Agent.
The Documentation Agent, in its capacity as such, shall have no
rights, powers, duties, liabilities, fiduciary relationships or obligations
under this Credit Agreement or any of the other documents related hereto.
SECTION 11
MISCELLANEOUS
11.1 Notices.
Except as otherwise expressly provided herein, all notices and other
communications shall have been duly given and shall be effective (a) when
delivered, (b) when transmitted via telecopy (or other facsimile device) to the
number set out below, (c) the Business Day following the day on which the same
has been delivered prepaid to a reputable national overnight air courier
service, or (d) the third Business Day following the day on which the same is
sent by certified or registered mail, postage prepaid, in each case to the
respective parties at the address, in the case of the Credit Parties and the
Agent, set forth below, and, in the case of the Lenders, set forth on Schedule
2.1(a), or at such other address as such party may specify by written notice to
the other parties hereto:
if to any Credit Party:
Condor Systems, Inc.
2133 Samaritan Drive
San Jose, California 95124
Attn: Gary Viljoen
Telephone: (408) 371-9580
Telecopy: (408) 371-5874
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if to the Agent:
For notices of borrowing, payments and other administrative
matters:
Bank of America National
Trust & Savings Association
1850 Gateway Boulevard, 5th Floor
Concord, California 94520
Attn: Josephine P. Flores
Telephone: (510) 675-8500
Telecopy: (510) 675-8374
For all other notices (including with respect to amendments
and waivers):
Bank of America National
Trust & Savings Association
1455 Market Street, 12th Floor
San Francisco, California 94103
Attn: Dietmar Schiel
Telephone: (415) 436-2769
Telecopy: (415) 436-3425
11.2 Right of Set-Off; Adjustments.
Upon the occurrence and during the continuance of any Event of
Default, each Lender (and each of its Affiliates) is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by such
Lender (or any of its Affiliates) to or for the credit or the account of any
Credit Party against any and all of the obligations of such Person then due
that are now or hereafter existing under this Credit Agreement, under the
Notes, under any other Credit Document or otherwise, irrespective of whether
such Lender shall have made any demand hereunder or thereunder. Each Lender
agrees promptly to notify any affected Credit Party after any such set-off and
application made by such Lender; provided, however, that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of each Lender under this Section 11.2 are in addition to other rights
and remedies (including, without limitation, other rights of set-off) that such
Lender may have.
11.3 Benefit of Agreement.
(a) This Credit Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assigns of
the parties hereto; provided that none of the Credit Parties may assign or
transfer any of its interests and obligations without prior written
consent of each of the Lenders; provided further that the rights of each
Lender
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to transfer, assign or grant participations in its rights and/or
obligations hereunder shall be limited as set forth in this Section 11.3.
(b) Each Lender may assign to one or more Eligible Assignees all
or a portion of its rights and obligations under this Credit Agreement
(including, without limitation, all or a portion of its Loans, its Notes,
and its Commitment); provided, however, that
(i) each such assignment shall be to an Eligible Assignee;
(ii) except in the case of an assignment to another Lender,
an Affiliate of an existing Lender or any fund that invests in bank
loans and is advised or managed by an investment advisor to an
existing Lender or an assignment of all of a Lender's rights and
obligations under this Credit Agreement, any such partial assignment
shall be in an amount at least equal to $5,000,000 (or, if less, the
remaining amount of the Commitment being assigned by such Lender) or
an integral multiple of $1,000,000 in excess thereof; and
(iii) the parties to such assignment shall execute and
deliver to the Agent for its acceptance an Assignment and Acceptance
in the form of Exhibit 11.3(b) (an "Assignment Agreement"), together
with any Note subject to such assignment and a processing fee of
$3,500.
Upon execution, delivery, and acceptance of such Assignment Agreement by
the Agent, the assignee thereunder shall be a party hereto and, to the
extent of such assignment, have the obligations, rights, and benefits of a
Lender hereunder and the assigning Lender shall, to the extent of such
assignment, relinquish its rights and be released from its obligations
under this Credit Agreement. Upon the consummation of any assignment
pursuant to this Section 11.3(b), the assignor, the Agent and the Credit
Parties shall make appropriate arrangements so that, if required, new
Notes are issued to the assignor and the assignee. If the assignee is not
a United States person under Section 7701(a)(30) of the Code, it shall
deliver to the Credit Parties and the Agent certification as to exemption
from deduction or withholding of Taxes in accordance with Section 3.11.
(c) The Agent shall maintain at its address referred to in
Section 11.1 a copy of each Assignment Agreement delivered to and accepted
by it and a register for the recordation of the names and addresses of the
Lenders and the Commitment of, and principal amount of the Loans owing to,
each Lender from time to time (the "Register"). The entries in the
Register shall be conclusive and binding for all purposes, absent manifest
error, and the Credit Parties, the Agent and the Lenders may treat each
Person whose name is recorded in the Register as a Lender hereunder for
all purposes of this Credit Agreement. The Register shall be available for
inspection by the Credit Parties or any Lender at any reasonable time and
from time to time upon reasonable prior notice. Any assignment of any Loan
or other Credit Party Obligations shall be effective only upon an entry
with respect thereto being made in the Register.
(d) Upon its receipt of an Assignment Agreement executed by the
parties thereto, together with any Note subject to such assignment and
payment of the processing
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fee, the Agent shall, if such Assignment Agreement has been completed and
is in substantially the form of Exhibit 11.3(b) hereto, (i) accept such
Assignment Agreement, (ii) record the information contained therein in the
Register and (iii) give prompt notice thereof to the parties thereto.
(e) Each Lender may sell participations to one or more Persons
in all or a portion of its rights, obligations or rights and obligations
under this Credit Agreement (including all or a portion of its Commitment
or its Loans); provided, however, that (i) such Lender's obligations under
this Credit Agreement shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance
of such obligations, (iii) the participant shall be entitled (subject to
the limitations and obligations set forth herein) to the benefit of the
yield protection provisions contained in Sections 3.7 through 3.12,
inclusive, and, to the fullest extent permitted under applicable law, the
right of set-off contained in Section 11.2, and (iv) the Credit Parties
shall continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under this Credit Agreement, and
such Lender shall retain the sole right to enforce the obligations of the
Credit Parties relating to the Credit Party Obligations owing to such
Lender and to approve any amendment, modification, or waiver of any
provision of this Credit Agreement (other than amendments, modifications,
or waivers decreasing the amount of principal of or the rate at which
interest is payable on such Loans or Notes, extending any scheduled
principal payment date or date fixed for the payment of interest on such
Loans or Notes, or extending its Commitment).
(f) Notwithstanding any other provision set forth in this Credit
Agreement, any Lender may at any time assign and pledge all or any portion
of its Loans and its Notes to any Federal Reserve Bank as collateral
security pursuant to Regulation A and any Operating Circular issued by
such Federal Reserve Bank. No such assignment shall release the assigning
Lender from its obligations hereunder.
(g) Any Lender may furnish any information concerning the
Consolidated Parties in the possession of such Lender from time to time to
assignees and participants (including prospective assignees and
participants), subject, however, to the provisions of Section 11.14
hereof.
11.4 No Waiver; Remedies Cumulative.
No failure or delay on the part of the Agent or any Lender in
exercising any right, power or privilege hereunder or under any other Credit
Document and no course of dealing between the Agent or any Lender and any of
the Credit Parties shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder or under any other
Credit Document preclude any other or further exercise thereof or the exercise
of any other right, power or privilege hereunder or thereunder. The rights and
remedies provided herein are cumulative and not exclusive of any rights or
remedies which the Agent or any Lender would otherwise have. No notice to or
demand on any Credit Party in any case shall entitle the Credit Parties to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Agent or the Lenders to any other or
further action in any circumstances without notice or demand.
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11.5 Expenses; Indemnification.
(a) The Borrower agrees to pay on demand all costs and expenses
of the Agent in connection with the syndication, preparation, execution,
delivery, administration, modification, and amendment of this Credit
Agreement, the other Credit Documents, and the other documents to be
delivered hereunder, including, without limitation, the reasonable fees
and expenses of a single law firm (and any necessary local or special
counsel) for the Agent with respect thereto and with respect to advising
the Agent as to its rights and responsibilities under the Credit
Documents. The Borrower further agrees to pay on demand all costs and
expenses of the Agent and the Lenders, if any (including, without
limitation, reasonable attorneys' fees and expenses), in connection with
the enforcement (whether through negotiations, legal proceedings, or
otherwise) of the Credit Documents and the other documents to be delivered
hereunder.
(b) The Borrower agrees to indemnify and hold harmless the Agent
and each Lender and each of their Affiliates and their respective
officers, directors, employees, agents, and advisors (each, an
"Indemnified Party") from and against any and all claims, damages, losses,
liabilities, costs, and expenses (including, without limitation,
reasonable attorneys' fees) that may be incurred by or asserted or awarded
against any Indemnified Party, in each case arising out of or in
connection with any investigation, litigation, or proceeding or
preparation of defense in connection with the Credit Documents, any of the
transactions contemplated herein or the actual or proposed use of the
proceeds of the Loans, except to the extent such claim, damage, loss,
liability, cost, or expense is found in a final, non-appealable judgment
by a court of competent jurisdiction to have resulted from such
Indemnified Party's gross negligence or willful misconduct. In the case of
an investigation, litigation or other proceeding to which the indemnity in
this Section 11.5 applies, such indemnity shall be effective whether or
not such investigation, litigation or proceeding is brought by any of the
Credit Parties, their respective directors, shareholders or creditors or
an Indemnified Party or any other Person or any Indemnified Party is
otherwise a party thereto and whether or not the transactions contemplated
hereby are consummated. The Credit Parties agree not to assert any claim
against the Agent, any Lender, any of their Affiliates, or any of their
respective directors, officers, employees, attorneys, agents, and
advisers, on any theory of liability, for punitive damages arising out of
or otherwise relating to the Credit Documents, any of the transactions
contemplated therein or the actual or proposed use of the proceeds of the
Loans.
(c) Without prejudice to the survival of any other agreement of
the Credit Parties hereunder, the agreements and obligations of the Credit
Parties contained in this Section 11.5 shall survive the repayment of the
Loans, LOC Obligations and other obligations under the Credit Documents
and the termination of the Commitments hereunder.
11.6 Amendments, Waivers and Consents.
Neither this Credit Agreement nor any other Credit Document nor any
of the terms hereof or thereof may be amended, changed, waived, discharged or
terminated unless such amendment,
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change, waiver, discharge or termination is in writing entered into by, or
approved in writing by, the Required Lenders and the Borrower and acknowledged
by the Agent, provided, however, that:
(a) without the consent of each Lender affected thereby, neither
this Credit Agreement nor any other Credit Document may be amended to
(i) extend the final maturity of any Loan or of any
reimbursement obligation, or any portion thereof, arising from
drawings under Letters of Credit,
(ii) reduce the rate or extend the time of payment of
interest (other than as a result of waiving the applicability of any
post-default increase in interest rates) thereon or Fees hereunder,
(iii) reduce or waive the principal amount of any Loan or
of any reimbursement obligation, or any portion thereof, arising from
drawings under Letters of Credit,
(iv) increase the Commitment of a Lender over the amount
thereof in effect (it being understood and agreed that a waiver of
any Default or Event of Default shall not constitute a change in the
terms of any Commitment of any Lender),
(v) except as the result of or in connection with an Asset
Disposition permitted by Section 8.5, release all or substantially
all of the Collateral,
(vi) except as the result of or in connection with a
dissolution, merger or disposition of a Consolidated Party permitted
under Section 8.4, release the Borrower or substantially all of the
other Credit Parties from its or their obligations under the Credit
Documents,
(vii) amend, modify or waive any provision of this Section
11.6,
(viii) reduce any percentage specified in, or otherwise
modify, the definition of Required Lenders, or
(ix) consent to the assignment or transfer by the Borrower
or all or substantially all of the other Credit Parties of any of its
or their rights and obligations under (or in respect of) the Credit
Documents except as permitted thereby;
(b) without the consent of the Agent, no provision of Section 10
may be amended;
(c) without the consent of the Issuing Lender, no provision of
Section 2.2 may be amended; and
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(d) without the consent of the Swingline Lender, no provision of
Section 2.3 may be amended.
Notwithstanding the fact that the consent of all the Lenders is required
in certain circumstances as set forth above, (x) each Lender is entitled
to vote as such Lender sees fit on any bankruptcy reorganization plan that
affects the Loans, and each Lender acknowledges that the provisions of
Section 1126(c) of the Bankruptcy Code supersede the unanimous consent
provisions set forth herein and (y) the Required Lenders may consent to
allow a Credit Party to use cash collateral in the context of a bankruptcy
or insolvency proceeding.
11.7 Counterparts.
This Credit Agreement may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall constitute one and the same instrument. It shall not be necessary
in making proof of this Credit Agreement to produce or account for more than
one such counterpart for each of the parties hereto. Delivery by facsimile by
any of the parties hereto of an executed counterpart of this Credit Agreement
shall be as effective as an original executed counterpart hereof and shall be
deemed a representation that an original executed counterpart hereof will be
delivered.
11.8 Headings.
The headings of the sections and subsections hereof are provided for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Credit Agreement.
11.9 Survival.
All indemnities set forth herein, including, without limitation, in
Section 2.2(i), 3.11, 3.12, 10.5 or 11.5 shall survive the execution and
delivery of this Credit Agreement, the making of the Loans, the issuance of the
Letters of Credit, the repayment of the Loans, LOC Obligations and other
obligations under the Credit Documents and the termination of the Commitments
hereunder, and all representations and warranties made by the Credit Parties
herein shall survive delivery of the Notes and the making of the Loans
hereunder.
