SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): AUGUST 28, 1996
RECOTON CORPORATION
(Exact Name of Registrant as Specified in Charter)
NEW YORK 0-5860 11-1771737
(State or Other Jurisdic (Commission (IRS Employer
tion of incorporation) File Number) Identification No.)
2950 LAKE EMMA ROAD, LAKE MARY, FLORIDA 32746
(Address of Principal Executive Offices, including Zip Code)
Registrant's telephone number, including area code: 407-333-8900
N.A.
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
On August 28, 1996, the Company acquired International Jensen
Incorporated ("Jensen"), a Delaware corporation, and its U.S. and foreign
operations, exclusive, however, of its original equipment manufacturing business
(the "OEM Business"). Jensen, renamed Recoton Audio Corporation ("Recoton
Audio"), is an Illinois-based international designer, assembler and marketer of
home and car stereo loudspeakers, car stereo players and amplifiers sold under
the Advent(R), Jensen(R), Phase Linear(R), and NHT(R) (Now Hear This) and in
Europe, Mac Audio(TM) and Magnat(R) brand names. The Company also acquired the
AR(R)/Acoustic Research(R) trademarks in the transaction, which marks previously
had been licensed by Jensen to the Company.
Recoton Audio's speaker assembly operations are in Benicia, California;
its research and development and warehousing operations are in Schiller Park,
Illinois; and its corporate headquarters are in Lincolnshire, Illinois. Recoton
Audio's subsidiaries have operations in Germany and Italy and sales offices in
the United Kingdom and Japan.
The acquisition was accomplished through the merger of RC Acquisition
Sub, Inc., a wholly-owned Delaware subsidiary of the Company, with and into
Jensen. The merger was preceded by the sale of Jensen's OEM Business, including
Jensen's component manufacturing facilities, to IJI Acquisition Corp. ("IJI
Acquisition") and the sale of the OEM Business receivables to Harris Trust and
Savings Bank, both sales yielding an aggregate of approximately $18.4 million
(subject to final balance sheet adjustments), with IJI Acquisition also assuming
related debt. IJI Acquisition was renamed International Jensen Incorporated
after the acquisition of Jensen by the Company. IJI Acquisition's sole
stockholder is Robert G. Shaw ("Shaw"), the former Chairman of the Board,
President and Chief Executive Officer of Jensen.
In payment for the purchase of each share of common stock of Jensen
("Jensen Common Stock"), the shareholders of Jensen other than Shaw and William
Blair Leverage Fund, L.P. ("WBLCF") received the right to $11.00 in cash; for
each share of Jensen Common Stock, Shaw and WBLCF received the right to $8.90 in
cash. The aggregate merger consideration paid to the Jensen stockholders was
approximately $56 million. Jensen, immediately after the merger, had
approximately $28 million in liabilities. The purchase price was determined
through negotiations between Recoton and Jensen and, with respect to payments to
Shaw and WBLCF, through negotiations between Recoton and Shaw and WBLCF.
Bridge financing for the acquisition and related costs in the
approximate amount of $60 million was provided by The Chase Manhattan Bank and
other lenders party to a $120 million credit facility (the "Facility") pursuant
to a Credit Agreement dated as of August 27, 1996. The Facility can also be
used, within certain limits, to repay certain existing indebtedness of Recoton
and Jensen, to provide working capital, for letters of credit and, within
certain limits, for financing additional acquisitions. The Company anticipates
making a private placement of senior notes to refinance that portion of the
Facility used for the acquisition and for other corporate purposes.
The facilities, equipment and other physical property of Jensen which
were acquired are used for the assembly, development and marketing of inventory;
the Company plans to continue to use these assets for such purpose.
Recoton Audio and IJI Acquisition are parties to a number of
agreements, including a Management Services Agreement, a Supply and Services
Agreement, a Shared Facilities Agreement, a Non- Competition Agreement, and a
License Agreement. Pursuant to the Management Services Agreement, which has an
initial term of one year and is automatically renewed unless otherwise
terminated, Shaw and certain other employees of the Company or Recoton Audio are
authorized to perform various managerial and administrative services for IJI
Acquisition during the course of their employment by the Company or Recoton
Audio. The Supply and Services Agreement provides for IJI Acquisition to supply
Recoton Audio's requirements for certain products and services for a term of
twelve months. The Shared Facilities Agreement governs the use of facilities in
Schiller Park and Lincolnshire, Illinois leased by Recoton Audio but also used
by IJI Acquisition; such agreement may be terminated by IJI Acquisition at any
time on six-month's notice and by Recoton Audio at any time after six months on
six month's notice. The Non-Competition Agreement provides that Recoton Audio
and IJI Acquisition each will not compete in certain areas of each other's
business, with certain exceptions. Pursuant to the License Agreement, Recoton
Audio has granted IJI Acquisition a ten-year, world-wide royalty-bearing license
to use the trademarks of Recoton Audio Corporation in OEM Business applications
in the automotive, truck, recreation vehicle, aircraft or other motorized
vehicle markets.
Pursuant to a previously-executed employment agreement, Robert G. Shaw
was engaged as the President and Chief Executive Officer of Recoton Audio and as
an executive officer of the Company. Mr. Shaw also has joined the Boards of
Directors of the Company and Recoton Audio.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
a. FINANCIAL STATEMENTS OF BUSINESS ACQUIRED (filed
herewith)
1. International Jensen Incorporated and
Subsidiaries Consolidated Financial Statements:
(a) Report of Independent Accountants Coopers &
Lybrand, L.L.P. dated May 24, 1996.
(b) Consolidated Balance Sheets as of February
29, 1996 and February 28, 1995.
(c) Consolidated Statements of Operations for
each of the three years in the period ended
February 29, 1996.
(d) Consolidated Statements of Cash Flows for
each of the three years in the period ended
February 29, 1996.
(e) Consolidated Statements of Shockholders'
Equity for each of the three years in the
period ended February 29, 1996.
(f) Notes to Consolidated Financial Statements.
b. PRO FORMA FINANCIAL INFORMATION
It is currently impractical to provide the required pro FORMA
financial information; such information will be filed by
amendment on or prior to 60 days from the date hereof.
c. EXHIBITS
1. Fourth Amended and Restated Agreement and Plan of
Merger Agreement among Recoton Corporation, RC
Acquisition Sub, Inc. and International Jensen
Incorporated dated as of January 3, 1996, but
executed on June 23, 1996 (incorporated by
reference to Exhibit 2.1 of the Registrant's
Current Report on Form 8-K for an event occurring
on June 23, 1996).
2. Certificate of Merger of RC Acquisition Sub, Inc.
into International Jensen Incorporated dated
August 28, 1996.
3. Third Amended and Restated Agreement for Purchase
and Sale of Assets of the OEM Business among
International Jensen Incorporated and IJI
Acquisition, Inc. dated as of January 3, 1996,
but executed on June 23, 1996 (incorporated by
reference to Exhibit 2.2 of International Jensen
Incorporated's Current Report on Form 8-K for an
event occurring on June 23, 1996).
4. Receivables Sales Agreement among International
Jensen Incorporated, IJI Acquisition Corp. and
Harris Trust and Savings Bank dated as of August
28, 1996.
5. Credit Agreement among Recoton Corporation, The Chase
Manhattan Bank, and the Lenders made party thereto
dated as of August 27, 1996.
6. Management Services Agreement among IJI
Acquisition Corp. and International Jensen
Incorporated dated August 28, 1996.
7. Supply and Services Agreement among IJI
Acquisition Corp. and International Jensen
Incorporated dated August 28, 1996.
8. Shared Facilities Agreement among IJI Acquisition
Corp. and International Jensen Incorporated dated
August 28, 1996.
9. Non-Competition Agreement among IJI Acquisition
Corp. and International Jensen Incorporated dated
August 28, 1996.
10. License Agreement among IJI Acquisition Corp. and
International Jensen Incorporated dated August
28, 1996.
11. Employment Agreement among Recoton Corporation
and Robert G. Shaw dated as of May 1, 1996
(incorporated by reference to Exhibit 10.4 of the
Registrant's Current Report on Form 8-K for an
event occurring on May 1, 1996).
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
unmdersigned hereunto duly authorized.
RECOTON CORPORATION
By: /s/ Stuart Mont
Name: Stuart Mont
Title: Chief Operating Officer and
Executive Vice President
Operations
Dated: September 11, 1996
<PAGE>
EXHIBIT INDEX
1. Fourth Amended and Restated Agreement and Plan of Merger
Agreement among Recoton Corporation, RC Acquisition Sub, Inc.
and International Jensen Incorporated dated as of January 3,
1996, but executed on June 23, 1996 (incorporated by reference
to Exhibit 2.1 of the Registrant's Current Report on Form 8-K
for an event occurring on June 23, 1996).
2. Certificate of Merger of RC Acquisition Sub, Inc. into
International Jensen Incorporated dated August 28,
1996.
3. Third Amended and Restated Agreement for Purchase and Sale of
Assets of the OEM Business among International Jensen
Incorporated and IJI Acquisition, Inc. dated as of January 3,
1996, but executed on June 23, 1996 (incorporated by reference
to Exhibit 2.2 of International Jensen Incorporated's Current
Report on Form 8-K for an event occurring on June 23, 1996).
4. Receivables Sales Agreement among International Jensen
Incorporated, IJI Acquisition Corp. and Harris Trust
and Savings Bank dated as of August 28, 1996.
5. Credit Agreement among Recoton Corporation, The Chase
Manhattan Bank, and the Lenders made party thereto
dated as of August 27, 1996.
6. Management Services Agreement among IJI Acquisition
Corp. and International Jensen Incorporated dated
August 28, 1996.
7. Supply and Services Agreement among IJI Acquisition
Corp. and International Jensen Incorporated dated
August 28, 1996.
8. Shared Facilities Agreement among IJI Acquisition
Corp. and International Jensen Incorporated dated August
28, 1996.
9. Non-Competition Agreement among IJI Acquisition Corp.
and International Jensen Incorporated dated August 28,
1996.
10. License Agreement among IJI Acquisition Corp. and
International Jensen Incorporated dated August 28,
1996.
11. Employment Agreement among Recoton Corporation and
Robert G. Shaw dated as of May 1, 1996 (incorporated
by reference to Exhibit 10.4 of the Registrant's Current
Report on Form 8-K for an event occurring on May 1,
1996).
<PAGE>
Item 7(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors of
International Jensen Incorporated
We have audited the accompanying consolidated balance sheets of
International Jensen Incorporated and Subsidiaries ("the Company") as of
February 29, 1996 and February 28, 1995, and the related consolidated statements
of operations, stockholders' equity and cash flows for the years ended February
29, 1996 and February 28, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
International Jensen Incorporated and Subsidiaries as of February 29, 1996 and
February 28, 1995, and the consolidated results of their operations and their
cash flows for the years ended February 29, 1996 and February 28, 1995 and 1994,
in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, in fiscal
1994 the Company changed its method of accounting for income taxes.
/s/ COOPERS & LYBRAND L.L.P.