11.10 Governing Law; Submission to Jurisdiction; Venue.
(a) THIS CREDIT AGREEMENT AND, UNLESS OTHERWISE EXPRESSLY
PROVIDED THEREIN, THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK. Any legal action or proceeding with respect to this Credit
Agreement or any other Credit Document may be brought in the courts of the
State of New York located in New York City, or of the United States for
the Southern District of New York, and, by execution and delivery of this
Credit Agreement, each of the Credit Parties hereby irrevocably accepts
for itself and in respect of its property, generally and unconditionally,
the nonexclusive
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jurisdiction of such courts. Each of the Credit Parties further
irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to it at
the address set out for notices pursuant to Section 11.1, such service to
become effective three (3) days after such mailing. Nothing herein shall
affect the right of the Agent or any Lender to serve process in any other
manner permitted by law or to commence legal proceedings or to otherwise
proceed against any Credit Party in any other jurisdiction.
(b) Each of the Credit Parties, to the fullest extent permitted
under applicable law, hereby irrevocably waives any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid
actions or proceedings arising out of or in connection with this Credit
Agreement or any other Credit Document brought in the courts referred to
in subsection (a) above and hereby further irrevocably waives and agrees
not to plead or claim in any such court that any such action or proceeding
brought in any such court has been brought in an inconvenient forum.
(c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE AGENT, THE
LENDERS (INCLUDING THE ISSUING LENDER AND THE SWINGLINE LENDER) AND EACH
OF THE CREDIT PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
11.11 Severability.
If any provision of any of the Credit Documents is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
11.12 Entirety.
This Credit Agreement together with the other Credit Documents
represent the entire agreement of the parties hereto and thereto, and supersede
all prior agreements and understandings, oral or written, if any, including any
commitment letters or correspondence relating to the Credit Documents or the
transactions contemplated herein and therein.
11.13 Binding Effect; Termination.
(a) This Credit Agreement shall become effective at such time
when it shall have been executed by each Credit Party and the Agent, and
the Agent shall have received copies hereof (telefaxed or otherwise)
which, when taken together, bear the signatures of each Lender (including
the Issuing Lender and the Swingline Lender), and thereafter this Credit
Agreement shall be binding upon and inure to the benefit of each Credit
Party, the Agent and each Lender (including the Issuing Lender and the
Swingline Lender) and their respective successors and assigns.
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(b) The term of this Credit Agreement shall be until no Loans,
LOC Obligations or any other amounts payable hereunder or under any of the
other Credit Documents shall remain outstanding, no Letters of Credit
shall be outstanding, all of the Credit Party Obligations of the types
described in clauses (i) of the definition of such term set forth in
Section 1.1 have been irrevocably satisfied in full and all of the
Commitments hereunder shall have expired or been terminated.
11.14 Confidentiality.
The Agent and each Lender (including the Issuing Lender and the
Swingline Lender) (each, a "Lending Party") agrees to keep confidential any
information furnished or made available to it by the Credit Parties in
connection with or pursuant to this Credit Agreement; provided that nothing
herein shall prevent any Lending Party from disclosing such information (a) to
any other Lending Party or any Affiliate of any Lending Party, or any officer,
director, employee, agent, or advisor of any Lending Party or Affiliate of any
Lending Party, (b) to any other Person if reasonably incidental to the
administration of the Credit Facilities, (c) as required by any law, rule, or
regulation, (d) upon the order of any court or administrative agency, (e) upon
the request or demand of any regulatory agency or authority, (f) that is or
becomes available to the public or that is or becomes available to any Lending
Party other than as a result of a disclosure by any Lending Party prohibited by
this Credit Agreement, (g) in connection with any litigation to which such
Lending Party or any of its Affiliates may be a party, (h) to the extent
necessary in connection with the exercise of any remedy under this Credit
Agreement or any other Credit Document, (i) to the National Association of
Insurance Commissioners or any similar organization or any nationally
recognized rating agency that requires access to information about a Lender's
investment portfolio in connection with ratings issued with respect to such
Lender, (j) to any direct or indirect contractual counterparty in swap
agreements or such contractual counterparty's professional advisor (so long as
such contractual counterparty or professional advisor to such contractual
counterparty (i) has been approved in writing by the Borrower and (ii) agrees
in a writing enforceable by the Borrower to be bound by the provisions of this
Section 11.14) and (k) subject to provisions substantially similar to those
contained in this Section 11.14, to any actual or proposed participant or
assignee.
11.15 Source of Funds.
Each of the Lenders hereby represents and warrants to the Borrower
that at least one of the following statements is an accurate representation as
to the source of funds to be used by such Lender in connection with the
financing hereunder:
(a) no part of such funds constitutes assets allocated to any
separate account maintained by such Lender in which any employee benefit
plan (or its related trust) has any interest;
(b) to the extent that any part of such funds constitutes assets
allocated to any separate account maintained by such Lender, such Lender
has disclosed to the Borrower the name of each employee benefit plan whose
assets in such account exceed 10% of the total assets of such account as
of the date of such purchase (and, for purposes of this subsection
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(b), all employee benefit plans maintained by the same employer or employee
organization are deemed to be a single plan);
(c) to the extent that any part of such funds constitutes assets
of an insurance company's general account, such insurance company has
complied with all of the requirements of the regulations issued under
Section 401(c)(1)(A) of ERISA; or
(d) such funds constitute assets of one or more specific benefit
plans which such Lender has identified in writing to the Borrower.
As used in this Section 11.15, the terms "employee benefit plan" and "separate
account" shall have the respective meanings assigned to such terms in Section 3
of ERISA.
11.16 Conflict.
To the extent that there is a conflict or inconsistency between any
provision hereof, on the one hand, and any provision of any Credit Document, on
the other hand, this Credit Agreement shall control.
11.17 California Corporation Code Section 500.
Pursuant to and for purposes of Section 506(b) of the General
Corporation Law of the State of California, each Lender hereby consents to the
payments to be made to the shareholders of the Borrower pursuant to the Merger.
[Signature Page to Follow]
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IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Credit Agreement to be duly executed and delivered as of
the date first above written.
BORROWER: CONDOR SYSTEMS, INC.
By: /s/ John L. Taft
----------------------------------------
Name: John L. Taft
--------------------------------------
Title:
-------------------------------------
GUARANTORS: WJCS, INC.
By: /s/ John L. Taft
----------------------------------------
Name: John L. Taft
--------------------------------------
Title:
-------------------------------------
AIRWAVE TECHNOLOGY, INC.
By: /s/ John L. Taft
----------------------------------------
Name: John L. Taft
--------------------------------------
Title:
-------------------------------------
AIRWAVE CAPITAL, INC.
By: /s/ John L. Taft
----------------------------------------
Name: John L. Taft
--------------------------------------
Title:
-------------------------------------
CEI SYSTEMS, INC.
By: /s/ John L. Taft
----------------------------------------
Name: John L. Taft
--------------------------------------
Title:
-------------------------------------
<PAGE>
AGENT: BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION,
in its capacity as Agent
By: /s/ Dietmar Schiel
----------------------------------------
Name: Dietmar Schiel
--------------------------------------
Title: Vice President
-------------------------------------
LENDERS: BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION,
in its capacity as a Lender
By: /s/ Heidi-Anne Sandquist
----------------------------------------
Name: Heidi-Anne Sandquist
--------------------------------------
Title: Vice President
-------------------------------------
<PAGE>
ANTARES CAPITAL CORPORATION,
in its capacity as Documentation Agent and
individually as a Lender
By: /s/ illegible signature
----------------------------------------
Name:
--------------------------------------
Title: Director
-------------------------------------
<PAGE>
PARIBAS
By: /s/ Marc A. Preiser
----------------------------------------
Name: Marc A. Preiser
--------------------------------------
Title: Vice President
-------------------------------------
By: /s/ John W. Kopcha
----------------------------------------
Name: John W. Kopcha
--------------------------------------
Title: Director
-------------------------------------
Exhibit 10.5
CONDOR SYSTEMS, INC.
as Issuer
CEI SYSTEMS, INC.
as Guarantor
$100,000,000
11 7/8% Series A Senior Subordinated Notes due 2009
Purchase Agreement
April 8, 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE>
$100,000,000
11 7/8% Series A Senior Subordinated Notes due 2009
of Condor Systems, Inc.
PURCHASE AGREEMENT
April 8, 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NATIONSBANC MONTGOMERY SECURITIES LLC
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
Condor Systems, Inc., a California corporation (the "Company"), proposes
to issue and sell to Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") and NationsBanc Montgomery Securities LLC (each, an "Initial
Purchaser" and collectively, the "Initial Purchasers") an aggregate of
$100,000,000 in principal amount of its 11 7/8% Series A Senior Subordinated
Notes due 2009 (the "Series A Notes"), subject to the terms and conditions set
forth herein. The Series A Notes are to be issued pursuant to the provisions
of an indenture (the "Indenture"), to be dated as of the Closing Date (as
defined below), among the Company, CEI Systems, Inc. (the "Guarantor") and
State Street Bank and Trust Company, as trustee (the "Trustee"). The Series A
Notes and the Series B Notes (as defined below) issuable in exchange therefor
are collectively referred to herein as the "Notes." The Notes will be
guaranteed (the "Note Guarantees") by the Guarantor. Capitalized terms used
but not defined herein shall have the meanings given to such terms in the
Indenture or, if not defined therein, the Merger Agreement (as defined below).
The Series A Notes are being issued and sold in connection with the merger
(the "Merger") of WDC Acquisition Corp., a California corporation ("Merger
Sub") with and into the Company, pursuant to an Agreement and Plan of Merger
(the "Merger Agreement"), dated as of March 8, 1999, among the Company, Merger
Sub and certain of the existing shareholders of the Company. In connection
with the Merger, (i) the Company will enter into a syndicated senior secured
loan facility pursuant to the credit agreement, to be dated the Closing Date,
by and among NationsBanc Montgomery Securities LLC, as arranger, Bank of
America, as administrative agent, and the lenders named therein (including any
agreements related thereto, the "Credit Agreement") and (ii) certain
affiliates of DLJ and other persons will purchase certain outstanding shares
of capital stock of the Company (the "Purchase") from the existing holders
thereof or purchase shares of capital stock of Merger Sub (the "Investment"),
in each case as defined and specified in the Merger Agreement and as described
in the Offering
<PAGE>
Memorandum (as defined below). Unless the context otherwise requires, the
"Company" shall refer to Condor Systems, Inc. both before and after giving
effect to the Merger.
1. Offering Memorandum. The Series A Notes will be offered and sold to the
Initial Purchasers pursuant to one or more exemptions from the registration
requirements under the Securities Act of 1933, as amended (the "Act"). The
Company and the Guarantor have prepared a preliminary offering memorandum,
dated March 19, 1999 (the "Preliminary Offering Memorandum") and a final
offering memorandum, dated April 8, 1999 (the "Offering Memorandum"), relating
to the Series A Notes.
Upon original issuance thereof, and until such time as the same is no
longer required pursuant to the Indenture, the Series A Notes (and all
securities issued in exchange therefor, in substitution thereof or upon
conversion thereof) shall bear the following legend:
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE
HOLDER:
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT)(A "QIB"), (B) IT HAS ACQUIRED THIS NOTE IN
AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S
UNDER THE ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT (AN "IAI"),
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS
SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY
BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR 904 OF REGULATION S OF THE
SECURITIES ACT, (D) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 OF THE SECURITIES ACT, (E) TO AN
IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE (THE FORM
OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF
SENIOR SUBORDINATED NOTES LESS THAN $250,000, AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH
THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER APPLICABLE JURISDICTION AND
2
<PAGE>
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED
STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF
REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE
CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING."
2. Agreements to Sell and Purchase. On the basis of the representations,
warranties and covenants contained in this Agreement, and subject to the terms
and conditions contained herein, the Company agrees to issue and sell to each
of the Initial Purchasers, and each Initial Purchaser agrees, severally and
not jointly, to purchase from the Company, the principal amount of Series A
Notes set forth opposite the name of such Initial Purchaser on Schedule A
hereto at a purchase price equal to 97% of the principal amount thereof (the
"Purchase Price").
3. Terms of Offering. The Initial Purchasers have advised the Company
that the Initial Purchasers will make offers (the "Exempt Resales") of the
Series A Notes purchased hereunder on the terms set forth in the Offering
Memorandum, as amended or supplemented, solely to (i) persons whom the Initial
Purchasers reasonably believe to be "qualified institutional buyers" as
defined in Rule 144A under the Act ("QIBs") and (ii) to persons permitted to
purchase the Series A Notes in offshore transactions in reliance upon
Regulation S under the Act (each, a "Regulation S Purchaser") (such persons
specified in clauses (i) and (ii) being referred to herein as the "Eligible
Purchasers"). The Initial Purchasers will offer the Series A Notes to Eligible
Purchasers initially at a price equal to 100% of the principal amount thereof.
Such price may be changed at any time without notice.
Holders (including subsequent transferees) of the Series A
Notes will have the registration rights set forth in the registration rights
agreement (the "Registration Rights Agreement"), to be dated the Closing Date,
in substantially the form of Exhibit A hereto, for so long as such Series A
Notes constitute "Transfer Restricted Securities" (as defined in the
Registration Rights Agreement). Pursuant to the Registration Rights Agreement,
the Company and the Guarantor will agree to file with the Securities and
Exchange Commission (the "Commission") under the circumstances set forth
therein, (i) a registration statement under the Act (the "Exchange Offer
Registration Statement") relating to the Company's 11 7/8% Series B Senior
Subordinated Notes due 2009 (the "Series B Notes"), to be offered in exchange
for the Series A Notes (such offer to exchange being referred to as the
"Exchange Offer") and the Note Guarantees or (ii) a shelf registration
statement pursuant to Rule 415 under the Act (the "Shelf Registration
Statement" and, together with the Exchange Offer Registration Statement, the
"Registration Statements") relating to the resale by certain holders of the
Series A Notes and to use its best efforts to cause such Registration
Statements to be declared and remain effective and usable for the periods
specified in the Registration Rights Agreement and to consummate the Exchange
Offer. This Agreement, the Indenture, the Notes, the Note Guarantees, the
Registration Rights Agreement, the Merger Agreement, the Equity Commitment
Letters and the Stock Purchase Agreements (each as defined in the Merger
Agreement) and the Credit Agreement are hereinafter sometimes referred to
collectively as the "Operative Documents."