Chicago, Illinois
May 24, 1996
<PAGE>
CONSOLIDATED BALANCE SHEETS
INTERNATIONAL JENSEN INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
ASSETS (Dollars in thousands, except per share amounts) 1996 1995
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents.......................................... $4,416 $5,456
Accounts receivable, net of allowance for
doubtful accounts of $2,387 and $2,157, respectively............ 50,251 48,279
Inventories........................................................ 39,615 50,467
Deferred income taxes.............................................. 3,715 4,429
Other current assets............................................... 4,342 3,959
-------- --------
Total current assets............................................ 102,339 112,590
-------- --------
Property, plant and equipment:
Land............................................................... 160 158
Buildings.......................................................... 4,162 3,346
Machinery and equipment............................................ 25,283 22,749
Furniture and fixtures............................................. 7,199 7,207
-------- --------
36,804 33,460
Less accumulated depreciation...................................... 18,996 14,896
-------- --------
17,808 18,564
-------- --------
Deferred income taxes................................................. 4,272 3,257
Goodwill, net ........................................................ 6,862 6,969
Other assets.......................................................... 1,353 1,168
-------- --------
Total assets....................................................... $132,634 $142,548
-------- --------
-------- --------
LIABILITIES AND
STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Short-term borrowings.............................................. $27,391 $28,998
Accounts payable................................................... 12,027 15,149
Current maturities of long-term debt............................... 49 115
Long-term debt reclassified as current............................. 15,000 --
Accrued taxes...................................................... 2,211 543
Current deferred income taxes...................................... 441 295
Accrued profit sharing............................................. 1,380 3,273
Other accrued liabilities.......................................... 13,719 15,541
-------- --------
Total current liabilities....................................... 72,218 63,914
Long-term debt........................................................ 859 15,881
Noncurrent deferred income taxes ..................................... 20 2,207
Other noncurrent liabilities.......................................... 388 320
Excess of fair value of acquired net assets over cost, net............ 4,434 5,982
-------- --------
Total liabilities............................................... 77,919 88,304
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.10 par value; 5,000,000
shares authorized; none issued ................................. -- --
Common stock, $.01 par value; 10,000,000 shares authorized;
5,929,811 shares issued........................................ 59 59
Additional paid-in capital......................................... 18,116 17,968
Equity adjustment from foreign currency translation ............... 1,454 297
Retained earnings.................................................. 35,732 36,615
-------- --------
55,361 54,939
Treasury stock at cost 195,044 and 226,056 shares, respectively.... (646) (695)
-------- --------
Total stockholders' equity...................................... 54,715 54,244
-------- --------
Total liabilities and stockholders' equity...................... $132,634 $142,548
-------- --------
-------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
INTERNATIONAL JENSEN INCORPORATED AND SUBSIDIARIES
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales.................................................................... $249,695 $252,772 $220,601
Cost of goods sold........................................................... 183,065 178,387 158,166
-------- -------- --------
Gross profit............................................................ 66,630 74,385 62,435
Selling and marketing........................................................ 46,698 43,772 36,169
Administration............................................................... 17,262 16,896 18,058
Restructuring charge......................................................... -- -- 6,200
-------- -------- --------
Operating income........................................................ 2,670 13,717 2,008
-------- -------- --------
Interest income.............................................................. (278) (401) (335)
Interest expense............................................................. 4,574 3,293 2,167
Other income-net ............................................................ (225) (396) (265)
-------- -------- --------
4,071 2,496 1,567
-------- -------- --------
Income (loss) before provision for income taxes and cumulative effect of
accounting change......................................................... (1,401) 11,221 441
Provision for (benefit from) income taxes.................................... (518) 4,279 869
-------- -------- --------
Income (loss) before cumulative effect of accounting change............. (883) 6,942 (428)
Cumulative effect of accounting change....................................... -- -- 3,595
-------- -------- --------
Net income (loss)....................................................... ($883) $6,942 $3,167
-------- -------- --------
-------- -------- --------
Per common share:
Income (loss) before cumulative effect of accounting change............. ($0.15) $1.21 ($0.08)
Cumulative effect of accounting change.................................. -- -- 0.63
-------- -------- --------
Net income (loss)....................................................... ($0.15) $1.21 $0.55
-------- -------- --------
-------- -------- --------
Weighted average shares of common stock outstanding.......................... 5,711,888 5,757,762 5,737,174
- ---------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
INTERNATIONAL JENSEN INCORPORATED AND SUBSIDIARIES
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(DOLLARS IN THOUSANDS) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . ($883) $6,942 $3,167
------- ------- -------
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,064 4,612 4,019
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (974) (1,045) (1,383)
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . 1,405 1,137 2,341
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . (1,941) 1,859 (1,747)
Provision for restructuring charges . . . . . . . . . . . . . . . . . . -- -- 6,200
Cumulative effect of accounting change . . . . . . . . . . . . . . . . . -- -- (3,595)
Changes in assets and liabilities:
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 4,000 (4,000)
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . (3,248) (7,341) (2,748)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,633 (9,570) (2,926)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . (3,379) 628 (1,039)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,891) (4,419) 1,939
------- ------- -------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . 4,669 (10,139) (2,939)
------- ------- -------
Net cash provided by (used in) operating activities . . . . . . . 3,786 (3,197) 228
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,194) (7,851) (6,306)
Payment for the purchase of Mac Audio, net of cash acquired . . . . . . . -- -- (3,006)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 (184) (97)
------- ------- -------
Net cash used in investing activities . . . . . . . . . . . . . . . . . (4,174) (8,035) (9,409)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt, net of debt issuance costs . . . -- 14,770 --
Principal payments on long-term debt . . . . . . . . . . . . . . . . . . . (71) (138) (34)
Proceeds (payments) under revolving credit arrangements, net . . . . . . . (3,996) (5,659) 16,832
Proceeds from short-term note agreement . . . . . . . . . . . . . . . . . 2,000 -- --
Proceeds from the issuance of stock . . . . . . . . . . . . . . . . . . . 197 56 51
(Decrease) in cash overdraft . . . . . . . . . . . . . . . . . . . . . . . -- -- (1,615)
------- ------- -------
Net cash (used in) provided by financing activities . . . . . . . . . . (1,870) 9,029 15,234
------- ------- -------
Effect of foreign currency on cash . . . . . . . . . . . . . . . . . . . 1,218 1,291 315
Net (decrease) increase in cash . . . . . . . . . . . . . . . . . . . . . . . (1,040) (912) 6,368
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . 5,456 6,368 --
------- ------- -------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . $4,416 $5,456 $6,368
------- ------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,622 $2,934 $1,935
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,943 $6,346 $2,103
Cash received during the year from:
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,715 -- --
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
INTERNATIONAL JENSEN INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
COMMON STOCK EQUITY ADJUSTMENT
OUTSTANDING ADDITIONAL FROM FOREIGN TOTAL
------------------ PAID-IN CURRENCY RETAINED TREASURY STOCKHOLDERS'
(DOLLARS IN THOUSANDS) SHARES AMOUNT CAPITAL TRANSLATION EARNINGS STOCK EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1993 . . . . . . . 5,682,645 $59 $17,894 ($1,285) $26,506 ($728) $42,446
Net income . . . . . . . . . . . . . . . . -- -- -- -- 3,167 -- 3,167
Foreign currency translation adjustment . -- -- -- (138) -- -- (138)
Stock options exercised . . . . . . . . . 10,537 -- 34 -- -- 17 51
Balance at February 28, 1994 . . . . . . . 5,693,182 59 17,928 (1,423) 29,673 (711) 45,526
--------- ----- -------- ------- ------- ----- -------
Net income . . . . . . . . . . . . . . . . -- -- -- -- 6,942 -- 6,942
Foreign currency translation adjustment . -- -- -- 1,720 -- -- 1,720
Stock options exercised . . . . . . . . . 10,573 -- 40 -- -- 16 56
--------- ----- -------- ------- ------- ----- -------
Balance at February 28, 1995 . . . . . . . 5,703,755 59 17,968 297 36,615 (695) 54,244
Net (loss) . . . . . . . . . . . . . . . . -- -- -- -- (883) -- (883)
Foreign currency translation adjustment . -- -- -- 1,157 -- -- 1,157
Stock issued out of Treasury Shares 13,545 -- 89 -- 21 110
Stock options exercised . . . . . . . . . 17,467 -- 59 -- -- 28 87
--------- ----- -------- ------- ------- ----- -------
Balance at February 29, 1996 . . . . . . . 5,734,767 $59 $18,116 $1,454 $35,732 ($646) $54,715
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
FINANCIAL STATEMENTS.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. COMPANY
The Company, headquartered in Lincolnshire, Illinois, is a designer,
manufacturer and marketer of quality loudspeakers, related audio products and
speaker components.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. European operations maintain a
calendar year accounting period which is consolidated with the Company's fiscal
period. Intercompany balances and transactions are eliminated in consolidation.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations are translated into U.S. dollars in
accordance with Statement of Financial Accounting Standards No. 52.
Accordingly, all assets and liabilities are translated at current rates of
exchange and operating transactions are translated at weighted average rates
during the year. Translation gains and losses are not included in the
determination of net income but are accumulated as a separate component of
stockholders' equity.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity
date of three months or less to be cash equivalents. The Company invests excess
cash in commercial paper and bank certificates of deposit. The commercial paper
has a favorable investment rating and the bank certificates of deposit are at
institutions which management believes have strong credit ratings.
CONCENTRATIONS OF CREDIT RISK
The Company sells products to domestic and foreign original equipment
manufacturers, chain stores, distributors and other customers and extends credit
based on an evaluation of the customer's financial condition, generally without
requiring collateral. Exposure to losses on receivables is principally dependent
on each customer's financial condition. The Company monitors its exposure for
credit losses and maintains allowances for anticipated losses.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
principally on the last-in, first-out basis (LIFO). The first-in, first-out
basis (FIFO) is utilized for approximately 48% and 44% of ending inventory at
February 29, 1996 and February 28, 1995, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment acquired are stated at cost and depreciated over
their estimated useful lives on the straight-line basis. Expenditures for
improvements are capitalized, while maintenance and repairs are charged against
operations as incurred.
Upon retirement or other disposition, cost and related accumulated
depreciation are removed from the accounts and any gain or loss is included in
the results of operations.
IMPAIRMENT OF LONG-LIVED ASSETS
In the event that facts and circumstances indicate that the cost of any long-
lived assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow value is
required.
STOCK BASED COMPENSATION
The Company applies the provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" for its stock-based compensation
programs and does not intend to adopt the fair value accounting rules as
premitted by Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). Accordingly, the Company intends to
adopt the disclosure provisions of SFAS 123 beginning in Fiscal 1997.
EXCESS OF FAIR VALUE OF ACQUIRED NET ASSETS OVER COST
In connection with the management buy-out of the Company in November 1988,
certain purchase accounting adjustments were made to reflect that the purchase
price was lower than fair market value of the net assets acquired. All non-
current assets were written down to zero for financial reporting. The excess
fair value of acquired net assets over cost is being amortized over 10 years on
the straight-line basis. Accumulated amortization at February 29, 1996 and
February 28, 1995, was $11,711 and $10,163, respectively.
GOODWILL
Goodwill represents the excess of the cost of acquired assets over their fair
value and is being amortized over 20 years on the straight-line basis.
Accumulated amortization at February 29, 1996 and February 28, 1995, was $1,055
and $581, respectively.
INCOME TAXES
Effective March 1, 1993 the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
In addition, the amount of any future tax benefits are reduced by a valuation
allowance to the extent such benefits are not expected to be realized.
As of March 1, 1993 the Company recorded a tax benefit of approximately
$3.6 million or $0.63 per share, which amount represents the net increase to the
deferred tax asset as of that date. Such amount has been reflected in the
consolidated statement of operations as the cumulative effect of an accounting
change.
NET (LOSS) INCOME PER SHARE
Consolidated net income per share of the Company is based on the weighted
average number of common shares and common equivalent shares outstanding during
each year. Common equivalent shares include shares subject to stock options and
are calculated using the treasury stock method. Consolidated net loss per
share is based upon the weighted average number of common shares outstanding.
DERIVATIVE FINANCIAL INSTRUMENTS
Forward exchange contracts are used to hedge net transaction exposures. The
Company defers unrealized gains or losses until the completion of the contract.
The Company's program to hedge net foreign currency transaction exposures is
designed to protect operating results and cash flows from potential adverse
effects of foreign currency fluctuations related to intercompany and selected
third party transactions. The hedging activities seek to limit this risk by
offsetting the gains and losses on the underlying exposures with losses and
gains on the instruments utilized to create the hedge. Outstanding contracts at
February 29, 1996 and February 28, 1995, are not material.
RECLASSIFICATIONS
Certain amounts were reclassified to conform to the fiscal 1996 presentations.
The reclassifications had no effect on reported equity or net income.
<PAGE>
ADVERTISING COSTS
Advertising costs are generally charged to expense in the period incurred.
WARRANTY COSTS
The Company provides for estimated warranty costs as products are shipped.
3. ACQUISITIONS
On September 30, 1993, the Company acquired all of the outstanding share
interests of Mac Audio Electronic GmbH ("Mac Audio"), headquartered in Germany.
Mac Audio designs and markets automotive aftermarket speakers, amplifiers and
receivers.