4. Delivery and Payment.
(a) Delivery of, and payment of the Purchase Price for, the Series A
Notes shall be made at the offices of Davis Polk & Wardwell, New York, New
York, or such other location as may
3
<PAGE>
be mutually acceptable. Such delivery and payment shall be made at 11:00 a.m.
New York City time, on April 15, 1999 or at such other time on the same date
or such other date as shall be agreed upon by the Initial Purchasers and the
Company in writing. The time and date of such delivery and the payment for the
Series A Notes are herein called the "Closing Date."
(b) One or more of the Series A Notes in definitive global form,
registered in the name of Cede & Co., as nominee of The Depository Trust
Company ("DTC"), having an aggregate principal amount corresponding to the
aggregate principal amount of the Series A Notes (collectively, the "Global
Note"), shall be delivered by the Company to the Initial Purchasers (or as the
Initial Purchasers direct) in each case with any transfer taxes thereon duly
paid by the Company against payment by the Initial Purchasers of the Purchase
Price thereof by wire transfer in immediately available funds to the order of
the Company. The Global Note shall be made available to the Initial Purchasers
for inspection not later than 9:30 a.m., New York City time, on the business
day immediately preceding the Closing Date.
5. Agreements of the Company and the Guarantor. Each of the Company
and the Guarantor hereby agrees with the Initial Purchasers as follows:
(a) To advise the Initial Purchasers promptly and, if requested by
the Initial Purchasers, confirm such advice in writing, (i) of the issuance by
any state securities commission of any stop order suspending the qualification
or exemption from qualification of any Series A Notes for offering or sale in
any jurisdiction designated by the Initial Purchasers pursuant to Section 5(e)
hereof, or the initiation of any proceeding by any state securities commission
or any other federal or state regulatory authority for such purpose and (ii)
of the happening of any event during the period referred to in Section 5(c)
below that makes any statement of a material fact made in the Preliminary
Offering Memorandum or the Offering Memorandum untrue or that requires any
additions to or changes in the Preliminary Offering Memorandum or the Offering
Memorandum in order to make the statements therein not misleading. The Company
and the Guarantor shall use its best efforts to prevent the issuance of any
stop order or order suspending the qualification or exemption of any Series A
Notes under any state securities or Blue Sky laws and, if at any time any
state securities commission or other federal or state regulatory authority
shall issue an order suspending the qualification or exemption of any Series A
Notes under any state securities or Blue Sky laws, the Company and the
Guarantor shall use their best efforts to obtain the withdrawal or lifting of
such order at the earliest possible time; provided, however, that neither the
Company nor the Guarantor shall be required in connection therewith to qualify
as a foreign corporation in any jurisdiction in which it is not now so
qualified or to take any action that would subject it to general consent to
service of process or taxation, other than as to matters and transactions
relating to the Preliminary Offering Memorandum, the Offering Memorandum or
Exempt Resales, in any jurisdiction in which it is not now so subject.
(b) To furnish the Initial Purchasers and those persons identified by
the Initial Purchasers to the Company as many copies of the Preliminary
Offering Memorandum and the Offering Memorandum, and any amendments or
supplements thereto, as the Initial Purchasers may reasonably request for the
time period specified in Section 5(c). Subject to the Initial Purchasers'
compliance with their representations and warranties and agreements set forth
in Section 7 hereof, the Company consents to the use of the Preliminary
Offering Memorandum and the Offering Memorandum, and any amendments and
supplements thereto required pursuant hereto, by the Initial Purchasers in
connection with Exempt Resales.
(c) During such period as in the opinion of counsel for the Initial
Purchasers an Offering Memorandum is required by law to be delivered in
connection with Exempt Resales by the Initial Purchasers and in connection
with market-making activities of DLJ for so long as any Series A Notes are
outstanding, (i) not to make any amendment or supplement to the Offering
Memorandum of
4
<PAGE>
which the Initial Purchasers shall not previously have been advised or to
which the Initial Purchasers shall reasonably object after being so advised
and (ii) to prepare promptly upon DLJ's or the Initial Purchasers' reasonable
request, any amendment or supplement to the Offering Memorandum which may be
necessary or advisable in connection with such Exempt Resales or such
market-making activities.
(d) If, during the period referred to in Section 5(c) above, any
event shall occur or condition shall exist as a result of which, in the
opinion of counsel to the Initial Purchasers, it becomes necessary to amend or
supplement the Offering Memorandum in order to make the statements therein, in
the light of the circumstances when such Offering Memorandum is delivered to
an Eligible Purchaser, not misleading, or if, in the opinion of counsel to the
Initial Purchasers, it is necessary to amend or supplement the Offering
Memorandum to comply with any applicable law, forthwith to prepare an
appropriate amendment or supplement to such Offering Memorandum so that the
statements therein, as so amended or supplemented, will not, in the light of
the circumstances when it is so delivered, be misleading, or so that such
Offering Memorandum will comply with applicable law, and to furnish to each
Initial Purchaser and such other persons as either Initial Purchaser may
designate such number of copies thereof as either Initial Purchaser may
reasonably request.
(e) Prior to the sale of all Series A Notes pursuant to Exempt
Resales as contemplated hereby, to cooperate with the Initial Purchasers and
counsel to the Initial Purchasers in connection with the registration or
qualification of the Series A Notes for offer and sale to the Initial
Purchasers and pursuant to Exempt Resales under the securities or Blue Sky
laws of such jurisdictions as the Initial Purchasers may request and to
continue such registration or qualification in effect so long as required for
Exempt Resales and to file such consents to service of process or other
documents as may be necessary in order to effect such registration or
qualification; provided, however, neither the Company nor the Guarantor shall
be required in connection therewith to qualify as a foreign corporation in any
jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation other
than as to matters and transactions relating to the Preliminary Offering
Memorandum, the Offering Memorandum or Exempt Resales, in any jurisdiction in
which it is not now so subject.
(f) So long as the Notes are outstanding, (i) to mail and make
generally available as soon as practicable after the end of each fiscal year
to the record holders of the Notes a financial report of the Company and its
subsidiaries on a consolidated basis (and a similar financial report of all
unconsolidated subsidiaries, if any), all such financial reports to include a
consolidated balance sheet, a consolidated statement of operations, a
consolidated statement of cash flows and a consolidated statement of
shareholders' equity as of the end of and for such fiscal year, together with
comparable information as of the end of and for the preceding year, certified
by the Company's independent public accountants and (ii) to mail and make
generally available as soon as practicable after the end of each quarterly
period (except for the last quarterly period of each fiscal year) to such
holders, a consolidated balance sheet, a consolidated statement of operations
and a consolidated statement of cash flows as of the end of and for such
period, and for the period from the beginning of such year to the close of
such quarterly period, together with comparable information for the
corresponding periods of the preceding year.
(g) So long as the Notes are outstanding, to furnish to each Initial
Purchaser as soon as available copies of all reports or other communications
furnished by the Company or the Guarantor to its security holders or furnished
to or filed with the Commission or any national securities exchange on which
any class of securities of the Company or the Guarantor is listed and such
other publicly available information concerning the Company and/or its
subsidiaries as either Initial Purchaser may reasonably request.
(h) So long as any of the Series A Notes remain outstanding and
during any period in which the Company and the Guarantor are not subject to
Section 13 or 15(d) of the Securities
5
<PAGE>
Exchange Act of 1934, as amended (the "Exchange Act"), to make available to
any holder of Series A Notes in connection with any sale thereof and any
prospective purchaser of such Series A Notes from such holder, the information
("Rule 144A Information") required by Rule 144A(d)(4) under the Act.
(i) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of the obligations of the Company and the
Guarantor under this Agreement, including: (i) the fees, disbursements and
expenses of counsel to the Company and the Guarantor and accountants of the
Company and the Guarantor in connection with the sale and delivery of the
Series A Notes to the Initial Purchasers and pursuant to Exempt Resales, and
all other fees and expenses in connection with the preparation, printing,
filing and distribution of the Preliminary Offering Memorandum, the Offering
Memorandum and all amendments and supplements to any of the foregoing
(including financial statements), including the mailing and delivering of
copies thereof to the Initial Purchasers and persons designated by them in the
quantities specified herein, (ii) all costs and expenses related to the
transfer and delivery of the Series A Notes to the Initial Purchasers and
pursuant to Exempt Resales, including any transfer or other taxes payable
thereon, (iii) all costs of printing or producing this Agreement, the other
Operative Documents and any other agreements or documents in connection with
the offering, purchase, sale or delivery of the Series A Notes, (iv) all
expenses in connection with the registration or qualification of the Series A
Notes for offer and sale under the securities or Blue Sky laws of the several
states and all costs of printing or producing any preliminary and supplemental
Blue Sky memoranda in connection therewith (including the filing fees and fees
and disbursements of counsel for the Initial Purchasers in connection with
such registration or qualification and memoranda relating thereto), (v) the
cost of printing certificates representing the Series A Notes, (vi) all
expenses and listing fees in connection with the application for quotation of
the Series A Notes in the National Association of Securities Dealers, Inc.
("NASD") Automated Quotation System - PORTAL ("PORTAL"), (vii) the fees and
expenses of the Trustee and the Trustee's counsel in connection with the
Indenture and the Notes, (viii) the costs and charges of any transfer agent,
registrar and/or depositary (including DTC), (ix) any fees charged by rating
agencies for the rating of the Notes, (x) all costs and expenses of the
Exchange Offer and any Registration Statement, as set forth in the
Registration Rights Agreement, and (xi) all other costs and expenses incident
to the performance of the obligations of the Company and the Guarantor
hereunder for which provision is not otherwise made in this Section.
(j) To use its best efforts to effect the inclusion of the Series A
Notes in PORTAL and to maintain the listing of the Series A Notes on PORTAL
for so long as the Series A Notes are outstanding.
(k) To obtain the approval of DTC for "book-entry" transfer of the
Notes, and to comply with all of its agreements set forth in the
representation letter of the Company and the Guarantor to DTC relating to the
approval of the Notes by DTC for "book-entry" transfer.
(l) During the period beginning on the date hereof and continuing to
and including the Closing Date, not to offer, sell, contract to sell or
otherwise transfer or dispose of any debt securities of the Company or the
Guarantor or any warrants, rights or options to purchase or otherwise acquire
debt securities of the Company or the Guarantor substantially similar to the
Notes and the Note Guarantees (other than (i) the Notes and the Note
Guarantees and (ii) commercial paper issued in the ordinary course of
business), without the prior written consent of the Initial Purchasers.
(m) Not to sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in the Act) that would be
integrated with the sale of the Series A Notes to the Initial Purchasers or
pursuant to Exempt Resales in a manner that would require the registration of
any such sale of the Series A Notes under the Act.
6
<PAGE>
(n) Not to voluntarily claim, and to actively resist any attempts to
claim, the benefit of any usury laws against the holders of any Notes and the
related Note Guarantees.
(o) To cause the Exchange Offer to be made in the appropriate form to
permit Series B Notes and the guarantees thereof by the Guarantor registered
pursuant to the Act to be offered in exchange for the Series A Notes and the
Note Guarantees to comply with all applicable federal and state securities
laws in connection with the Exchange Offer.
(p) To comply with all of its agreements set forth in the
Registration Rights Agreement.
(q) To cause the Merger to be consummated on the Closing Date
concurrently with the closing hereunder of the offering of the Series A Notes.
(r) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by it prior to the
Closing Date and to satisfy all conditions precedent to the delivery of the
Series A Notes and the Note Guarantees.
(s) For so long as any of the Series A Notes are outstanding and if,
in the reasonable judgement of either Initial Purchaser or its counsel, such
Initial Purchaser or any of its affiliates (as defined in the rules and
regulations under the Securities Act) is required to deliver a prospectus (any
such prospectus, a "Market Making Prospectus") in connection with sales of the
Series A Notes, to (i) provide such Initial Purchaser, without charge, as many
copies of the Market Making Prospectus as such Initial Purchaser may
reasonably request, (ii) periodically amend the Registration Statement so that
the information contained in the Registration Statement complies with the
requirements of Section 10(a) of the Securities Act, (iii) amend the
Registration Statement or amend or supplement the Market Making Prospectus
when necessary to reflect any material changes in the information provided
therein and promptly file such amendment or supplement with the Commission,
(iv) provide such Initial Purchaser with copies of each amendment or
supplement so filed and such other documents, including opinions of counsel
and "comfort" letters, as such Initial Purchaser may reasonably request and
(v) indemnify such Initial Purchaser with respect to the Market Making
Prospectus and, if applicable, contribute to any amount paid or payable by
such Initial Purchaser in a manner substantially identical to that specified
in Section 8 hereof (with appropriate modifications). The Company and the
Guarantor consent to the use, subject to the provisions of the Securities Act
and the state securities or Blue Sky laws of the jurisdictions in which the
Series A Notes or the Note Guarantees are offered by such Initial Purchaser,
of each Market Making Prospectus.
6. Representations, Warranties and Agreements of the Company and the
Guarantor. As of the date hereof, each of the Company and the Guarantor
represents and warrants to, and agrees with, each of the Initial Purchasers
that:
(a) The Preliminary Offering Memorandum and the Offering Memorandum
do not, and any supplement or amendment to them will not, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except that the
representations and warranties contained in this paragraph (a) shall not apply
to statements in or omissions from the Preliminary Offering Memorandum or the
Offering Memorandum (or any supplement or amendment thereto) based upon
information relating to the Initial Purchasers furnished to the Company in
writing by the Initial Purchasers expressly for use therein. No stop order
preventing the use of the Preliminary Offering Memorandum or the Offering
Memorandum, or any amendment or supplement thereto, or any order asserting
that any of the transactions contemplated by this Agreement are subject to the
registration requirements of the Act, has been issued.