The cash purchase price of 17.9 million Deutsche Marks (approximately
$10,700) includes $300 of capitalized acquisition costs. In addition, $7,100 in
cash and cash equivalents were acquired and liabilities of $8,500 were assumed
in conjunction with the acquisition. The acquisition was accounted for using
the purchase method and the results of Mac Audio have been consolidated with the
Company since September 30, 1993. The acquisition was made by a wholly-owned
subsidiary of the Company.
Summarized below are the unaudited pro forma results of operations of the
Company as though Mac Audio had been acquired at the beginning of each of the
fiscal years ended February 28, 1994, and 1993, respectively. Adjustments have
been made for interest attributable to the financing of the transaction, and the
amortization of goodwill.
Year Ended Year Ended
February 28, February 28,
1994 1993
(UNAUDITED) (UNAUDITED)
----------- -----------
Revenues . . . . . . . . . . . $232,017 $204,272
Net Income . . . . . . . . . . $4,187 $5,770
Net Income per Share . . . . . $0.73 $1.00
The pro forma financial information presented above is not necessarily
indicative of either the results of operations that could have occurred had the
acquisition taken place at the beginning of each of the fiscal years shown, or
of future results of operations of the combined operations.
The Company acquired an additional 10% ownership in Entel s.r.l. during
fiscal 1993 from one of the joint venure partners, bringing the total ownership
to 55%. Subsequently, during fiscal 1994 the Company acquired the remaining
equity interest of Entel s.r.l. from its Italian joint venture partner in
exchange for cash and the Company's equity interest in A.E.B. s.r.l.. No gain or
loss was recorded in conjunction with the disposition of the Company's interest
in A.E.B. s.r.l.. The acquisition of the minority interest in Entel s.r.l. and
disposal of the minority interest in A.E.B. s.r.l. were accounted for under APB
16 and did not have a material impact on the Company's results of operations for
the year ended February 28, 1994, or its financial position at February 28,
1994.
4. INVENTORIES
Inventories consist of the following:
February 29, February 28,
1996 1995
------- ------
Raw materials and fabricated
parts . . . . . . . . . . . . . . . . . . . . $11,894 $15,227
Work in process. . . . . . . . . . . . . . . . . 2,133 2,425
Finished goods . . . . . . . . . . . . . . . . . 27,818 35,520
------- -------
41,845 53,172
Less allowance to reduce to
LIFO basis. . . . . . . . . . . . . . . . . . (2,230) (2,705)
------- -------
$39,615 $50,467
------- -------
------- -------
The allowance to reduce to LIFO basis approximates the excess of
replacement cost over LIFO value.
During fiscal 1996 inventory quantities were reduced, which resulted in a
liquidation of LIFO inventory layers carried at lower costs which prevailed in
prior years. The effect of the liquidations for fiscal 1996 was to decrease
cost of goods sold by approximately $671,000 and to decrease net loss by
$423,000 or $0.07 per share.
5. BORROWING ARRANGEMENTS
The Company has short-term borrowings under various financing arrangements
at February 29, 1996 and February 28, 1995 as follows:
1996 1995
------- -------
Borrowings under a $50 million
multi-currency revolving credit
facility expiring on May 31, 1997,
including one one-year renewal
options, bearing interest at the
lender's base rate or at LIBOR plus
the applicable LIBOR margin which
ranged from 6.75% to 8.50% at
February 29, 1996 and 7.18% to 9.00%
at February 28, 1995. $13,800 $20,600
Borrowings under various foreign
lines of credit, expiring on various
dates though fiscal 1997, bearing
interest from 7.75% to 14.0% and
5.75% to 12.5% at February 29, 1996
and February 28, 1995, respectively 11,591 8,398
Promissory note to Recoton Corporation
due on the earlier of January 3, 1997
or per the provision of the agreement
and plan of merger (see Note 16) dated
as of January 3, 1996 together with
interest payable at a rate equal to the
U.S. Treasury Department's equivalent,
on a semi-annual basis, to the applicable
short-term rate as defined in Section
1274 (d) of the internal revenue code
(approximately 6.0% at February 29,
1996). 2,000 ---
------- -------
Total short-term borrowings $27,391 $28,998
------- -------
------- -------
At February 29, 1996, the Company had outstanding borrowings supported by
the multi-currency revolving credit facility (the "facility") totaling $13,800,
outstanding letters of credit totaling $8,100 leaving available borrowings under
the agreement of $28,100. The facility requires payment, on a quarterly basis,
of commitment fees of .25% on the unused commitment facility. The facility
contains certain restrictive covenants, which, among other things require the
maintenance of certain financial ratios. At February 29, 1996, the Company was
not in compliance with the interest and rent coverage ratio and the current
ratio contained within the facility agreement. On May 24, 1996, the Company
entered into an agreement amending its multi-currency credit facility which
provides a waiver covering non-compliance at February 29, 1996. The amendment
reduces the revolving credit commitments from $50.0 million to $35.0 million and
increases the interest rate on LIBOR-based borrowings by 1%.
The weighted average interest rate on short-term borrowings was 9.34% and
8.64% for the years ended February 29, 1996 and February 28, 1995, respectively.
Long-term debt as of February 29, 1996 and February 28, 1995 consists of
the following:
1996 1995
---- ----
Borrowings under senior note,
maturing on May 30, 2004, with
principal payments of approximately
$2.1 million commencing on May 30,
1998 and payable each May 30 until
maturity, bearing a fixed interest
rate of 8.02% $15,000 $15,000
Mortgage note, maturing on July 1,
2007, bearing interest at 9.5% and
other miscellaneous borrowings 908 996
Less long term debt reclassified
as current (15,000)
Less current portion (49) (115)
------- -------
$ 859 $15,881
------- -------
------- -------
The proceeds of the senior note were primarily used to repay the Company's
acquisition debt. The senior note agreement contains certain restrictive
covenants, which, among other things require the maintenance of certain
financial ratios. At February 29, 1996 the Company was not in compliance with
the fixed charge coverage ratio contained in the senior note agreement. The
Company has recieved a waiver of this requirement at February 29, 1996. Based on
current projections, though, it does not appear that the Company will be in
compliance with the covenant during fiscal 1997 and as such the Company has
reclassified the $15.0 million senior note from long-term to current. In the
event of future noncompliance with specified ratios, the Company will be
required to obtain waivers to avoid debt payment acceleration.
Aggregate maturities on long term debt are as follows:
Year ending Amount
----------- ------
1997 15,049
1998 48
1999 52
2000 57
2001 62
2002 and thereafter 640
6. LEASES
The Company leases certain office facilities and equipment under
noncancelable operating leases with terms of more than one year. The leases
require annual rental plus the payment of property taxes, normal maintenance and
insurance on the properties.
The total minimum annual rental commitment at February 29, 1996 under the
aforementioned leases is as follows:
1997 . . . . . . . . . . . . . . . . . . $2,247
1998 . . . . . . . . . . . . . . . . . . 2,204
1999 . . . . . . . . . . . . . . . . . . 1,978
2000 . . . . . . . . . . . . . . . . . . 1,581
2001 . . . . . . . . . . . . . . . . . . 1,095
2002 and beyond. . . . . . . . . . . . . 690
------
Total. . . . . . . . . . . . . . . . . . $9,795
------
------
Rent expense for the years ended February 29, 1996 and February 28, 1995 and
1994 was $2,850, $2,536 and $2,824, respectively.
7. RETIREMENT PLANS
The Company provides benefits to all eligible employees under a defined
contribution profit sharing plan. The profit sharing contribution consists of an
amount equal to 5% of eligible wages for each eligible employee. In addition,
the Company may elect to make an additional contribution at its discretion,
subject to the limits set by law. Eligible employees may elect to defer up to 6%
of their salary under the 401(k) provision of the plan. The Company contributes
an additional 50% of the amount deferred. For the years ended February 29, 1996,
and February 28, 1995 and 1994, the Company has recorded expense under this plan
of $2,150, $3,979 and $3,384, respectively.
8. STOCK OPTION AND STOCK PURCHASE PLAN
The International Jensen Incorporated Management Stock Plan (the Plan),
adopted in June 1989, provides equity ownership of up to 212,500 shares of the
Company's common stock to officers and key executive employees (managers).
In accordance with the Company's Stock Option Plan, adopted in October
1989, and the 1991 Stock Incentive Plan, adopted in December 1991, options to
purchase 529,200 shares of common stock can be granted to outside directors,
officers and employees of the Company. The options are exercisable at the fair
market value at the date of grant. During Fiscal 1996 the Stockholders approved
an amendment to the 1991 stock incentive plan to increase the aggregate number
of shares authorized by the plan by 400,000 shares.
During fiscal 1995, the Company adopted a stock option and purchase plan
for non-employee directors. Each participant received an option to purchase
3,000 shares of common stock on the effective date of the plan and an option to
purchase 1,000 shares of common stock on January 1 of each year in which he or
she continues to serve as a non-employee director. The options are exercisable
at the fair market value at the date of the grant.
A summary of option activity is as follows:
Option Price
Shares Range per Share
-------- ----------------
Outstanding at February 29, 1993 274,800 $4.14 - $11.50
Options granted . . . . . . . . . . . . . 82,900 6.50 - 7.25
Options exercised . . . . . . . . . . . . (10,537) 4.14 - 5.08
Options canceled. . . . . . . . . . . . . (22,232) 5.08 - 11.50
--------
Outstanding at February 28, 1994 324,931 4.14 - 11.50
Options granted . . . . . . . . . . . . . 99,800 7.88 - 9.75
Options exercised . . . . . . . . . . . . (10,573) 4.14 - 7.25
Options canceled. . . . . . . . . . . . . (21,058) 5.08 - 11.50
--------
Outstanding at February 28, 1995 393,100 4.14 - 11.50
Options granted . . . . . . . . . . . . . 83,900 7.25 - 8.50
Options exercised . . . . . . . . . . . . (17,467) 4.14 - 7.25
Options canceled. . . . . . . . . . . . . (63,075) 4.14 - 11.50
--------
OUTSTANDING AT
FEBRUARY 29, 1996 396,458 $4.14 - $11.50
--------
--------
9. INCOME TAXES
The (benefit from) provision for income taxes consists of the following:
Year Ended Year Ended Year Ended
February 29, February 28, February 28,
1996 1995 1994
----- ----- -----
Federal:
Current . . . . . ($1,800) $933 $1,759
Deferred. . . . . 152 1,496 (1,478)
------- ----- ------
(1,648) 2,429 281
------- ----- ------
State:
Current . . . . . 167 352 592
Deferred. . . . . 117 356 (502)
------- ----- ------
284 708 90
------- ----- ------
Foreign
Current . . . . . 3,056 1,135 265
Deferred. . . . . (2,210) 7 233
------- ----- ------
846 1,142 498
------- ----- ------
Total (benefit from)
provision for
income taxes . . . ($518) $4,279 $869
------- ----- ------
------- ----- ------
The differences between the statutory federal income tax rate and the effective
tax rate for operations are as follows:
Year Ended Year Ended Year Ended
February 29, February 28, February 28,
1996 1995 1994
-------- -------- -------
Income (loss)
before income taxes
United States . . . . . . . ($2,488) $8,543 $2,653
Foreign . . . . . . . . . . 1,087 2,678 (2,212)
------- ------ ------
Total . . . . . . . . . . . ($1,401) $11,221 $ 441
------- ------ ------
------- ------ ------
Statutory federal
income tax . . . . . . . . ($476) $3,815 $150
State taxes net of
federal benefit. . . . . . 189 528 39
Inability to utilize
foreign net
operating losses . . . . . --- --- 1,264
Foreign taxes in
excess of U.S.
rate. . . . . . . . . . . . 476 231 ---
Difference in
book and tax
basis, related to
acquisition
adjustments. . . . . . . . (526) (526) (526)
Other items . . . . . . . . . (181) 231 (58)
------- ------ ------
Total. . . . . . . . . . . ($518) $4,279 $869
------- ------ ------
------- ------ ------
The components of the net deferred tax balances, as of February 29, 1996, and
February 28, 1995 were as follows:
Year Ended Year Ended
February 29, February 28,
1996 1995
---------- -----------
Deferred tax assets:
Net operating losses and credit
carryforwards . . . . . . . . . . . . . . . . . $2,812 $1,496
Allowance for doubtful accounts . . . . . . . . . 658 615
Inventory reserves . . . . . . . . . . . . . . . . 1,309 2,226
Warranty reserves. . . . . . . . . . . . . . . . . 1,116 1,059
Health insurance reserves. . . . . . . . . . . . . 441 521
Other accrued liabilities. . . . . . . . . . . . . 2,250 2,195
Tax over book basis in foreign subs. . . . . . . . 131 618
Other capital loss items . . . . . . . . . . . . . 680 660
Tax over book basis in foreign jurisdictions . . . 675 ---
Valuation allowance. . . . . . . . . . . . . . . . (1,211) (1,451)
------ ------
Total deferred tax asset . . . . . . . . . . . . . 8,861 7,939
------ ------
Deferred tax liabilities
Tax over book LIFO reserve . . . . . . . . . . . . 283 246
VEBA deposit . . . . . . . . . . . . . . . . . . . 534 507
Fixed assets . . . . . . . . . . . . . . . . . . . 518 66
Book over tax basis in foreign
jurisdictions . . . . . . . . . . . . . . . . . --- 1,936
------ ------
Total deferred tax liability . . . . . . . . . . . 1,335 2,755
------ ------
Net deferred tax asset . . . . . . . . . . . . . . . $7,526 $5,184
------ ------
------ ------
Gross Asset Valuation Net Asset
(Liability) Allowance (Liability)
----------- --------- -----------
Year ended February 29,
1996
Current deferred asset. . . . . . . . . . $4,372 (657) $3,715
Long-term deferred
asset . . . . . . . . . . . . . . . . . 4,826 (554) 4,272
Current deferred
liability . . . . . . . . . . . . . . . (441) --- (441)
Long-term deferred
liability . . . . . . . . . . . . . . . (20) --- (20)
-------- -------- ------
Total . . . . . . . . . . . . . . . . . . $8,737 $(1,211) $7,526
-------- -------- ------
-------- -------- ------
Year ended February 28,
1995
Current deferred asset. . . . . . . . . . $5,332 ($903) $4,429
Long-term deferred
asset . . . . . . . . . . . . . . . . . 3,805 (548) 3,257
Current deferred
liability . . . . . . . . . . . . . . . (295) --- (295)
Long-term deferred
liability . . . . . . . . . . . . . . . (2,207) --- (2,207)
-------- -------- ------
Total . . . . . . . . . . . . . . . . . . $6,635 $(1,451) $5,184
-------- -------- ------
-------- -------- ------
The Company has recorded a partial valuation allowance against certain
domestic deferred tax assets since it does not believe that the realization
of certain assets is more likely than not. A valuation allowance has been
recorded against deferred tax assets relating to foreign net operating losses
and certain capital loss carryforwards as a result of the uncertainty of
their ultimate utilization. The valuation allowance decreased during the
current year due predominantly to utilization of foreign losses. Domestic
net operating losses and credit carryforwards begin to expire in the year s
2000-2011. Foreign net operating losses expire in the year 1998.
10. COMMITMENTS AND CONTINGENCIES
The Company is from time to time a defendant in various lawsuits and claims
arising out of conduct of its business, including those relating to commercial
transactions and environmental, health and safety matters. The Company believes,
however, that none of these actions either individually, or in the aggregate
will have a material adverse effect on the Company's financial position or
results of operations. (See Note 16)
11. CUSTOMER DATA
The Company's accounts receivable are primarily composed of amounts due
from customers whose principal business is in the automotive and retail
industries.
The account balance of the Company's largest customer, Ford, was
approximately 14%, 14%, and 15% of total trade accounts receivable at February
29, 1996 and February 28, 1995 and 1994, respectively. Domestic revenue
generated from this customer amounted to approximately $52,000, $56,000, and
$48,500 for the years ended February 29, 1996 and February 28, 1995 and 1994,
respectively. Five key customers accounted for approximatley 44% of the
Company's net sales in Fiscal 1996. Management considers the Company's
relationship with each of these key customers to be good, except for recent
developments concerning Ford's commodity speaker program which could result in a
substantial reduction in the amount of sales to Ford in the future. The loss of
any one of these customers or a substantial reduction in the Ford business could
have a material adverse affect on the Company's financial position or results of
operations.
Domestic revenue generated from export sales approximated $8,000, $15,000,
and $21,000 for the years ended February 29, 1996, February 28, 1995 and 1994,
respectively.
12. FOREIGN OPERATIONS
The Company's geographic area information is as follows:
Domestic Europe Eliminations Total
-------- ------ ------------ -----
Sales . . . . . . . . . $190,514 $59,818 ($637) $249,695
Operating
income. . . . . . . . (535) 3,388 (183) 2,670
Net (loss) income . . . (1,127) 430 (186) (883)
Total assets. . . . . . 104,668 48,173 (20,207) 132,634
The Company's European subsidiaries principally operate in Germany and Italy.
Net assets of the European subsidiaries approximate $9.9 million.
13. QUARTERLY SUMMARY OF OPERATIONS (UNAUDITED)
The following quarterly summary of operations is unaudited. In the opinion
of the Company's management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of the interim periods
presented, have been included.
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- --------- -------- --------
Year ended
February 29, 1996
Net sales . . . . . . . . . . . $65,284 $60,582 $68,257 $55,572
Gross profit. . . . . . . . . . 17,851 16,317 18,133 14,329
Operating income
(loss). . . . . . . . . . . 2,054 356 1,500 (1,240)
Income (loss) before
provision for (benefit from)
income taxes. . . . . . . . . 1,217 (551) 239 (2,306)
Net income (loss). . . . . . . 767 (347) 150 (1,453)
Quarterly earnings (loss) per
share . . . . . . . . . . . . 0.13 (0.06) 0.03 (0.25)
Year ended
February 28, 1995
Net sales . . . . . . . . . . . $67,892 $58,205 $69,492 $57,183
Gross profit. . . . . . . . . . 20,501 17,171 19,827 16,886
Operating income. . . . . . . . 5,532 2,581 3,715 1,889
Income before
provision for
income taxes. . . . . . . . . 4,902 1,914 3,186 1,219
Net income. . . . . . . . . . . 2,753 1,206 2,008 975
Quarterly earnings per
share . . . . . . . . . . . . 0.48 0.21 0.35 0.17
14. RESTRUCTURING
Effective during the third quarter of fiscal 1994 the Company elected to
discontinue a number of products in the Acoustic Research line due to poor
market acceptance and to close the Canton, Massachusetts facility and
consolidate remaining operations with other operations of the Company. The
provision of $6,200 consisted of a valuation allowance to write down finished
goods and raw materials subject to the product line rationalization to net
realizable value, costs for the elimination of approximately 45 employees
through severance programs, and the consolidation of assembly, administration,
engineering and marketing functions.
The components of the fiscal 1994 restructuring charge were as follows:
Discontinued inventory . . . . . . $4,400
Employee severance . . . . . . . . 600
Accounts receivable. . . . . . . . 350
Cancellation of related
lease. . . . . . . . . . . . . . 400
Fixed assets . . . . . . . . . . . 370
Other. . . . . . . . . . . . . . . 80
------
Total . . . . . . . . . . . $6,200
------
------
As of February 29, 1996, the actions included in the restructuring charge
are substantially complete. Actual costs and charges did not materially differ
from the original estimates.
15. FAIR VALUE OF FINANCIAL INSTURMENTS
The carrying amounts of the Company's short-term borrowings approximate
fair value. The fair value of the Company's senior note of $15.0 million
approximates $15.0 million based on the present value of expected cash flows
relating to borrowings discounted at rates currently available to the Company
for long-term borrowings with similar terms and maturities.
16. MERGER /SUBSEQUENT EVENTS
On January 3, 1996, the Company and Recoton Corporation ("Recoton") jointly
announced that Recoton had agreed to acquire the Company pursuant to an
Agreement and Plan of Merger (the "Merger") which was subsequently amended and
restated on January 30, 1996, May 1, 1996, and most recently on May 10, 1996 (as
so amended, the "Merger Agreement"). The Merger Agreement provides holders of
shares of the Company's common stock with the right to elect to receive cash for
some or all of such shares of the Company and/or to elect to receive Recoton
common shares for some or all of such shares of the Company, subject in each
case to pro rata adjustments if either the cash or stock elections are
oversubscribed. In the event that the Average Recoton Share Price (as defined
in the Merger Agreement) is less than $16.00, or is at least $16.00 and the
Merger is not a Qualifying Merger (as defined below), the Merger would be an all
cash transaction rather than a cash and stock transaction.
The price per share to be offered by Recoton to the Company's
stockholders pursuant to the Merger Agreement is $10.00 per share, except
that the price per share to be offered by Recoton to each of Robert G. Shaw
and William Blair Leveraged Capital Fund, L.P. ("WBLCF") is $8.90 per share.
Subject to certain adjustments, the percentage of the Company's common stock
to be converted to Recoton common shares is approximately 45% and the
corresponding percentage to be converted into cash is approximately 55%, with
the Merger intended to qualify as a reorganization under the Internal Revenue
Code (a "Qualifying Merger") and to be treated as a tax-free transaction for
federal income tax purposes to the extent Recoton common shares are received
in exchange for shares of the Company's common stock. The number of shares
of the Company's common stock to be converted into Recoton common shares may
be adjusted upward, but in no event to more than 50% of the outstanding
shares of the Company's common stock, to the extent necessary in order to
receive the tax opinion that the Merger will be a Qualifying Merger at
the closing of the Merger. The Merger Agreement contains certain termination
fee provisions which provide that (i) the Company is required to pay Recoton
a termination fee of $1.5 million and/or documented expenses and costs of up
to $2.5 million under certain circumstances and (ii) Recoton is required to
pay the Company a termination fee of $1.5 million and/or documented expenses
and costs of up to $2.5 million under certain circumstances.
On January 3, 1996, in connection with and as required by the Merger
Agreement, the Company and IJI Acquisition Corp. ("IJI Acquisition") entered
into an agreement, subsequently amended and restated on May 1, 1996, and most
recently on May 10, 1996 (as so amended, the "OEM Agreement"), pursuant to which
the Company is required to sell and IJI Acquisition is required to purchase the
assets associated with the Company's original equipment manufacturing business
(the "OEM Business") for approximately $16.5 million (subject to certain closing
date adjustments which reflect the changing levels of assets and liabilities in
the ordinary course of business) plus assumption of all related liabilities;
alternatively the parties may designate a purchaser for all or a portion of the
Company's receivables related to the OEM Business, which purchase would take
place prior to the sale of the other assets of the OEM Business, in which case
corresponding reductions shall be made to the purchase price and other terms.
At April 30, 1996, the book value of the assets of the OEM Business was
approximately $34.6 million and the amount of the related liabilities of the
OEM Business was approximately $10.3 million. IJI Acquisition is an Illinois
corporation which is wholly-owned by Robert G. Shaw, Chairman of the Board,
President and Chief Executive Officer of the Company.
On May 1, 1996, the Company and Recoton entered into an agreement,
subsequently amended as of May 9, 1996, pursuant to which the Company has agreed
not to agree to certain amendments to the OEM Agreement. The agreement also
provides that the Company would, at Recoton's request and expense, assert
whatever rights the Company may have under the OEM Agreement to seek to compel
specific performance by IJI Acquisition.
The Merger Agreement and the transactions contemplated thereby, including
the Merger and the sale of the OEM Business, are subject to stockholder
approval. The Company intends to mail a definitive proxy statement during the
Company's second quarter of fiscal 1997 in connection with a special meeting to
be held for the purpose of obtaining stockholder approval of the Merger
Agreement and the related transactions (or with respect to a transaction with
Emerson Radio Corp. if the Company accepts a proposal from Emerson as
described below). The Merger Agreement and the related transactions must be
approved by a majority of the outstanding shares of the Company's common stock,
as well as a majority of the shares of the Company's common stock which are
voted at the special meeting of stockholders, excluding those shares held by
Robert G. Shaw.