7
<PAGE>
(b) Each of the Company and its subsidiaries has been duly organized,
is validly existing as a company in good standing under the laws of its
jurisdiction of organization and has the requisite power and authority to
carry on its business as described in the Preliminary Offering Memorandum and
the Offering Memorandum and to own, lease and operate its properties, and each
is duly qualified and is in good standing as a foreign entity authorized to do
business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except where the
failure to be so qualified would not (i) have a material adverse effect on the
business, prospects, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole, or (ii) in any manner draw
into question the validity of this Agreement or any of the other Operative
Documents (the events referred to in clauses (i) or (ii), each a "Material
Adverse Effect").
(c) All equity interests of the Company have been duly authorized and
validly issued and are fully paid, non-assessable and not subject to any
preemptive or similar rights.
(d) The entities listed on Schedule B hereto are the only
subsidiaries, direct or indirect, of the Company. All of the outstanding
equity interests of each of the Company's subsidiaries have been duly
authorized and validly issued and are fully paid and non-assessable, and are
owned by the Company, directly or indirectly through one or more subsidiaries,
free and clear of any security interest, claim, lien, encumbrance or adverse
interest of any nature (each, a "Lien"). No subsidiary listed on Schedule B
hereto, other than the Guarantor, has (i) contributed in the last three fiscal
years greater than 1% of the Company's consolidated contract revenues, EBITDA
(as defined in the Offering Memorandum) or net income or (ii) at December 31,
1998 or as of the date hereof constituted greater than 1% of the consolidated
total assets of the Company.
(e) This Agreement has been duly authorized, executed and delivered
by the Company and the Guarantor.
(f) The Indenture has been duly authorized by the Company and the
Guarantor and, on the Closing Date, will have been validly executed and
delivered by the Company and the Guarantor. When the Indenture has been duly
executed and delivered by the Company and the Guarantor, the Indenture will be
a valid and binding agreement of the Company and the Guarantor, enforceable
against the Company and the Guarantor in accordance with its terms except as
(i) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability. On the Closing Date, the
Indenture will conform in all material respects to the requirements of the
Trust Indenture Act of 1939, as amended (the "TIA" or "Trust Indenture Act"),
and the rules and regulations of the Commission applicable to an indenture
which is qualified thereunder.
(g) The Series A Notes have been duly authorized and, on the Closing
Date, will have been validly executed and delivered by the Company. When the
Series A Notes have been issued, executed and authenticated in accordance with
the provisions of the Indenture and delivered to and paid for by the Initial
Purchasers in accordance with the terms of this Agreement, the Series A Notes
will be entitled to the benefits of the Indenture and will be valid and
binding obligations of the Company, enforceable in accordance with their terms
except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (ii)
rights of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability. On the Closing Date,
the Series A Notes will conform as to legal matters to the description thereof
contained in the Offering Memorandum.
(h) On the Closing Date, the Series B Notes will have been duly
authorized by the Company. When the Series B Notes are issued, executed and
authenticated in accordance with the terms of the Exchange Offer and the
Indenture, the Series B Notes will be entitled to the benefits of the
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Indenture and will be the valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as (i)
the enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (ii) rights of acceleration and
the availability of equitable remedies may be limited by equitable principles
of general applicability.
(i) The Note Guarantees in respect of the Series A Notes have been
duly authorized by the Guarantor and, on the Closing Date, will have been duly
executed and delivered by the Guarantor. When the Series A Notes have been
issued, executed and authenticated in accordance with the Indenture and
delivered to and paid for by the Initial Purchaser in accordance with the
terms of this Agreement, the Note Guarantees will be entitled to the benefits
of the Indenture and will be the valid and binding obligation of the
Guarantor, enforceable against the Guarantor in accordance with its terms,
except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (ii)
rights of acceleration and the availability of equitable remedies may be
limited by equitable principals of general applicability. On the Closing Date,
the Note Guarantees will conform as to legal matters to the description
thereof contained in the Offering Memorandum.
(j) The Note Guarantees in respect of the Series B Notes have been
duly authorized by the Guarantor and, when the Series B Notes have been issued,
will have been duly executed and delivered by the Guarantor. When the Series B
Notes have been issued, executed and authenticated in accordance with the
terms of the Exchange Offer and the Indenture, the Note Guarantees will be
entitled to the benefits of the Indenture and will be the valid and binding
obligation of the Guarantor, enforceable against the Guarantor in accordance
with its terms, except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally
and (ii) rights of acceleration and the availability of equitable remedies may
be limited by equitable principles of general applicability. When the Series B
Notes are issued, authenticated and delivered, the Note Guarantees in respect
of the Series B Notes will conform as to the legal matters to the description
thereof in the Offering Memorandum.
(k) The Registration Rights Agreement has been duly authorized by the
Company and the Guarantor and, on the Closing Date, will have been duly
executed and delivered by the Company and the Guarantor. When the Registration
Rights Agreement has been duly executed and delivered, the Registration Rights
Agreement will be a valid and binding agreement of the Company and the
Guarantor, enforceable against the Company and the Guarantor in accordance
with its terms except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally
and (ii) rights of acceleration and the availability of equitable remedies may
be limited by equitable principles of general applicability. On the Closing
Date, the Registration Rights Agreement will conform as to legal matters to
the description thereof in the Offering Memorandum.
(l) All indebtedness of the Company that will be repaid with the
proceeds of the issuance and sale of the Series A Notes was incurred, and the
indebtedness represented by the Series A Notes is being incurred, for proper
purposes and in good faith; and the Company was, at the time of the incurrence
of such indebtedness that will be repaid with the proceeds of the issuance and
sale of the Series A Notes, and will be on the Closing Date (after giving
effect to the application of the proceeds from the issuance of the Series A
Notes) solvent, and had at the time of the incurrence of such indebtedness
that will be repaid with the proceeds of the issuance and sale of the Series A
Notes and will have on the Closing Date (after giving effect to the
application of the proceeds from the issuance of the Series A Notes)
sufficient capital for carrying on its respective business and was, at the
time of the incurrence of such indebtedness that will be repaid with the
proceeds of the issuance and sale of the Series A Notes, and will be on the
Closing Date (after giving effect to the application of the proceeds from the
issuance of the Series A Notes) able to pay its respective debts as they
mature.
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(m) Neither the Company nor any of its subsidiaries is in violation
of its respective charter or by-laws or in default in the performance of any
obligation, agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is material
to the Company and its subsidiaries, taken as a whole, to which the Company or
any of its subsidiaries is a party or by which the Company or any of its
subsidiaries or their respective property is bound, except for such defaults
which, singly or in the aggregate, would not have a Material Adverse Effect.
(n) The execution, delivery and performance of this Agreement and the
other Operative Documents by the Company and the Guarantor, compliance by the
Company and the Guarantor with all provisions hereof and thereof and the
consummation of the transactions contemplated hereby and thereby will not (i)
require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such as
may be required under the securities or Blue Sky laws of the various states or
such as have been or prior to the Closing Date will be obtained), (ii)
conflict with or constitute a breach of any of the terms or provisions of, or
a default under, (A) the charter or by-laws of the Company or any of its
subsidiaries or (B) any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Company and its subsidiaries,
taken as a whole, to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries or their respective
property is bound, (iii) violate or conflict with any applicable law or any
rule, regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over the Company, any of its subsidiaries
or their respective property, (iv) result in the imposition or creation of (or
the obligation to create or impose) a Lien under, any agreement or instrument
to which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or their respective property is bound, or
(v) result in the termination, suspension or revocation of any Authorization
(as defined below) of the Company or any of its subsidiaries or result in any
other impairment of the rights of the holder of any such Authorization; except
(1) insofar as there is required any consent, approval, authorization, filing,
notification or other action that both (x) is described in Section 3.01, 3.11
or 9.02(e) of the Merger Agreement or listed in Section 3.11 or 9.02(e) of the
Disclosure Schedule (as defined in the Merger Agreement) and (y) either (I)
has been or prior to the Closing Date will be obtained or made or (II) both
(A) is described in the Offering Memorandum under "Risk Factors--Risks
relating to our governmental contracts--Our acquisition requires Department of
Defense approval" and (B) would not, singly or in the aggregate, have a
Material Adverse Effect and (2) in the case of clauses (i), (ii)(B), (iv) or
(v), as would not, singly or in the aggregate, have a Material Adverse Effect.
(o) No action has been taken and no law, statute, rule or regulation
or order has been enacted, adopted or issued by any governmental agency or
body which prevents the execution, delivery and performance of any of the
Operative Documents or the issuance of the Series A Notes or suspends the sale
of the Series A Notes in any jurisdiction referred to in Section 5(e); and no
injunction, restraining order or other order or relief of any nature by a
federal or state court or other tribunal of competent jurisdiction has been
issued with respect to the Company or any of its subsidiaries which would
prevent or suspend the issuance or sale of the Series A Notes or the Note
Guarantees in any jurisdiction referred to in Section 5(e).
(p) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is or could be a
party or to which any of their respective property is or could be subject,
which would be reasonably expected to result, singly or in the aggregate, in a
Material Adverse Effect.
(q) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the protection
of human health and safety, the environment or hazardous or toxic substances
or wastes, pollutants or contaminants ("Environmental
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Laws"), any provisions of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), any provisions of the Foreign Corrupt Practices Act or
the rules and regulations promulgated thereunder or any provisions of the
Truth in Negotiations Act or the rules and regulations promulgated thereunder,
except for such violations which, singly or in the aggregate, would not have a
Material Adverse Effect.
(r) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any Authorization, any related constraints on operating activities and
any potential liabilities to third parties) which would, singly or in the
aggregate, have a Material Adverse Effect.
(s) Each of the Company and its subsidiaries has such permits,
licenses, consents, exemptions, franchises, authorizations and other approvals
(each, an "Authorization") of, and has made all filings with and notices to,
all governmental or regulatory authorities and self-regulatory organizations
and all courts and other tribunals, including without limitation, under any
applicable Environmental Laws, as are necessary to own, lease, license and
operate its respective properties and to conduct its business, except where
the failure to have any such Authorization or to make any such filing or
notice would not, singly or in the aggregate, have a Material Adverse Effect.
Each such Authorization is valid and in full force and effect and each of the
Company and its subsidiaries is in compliance with all the terms and
conditions thereof and with the rules and regulations of the authorities and
governing bodies having jurisdiction with respect thereto; and no event has
occurred (including, without limitation, the receipt of any notice from any
authority or governing body) which allows or, after notice or lapse of time or
both, would allow, revocation, suspension or termination of any such
Authorization or results or, after notice or lapse of time or both, would
result in any other impairment of the rights of the holder of any such
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Company or any of its subsidiaries; except where such
failure to be valid and in full force and effect or to be in compliance, the
occurrence of any such event or the presence of any such restriction would
not, singly or in the aggregate, have a Material Adverse Effect.
(t) The Company and its subsidiaries own or possess, or can acquire
on reasonable terms, all patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names ("intellectual property") currently
employed by them in connection with the business now operated by them except
where the failure to own or possess or otherwise be able to acquire such
intellectual property would not, singly or in the aggregate, have a Material
Adverse Effect; and, to the best of the Company's knowledge, neither the
Company nor any of its subsidiaries has received any notice of infringement of
or conflict with asserted rights of others with respect to any of such
intellectual property which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a Material Adverse Effect.
(u) There is no (i) significant unfair labor practice complaint,
grievance or arbitration proceeding pending or threatened against the Company
or any of its subsidiaries before the National Labor Relations Board or any
state or local labor relations board, (ii) strike, labor dispute, slowdown or
stoppage pending or threatened against the Company or any of its subsidiaries
or (iii) union representation question existing with respect to the employees
of the Company or any of its subsidiaries, except in the case of clauses (i),
(ii) and (iii) for such actions which, singly or in the aggregate, would not
have a Material Adverse Effect. To the best knowledge of the Company, no
collective bargaining organizing activities are taking place with respect to
the Company or any of its subsidiaries.
(v) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management's
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general or specific authorizations; (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(w) The accountants, PricewaterhouseCoopers LLP, that have certified
the financial statements and supporting schedules included in the Preliminary
Offering Memorandum and the Offering Memorandum are independent public
accountants with respect to the Company and the Guarantor, as required by the
Act and the Exchange Act.
(x) The historical financial statements, together with related
schedules and notes forming part of the Offering Memorandum (and any amendment
or supplement thereto), present fairly the consolidated financial position,
results of operations and changes in financial position of the Company and its
subsidiaries on the basis stated in the Offering Memorandum at the respective
dates or for the respective periods to which they apply; such statements and
related schedules and notes have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, except as disclosed therein; and the other financial and statistical
information and data set forth in the Offering Memorandum (and any amendment
or supplement thereto) are, in all material respects, accurately presented and
prepared on a basis consistent with such financial statements and the books
and records of the Company.
(y) The pro forma financial statements included in the Preliminary
Offering Memorandum and the Offering Memorandum have been prepared on a basis
consistent with the historical financial statements of the Company and its
subsidiaries and give effect to assumptions used in the preparation thereof on
a reasonable basis and in good faith and present fairly the historical and
proposed transactions contemplated by the Preliminary Offering Memorandum and
the Offering Memorandum; and such pro forma financial statements comply as to
form in all material respects with the requirements applicable to pro forma
financial statements included in registration statements on Form S-1 under the
Act. The other pro forma financial and statistical information and data
included in the Offering Memorandum are, in all material respects, accurately
presented and prepared on a basis consistent with the pro forma financial
statements.