Simultaneous with the execution of the Merger Agreement, the Company and
Recoton entered into an Exclusive World-Wide License and Option to Sell and
Option to Purchase Proprietary Rights agreement, which was subsequently amended
effective as of May 9, 1996 (as so amended, the "AR Agreement"). Pursuant to
the AR Agreement, the Company granted to Recoton, in connection with the
proposed acquisition by Recoton pursuant to the Merger Agreement, a one-year
exclusive world-wide license (extendible under certain limited circumstances) to
the Company's "Acoustic Research" and "AR" trademarks (collectively, the "AR
Marks"). Pursuant to the AR Agreement, the Company also granted Recoton an
option to purchase the AR Marks, exercisable at any time until the first
anniversary of the AR Agreement (or later under certain limited circumstances),
for a purchase price of $3.5 million; in addition, the Company acquired an
option to sell the AR Marks to Recoton for $3.5 million, exercisable at any time
after the termination of the Merger Agreement and before the first anniversary
of the AR Agreement (or later under certain limited circumstances).
Shortly after the Merger Agreement was signed by the Company and Recoton in
January 1996, the Company received unsolicited acquisition proposals from
Emerson Radio Corp. ("Emerson") to acquire the Company (initially excluding the
OEM Business and subsequently including the OEM Business) in an all cash merger
transaction. On May 13, 1996, Emerson, through its attorneys, made it most
recent offer to the Company. The offer consisted of two alternatives from which
Emerson indicated the Company could choose. The first alternative provides that
Emerson would acquire the Company for $10.25 per share in cash for each
outstanding share of the Company's common stock. The second alternative
provides that Emerson would acquire the Company for $10.75 per share in cash for
all shares of the Company's common stock held by persons other than Robert G.
Shaw and either (i) $8.90 per share in cash for Mr. Shaw's shares; or (ii)
$10.75 per share in cash for Mr. Shaw's shares in the event that Mr. Shaw
purchases the OEM Business for $27.6 million. A Special Committee of the
Company's Board of Directors was formed to negotiate with Emerson and is
currently considering the Emerson acquisition proposals described above.
However, with respect to the proposals in Emerson's second alternative in the
May 13, 1996 offer, it is the opinion of legal counsel to the Special Committee
that such proposals are not legally available to the Special Committee under
Delaware law without Mr. Shaw's consent, which has not been obtained.
On May 9, 1996, a stockholder of the Company filed an action in the Court
of Chancery of the State of Delaware against the Company, its directors,
Recoton, RC Acquisition Sub, Inc., IJI Acquisition, William Blair & Company and
WBLCF seeking to enjoin the Merger. The complaint alleges (i) breaches of
fiduciary duty by the Company's directors and affiliates of some of the
directors by taking various actions, including approving and continuing to
pursue the sale of the OEM Business to Robert G. Shaw, refusing to pursue the
allegedly higher priced Emerson proposal and imposing allegedly inappropriate
asset lockups and termination fees; (ii) that all of the defendants have aided
and abetted the alleged breaches of fiduciary duty; and (iii) that various
agreements of the Company with Recoton and others are invalid as a matter of
Delaware Law. The plaintiff requests temporary and permanent injunctive and
declaratory relief, rescission of various transactions, such other equitable or
damage relief as the court finds proper and an award of attorney's fees and
expenses. The Company believes the complaint is without basis in fact or law
and based upon misleading information. The Company and its directors intend to
oppose the litigation vigorously.
On May 10, 1996, the Company filed an action in Federal District Court
in Chicago, Illinois against Emerson and its President for violations of
proxy solicitation rules and for breach of a confidentiality agreement with
the Company. On May 14, 1996, the court entered a temporary restraining
order against Emerson and its President, enjoining them from (i) further
solicitation of the Company's stockholders or their representatives until
Emerson has filed a Proxy Statement with the Securities and Exchange
Commission which complies with the provisions of Regulation 14A of the
Securities Exchange Act of 1934; (ii) making further solicitation containing
false or misleading statements of material fact or material omissions; and
(iii) disclosing confidential information in violation of the confidentiality
agreement. On May 20, 1996, Emerson filed a counterclaim in this action
alleging that the Company and Robert G. Shaw fraudulently induced Emerson to
enter into a confidentiality agreement and failed to negotiate with Emerson
in good faith. Emerson requests such other equitable or damage relief as the
court finds proper and an award of attorney's fees and expenses. The Company
and its directors intend to vigorously pursue this claim against Emerson and
to vigorously oppose the counterclaim.
On May 22, 1996, a stockholder of the Company filed an action in the
Court of Chancery of the State of Delaware against the Company, its
directors, Recoton and RC Acquisition Sub, Inc., seeking to enjoin the
Merger. The complaint alleges (i) breaches of fiduciary duty by the Company's
directors, including allegedly failing to act in good faith to negotiate with
both Emerson and Recoton, rejecting an allegedly higher priced all cash
transaction with Emerson and failing to act reasonably in order to obtain the
best price in the sale of the Company; and (ii) that all of the defendants have
aided and abetted the alleged breaches of fiduciary duty. The plaintiff requests
that the lawsuit be maintained as a class action on behalf of all public
stockholders and seeks temporary and permanent injunctive and declaratory
relief, rescission of the Merger should it occur, the establishment of a
stockholders' committee to participate in the sale of the Company, the
awarding of compensatory damages against the defendants, and such other and
further relief as the court finds proper and an award of attorneys' fees and
expenses. The Company believes the complaint is without basis in fact or law
and based upon misleading information. The Company and its directors intend to
oppose the litigation vigorously.
EXHIBIT 2 TO RECOTON
FORM 8-K FOR EVENT
OCCURRING AUGUST 28, 1996
CERTIFICATE OF MERGER
OF
RC ACQUISITION SUB, INC.
INTO
INTERNATIONAL JENSEN INCORPORATED
----------------------------------
Pursuant to Section 251 of the
Delaware General Corporation Law
----------------------------------
INTERNATIONAL JENSEN INCORPORATED, a Delaware corporation, hereby certifies
as follows:
FIRST: The names of the constituent corporations are "INTERNATIONAL JENSEN
INCORPORATED" and "RC ACQUISITION SUB, INC." Each constituent corporation is
incorporated under the laws of the State of Delaware.
SECOND: A Fourth Amended and Restated Agreement and Plan of Merger dated as
of January 3, 1996 (the "Agreement and Plan of Merger"), has been approved,
adopted, certified, executed and acknowledged by each of the constituent
corporations in accordance with Section 251(c) of the General Corporation Law of
the State of Delaware.
THIRD: The name of the surviving corporation (the "Surviving Corporation")
is INTERNATIONAL JENSEN INCORPORATED. Upon the filing of this Certificate, the
name of the Surviving Corporation shall be changed to Recoton Audio Corporation,
as set forth below.
FOURTH: The Amended and Restated Certificate of Incorporation of
INTERNATIONAL JENSEN INCORPORATED as in effect at the date of the merger shall
be the Certificate of Incorporation of the Surviving Corporation, except that
Article FIRST hereby is amended to read "The name of the Corporation is Recoton
Audio Corporation" and Articles FOURTH, FIFTH, SIXTH, SEVENTH AND EIGHT hereby
are amended and Articles NINTH, TENTH, ELEVENTH AND TWELFTH hereby are
eliminated so that the Amended and Restated Certificate of Incorporation reads
as set forth on Exhibit A.
FIFTH: An executed copy of the Agreement and Plan of Merger is on file at
the principal place of business of the Surviving Corporation, 25 Tri-State
International Office Center, Suite 400, Lincolnshire, IL 60069, and a copy of
the Agreement and Plan of Merger will be furnished by the Surviving Corporation,
on request and without cost, to any stockholder of either of the constituent
corporations.
IN WITNESS WHEREOF, INTERNATIONAL JENSEN INCORPORATED has caused this
Certificate of Merger to be executed in its corporate name by its President and
attested by its Secretary this 28th day of August, 1996.
INTERNATIONAL JENSEN INCORPORATED
By: /s/ Robert G. Shaw
Robert G. Shaw
President
Attest:
By: /s/ Marc T. Tanenberg
Marc T. Tanenberg
Secretary
<PAGE>
EXHIBIT A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL JENSEN INCORPORATED
FIRST: The name of this Corporation (hereinafter called the "Corporation")
is Recoton Audio Corporation.
SECOND: The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, 19801, County of New Castle (zip code 19801). The name of the
registered agent at such address is The Corporation Trust Company.
THIRD: The nature of the business to be conducted and promoted and the
purpose of the Corporation is to engage in any any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is three thousand (3,000) shares, all of which are of a
par value of one hundredth of one dollar ($.01) each, and all of which are of
one class and are designated as Common Stock.
FIFTH: 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 any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of 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 the provisions of 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 a consequence 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.
SIXTH: The power to make, alter, or repeal the By-Laws, and to adopt any
new By-Law, shall be vested in the Board of Directors.
SEVENTH: To the fullest extent that the General Corporation Law of the
State of Delaware, as it exists on the date hereof or as it may hereafter be
amended, permits the limitation or elimination of the liability of directors, no
director of this Corporation shall be personally liable to this Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director. Notwithstanding the foregoing, a director shall be liable to the
extent provided by applicable law (1) for any breach of the directors' duty of
loyalty to the Corporation or its stockholders, (2) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (3) under Section 174 of the General Corporation Law of the State of
Delaware, or (4) for any transaction from which the director derived any
improper personal benefit. Neither the amendment or repeal of this Article, nor
the adoption of any provision of this Certificate of Incorporation inconsistent
with this Article shall adversely affect any right or protection of a director
of the Corporation existing at the time of such amendment, repeal or adoption.
EIGHTH: The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, or by any successor thereto, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by said section. The Corporation shall advance expenses to the
fullest extent permitted by said section. Such right to indemnification and
advancement of expenses 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. The indemnification and
advancement of expenses provided for herein 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.
<PAGE>
EXHIBIT 4 TO RECOTON
FORM 8-K FOR EVENT
OCCURRING AUGUST 28, 1996
THIS RECEIVABLES SALE AGREEMENT (this "Agreement") dated as of August 28,
1996, is among INTERNATIONAL JENSEN INCORPORATED, a Delaware corporation, as
Seller ("Seller"), IJI Acquisition Corp., an Illinois corporation ("IJI"), as
Servicer, and HARRIS TRUST AND SAVINGS BANK, an Illinois banking corporation
("Purchaser").
RECITALS
A. Seller now owns certain receivables generated in the ordinary
course of its business which Seller wishes to sell to Purchaser.
B. Purchaser agrees to purchase the Pool Receivables and certain
Related Assets from Seller on the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto agree as follows:
DEFINITIONS AND RELATED MATTERS
In this Agreement, unless otherwise specified:
(a) capitalized terms are used as defined in Schedule I;
(b) accounting terms shall be interpreted, and accounting
determinations and computations made, in accordance with GAAP;
(c) terms defined in Article 9 of the Illinois UCC and not otherwise
defined herein are used as defined in such Article 9;
(d) references to any Article, Section, Exhibit, Annex or
Schedule refer to such Article or Section of, or Annex, Exhibit or
Schedule to, this Agreement, and references in any Article, Section or
definition to any subsection or clause refer to such subsection or
clause of such Article, Section or definition;
(e) "herein", "hereof", "hereto", "hereunder" and similar
terms refer to this Agreement as a whole and not to any particular
Section, paragraph or provision of this Agreement;
(f) "including" means including without limitation, and other forms of
the verb "to include" have correlative meanings;
(g) the word "or" is not exclusive;
(h) for purposes of calculating interest, any fee, discount or
any other amount accrued or accredited over a period of time, the first day
of such period shall be included and the last day excluded;
(i) a reference to any Person includes such Person's
successors and assigns, unless such successors and assigns are not
permitted by this Agreement and reference to a Person in a particular capacity
excludes such Person in any other capacity or individually;
(j) a reference to any law, rule or regulation refers to such
law, rule or regulation as amended from time to time and includes any
successor law, rule or regulation; and
(k) captions are solely for convenience of reference and shall
not affect the meaning of this Agreement.
<PAGE>
ARTICLE I
SALE AND PAYMENT
SECTION 1.01 Agreement to Purchase and Sell. (a) Seller warrants that on
the Closing Date the Receivables listed on Schedule A (each such Receivable, a
"Pool Receivable") have an aggregate Unpaid Balance of $10,398,000.83 (the "Pool
Balance").