(z) Neither the Company nor the Guarantor is or, after giving effect
to the offering and sale of the Series A Notes and the application of the net
proceeds thereof as described in the Offering Memorandum, will be, an
"investment company," as such term is defined in the Investment Company Act of
1940, as amended.
(aa) Except as otherwise disclosed in the Offering Memorandum and
except for any agreement described in the Merger Agreement that will have
terminated at or prior to the Closing Date, there are no contracts, agreements
or understandings between the Company or the Guarantor and any person granting
such person the right to require the Company or the Guarantor to file a
registration statement under the Act with respect to any securities of the
Company or the Guarantor or to require the Company or the Guarantor to include
such securities with the Notes and the Note Guarantees registered pursuant to
any Registration Statement.
(bb) Neither the Company nor any of its subsidiaries nor any agent
thereof acting on the behalf of them has taken, and none of them will take,
any action that might cause this Agreement or the issuance or sale of the
Series A Notes or the Note Guarantees to violate Regulation T (12 C.F.R. Part
220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224)
of the Board of Governors of the Federal Reserve System.
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(cc) No "nationally recognized statistical rating organization" as
such term is defined for purposes of Rule 436(g)(2) under the Act (i) has
imposed (or has informed the Company or the Guarantor that it is considering
imposing) any condition (financial or otherwise) on the Company's or any
Guarantor's retaining any rating assigned to the Company or the Guarantor or
any securities of the Company or the Guarantor or (ii) has indicated to the
Company or the Guarantor that it is considering (a) the downgrading,
suspension, or withdrawal of, or any review for a possible change that does
not indicate the direction of the possible change in, any rating so assigned
or (b) any change in the outlook for any rating of the Company or the
Guarantor or any securities of the Company or the Guarantor.
(dd) Since the respective dates as of which information is given in
the Offering Memorandum other than as set forth in the Offering Memorandum
(exclusive of any amendments or supplements thereto subsequent to the date of
this Agreement), (i) there has not occurred any material adverse change or any
development involving a prospective material adverse change in the condition,
financial or otherwise, or the earnings, business, management or operations of
the Company and its subsidiaries, taken as a whole, (ii) there has not been
any material adverse change or any development involving a prospective
material adverse change in the capital stock or in the long-term debt of the
Company or any of its subsidiaries and (iii) neither the Company nor any of
its subsidiaries has incurred any material liability or obligation, direct or
contingent.
(ee) Each of the representations and warranties of the Company in
Sections 3.10(c), (d) and (e), 3.17 and 3.23 of Article III of the Merger
Agreement is true and correct as of the date hereof.
(ff) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its date, contains all the information specified in, and
meeting the requirements of, Rule 144A(d)(4) under the Act.
(gg) When the Series A Notes and the Note Guarantees are issued and
delivered pursuant to this Agreement, neither the Series A Notes nor the Note
Guarantees will be of the same class (within the meaning of Rule 144A under
the Act) as any security of the Company or the Guarantor that is listed on a
national securities exchange registered under Section 6 of the Exchange Act or
that is quoted in a United States automated inter-dealer quotation system.
(hh) No form of general solicitation or general advertising (as
defined in Regulation D under the Act) was used by the Company or the
Guarantor or any of their representatives (other than the Initial Purchasers,
as to whom the Company and the Guarantor make no representation) in connection
with the offer and sale of the Series A Notes contemplated hereby, including,
but not limited to, articles, notices or other communications published in any
newspaper, magazine, or similar medium or broadcast over television or radio,
or any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising. No securities of the same class as the
Series A Notes or the Note Guarantees have been issued and sold by the Company
or the Guarantor, respectively, within the six-month period immediately prior
to the date hereof.
(ii) Prior to the effectiveness of any Registration Statement, the
Indenture is not required to be qualified under the TIA.
(jj) Neither the Company, the Guarantor nor any of their respective
affiliates or any person acting on its or their behalf (other than the Initial
Purchasers, as to whom the Company and the Guarantor make no representation)
has engaged or will engage in any directed selling efforts within the meaning
of Regulation S under the Act ("Regulation S") with respect to the Series A
Notes or the Note Guarantees.
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(kk) The Series A Notes offered and sold in reliance on Regulation S
have been and will be offered and sold only in offshore transactions.
(ll) The sale of the Series A Notes pursuant to Regulation S is not
part of a plan or scheme to evade the registration provisions of the Act.
(mm) The Company, the Guarantor, its affiliates and all persons
acting on its behalf (other than the Initial Purchasers, as to whom the
Company and the Guarantor make no representation) have complied with and will
comply with the offering restrictions requirements of Regulation S in
connection with the offering of the Series A Notes outside the United States
and, in connection therewith, the Offering Memorandum will contain the
disclosure required by Rule 902(h).
(nn) The Series A Notes sold in reliance on Regulation S will be
represented upon issuance by a temporary global security that may not be
exchanged for definitive securities until the expiration of the 40-day
restricted period referred to in Rule 903(c)(3) of the Act and only upon
certification of beneficial ownership of such Series A Notes by non-U.S.
persons or U.S. persons who purchased such Series A Notes in transactions that
were exempt from the registration requirements of the Act.
(oo) No registration under the Act of the Series A Notes and the Note
Guarantees is required for the sale of the Series A Notes and the Note
Guarantees to the Initial Purchasers as contemplated hereby or for the Exempt
Resales assuming the accuracy of the Initial Purchasers' representations and
warranties and agreements set forth in Section 7 hereof.
(pp) Each of the representations and warranties set forth in clauses
(a) through (oo) of this Section 6 will be true and correct as of the Effective
Time upon consummation of the Merger.
(qq) Each certificate signed by any officer of the Company and the
Guarantor and delivered to the Initial Purchasers or counsel for the Initial
Purchasers shall be deemed to be a representation and warranty by the Company
and the Guarantor to the Initial Purchasers as to the matters covered thereby.
The Company acknowledges that the Initial Purchasers and, for purposes of
the opinions to be delivered to the Initial Purchasers pursuant to Section 9
hereof, counsel to the Company and the Guarantor and counsel to the Initial
Purchasers will rely upon the accuracy and truth of the foregoing
representations and hereby consents to such reliance.
7. Initial Purchasers' Representations and Warranties. Each of the Initial
Purchasers, severally and not jointly, represents and warrants to the Company
and the Guarantor, and agrees that:
(a) Such Initial Purchaser is a QIB with such knowledge and
experience in financial and business matters as is necessary in order to
evaluate the merits and risks of an investment in the Series A Notes.
(b) Such Initial Purchaser (A) is not acquiring the Series A Notes
with a view to any distribution thereof or with any present intention of
offering or selling any of the Series A Notes in a transaction that would
violate the Act or the securities laws of any state of the United States or
any other applicable jurisdiction and (B) will be reoffering and reselling the
Series A Notes only (x) to QIBs in reliance on the exemption from the
registration requirements of the Act provided by Rule 144A and (y) in offshore
transactions in reliance upon Regulation S under the Act.
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(c) Such Initial Purchaser agrees that no form of general
solicitation or general advertising (within the meaning of Regulation D under
the Act) has been or will be used by such Initial Purchaser or any of its
representatives in connection with the offer and sale of the Series A Notes
pursuant hereto, including, but not limited to, articles, notices or other
communications published in any newspaper, magazine or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising.
(d) Such Initial Purchaser agrees that, in connection with Exemp
Resales, such Initial Purchaser will solicit offers to buy the Series A Notes
only from, and will offer to sell the Series A Notes only to, Eligible
Purchasers. Each Initial Purchaser further agrees that it will offer to sell
the Series A Notes only to, and will solicit offers to buy the Series A Notes
only from, (A) Eligible Purchasers that such Initial Purchaser reasonably
believes are QIBs and (B) Regulation S Purchasers, in each case, that agree
that (x) the Series A Notes purchased by them may be resold, pledged or
otherwise transferred within the time period referred to under Rule 144(k)
(taking into account the provisions of Rule 144(d) under the Act, if
applicable) under the Act, as in effect on the date of the transfer of such
Series A Notes, only (I) to the Company or any of its subsidiaries, (II) to a
person whom the seller reasonably believes is a QIB purchasing for its own
account or for the account of a QIB in a transaction meeting the requirements
of Rule 144A under the Act, (III) in an offshore transaction (as defined in
Rule 902 under the Act) meeting the requirements of Rule 904 of the Act, (IV)
in a transaction meeting the requirements of Rule 144 under the Act, (V) to an
Accredited Institution that, prior to such transfer, furnishes the Trustee a
signed letter containing certain representations and agreements relating to
the registration of transfer of such Series A Note (the form of which may be
obtained from the Trustee) and, if such transfer is in respect of an aggregate
principal amount of Series A Notes less than $250,000, an opinion of counsel
acceptable to the Company that such transfer is in compliance with the Act,
(VI) in accordance with another exemption from the registration requirements
of the Act (and based upon an opinion of counsel acceptable to the Company) or
(VII) pursuant to an effective registration statement and, in each case, in
accordance with the applicable securities laws of any state of the United
States or any other applicable jurisdiction and (y) they will deliver to each
person to whom such Series A Notes or an interest therein is transferred a
notice substantially to the effect of the foregoing.
(e) Such Initial Purchaser and its affiliates or any person acting on
its or their behalf have not engaged or will not engage in any directed
selling efforts within the meaning of Regulation S with respect to the Series
A Notes or the Note Guarantees.
(f) The Series A Notes offered and sold by such Initial Purchaser
pursuant hereto in reliance on Regulation S have been and will be offered and
sold only in offshore transactions.
(g) The sale of the Series A Notes offered and sold by such Initial
Purchaser pursuant hereto in reliance on Regulation S is not part of a plan or
scheme to evade the registration provisions of the Act.
(h) Such Initial Purchaser agrees that it has not offered or sold and
will not offer or sell the Series A Notes in the United States or to, or for
the benefit or account of, a U.S. Person (other than a distributor), in each
case, as defined in Rule 902 under the Act (i) as part of its distribution at
any time and (ii) otherwise until 40 days after the later of the commencement
of the offering of the Series A Notes pursuant hereto and the Closing Date,
other than in accordance with Regulation S of the Act or another exemption
from the registration requirements of the Act. Such Initial Purchaser agrees
that, during such 40-day restricted period, it will not cause any
advertisement with respect to the Series A Notes (including any "tombstone"
advertisement) to be published in any newspaper or periodical or posted in any
public place and will not issue any circular relating to the Series A Notes,
except such advertisements as permitted by and include the statements required
by Regulation S.
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(i) Such Initial Purchaser agrees that, at or prior to confirmation
of a sale of Series A Notes by it to any distributor, dealer or person
receiving a selling concession, fee or other remuneration during the 40-day
restricted period referred to in Rule 903(c)(3) under the Act, it will send to
such distributor, dealer or person receiving a selling concession, fee or
other remuneration a confirmation or notice to substantially the following
effect:
"The Series A Notes covered hereby have not been registered
under the U.S. Securities Act of 1933, as amended (the
"Securities Act"), and may not be offered and sold within
the United States or to, or for the account or benefit of,
U.S. persons (i) as part of your distribution at any time or
(ii) otherwise until 40 days after the later of the
commencement of the Offering and the Closing Date, except in
either case in accordance with Regulation S under the
Securities Act (or Rule 144A or to Accredited Institutions
in transactions that are exempt from the registration
requirements of the Securities Act), and in connection with
any subsequent sale by you of the Series A Notes covered
hereby in reliance on Regulation S during the period
referred to above to any distributor, dealer or person
receiving a selling concession, fee or other remuneration,
you must deliver a notice to substantially the foregoing
effect. Terms used above have the meanings assigned to them
in Regulation S."
(j) Such Initial Purchaser agrees that the Series A Notes offered and
sold in reliance on Regulation S will be represented upon issuance by a global
security that may not be exchanged for definitive securities until the
expiration of the 40-day restricted period referred to in Rule 903(c)(3) of
the Act and only upon certification of beneficial ownership of such Series A
Notes by non-U.S. persons or U.S. persons who purchased such Series A Notes in
transactions that were exempt from the registration requirements of the Act.
(k) Pursuant to and for purposes of Section 506(b) of the General
Corporation Law of the State of California, each of the Initial Purchasers
consents to the payment of the Merger Consideration to the former shareholders
of the Company pursuant to the Merger Agreement.
Such Initial Purchaser acknowledges that the Company, the Guarantor
and, for purposes of the opinions to be delivered to each Initial Purchaser
pursuant to Section 9 hereof, counsel to the Company and the Guarantor and
counsel to each Initial Purchaser will rely upon the accuracy and truth of the
foregoing representations and such Initial Purchaser hereby consents to such
reliance.
8. Indemnification
(a) The Company and the Guarantor agree, jointly and severally, to
indemnify and hold harmless the Initial Purchasers, their directors, their
officers and each person, if any, who controls an Initial Purchaser within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and judgments
(including, without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Offering Memorandum (or any amendment or
supplement thereto), the Preliminary Offering Memorandum or any Rule 144A
Information provided by the Company or the Guarantor to any holder or
prospective purchaser of Series A Notes pursuant to Section 5(h) or caused by
any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or judgments are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to an Initial Purchaser furnished in
writing to the Company by such Initial Purchaser; provided, however, that the
foregoing indemnity agreement with respect to any Preliminary Offering
Memorandum shall not inure
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to the benefit of any Initial Purchaser who failed to deliver a Final Offering
Memorandum (as then amended or supplemented, provided by the Company to the
Initial Purchasers in the requisite quantity and on a timely basis to permit
proper delivery on or prior to the Closing Date) to the person asserting any
losses, claims, damages and liabilities and judgements caused by any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Offering Memorandum, or caused by any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, if such material misstatement or
omission or alleged material misstatement or omission was cured in the Final
Offering Memorandum.