(b) On the terms and conditions hereinafter set forth, Seller agrees to
sell to Purchaser, and Purchaser agrees to purchase from Seller: (a) all of
Seller's right, title and interest in, to and under the Pool Receivables; (b)
all Related Security with respect to such Pool Receivables; (c) all Collections
with respect to such Pool Receivables; and (d) all proceeds of any of the
foregoing. The items listed above in clauses (b) through (d) are herein
collectively called the "Related Assets." The Pool Receivables and the Related
Assets sold are herein collectively called the "Sold Assets". The sale and
purchase of the Sold Assets shall take place automatically on the Closing Date,
subject to the conditions in Section 4.01, without the need for any further
instrument of sale or assignment.
SECTION 1.02 Payment; Purchase Price. Purchaser shall, upon satisfaction of
the applicable conditions set forth in Article IV and subject to Section 3.01,
pay to Seller the following amount (the "Purchase Price"), by wire transfer to a
bank account designated in writing by Seller to Purchaser, calculated as
follows:
The product of (a) the Pool Balance times (b) the quotient of (i) one
divided by (ii) one plus the product of (A) the Reference Rate plus 0.25% and
(B) a fraction of the numerator of which is 50, and the denominator of which is
360, which Purchase Price the parties agree equals $10,276,344.22.
SECTION 1.03 No Assumption. Purchaser shall not have any obligation or
liability with respect to any Sold Assets or any agreements, Contracts, Records,
or other documents related to any Pool Receivable, nor shall Purchaser have any
obligation or liability to any Obligor or other customer or client of Seller
(including any obligation to perform any of the obligations of Seller under any
such Pool Receivables or related agreements or other documents). No such
obligation or liability is intended to be assumed, and any such assumption is
expressly disclaimed.
SECTION 1.04 No Recourse. Except as specifically provided in this
Agreement, the purchase and sale of Sold Assets under this Agreement shall be
without recourse to Seller; provided that Seller shall be liable to Purchaser
for all representations, warranties, covenants and indemnities made by Seller
pursuant to the terms of this Agreement, it being understood that such
obligation of Seller will not arise on account of the failure of any Obligor for
credit reasons to make any payment in respect of a Pool Receivable.
SECTION 1.05 True Sales.
(a) Seller and Purchaser intend the transactions hereunder to
constitute true sales of Pool Receivables by Seller to Purchaser providing the
Purchaser with the full benefits and burdens of ownership thereof, and no party
hereto intends the transactions contemplated hereunder to be, or for any purpose
to be characterized as, a loan from the Purchaser to Seller.
(b) In the event (but only to the extent) that the conveyance of the
Pool Receivables and Related Assets hereunder is characterized by a court or
other Governmental Authority as a loan rather than a sale, Seller shall be
deemed hereunder to have granted to Purchaser a security interest in all of
Seller's right, title and interest in, to and under all of the following,
whether now or hereafter owned, existing or arising: (A) all Pool Receivables,
(B) all Related Security with respect to each Pool Receivable, (C) all
Collections with respect to each Pool Receivable, and (D) all proceeds of, and
all amounts received or receivable under any or all of, the foregoing. Such
security interest shall secure all of Seller's obligations (monetary or
otherwise) under this Agreement and the other Agreement Documents, whether now
or hereafter existing or arising, due or to become due, direct or indirect,
absolute or contingent. Purchaser shall have, with respect to the property
described in this Section 1.05(b), and in addition to all the other rights and
remedies available to Purchaser under this Agreement and applicable law, all the
rights and remedies of a secured party under any applicable UCC, and this
Agreement shall constitute a security agreement under applicable law.
ARTICLE II
COLLECTIONS; SETTLEMENT
SECTION 2.01 Deemed Collections. (a) If on any day the Unpaid Balance of
any Pool Receivable (i) is reduced as a result of any defective, rejected or
returned services or goods, any cash discount, or any adjustment by Seller,
Servicer, or any Affiliate of Seller or Servicer, (ii) is reduced on account of
any offsetting account payable of Seller, Servicer or any of its Affiliates to
an Obligor (whether such offsetting account payable arises out of the same or a
related or an unrelated transaction), (iii) is reduced or cancelled as a result
of a setoff in respect of any claim by, or defense or credit of, the Obligor
thereof against Seller, Servicer or any Affiliate of Seller (whether such claim,
defense or credit arises out of the same or a related or an unrelated
transaction) or (iv) is reduced on account of the obligation of Seller or
Servicer to pay to the related Obligor any rebate or refund, then Seller shall
be deemed to have received on such day a Collection of such Pool Receivable in
the amount of such reduction or cancellation. If on any day any of the
representations or warranties of Seller set forth in Section 5.03 is no longer
true with respect to a Pool Receivable, Seller shall be deemed to have received
on such day a Collection of such Receivable in the full amount of such Pool
Receivable.
(b) In the event that (i) Seller has been deemed to receive
Collections with respect to any Pool Receivable pursuant to Section 2.01(a),
(ii) Seller pays such deemed Collections to the Servicer for account of
Purchaser pursuant to the first sentence of Section 2.02 and (iii) the amount of
such deemed Collections equals the full Unpaid Balance of such Pool Receivable,
then Purchaser shall reconvey such Pool Receivable to Seller, without
representation or warranty.
SECTION 2.02 Treatment of Collections and Deemed Collections. Seller shall,
within one Business Day after Seller's receipt or deemed receipt of any
Collections in respect of Sold Assets, deliver to the Servicer for the account
of the Purchaser an amount equal to all such Collections received or deemed
received by it pursuant to Section 2.01(a). The Servicer shall hold or
distribute all such deemed Collections in respect of Sold Assets to the same
extent as if Collections in such amount had actually been received on such day.
So long as Seller shall hold any Collections or deemed Collections required to
be paid to Purchaser or to the Servicer (to be held by the Servicer in trust for
Purchaser), it shall hold such Collections in trust and separate and apart from
its own funds and shall clearly mark its records to reflect such trust.
SECTION 2.03 Settlement Procedures. (a) Seller has or shall, or shall cause
the Servicer to, instruct all Obligors to make payments of the Pool Receivables
to one or more lock-box accounts maintained by Seller and/or Servicer at Harris
Trust and Savings Bank (which accounts (including account numbers) shall be
designated by Seller or Servicer to Purchaser) (collectively, the "Lock-Box
Account"). The Lock-Box Account shall at all times be subject to an agreement in
form and substance satisfactory to the Purchaser (the "Lock-Box Agreement").
(b) At the opening of each Business Day, the Servicer shall determine
the amount of Collections received or deemed received in respect of the Sold
Assets acquired by Purchaser on the prior Business Day, and shall pay such
amount to Purchaser by deposit to the Purchaser's Account.
(c) The Servicer shall maintain accurate records of all Collections in
respect of Pool Receivables and payments made under this Agreement. Prior to the
payment to Purchaser of Collections in respect of Pool Receivables pursuant to
Section 2.03(b), the Servicer shall hold such Collections in trust for the
benefit of the Purchaser.
SECTION 2.04 Reporting. On or prior to each day on which the Servicer is
required to make a deposit or payment to the Purchaser Account pursuant to this
Article II, the Servicer will advise Purchaser thereof by facsimile or telephone
(and, if by telephone, promptly confirmed in writing) and provide such other
information as Purchaser may reasonably request in connection therewith.
SECTION 2.05 Payments and Computations, Etc. All amounts to be paid or
deposited to Purchaser by Seller or the Servicer hereunder shall be paid or
deposited in accordance with the terms hereof no later than 11:00 a.m. (Chicago
time) on the day when due in Dollars in immediately available funds to Purchaser
at its office at 115 South LaSalle Street, Chicago, Illinois 60603, Attention:
John R. Smart. Seller or the Servicer, as applicable, shall pay to Purchaser
interest on all amounts not paid or deposited when due (including amounts
payable pursuant to Section 2.02) until paid or deposited in full at 2.0% per
annum above the Reference Rate, payable on demand; provided that such interest
rate shall not at any time exceed the maximum rate permitted by applicable law.
Interest, discount and all fees hereunder shall be made on the basis of a year
of 360 days for the actual number of days elapsed.
Section 2.06 Enforcement Rights. (a) At any time following the occurrence
of a Termination Event:
(i) Purchaser may direct the Obligors that payment of all
amounts payable under any Pool Receivable be made directly to Purchaser
or its designee;
(ii) Purchaser may instruct Seller or Servicer to give notice
of Purchaser's interest in Pool Receivables to each Obligor, which
notice shall direct that payments be made directly to Purchaser or its
designee, and upon such instruction from Purchaser, Seller or Servicer,
as applicable, shall give such notice at the expense of Seller;
provided, that if Seller or Servicer fails to so notify each Obligor,
Purchaser may so notify the Obligors; and
(iii) Purchaser may request Seller or Servicer to, and upon
such request Seller or Servicer, as applicable shall, (A) assemble all
of the records necessary or desirable to collect the Pool Receivables
and the Related Security, and, to the extent not expressly prohibited
by applicable law or the applicable software license, transfer or
license the use of, to the new Servicer, all software necessary or
desirable to collect the Pool Receivables and the Related Security, and
make the same available to Purchaser or its designee at a place
selected by Purchaser, and (B) segregate all cash, checks and other
instruments received by it from time to time constituting Collections
with respect to the Pool Receivables in a manner acceptable to
Purchaser and, promptly upon receipt, remit all such cash, checks and
instruments, duly endorsed or with duly executed instruments of
transfer, to Purchaser or its designee.
(b) Seller hereby authorizes Purchaser, and irrevocably appoints
Purchaser as its attorney-in-fact with full power of substitution and with full
authority in the place and stead of Seller, which appointment is coupled with an
interest, following the occurrence of any Termination Event to take any and all
steps in the name of Seller and on behalf of Seller necessary or desirable, in
the determination of Purchaser, to collect any and all amounts or portions
thereof due under any and all Pool Receivables or Related Security, including,
without limitation, endorsing the name of Seller on checks and other instruments
representing Collections and enforcing such Pool Receivables, Related Security
and the related Contracts. Notwithstanding anything to the contrary contained in
this subsection (b), none of the powers conferred upon such attorney-in-fact
pursuant to the immediately preceding sentence shall subject such
attorney-in-fact to any liability if any action taken by it shall prove to be
inadequate or invalid, nor shall they confer any obligations upon such
attorney-in-fact in any manner whatsoever other than for its own gross
negligence or willful misconduct.
Section 2.07 Responsibilities of Seller. Anything herein to the contrary
notwithstanding, Seller shall (i) perform all of its obligations under the
Contracts related to the Pool Receivables to the same extent as if such Pool
Receivables had not been sold hereunder and the exercise by Purchaser of its
rights hereunder shall not relieve Seller from such obligations, and (ii) pay
when due any taxes, including, without limitation, any sales taxes payable in
connection with the Pool Receivables and their creation and satisfaction;
provided that the Servicer may, on behalf of Seller, perform Seller's
obligations under this first sentence of Section 2.07. Purchaser shall not have
any obligation or liability with respect to any Pool Receivable, any Related
Security or any related Contract, nor shall any of them be obligated to perform
any of the obligations of Seller under any of the foregoing.
<PAGE>
ARTICLE III
FEES, ETC.
SECTION 3.01 Fees. (a) Structuring Fee. Seller shall pay to Purchaser a
structuring fee of $110,000 payable on the Closing Date out of the proceeds of
the sale of the Pool Receivables.
(b) Servicer's Fee. Purchaser will pay the Servicer a servicer's fee
of $10,000, payable at Closing Date, which Servicing Fee shall be deducted from
the Purchase Price payable to Seller.
SECTION 3.02 Taxes, Etc. Seller hereby covenants that all payments by
Seller to Purchaser in respect of any Obligation, and all payments by any
Obligor in respect of any Sold Assets, shall be made without any set-off or
counterclaim, and free and clear of and without deduction or withholding for or
on account of, any present or future Taxes now or hereafter imposed on Seller,
Purchaser or such Obligor (as applicable) with respect to such payments by any
governmental or other authority, except to the extent that such deduction or
withholding is compelled by applicable laws, rules or regulations. As used
herein, the term "Taxes" shall include all excise and other taxes of whatever
nature imposed on Seller, Purchaser or such Obligor (as applicable) with respect
to such payments (other than taxes generally assessed on the overall net income
of Purchaser imposed by the jurisdiction in which Purchaser's principal
executive office is located), as well as all levies, imposts, duties, charges or
fees of whatever nature.