(b) Each of the Initial Purchasers, severally and not jointly, agrees
to indemnify and hold harmless the Company and the Guarantor and their
respective directors and officers and each person, if any, who controls
(within the meaning of Section 15 of the Act or Section 20 of the Exchange
Act) the Company or the Guarantor, to the same extent as the foregoing
indemnity from the Company and the Guarantor to such Initial Purchaser but
only with reference to information relating to an Initial Purchaser furnished
in writing to the Company by such Initial Purchaser expressly for use in the
Preliminary Offering Memorandum or the Offering Memorandum.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in
writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 8(a) and 8(b), no Initial Purchaser shall be
required to assume the defense of such action pursuant to this Section 8(c),
but may employ separate counsel and participate in the defense thereof, but
the fees and expenses of such counsel, except as provided below, shall be at
the expense of such Initial Purchaser. Any indemnified party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of the indemnified party unless (i) the employment of such counsel
shall have been specifically authorized in writing by the indemnifying party,
(ii) the indemnifying party shall have failed to assume the defense of such
action or employ counsel reasonably satisfactory to the indemnified party or
(iii) the named parties to any such action (including any impleaded parties)
include both the indemnified party and the indemnifying party, and the
indemnified party shall have been advised by such counsel that there may be
one or more legal defenses available to it which are different from or
additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such
action on behalf of the indemnified party). In any such case, the indemnifying
party shall not, in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all indemnified parties and all such fees and expenses shall be
reimbursed as they are incurred. Such firm shall be designated in writing by
DLJ, in the case of the parties indemnified pursuant to Section 8(a), and by
the Company, in the case of parties indemnified pursuant to Section 8(b). The
indemnifying party shall indemnify and hold harmless the indemnified party
from and against any and all losses, claims, damages, liabilities and
judgments by reason of any settlement of any action (i) effected with its
written consent or (ii) effected without its written consent if the settlement
is entered into more than twenty business days after the indemnifying party
shall have received a request from the indemnified party for reimbursement for
the fees and expenses of counsel (in any case where such fees and expenses are
at the expense of the indemnifying party) and, prior to the date of such
settlement, the indemnifying party shall have failed to comply with such
reimbursement request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could have been a party
and indemnity or
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contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this Section 8
is unavailable to an indemnified party or insufficient in respect of any
losses, claims, damages, liabilities or judgments referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Guarantor, on the one hand, and the Initial Purchasers, on the
other hand, from the offering of the Series A Notes or (ii) if the allocation
provided by clause 8(d)(i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause 8(d)(i) above but also the relative fault of the Company
and the Guarantor, on the one hand, and the Initial Purchasers, on the other
hand, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative benefits received by the
Company and the Guarantor, on the one hand and the Initial Purchasers, on the
other hand, shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Series A Notes (after underwriting discounts
and commissions, but before deducting expenses) received by the Company, and
the total discounts and commissions received by the Initial Purchasers bear to
the total price to investors of the Series A Notes, in each case as set forth
in the Offering Memorandum. The relative fault of the Company and the
Guarantor, on the one hand, and the Initial Purchasers, on the other hand,
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company or the Guarantor, on the one hand, or the Initial Purchasers, on the
other hand, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Guarantor and the Initial Purchasers agree that it
would not be just and equitable if contribution pursuant to this Section 8(d)
were determined by pro rata allocation (even if the Initial Purchasers were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
incurred by such indemnified party in connection with investigating or
defending any matter, including any action, that could have given rise to such
losses, claims, damages, liabilities or judgments. Notwithstanding the
provisions of this Section 8, no Initial Purchaser shall be required to
contribute any amount in excess of the amount by which the total discounts and
commissions received by such Initial Purchaser exceeds the amount of any
damages which such Initial Purchaser has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Initial
Purchasers' obligations to contribute pursuant to this Section 8(d) are
several in proportion to the respective principal amount of Series A Notes
purchased by each of the Initial Purchasers hereunder and not joint.
(e) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
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9. Conditions of Initial Purchaser's Obligations. The obligations each of
the Initial Purchasers to purchase the Series A Notes under this Agreement are
subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company and the
Guarantor contained in this Agreement shall be true and correct on the Closing
Date with the same force and effect as if made on and as of the Closing Date.
(b) On or after the date hereof, (i) there shall not have occurred any
downgrading, suspension or withdrawal of, nor shall any notice have been given
of any potential or intended downgrading, suspension or withdrawal of, or of
any review (or of any potential or intended review) for a possible change that
does not indicate the direction of the possible change in, any rating of the
Company or any Guarantor or any securities of the Company or any Guarantor
(including, without limitation, the placing of any of the foregoing ratings on
credit watch with negative or developing implications or under review with an
uncertain direction) by any "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule 436(g)(2) under the
Act, (ii) there shall not have occurred any change, nor shall any notice have
been given of any potential or intended change, in the outlook for any rating
of the Company or any Guarantor or any securities of the Company or any
Guarantor by any such rating organization and (iii) no such rating
organization shall have given notice that it has assigned (or is considering
assigning) a lower rating to the Notes than that on which the Notes were
marketed.
(c) Since the respective dates as of which information is given in
the Offering Memorandum other than as set forth in the Offering Memorandum
(exclusive of any amendments or supplements thereto subsequent to the date of
this Agreement), (i) there shall not have occurred any change or any
development involving a prospective change in the condition, financial or
otherwise, or the earnings, business, management or operations of the Company
and its subsidiaries, taken as a whole, (ii) there shall not have been any
change or any development involving a prospective change in the capital stock
or in the long-term debt of the Company or any of its subsidiaries and (iii)
neither the Company nor any of its subsidiaries shall have incurred any
liability or obligation, direct or contingent, the effect of which, in any
such case described in clause 9(c)(i), 9(c)(ii) or 9(c)(iii), in the judgment
of the Initial Purchasers, is material and adverse and, in the judgment of the
Initial Purchasers, makes it impracticable to market the Series A Notes on the
terms and in the manner contemplated in the Offering Memorandum.
(d) Each Initial Purchaser shall have received on the Closing Date
certificates, dated the Closing Date, signed by the president and the chief
financial officer of the Company and of the Guarantor, (i) confirming the
matters set forth in Sections 6(dd), 9(a) and 9(b) and stating that the
Company and the Guarantor have complied with all the agreements and satisfied
all of the conditions herein contained and required to be complied with or
satisfied on or prior to the Closing Date and (ii) substantially in the form
of Exhibit B hereto, respectively.
(e) Each Initial Purchaser shall have received on the Closing Date an
opinion (satisfactory to each Initial Purchaser and counsel for the Initial
Purchasers), dated the Closing Date, of Seyfarth, Shaw, Fairweather &
Geraldson, counsel for the Company and the Guarantor, to the effect that:
(i) each of the Company and the Guarantor has been
incorporated, is (and, upon consummation of the
Merger as of the Effective Time, will be) validly
existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and
has (and, upon consummation of the Merger as of the
Effective Time, will have) the corporate power and
authority to carry on its business as described in
the Offering Memorandum and to own, lease and
operate its properties;
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(ii) each of the Company and the Guarantor is qualified and is
in good standing as a foreign corporation authorized to do business
in each of the respective jurisdictions set forth in an attached
officer's certificate of the Company and the Guarantor (which
officer's certificate shall state that it sets forth each
jurisdiction in which the nature of the business of the Company or
the Guarantor or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not
have a Material Adverse Effect);
(iii) all the outstanding shares of capital stock of the
Company, upon consummation of the Merger as of the Effective Time,
will have been duly authorized and validly issued and will be fully
paid and non-assessable;
(iv) all of the outstanding shares of capital stock of the
Guarantor have been duly authorized and validly issued and are fully
paid and non-assessable, and are owned of record by the Company;
(v) the Series A Notes and the Series B Notes have been duly
authorized by the Company;
(vi) each of the Indenture, this Agreement and the Registration
Rights Agreement has been duly authorized, executed and delivered by
the Company;
(vii) the execution, delivery and performance of this Agreement,
the Indenture, the Registration Rights Agreement, the Notes and the
Note Guarantees by such of the Company and the Guarantor as is a
party thereto, the compliance by the Company and the Guarantor with
all applicable provisions hereof and thereof and the consummation of
the transactions contemplated hereby and thereby do not and will not
(i) require any consent, approval, authorization or other order of,
or qualification with, any court or governmental body or agency, (ii)
conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the
Company or the Guarantor or any indenture, loan agreement, mortgage,
lease or other agreement or instrument (other than any Operative
Document or any government contract) that has been identified in an
attached certificate of the chief financial officer of the Company
(which certificate shall state that it sets forth each agreement or
instrument that is (or, upon consummation of the Merger as of the
Effective Time, will be) material to the Company and the Guarantor,
taken as a whole, to which the Company or the Guarantor is (or, upon
consummation of the Merger as of the Effective Time, will be) a party
or by which the Company or the Guarantor or their respective property
is (or, upon consummation of the Merger as of the Effective Time,
will be) bound), (iii) violate or conflict with any applicable
federal law, rule or regulation, (iv) to the best of such counsel's
knowledge, result in the imposition or creation of (or the obligation
to create or impose) a Lien under, any such agreement or instrument
so set forth on the aforementioned certificate, (v) to the best of
such counsel's knowledge, result in the termination, suspension or
revocation of any Authorization (as defined below) of the Company or
the Guarantor or result in any other impairment of the rights of the
holder of any such Authorization or (vi) to the best of such
counsel's knowledge, conflict with any judgment, writ, injunction,
decree, order or ruling or any court or governmental authority
binding on the Company or the Guarantor;
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(viii) except as otherwise described in the Offering Memorandum,
such counsel does not know of any legal or governmental proceedings
pending or threatened to which the Company or the Guarantor is a
party or to which any of their respective property is subject, which
would reasonably be expected to result, singly or in the aggregate,
in a Material Adverse Effect;
(ix) to the best of such counsel's knowledge, there are (and,
upon consummation of the Merger as of the Effective Time, will be) no
contracts, agreements or understandings between the Company or the
Guarantor and any person (other than the Registration Rights
Agreement) granting such person the right to require the Company or
the Guarantor to file a registration statement under the Act with
respect to any securities of the Company or the Guarantor (except as
otherwise described in the Offering Memorandum) or to require the
Company or the Guarantor to include such securities with the Notes
and the Note Guarantees registered pursuant to any registration
statement; and
(x) such counsel has no reason to believe that, as of the date
of the Offering Memorandum or as of the Closing Date, the Offering
Memorandum, as amended or supplemented, if applicable (except for the
financial statements, financial estimates and other financial or
statistical data included therein, as to which such counsel need not
express any belief) contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading.
The opinion of such counsel described in Section 9(e) above
shall be rendered to each Initial Purchaser at the request of the Company and
the Guarantor and shall so state therein. In giving such opinion with respect
to the matters covered by Section 9(e)(x), such counsel may state that their
opinion and belief are based upon their participation in the preparation of
the Offering Memorandum and any amendments or supplements thereto and review
and discussion of the contents thereof, but are without independent check or
verification except as specified.
(f) Each Initial Purchaser shall have received on the Closing Date an
opinion (satisfactory to each Initial Purchaser and counsel for the Initial
Purchasers), dated the Closing Date, of Davis Polk & Wardwell to the effect
that:
(i) assuming the Series A Notes have been duly authorized by the
Company, when executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by the
Initial Purchasers in accordance with the terms of this Agreement and
upon consummation of the Merger as of the Effective Time, the Series
A Notes will be entitled to the benefits of the Indenture and will be
valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except (x) as such
enforcement may be limited by bankruptcy, insolvency, fraudulent
conveyance or similar laws affecting creditors' rights generally, (y)
as such enforcement is subject to general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law) and (z) to the extent that a waiver
of rights under any usury or stay law may be unenforceable; we
express no opinion, however, as to the applicability (and, if
applicable, the effect) of Section 548 of the United States
Bankruptcy Code or any comparable provision of state law to the
questions addressed above or on the conclusions expressed with
respect thereto
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(ii) the Note Guarantees have been duly authorized by the
Guarantor and, assuming the Series A Notes have been duly authorized,
when the Series A Notes are executed and authenticated in accordance
with the provisions of the Indenture and delivered to and paid for by
the Initial Purchaser in accordance with the terms of this Agreement
and upon consummation of the Merger as of the Effective Time, the
Note Guarantees will be valid and binding obligations of the
Guarantor, enforceable against the Guarantor in accordance with their
terms except (x) as such enforcement may be limited by bankruptcy,
insolvency, fraudulent conveyance or similar laws affecting
creditors' rights generally, (y) as such enforcement is subject to
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and
(z) to the extent that a waiver of rights under any usury or stay law
may be unenforceable; we express no opinion, however, as to the
applicability (and, if applicable, the effect) of Section 548 of the
United States Bankruptcy Code or any comparable provision of state
law to the questions addressed above or on the conclusions expressed
with respect thereto;
(iii) the Indenture has been duly authorized, executed and
delivered by the Guarantor and is (and, upon consummation of the
Merger as of the Effective Time, will be) a valid and binding
agreement of the Guarantor and (assuming due authorization, execution
and delivery by the Company) the Company, enforceable against the
Company and the Guarantor in accordance with its terms, except (x) as
such enforcement may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally, (y) as such enforcement
is subject to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at
law) and (z) to the extent that a waiver of rights under any usury or
stay law may be unenforceable; we express no opinion, however, as to
the applicability (and, if applicable, the effect) of Section 548 of
the United States Bankruptcy Code or any comparable provision of
state law to the questions addressed above or on the conclusions
expressed with respect thereto;
(iv) this Agreement has been duly authorized, executed and
delivered by the Guarantor;
(v) the Registration Rights Agreement has been duly authorized,
executed and delivered by the Guarantor and is (and, upon
consummation of the Merger as of the Effective Time, will be) a valid
and binding agreement of the Guarantor and (assuming due
authorization, execution and delivery by the Company) the Company,
enforceable against the Company and the Guarantor in accordance with
its terms, except (x) as such enforcement may be limited by
bankruptcy, insolvency, fraudulent conveyance or similar laws
effecting creditors' rights generally, (y) as such enforcement is
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and
(z) as rights to indemnity and contribution thereunder may be limited
by applicable law;
(vi) the execution and delivery of this Agreement and the other
Operative Documents (other than the Credit Agreement) and compliance
by the Company and the Guarantor to the extent a party thereto with
the provisions thereof and the consummation of the Merger by the
Company will not conflict with, constitute a default under or violate
(w) any of the terms, conditions or
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provisions of the certificate of incorporation or bylaws
of the Guarantor, (x) any of the terms, conditions or
provisions of any of the Operative Documents, (y) any
Delaware corporate, New York or federal law or regulation
(other than federal and state securities or blue sky laws
and any federal procurement or export control statute or
regulation, as to which we express no opinion) or (z) to
such counsel's knowledge, based solely upon inquiry of
appropriate officers of the Company and the Guarantor,
any judgment, writ, injunction, decree, order or ruling
of any court or governmental authority binding on the
Company or any of its subsidiaries of which such counsel
is aware;
(vii) no consent, approval, waiver, license or authorization or
other action by or filing with any Delaware corporate, New York or
federal governmental authority is required in connection with the
execution and delivery by the Company or the Guarantor of this
Agreement and the other Operative Documents (other than the Credit
Agreement) to the extent a party thereto or the consummation by the
Company or the Guarantor of its obligations thereunder or the
consummation of the Merger by the Company, except for (v) the
applicable requirements of federal and state securities or blue sky
laws, as to which we express no opinion, (w) any consent, approval or
authorization that is described in the second paragraph of Section
9.02(e) of the Disclosure Schedule (as defined in the Merger
Agreement), (x) those required by any federal procurement or export
control statute or regulation, (y) those arising in connection with
any classified contract the existence of which has not been disclosed
to such counsel and (z) those already obtained or made and which are
in full force and effect;
(viii) neither the Company nor the Guarantor is or, afte giving
effect to the offering and sale of the Series A Notes and the Note
Guarantees and the application of the net proceeds thereof as
described in the Offering Memorandum and upon consummation of the
Merger as of the Effective Time, will be, an "investment company" as
such term is defined in the Investment Company Act of 1940, as
amended;
(ix) the statements in the Offering Memorandum under the
captions "The Acquisition and Financing", "Certain Relationships and
Related Party Transactions", "Description of New Credit Facility",
"Description of Senior Subordinated Notes" and "Plan of Distribution"
and the descriptions of the stock option plan under "Executive
Compensation--New Stock Option Plan", insofar as such statements or
descriptions constitute a summary of the legal matters or documents
referred to therein, fairly present in all material respects such
legal matters or documents;
(x) the Indenture complies as to form in all material respects
with the requirements of TIA, and the rules and regulations of the
Commission applicable to an indenture which is qualified thereunder;
and
(xi) it is not necessary in connection with the offer, sale and
delivery of the Series A Notes and the Note Guarantees to the Initial
Purchasers in the manner contemplated by this Agreement or in
connection with the initial placement of the Series A Notes and the
Note Guarantees by the Initial Purchasers in the manner contemplated
by the Offering Memorandum pursuant to Exempt Resales to qualify the
Indenture under the TIA, and no registration under the Securities Act
of the Series A Notes or the Note Guarantees is required
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for the sale of the Series A Notes and the Note
Guarantees to the Initial Purchasers as contemplated by
this Agreement or for the initial placement of the Series
A Notes and the Note Guarantees by the Initial Purchasers
in the manner contemplated by the Offering Memorandum
pursuant to Exempt Resales assuming the (i) each Initial
Purchaser is a QIB, (ii) the accuracy of, and compliance
with, each Initial Purchaser's representations and
agreements contained in Section 7 of this Agreement, and
(iii) the accuracy of the agreements and representations
of the Company set forth in Sections 5(h) and (m) and
6(ff), (gg), (hh), (jj), (kk) and (ll) of this Agreement;
and such counsel expresses no opinion as to any other
offer or sale.
In addition, such counsel shall state that it has participated in the
preparation of the Offering Memorandum and any amendments or supplements
thereto, if applicable, and that although such counsel has not independently
verified the accuracy, completeness or fairness of the statements contained
therein, except as stated, no facts have come to such counsel's attention to
cause it to believe that, as of the date of the Offering Memorandum or as of
the Closing Date, the Offering Memorandum, as amended or supplemented, if
applicable (except for the financial statements and other financial or
statistical data included therein or omitted therefrom, as to which such
counsel need not express any belief) contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
The opinion of such counsel described in this Section 9(f) shall be
rendered to the Initial Purchasers at the request of the Company and the
Guarantor and shall so state therein.
(g) Each Initial Purchaser shall have received on the Closing Date an
opinion (satisfactory to each Initial Purchaser and counsel for the Initial
Purchasers), dated the Closing Date, of Crowell & Moring, limited regulatory
counsel for DLJMB with respect to federal procurement matters, to the effect
that:
(i) The execution and delivery of this Agreement and the other
Operative Documents and compliance by the Company and the Guarantor
to the extent a party thereto with the provisions thereof and the
consummation of the Merger by the Company will not conflict with,
constitute a default under or violate (x) any of the terms,
conditions or provisions of any government contract disclosed on
Schedule 3.16(a)(i) of the Merger Agreement or (y) any federal
procurement or export control statute or regulation, excluding any
requirement of prior notice in respect of consummation of the Merger
that would arise under any export control statute or regulation if
the Company would come under foreign ownership, control or influence
as a result of the Merger;
(ii) no consent, approval, waiver, license or authorization or
other action by or filing with any federal governmental authority is
required under any federal procurement or export control statute or
regulation in connection with the execution and delivery by the
Company or the Guarantor of this Agreement and the other Operative
Documents to the extent a party thereto or the consummation by the
Company or the Guarantor of their obligations thereunder or the
consummation of the Merger by the Company, except for those already
obtained and which are in full force and effect and excluding any
requirement of prior notice in respect of consummation of the Merger
that would arise under any export control statute or regulation if
the Company would come under foreign ownership, control or influence
as a result of the Merger; and
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(iii) the information contained in the Offering Memorandum under
the headings "Risk Factors--Risks relating to our government
contracts--Our contract may be terminated or adjusted" and "--Our
contracts are subject to additional risks", "--Our international
business is subject to risks", and "--Limits on protecting our
intellectual property may adversely affect us"; and "Business--
Government Contracts; Regulatory Matters", insofar as such statements
constitute a summary of (A) U.S. government regulatory matters
relating to federal procurement contracts or the export control laws
and regulations affecting performance of international government
contracts or (B) the terms and conditions of the government contracts
disclosed on Schedule 3.16(a)(i) of the Merger Agreement, fairly,
when such information is read together with related disclosure
contained elsewhere in the Offering Memorandum, present in all
material respects such regulatory matters and the legal effect of
such contracts.
In addition, it is understood that such counsel may state
that, except with respect to the terms and conditions of the Company's federal
procurement contracts and international contracts and the application of U.S.
federal procurement statutes and export control laws and regulations to the
performance of those contracts, such counsel did not participate in the
preparation of the Offering Memorandum or any amendments or supplements
thereto or the negotiation of the Operative Documents nor has such counsel
independently verified the accuracy, completeness or fairness of statements
contained in the Offering Memorandum except as specified in clause (iii)
above. The opinion of such counsel described in this Section 9(g) shall be
rendered to the Initial Purchasers at the request of DLJMB and shall so state
therein.
(h) On the Closing Date, the Initial Purchasers shall have received
copies of all opinions rendered in connection with the Merger Agreement or the
Credit Agreement, addressed to the Initial Purchasers.
(i) Each Initial Purchaser shall have received on the Closing Date an
opinion, dated the Closing Date, of Weil, Gotshal & Manges LLP, counsel for the
Initial Purchasers, in form and substance reasonably satisfactory to the Initial
Purchasers.
(j) Each Initial Purchaser shall have received, at the time this
Agreement is executed and at the Closing Date, letters dated the date hereof
or the Closing Date, as the case may be, in form and substance satisfactory to
the Initial Purchasers from PricewaterhouseCoopers LLP, independent public
accountants, containing the information and statements of the type ordinarily
included in accountants' "comfort letters" to each Initial Purchaser with
respect to the financial statements and certain financial information
contained in the Offering Memorandum.
(k) The Initial Purchasers shall have received, on the Closing Date,
an opinion (satisfactory to each Initial Purchaser and counsel for the Initial
Purchasers), dated the Closing Date, of Houlihan Lokey Howard & Zukin with
respect to the solvency of the Company after giving effect to the Purchase,
the Investment, the Merger, the Financing and the other transactions
contemplated by the Operative Documents.
(l) Each condition to closing contemplated by the Credit Agreement
(other than the issuance and sale of the Series A Notes pursuant hereto) shall
have been satisfied or waived. There shall exist at and as of the Closing Date
(after giving effect to the transactions contemplated by this Agreement and
the other Operative Documents) no conditions that would constitute a default
(or an event that with notice or the lapse of time, or both, would constitute
a default) under the Credit Agreement. On the Closing Date, the closing under
the Credit Agreement shall have been consummated on terms that
25
<PAGE>
conform in all material respects to the description thereof in the Offering
Memorandum and the Initial Purchasers shall have received evidence
satisfactory to each of them of the consummation thereof.
(m) Each condition to closing contemplated by the Merger Agreement
(other than the issuance and sale of the Series A Notes pursuant hereto) shall
have been satisfied or waived. There shall exist at and as of the Closing Date
(after giving effect to the transactions contemplated by this Agreement and
the other Operative Documents) no conditions that would constitute a default
(or an event that with notice or the lapse of time, or both, would constitute
a default) under the Merger Agreement. The Company shall have delivered to the
Initial Purchasers copies of the Agreement of Merger required under the CGCL
to be filed by the Secretary of State of the State of California in the office
thereof in order to effect the Merger, together with evidence satisfactory to
each of them as to the receipt thereof by the Secretary of State of the State
of California for such filing, and such Agreement of Merger shall, in
accordance with the CGCL, specify that the Merger shall become effective as of
the Closing Date. On the Closing Date, the Merger shall have been consummated
on terms that conform in all material respects to the description thereof in
the Offering Memorandum (other than the filing of such Agreement of Merger by
the Secretary of State of the State of California), and the Initial Purchasers
shall have received evidence satisfactory to each of them of the consummation
thereof.
(n) On the Closing Date, the Purchase and the Investment shall have
been consummated on terms that conform in all material respects to the
description thereof in the Offering Memorandum, and the Initial Purchasers
shall have received evidence satisfactory to each of them of the consummation
thereof.
(o) On the Closing Date, the Notes (as defined in Section 7.10 of the
Merger Agreement) and the Senior Debt shall have been prepaid in full, all
amounts due under the Warrant Termination Agreement and the Option Termination
Agreement shall have been paid in full, and the Initial Purchasers shall have
received evidence of such payments.
(p) The Series A Notes shall have been approved by the NASD for
trading and duly listed in PORTAL.
(q) Each Initial Purchaser shall have received a counterpart,
conformed as executed, of the Indenture which shall have been entered into by
the Company, the Guarantor and the Trustee.
(r) The Company and the Guarantor shall have executed the
Registration Rights Agreement and each Initial Purchaser shall have received
an original copy thereof, duly executed by the Company and the Guarantor.
(s) Neither the Company nor the Guarantor shall have failed at or
prior to the Closing Date to perform or comply with any of the agreements
herein contained and required to be performed or complied with by the Company
or the Guarantor, as the case may be, at or prior to the Closing Date.
10. Effectiveness of Agreement and Termination. This Agreement shall
become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to
the Closing Date by either Initial Purchaser by written notice to the Company
if any of the following has occurred: (i) any outbreak or escalation of
hostilities or other national or international calamity or crisis or change in
economic conditions or in the financial markets of the United States or
elsewhere that, in such Initial Purchaser's judgment, is material and adverse
and, in such Initial Purchaser's judgment, makes it impracticable to
26
<PAGE>
market the Series A Notes on the terms and in the manner contemplated in the
Offering Memorandum, (ii) the suspension or material limitation of trading in
securities or other instruments on the New York Stock Exchange, the American
Stock Exchange, the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange, the Chicago Board of Trade or the Nasdaq National Market or
limitation on prices for securities or other instruments on any such exchange
or the Nasdaq National Market, (iii) the suspension of trading of any
securities of the Company or the Guarantor on any exchange or in the
over-the-counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in the opinion of the Initial
Purchasers materially and adversely affects, or will materially and adversely
affect, the business, prospects, financial condition or results of operations
of the Company and its subsidiaries, taken as a whole, (v) the declaration of
a banking moratorium by either federal or New York State authorities or (vi)
the taking of any action by any federal, state or local government or agency
in respect of its monetary or fiscal affairs which in the opinion of the
Initial Purchasers has a material adverse effect on the financial markets in
the United States.