If Seller or any Obligor is compelled by applicable laws, rules or
regulations to make any such deduction or withholding, Seller will:
(a) pay (or cause such Obligor to pay) to the relevant authorities the
full amount required to be so withheld or deducted;
(b) pay to Purchaser such additional amounts as may be necessary in
order that the net amount received by Purchaser, after such deduction or
withholding (including any required deduction or withholding on such additional
amounts) shall equal the amount Purchaser would have received had no such
deduction or withholding been made; and
(c) promptly forward to Purchaser an official receipt or other
documentation satisfactory to Purchaser evidencing such payment to such
authorities.
Moreover, if any Taxes are directly asserted against Purchaser with respect to
any payment made in respect of any Obligation or Sold Asset, Purchaser may pay
such Taxes, and Seller agrees promptly to pay such additional amount (including,
without limitation, any penalties, interest or expenses) as may be necessary in
order that the net amount received by Purchaser after the payment of such Taxes
(including any Taxes on such additional amount) shall equal the amount Purchaser
would have received had no such Taxes been asserted.
ARTICLE IV
CONDITIONS TO PURCHASE
SECTION 4.01 Conditions Precedent to Effectiveness. The obligation of
Purchaser to purchase the Sold Assets is subject to the condition precedent that
Purchaser shall have received the following, each in form and substance
satisfactory to Purchaser:
(a) Original executed copies of each of the Agreement Documents;
(b) Good standing certificates with respect to Seller and Servicer
issued by the State where Seller and Servicer are incorporated;
(c) A certificate of the Secretary or an Assistant Secretary of each
of Seller and Servicer certifying as to (i) resolutions of its Board of
Directors approving the Agreement Documents to which it is a party and the
transactions contemplated therein, (ii) the names and true signatures of its
officers authorized on its behalf to sign the Agreement Documents to be
delivered by it hereunder (on which certificate Purchaser may conclusively rely
until such time as Purchaser shall receive from Seller a revised certificate),
(iii) a true and correct copy of the Articles of Incorporation of Seller as in
effect at the beginning of business on the Closing Date and (iv) a true and
correct copy of the By-laws of Seller as in effect at the beginning of business
on the Closing Date;
(d) Completed UCC requests for information, dated on or before the
date of such purchase, listing all other effective financing statements filed in
the jurisdictions referred to in subsection (e) below that name the Seller or
Servicer as debtor, together with copies of such other financing statements
(none of which shall cover any Pool Receivables, and similar search reports with
respect to federal tax liens and liens of the Pension Benefit Guaranty
Corporation in such jurisdictions as the Purchaser may request, showing no such
liens on any of the Pool Receivables;
(e) Such financing statements (Form UCC-1), naming Seller as the
assignor of Pool Receivables and Related Assets and Purchaser as assignee
thereof or other similar instruments or documents, as may be necessary or
desirable to perfect Purchaser's interests in all Sold Assets and such other
property, rights, accounts, instruments and moneys in which an interest may be
assigned to Purchaser hereunder;
(f) Copies of an executed Lock-Box Agreement with the lock-box bank;
(g) Opinion of counsel for Seller, in form and substance satisfactory
to Purchaser;
(h) Opinion of counsel for Servicer, in form and substance
satisfactory to Purchaser;
(i) The fees payable to Purchaser pursuant to Section 3.01(a),
together with all costs and expenses due and payable pursuant to Section 10.05,
if then invoiced;
(j) Completed copies of Schedule II (Designated Obligors), Schedule A
(List of Pool Receivables), Exhibit 5.01(e)(i) (List of Offices of Seller and
Servicer Where Records Are Kept), Exhibit 5.01(e)(ii) (List of Names Used by the
O.E.M. division of Seller), Exhibit 5.01(c) (List of Material Litigation of
Seller) and Exhibit 5.02(c) (List of Material Litigation of Servicer); and
(k) Such other approvals, opinions or documents as Seller may
reasonably request.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01 Representations and Warranties of Seller. Seller represents
and warrants as to itself as follows:
(a) Organization and Good Standing. It is duly incorporated and validly
existing as a corporation in good standing under the laws of its state of
incorporation and possesses all necessary licenses and approvals, and is duly
qualified to do business in each jurisdiction in which the nature of its
business requires such licenses and approvals to own its properties and to
conduct its business or in which the failure so to qualify would have a material
adverse effect on the financial condition or operations of Seller and its
Subsidiaries (if any) taken as a whole.
(b) Power, Authorization and Non-Contravention. The execution, delivery
and performance by it of the Agreement Documents to which it is a party (a) are
within its corporate powers, (b) have been duly authorized by all necessary
corporate and other action, (c) do not contravene (i) its charter or by-laws,
(ii) except as specified in Exhibit 5.01(b), any contractual restriction binding
on or affecting it or any of its property or (iii) any law, rule, regulation,
order, judgment, injunction, decree, determination or award binding on or
affecting Seller or its property, (d) do not result in the imposition of any
Adverse Claim on any of its properties and (e) do not require any authorization,
approval or other action by, or notice to or filing with, any Governmental
Authority or regulatory body or any other Person, except for the filing of the
financing statements referred to in Article IV.
Without limiting the generality of the foregoing, (A) Seller had at all
relevant times, and now has, all necessary power, authority and legal right to
own Receivables, to transfer, convey and assign Pool Receivables and Related
Assets, and to incur obligations hereunder, (B) the use of funds obtained by
Seller under this Agreement will not violate any of Regulations G, T, U and X of
the Federal Reserve Board, (C) Seller is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940 and (D) no transaction contemplated by any
Agreement Document requires compliance with, or will be subject to avoidance
under, any bulk sales act or similar law.
(c) Litigation. Except as otherwise disclosed on Exhibit 5.01(c), there
are no actions, claims or proceedings pending or, to its knowledge, threatened
against it, any of its Subsidiaries (if any) or any of its or their properties
before any court, arbitrator or other Governmental Authority which, if
determined adversely to it, could reasonably be expected to have a Materially
Adverse Effect.
(d) Accuracy of Information. All written information supplied by or on
behalf of Seller to Purchaser for purposes of or in connection with any
Agreement Document or any transaction contemplated herein or therein is true,
complete and accurate in all material respects and such information is not
incomplete by omitting to state a material fact or any fact necessary to make
the statements contained therein not misleading.
(e) UCC Information. The chief executive office of Seller is located
(and has been located during the four months preceding the Closing Date) at its
address referred to in Section 10.02, and the offices where Seller keeps Records
are located at the addresses specified in Exhibit 5.01(e)(i) (or at such other
locations, notified to Purchaser in accordance with Section 6.01(f), in
jurisdictions where all action required pursuant to Section 6.03 has been
completed). The O.E.M. division of Seller uses no name other than Seller's
actual corporate name and the trade names set forth in Exhibit 5.01(e)(ii).
Since January 1, 1990, Seller has not been known by any legal name other than
its corporate name as of the date hereof.
(f) Compliance with Applicable Laws. Seller is in compliance with the
requirements of all applicable laws, rules, regulations, and orders of all
Governmental Authorities (federal, state, local or foreign), and the Contracts,
a violation of any of which, individually or in the aggregate, would be
reasonably likely to have a Materially Adverse Effect.
SECTION 5.02 Representations and Warranties of Servicer. Servicer
represents and warrants as follows:
(a) Organization and Good Standing. It is duly incorporated and validly
existing as a corporation in good standing under the laws of its state of
incorporation and possesses all necessary licenses and approvals, and is duly
qualified to do business in each jurisdiction in which the nature of its
business requires such licenses and approvals to own its properties and to
conduct its business or in which the failure so to qualify would have a material
adverse effect on the financial condition or operations of Servicer and its
Subsidiaries (if any) taken as a whole.
(b) Power, Authorization and Non-Contravention. The execution, delivery
and performance by it of the Agreement Documents to which it is a party (a) are
within its corporate powers, (b) have been duly authorized by all necessary
corporate and other action, (c) do not contravene (i) its charter or by-laws,
(ii) any contractual restriction binding on or affecting it or any of its
property or (iii) any law, rule, regulation, order, judgment, injunction,
decree, determination or award binding on or affecting Servicer or its property,
(d) do not result in the imposition of any Adverse Claim on any of its
properties and (e) do not require any authorization, approval or other action
by, or notice to or filing with, any Governmental Authority or regulatory body
or any other Person.
(c) Litigation. Except as otherwise disclosed in Exhibit 5.02(c), there
are no actions, claims or proceedings pending or, to its knowledge, threatened
against it, any of its Subsidiaries (if any) or any of its or their properties
before any court, arbitrator or other Governmental Authority which, if
determined adversely to it, could reasonably be expected to have a Materially
Adverse Effect.
(d) Accuracy of Information. All written information supplied by or on
behalf of Servicer to Purchaser for purposes of or in connection with any
Agreement Document or any transaction contemplated herein or therein is true,
complete and accurate in all material respects and such information is not
incomplete by omitting to state a material fact or any fact necessary to make
the statements contained therein not misleading.
(e) Location of Records. The offices where the Servicer keeps Records
are located at the addresses specified in Exhibit 5.01(e)(i) or at such other
locations, notified to Purchaser in accordance with Section 7.02(e).
(f) Compliance with Applicable Laws. Servicer is in compliance with the
requirements of all applicable laws, rules, regulations, and orders of all
Governmental Authorities (federal, state, local or foreign), a violation of any
of which, individually or in the aggregate, would be reasonably likely to have a
Materially Adverse Effect.
SECTION 5.03 Representation and Warranties of Seller Regarding Sold Assets.
Seller represents and warrants as follows:
(a) Quality of Title. No Pool Receivable or Related Asset is subject to
any Adverse Claim. When Purchaser acquires Pool Receivables and Related Assets
hereunder, it shall have acquired and shall continue to have maintained a valid
and perfected first priority ownership interest in such Pool Receivables and
Related Assets, free and clear of any Adverse Claim. No financing statement or
other similar instrument covering any of such Pool Receivables and Related
Assets is on file in any recording office except any filed in favor of Purchaser
pursuant to this Agreement. No sale of Sold Assets hereunder constitutes a
fraudulent transfer or fraudulent conveyance under the United States Bankruptcy
Code or applicable state bankruptcy or insolvency laws or is otherwise void or
voidable or subject to subordination under similar laws or principles or for any
other reason.
(b) Eligible Receivables; Identification of Pool Receivables. Each Pool
Receivable sold is an Eligible Receivable. Seller has no reason to believe that
the collection experience with respect to any Pool Receivable sold by Seller to
Purchaser pursuant to this Agreement will vary in any material respect from the
collection experience with respect to Receivables that Seller does not transfer
to Purchaser. Seller has no knowledge of any fact that should have led it to
expect that any Pool Receivable would not be paid in full when due.
ARTICLE VI
GENERAL COVENANTS
SECTION 6.01 Affirmative Covenants of Seller. Until the first day following
the date on which all Pool Receivables and all Obligations are indefeasibly paid
in full and in cash, Seller will:
(a) Compliance with Laws, Etc. Comply in all material respects with all
applicable laws, rules, regulations, permits, orders, consent decrees and
judgments binding on Seller.
(b) Preservation of Corporate Existence and Name. Preserve and maintain,
its corporate existence, rights, franchises and privileges in the jurisdiction
of its incorporation, and qualify and remain qualified in good standing as a
foreign corporation in each jurisdiction in which qualification is necessary in
view of its business operations or the ownership of its properties, except the
parties hereto acknowledge that RC Acquisition Sub, Inc., a Delaware
corporation, shall merge with and into Seller which shall subsequently be
renamed Recoton Audio Corporation; and not change its corporate name or the name
under or by which it does business except (x) upon 30 days' prior written notice
to Purchaser and the Servicer (except in connection with the merger and name
change expressly referred to in the first clause of this clause (b)) and (y)
after taking all action required by Section 6.03 (including, without limitation,
in connection with the mergers referred to in this clause (b)).
(c) Audits. At the expense of Seller, at any time and from time to time
during regular business hours, permit, Purchaser or its agents or
representatives (i) to examine and make copies of and abstracts from, and (ii)
to visit the offices and properties of, Seller or the Servicer and to discuss
matters relating to Sold Assets or Seller's or the Servicer's performance
hereunder with any of the officers or employees of Seller or the Servicer.