If on the Closing Date any one or more of the Initial Purchasers shall
fail or refuse to purchase the Series A Notes which it or they have agreed to
purchase hereunder on such date and the aggregate principal amount of the
Series A Notes which such defaulting Initial Purchaser or Initial Purchasers,
as the case may be, agreed but failed or refused to purchase is not more than
one-tenth of the aggregate principal amount of the Series A Notes to be
purchased on such date by all Initial Purchasers, each non-defaulting Initial
Purchaser shall be obligated severally, in the proportion which the principal
amount of the Series A Notes set forth opposite its name in Schedule A bears
to the aggregate principal amount of the Series A Notes which all the
non-defaulting Initial Purchasers, as the case may be, have agreed to
purchase, or in such other proportion as you may specify, to purchase the
Series A Notes which such defaulting Initial Purchaser or Initial Purchasers,
as the case may be, agreed but failed or refused to purchase on such date;
provided that in no event shall the aggregate principal amount of the Series A
Notes which any Initial Purchaser has agreed to purchase pursuant to Section 2
hereof be increased pursuant to this Section 10 by an amount in excess of
one-ninth of such principal amount of the Series A Notes without the written
consent of such Initial Purchaser. If on the Closing Date any Initial
Purchaser or Initial Purchasers shall fail or refuse to purchase the Series A
Notes and the aggregate principal amount of the Series A Notes with respect to
which such default occurs is more than one-tenth of the aggregate principal
amount of the Series A Notes to be purchased by all Initial Purchasers and
arrangements satisfactory to the Initial Purchasers and the Company for
purchase of such the Series A Notes are not made within 48 hours after such
default, this Agreement will terminate without liability on the part of any
non-defaulting Initial Purchaser and the Company. In any such case which does
not result in termination of this Agreement, either the non-defaulting Initial
Purchaser or the Company shall have the right to postpone the Closing Date,
but in no event for longer than seven days, in order that the required
changes, if any, in the Offering Memorandum or any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Initial Purchaser from liability in respect of any
default of any such Initial Purchaser under this Agreement.
11. Miscellaneous. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (i) if to the Company or the
Guarantor, to Condor Systems, Inc., 2133 Samaritan Drive, San Jose, California
95124, Attention: Gary M. Viljoen and (ii) if to the Initial Purchasers, c/o
Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New
York, New York 10172, Attention: Syndicate Department, or in any case to such
other address as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Company, the Guarantor
and the Initial Purchasers set forth in or made pursuant to this Agreement
shall remain operative and in full force and effect, and will survive delivery
of and payment for the Series A Notes, regardless of (i) any investigation, or
statement as to the results thereof,
27
<PAGE>
made by or on behalf of the Initial Purchasers, the officers or directors of
the Initial Purchasers, any person controlling an Initial Purchaser, the
Company, the Guarantor, the officers or directors of the Company or the
Guarantor, or any person controlling the Company or the Guarantor, (ii)
acceptance of the Series A Notes and payment for them hereunder and (iii)
termination of this Agreement.
If for any reason the Series A Notes are not delivered by or on behalf of
the Company as provided herein (other than as a result of any termination of
this Agreement pursuant to Section 10), the Company and the Guarantor agree to
reimburse each Initial Purchaser for all out-of-pocket expenses (including the
fees and disbursements of counsel) incurred by them. Notwithstanding any
termination of this Agreement, the Company shall be liable for all expenses
which it has agreed to pay pursuant to Section 5(i) hereof. The Company and the
Guarantor also agree to reimburse each Initial Purchaser and its officers,
directors and each person, if any, who controls an Initial Purchaser within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act for any and
all fees and expenses (including without limitation the fees and expenses of
counsel) incurred by them in connection with enforcing their rights under this
Agreement (including without limitation its rights under Section 8).
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, the Guarantor, the
Initial Purchasers, the Initial Purchasers' directors and officers, any
controlling persons referred to herein, the directors of the Company and the
Guarantor and their respective successors and assigns, all as and to the
extent provided in this Agreement, and no other person shall acquire or have
any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include a purchaser of any of the Series A Notes from the
Initial Purchasers merely because of such purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
28
<PAGE>
Please confirm that the foregoing correctly sets forth the
agreement among the Company, the Guarantor and the Initial Purchasers.
Very truly yours,
CONDOR SYSTEMS, INC.
By: /s/ Gary M. Viljoen
----------------------------------------
Name: Gary M. Viljoen
--------------------------------------
Title: Chief Financial Officer
-------------------------------------
CEI SYSTEMS, INC.
By: /s/ Gary M. Viljoen
----------------------------------------
Name: Gary M. Viljoen
--------------------------------------
Title: Chief Financial Officer
-------------------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Joseph A. Tamluk
--------------------------------
Name: Joseph A. Tamluk
------------------------------
Title: Vice President
-----------------------------
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ Jan A. Schipper
--------------------------------
Name: Jan A. Schipper
------------------------------
Title: Vice President
-----------------------------
29
<PAGE>
SCHEDULE A
INITIAL PURCHASERS
Principal Amount
Initial Purchasers of Notes
- --------------------------------------------------- ----------------
Donaldson, Lufkin & Jenrette Securities Corporation $ 75,000,000
NationsBanc Montgomery Securities LLC $ 25,000,000
--------------
Total $ 100,000,000
<PAGE>
SCHEDULE B
SUBSIDIARIES
AirWave Capital, Inc.
AirWave Technology, Inc.
CEI Systems, Inc.
Condor Data Management Limited
Condor GmbH
WJCS, Inc.
<PAGE>
EXHIBIT A
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT B
Company's Certificate
Condor Systems, Inc., a California corporation (the "Company") hereby
certifies through its President and Chief Executive Officer and Chief
Financial Officer pursuant to section 9(d) of the Purchase Agreement dated
April 8, 1999, among the Company, CEI Systems, Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and NationsBanc Montgomery Securities LLC, as
follows:
1. Attached hereto is a schedule listing the assumptions used by the
Company in preparing the Company's estimated annual cost savings from closure
of the Sterling Plant and Management's estimate of (1) the amount of such cost
savings reflected in the Company's results of operations for the year ended
December 31, 1998 and (ii) the annual cost savings expected to be reflected in
the Company's results of operations for 1999 and thereafter as set forth in
the Offering Memorandum. Management of the Company believes that such
assumptions are reasonable.
Capitalized terms used herein but not otherwise define shall have their
respective meanings set forth in the Purchase Agreement.
In witness whereof, the Company, through the undersigned, has executed
has executed this certificate as of the 15th day of April, 1999.
CONDOR SYSTEMS, INC.
By:_________________________________________
Robert E. Young II
President & Chief Executive Officer
By:_________________________________________
Gary M. Viljoen
Chief Financial Officer
INSERT COMPUTATION OF RATIO OF EARNINGS
EXHIBIT 21.1
Subsidiaries of Condor Systems, Inc.
CEI Systems, Inc.
Condor Systems GMBH
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated February 19, 1999, except as to Notes 19 and 20 for which the
date is April 8, 1999, on our audits of the consolidated financial statements
and financial statement schedule of Condor Systems, Inc. We also consent to the
references to our firm under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
---------------------------------
PricewaterhouseCoopers LLP
San Jose, California
May 19, 1999
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2)
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
(NAME OF ISSUER)
(Condor Systems Inc.)
California 94-2623793
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
(2133 Samaritan Avenue, San Jose, CA 95124)
(Address of principal executive offices) (Zip Code)
(11 7/8 % Senior Subordinated Notes)
(Title of indenture securities)
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to
which it is subject.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee or of its parent,
State Street Corporation.
(See note on page 2.)
Item 3. through Item 15. Not applicable.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of
eligibility.
1. A copy of the articles of association of the trustee as now in
effect.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission
as Exhibit 1 to Amendment No. 1 to the Statement of Eligibility
and Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the articles of association.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee
to commence business was necessary or issued is on file with the
Securities and Exchange Commission as Exhibit 2 to Amendment No.
1 to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Morse Shoe,
Inc. (File No. 22-17940) and is incorporated herein by reference
thereto.
3. A copy of the authorization of the trustee to exercise corporate
trust powers, if such authorization is not contained in the documents
specified in paragraph (1) or (2), above.
A copy of the authorization of the trustee to exercise corporate
trust powers is on file with the Securities and Exchange
Commission as Exhibit 3 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4 to
the Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Eastern Edison
Company (File No. 33-37823) and is incorporated herein by
reference thereto.
1
<PAGE>
5. A copy of each indenture referred to in Item 4. if the obligor is
in default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the Act
is annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining authority.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its supervising
or examining authority is annexed hereto as Exhibit 7 and made a
part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates
to matters peculiarly within the knowledge of the obligor or any underwriter
for the obligor, the trustee has relied upon information furnished to it by
the obligor and the underwriters, and the trustee disclaims responsibility for
the accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the {May 6, 1999}.
STATE STREET BANK AND TRUST COMPANY
By: /S/
-------------------------------------
NAME: Dennis Fisher
TITLE: Assistant Vice President
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by {Condor
Systems Inc.} o its {11 7/8% Senior Subordinated Notes due 2009}, we hereby
consent that reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /S/
-------------------------------------
NAME: Dennis Fisher
TITLE: Assistant Vice President
Dated: May 6, 1999
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking
institution organized and operating under the banking laws of this
commonwealth and a member of the Federal Reserve System, at the close of
business December 31, 1998, published in accordance with a call made by the
Federal Reserve Bank of this District pursuant to the provisions of the
Federal Reserve Act and in accordance with a call made by the Commissioner of
Banks under General Laws, Chapter 172, Section 22(a).
Thousands of
ASSETS Dollars
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin............ 1,209,293
Interest-bearing balances..................................... 12,007,895
Securities......................................................... 9,705,731
Federal funds sold and securities purchased under agreements to
resell in domestic offices of the bank and its Edge
subsidiary ................................................... 9,734,476
Loans and lease financing receivables:
Loans and leases, net of unearned income........... 6,973,125
Allowance for loan and lease losses................ 84,308
Allocated transfer risk reserve.................... 0
Loans and leases, net of unearned income and allowances....... 6,888,817
Assets held in trading accounts.................................... 1,574,999
Premises and fixedassets........................................... 523,514
Other real estate owned ........................................... 0
Investments in unconsolidated subsidiaries......................... 612
Customers' liability to this bank on acceptances outstanding....... 47,334
Intangible assets.................................................. 212,743
Other assets....................................................... 1,279,224
----------
Total assets....................................................... 43,184,638
==========
LIABILITIES
Deposits:
In domestic offices........................................... 10,852,862
Noninterest-bearing .......................... 8,331,830
Interest-bearing ............................. 2,521,032
In foreign offices and Edge subsidiary........................ 16,761,573
Noninterest-bearing .......................... 83,010
Interest-bearing ............................. 16,678,563
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary........................... 10,041,324
Demand notes issued to the U.S. Treasury........................... 108,420
Trading liabilities........................................... 1,240,938
Other borrowed money............................................... 322,331
Subordinated notes and debentures.................................. 0
Bank's liability on acceptances executed and outstanding........... 47,334
Other liabilities.................................................. 1,126,058
Total liabilities ................................................. 40,500,840
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus...................... 0
Common stock....................................................... 29,931
Surplus............................................................ 468,511
Undivided profits and capital reserves/Net unrealized
holding gains (losses)........................................ 2,164,055
Net unrealized holding gains (losses) on available-for-
sale securities...................................... 21,638
Cumulative foreign currency translation adjustments................ (337)
----------
Total equity capital............................................... 2,683,798
----------
Total liabilities and equity capital............................... 43,184,638
----------
4
<PAGE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
<PAGE>
5. A copy of each indenture referred to in Item 4. if the obligor is
in default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the Act
s annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its supervising
or examining authority is annexed hereto as Exhibit 7 and made a
part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates
to matters peculiarly within the knowledge of the obligor or any underwriter
of the obligor, the trustee has relied upon the information furnished to it by
the obligor and the underwriters, and the trustee disclaims responsibility for
the accuracy or completeness of such information.
The answer to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation duly
organized and existing under the laws of The Commonwealth of Massachusetts,
has duly caused this statement of eligibility to be signed on its behalf by
the undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the {May 6, 1999}.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Dennis Fisher
-----------------------------------
NAME: Dennis Fisher
TITLE: Assistant Vice President
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by {ISSUER
NAME}. of its {TYPE OF SECURITIES ISSUED}, we hereby consent that reports of
examination by Federal, State, Territorial or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ NAME
------------------------------------
NAME
TITLE
Dated:
3
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000779033
<NAME> CONDOR SYSTEMS, INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-1-1998 JAN-1-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 4,300 1,146
<SECURITIES> 0 0
<RECEIVABLES> 42,928 37,803
<ALLOWANCES> (75) (75)
<INVENTORY> 1,772 2,310
<CURRENT-ASSETS> 57,439 51,336
<PP&E> 21,493 21,728
<DEPRECIATION> (16,472) (17,098)
<TOTAL-ASSETS> 67,923 61,456
<CURRENT-LIABILITIES> 28,467 21,876
<BONDS> 52,432 52,480
0 0
12,000 12,000
<COMMON> 15,410 15,410
<OTHER-SE> (40,386) (40,310)
<TOTAL-LIABILITY-AND-EQUITY> 67,923 61,456
<SALES> 101,042 19,008
<TOTAL-REVENUES> 101,042 19,008
<CGS> 61,660 11,161
<TOTAL-COSTS> 61,660 11,161
<OTHER-EXPENSES> 27,703 6,073
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 7,654 1,739
<INCOME-PRETAX> 4,262 127
<INCOME-TAX> 1,662 51
<INCOME-CONTINUING> 11,679 1,774
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,600 76
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001086557
<NAME> CEI SYSTEMS, INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-1-1998 JAN-1-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 142 65
<SECURITIES> 0 0
<RECEIVABLES> 5,671 5,089
<ALLOWANCES> (75) (75)
<INVENTORY> 537 333
<CURRENT-ASSETS> 14,975 15,775
<PP&E> 1,969 1,969
<DEPRECIATION> (460) (571)
<TOTAL-ASSETS> 16,582 17,272
<CURRENT-LIABILITIES> 4,603 3,837
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 11,979 13,435
<TOTAL-LIABILITY-AND-EQUITY> 16,582 17,272
<SALES> 22,355 4,675
<TOTAL-REVENUES> 22,355 4,675
<CGS> 13,170 1,589
<TOTAL-COSTS> 13,170 1,589
<OTHER-EXPENSES> 7,972 660
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 1,213 2,426
<INCOME-TAX> 487 970
<INCOME-CONTINUING> 1,213 2,426
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 726 1,456
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