(d) Keeping of Records and Books of Account. Maintain (or cause the
Servicer to maintain) at all times accurate and complete books, records and
accounts relating to the Pool Receivables, Related Assets and Contracts and all
Collections thereon in which timely entries shall be made. Seller will, or will
cause the Servicer to, maintain operating procedures (including, an ability to
recreate records) evidencing the Sold Assets and documents, books, records and
other information reasonably necessary or advisable for the collection of all
Sold Assets.
(e) Performance and Compliance with Receivables and Contracts. Timely and
fully perform and comply with all of its obligations under the Contracts related
to the Sold Assets and under the related purchase orders and other agreements in
all material respects and to the same extent as if Pool Receivables and Related
Assets with respect thereto had not been sold hereunder to Purchaser, and the
exercise by Purchaser of its rights hereunder or in connection herewith shall
not relieve Seller from such obligations; provided, that the Servicer may, on
behalf of Seller, perform Seller's obligations under this Section 6.01(e).
(f) Location of Records. Keep its principal place of business and chief
executive office at the address under its name on the signature pages hereto and
the offices where it keeps Records at the address(es) referred to in Section
5.01(e) or, upon 30 days' prior written notice to Purchaser, at other locations
in jurisdictions in the United States where all action required by Section 6.03
shall have been taken and completed.
(g) Reporting Requirements of Seller. Furnish to Purchaser:
(i) On the 1st Business Day of each calendar week, a report
in form and substance acceptable to Purchaser, which includes, (A) an
aged trial balance by Obligor, Unpaid Balance and maturity date, and
the actual aggregate amount of Pool Receivables owed by each of the
Obligors as of such day, and (B) the amount of collections received or
deemed received in respect of each Pool Receivable during the prior
calendar week;
(ii) As soon as possible after the occurrence of any
Termination Event or Unmatured Termination Event, a written statement
of a duly authorized officer of Seller describing such event and the
action that Seller proposes to take with respect thereto;
(iii) As soon as possible after the occurrence thereof,
written notice that describes in reasonable detail the creation or
existence of any Adverse Claim (other than any Adverse Claim arising
solely as a result of any action taken by Purchaser hereunder) on or
with respect to Receivables; and
(iv) Promptly, from time to time, such other information,
documents, records or reports as Purchaser may from time to time
reasonably request;
provided, that the Servicer may, on behalf of Seller, perform Seller's
obligations under this Section 6.01(g).
SECTION 6.02 Negative Covenants of Seller and Servicer. Until the first day
following the date on which all Pool Receivables and all Obligations are
indefeasibly paid in full and in cash neither Seller nor the Servicer shall:
(a) Sales, Adverse Claims, Etc. Sell, assign (by operation of law or
otherwise) or otherwise dispose of (with or without recourse) or, suffer to
exist any Adverse Claim upon, any Sold Assets or any interest therein or any
account to which any Collections of any Receivable, or collections of or
proceeds from any other Sold Asset, are sent, or any right to receive income
from or in respect of any of the foregoing.
(b) Extension or Amendment of Receivables or Contracts. Except to the
extent permitted in Section 7.02, extend, amend or otherwise modify or waive the
terms of any Pool Receivable.
(c) Change in Credit and Collection Policy. Make any change in its
credit and collection policies that would adversely affect the collectibility of
the Pool Receivables or the enforceability of any related Contract.
SECTION 6.03 Further Assurances. Each of Seller and the Servicer agrees
that from time to time, at Seller's expense, it will promptly execute and
deliver all further instruments and documents, and take all further action that
Purchaser may reasonably request in order to protect, perfect or more fully
evidence the sale hereunder or to enable Purchaser to enforce such sale or to
exercise any rights or remedies under any Agreement Document. Without limiting
the generality of the foregoing, Seller and the Servicer will (a) execute and
file such financing or continuation statements, or amendments thereto or
assignments thereof, and such other instruments or notices, as Purchaser may
determine is necessary or appropriate; and (b) mark the master data processing
records evidencing the Sold Assets with the following legend (or the substantive
equivalent thereof):
"THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD TO HARRIS TRUST AND
SAVINGS BANK PURSUANT TO A RECEIVABLES SALE AGREEMENT, DATED AS OF
AUGUST 28, 1996, AS THE SAME MAY BE AMENDED OR SUPPLEMENTED FROM TIME
TO TIME, AMONG INTERNATIONAL JENSEN INCORPORATED, IJI ACQUISITION CORP.
AND HARRIS TRUST AND SAVINGS BANK"
Seller and the Servicer hereby authorize Purchaser to file one or more
financing or continuation statements, and amendments thereto and assignments
thereof, relative to all or any of the Sold Assets now existing or hereafter
arising in the name of Seller or the Servicer. If Seller or the Servicer fails
to perform any of its agreements or obligations under any Agreement Document,
Purchaser may (but shall not be required to) itself perform, or cause
performance of, such agreement or obligation, and the expenses of Purchaser
incurred in connection therewith shall be payable by Seller as provided in
Section 10.05.
(b) Remedies. Upon the occurrence of a Termination Event, Purchaser
shall have, with respect to the security interest granted pursuant to subsection
(a) above, and in addition to all other rights and remedies available to
Purchaser under any Agreement Documents or applicable law, all the rights and
remedies of a purchaser or secured party under the UCC.
ARTICLE VII
ADMINISTRATION AND COLLECTION
SECTION 7.01 Designation of the Servicer. (a) The servicing, administering
and collection of the Sold Assets shall be conducted by the Person (the
"Servicer") so designated from time to time in accordance with this Section
7.01. Until Purchaser, in its discretion, gives notice (a "Successor Notice") to
Seller of the designation of a new Servicer upon the occurrence and continuance
of a Servicer Transfer Event, Purchaser hereby designates IJI as, and IJI hereby
agrees to perform the duties and obligations of, the Servicer pursuant to the
terms hereof and in accordance with all applicable laws. Purchaser, in its
discretion, may provide IJI with a Successor Notice at any time after the
occurrence and continuance of a Termination Event or a Bankruptcy Event with
respect to the Servicer ("Servicer Transfer Event").
(b) Upon Servicer's receipt of a Successor Notice, Servicer will
terminate its activities as the Servicer hereunder in a manner which Purchaser
indicates will facilitate the transition of the performance of such activities
to the new Servicer. Purchaser (or its designee) shall assume each and all of
Servicer's obligations to service and administer the Sold Assets, on the terms
and subject to the conditions set forth herein, and Servicer shall use its best
efforts to assist Purchaser (or its designee) in assuming such obligations.
(c) The Servicer may, with the prior consent of Purchaser, subcontract
with any of its Subsidiaries to service, administer or collect the Sold Assets,
provided that the Servicer shall remain liable for the performance of the duties
and obligations of the Servicer pursuant to the terms hereof.
SECTION 7.02 Duties of the Servicer. (a) Purchaser hereby appoints as its
agent the Servicer, to enforce Purchaser's rights and interests in, to and under
the Sold Assets and the related Contracts on the terms and conditions hereof.
The Servicer shall take or cause to be taken all such actions as may be
necessary or advisable to collect each Sold Asset in accordance with applicable
laws, rules and regulations with the same degree of care and diligence as the
Servicer uses to collect Receivables that it owns; provided that without the
express written consent of Purchaser, the Servicer shall not bring suit or
commence other enforcement actions or proceedings in the name or on behalf of
Purchaser to collect any Sold Assets. The Servicer shall set aside for the
account of Purchaser Collections of Sold Assets in accordance with Section 2.03.
The Servicer may adjust the Unpaid Balance of any Pool Receivable to reflect the
reductions or cancellations described in the first sentence of Section 2.01(a),
but only after the payments required to be made by Seller under such section
have been made.
(b) Upon a Termination Event or a Bankruptcy Event, Seller shall
deliver to the Servicer, and the Servicer shall hold in trust for Seller and
Purchaser in accordance with their respective interests, the Records. The
Servicer shall promptly after demand, at Seller's expense, deliver to Seller any
Records that do not relate to Sold Assets.
(c) The Servicer's authorization under this Agreement shall terminate
on the first day after the date on which all Pool Receivables, and all
Obligations shall have been finally and fully paid and performed.
(d) Seller acknowledges that Purchaser has relied on IJI's agreement to
act as the Servicer hereunder in its decisions to execute and deliver the
Agreement Documents. In recognition of the foregoing, IJI agrees not to resign
as the Servicer with respect to Pool Receivables, unless it has received an
opinion of counsel, in form and substance satisfactory to Purchaser, to the
effect that IJI is not permitted by applicable law to serve in such capacity.
(e) The Servicer shall keep Records at the address(es) referred to in
Section 5.02(e) or, upon 30 days' prior written notice to Purchaser, at other
locations in jurisdictions in the United States where all action required by
Section 6.03 shall have been taken and completed.
SECTION 7.03 Rights of Purchaser. (a) At any time when any Termination
Event described in Section 8.01(a)(i) or a Bankruptcy Event exists:
(i) Purchaser may direct the Obligors of Pool Receivables, or
any of them, to pay all amounts payable under any Sold Assets directly
to Purchaser or its designee.
(ii) Purchaser may, and Seller (or the Servicer on its behalf)
shall, at Purchaser's request and at Seller's expense, give notice of
Purchaser's first priority interest in the Sold Assets to each said
Obligor and direct that payments be made directly to Purchaser or its
designee, which notice shall be acceptable in form and substance to
Purchaser.
(b) At any time when any Termination Event exists,
(i) Seller (or the Servicer on its behalf) will, at
Purchaser's request and at Seller's expense, cause each Obligor in
respect of Pool Receivables to make payment thereof directly to a
blocked account of Seller at Purchaser.
(ii) Servicer shall, at Purchaser's request, (A) assemble and
make available to Purchaser at a place selected by Purchaser, all of
the Records which evidence Sold Assets, or which are otherwise
necessary or desirable to collect Sold Assets, and (B) segregate all
cash, checks and other instruments received by it from time to time
constituting Collections or other proceeds from any Sold Asset in a
manner acceptable to Purchaser and promptly remit all such cash, checks
and instruments, duly endorsed or with duly executed instruments of
transfer, to Purchaser or its designee.
(iii) Seller hereby authorizes Purchaser or its designee to take
any action in the name and on behalf of Seller (except to the extent
expressly provided otherwise in Section 7.03(a) and to the extent
permitted by applicable law) which is necessary or desirable, in the
reasonable determination of Purchaser, to collect all amounts due under
any and all Sold Assets.
(c) Seller hereby grants to Purchaser an irrevocable power of attorney,
with full power of substitution, coupled with an interest, from time to time
after the occurrence and during the continuance of a Termination Event, to take
any action and to execute any instrument that Purchaser, in its reasonable
determination, may deem necessary to accomplish the purposes of the Agreement
Documents, including (i) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become due under
or in respect of any Sold Asset; (ii) to receive, endorse, negotiate, transfer,
deposit, collect and otherwise deal with any such drafts or other instruments,
documents and chattel paper with respect to Sold Assets; (iii) to file any
claims or take any action or institute any proceedings which Purchaser, in its
reasonable determination, may deem necessary for the collection of or
enforcement of rights with respect to any Sold Assets; and (iv) to perform the
affirmative obligations of Seller under any Agreement Document.
SECTION 7.04 Responsibilities of Seller. Anything herein to the contrary
notwithstanding:
(a) Seller shall timely and fully perform and comply with all of its
obligations under the Contracts related to the Sold Assets and under the related
purchase orders and other agreements in all material respects and to the same
extent as if Pool Receivables and Related Assets with respect thereto had not
been sold hereunder to Purchaser, and the exercise by Purchaser of its rights
hereunder or in connection herewith shall not relieve Seller from such
obligations; provided, that the Servicer may, on behalf of Seller, perform
Seller's obligations under this Section 7.04(a).
(b) Seller hereby grants to the Servicer an irrevocable power of
attorney, with full power of substitution, coupled with an interest, to take in
the name of Seller all steps necessary or advisable to endorse, negotiate or
otherwise realize on any writing or other right of any kind held or transmitted
by Seller or transmitted or received by Purchaser (whether or not from Seller)
in connection with any Sold Asset.
ARTICLE VIII
TERMINATION EVENTS
SECTION 8.01 Termination Events. Each of the following events shall be a
"Termination Event" hereunder:
(a) (i) Any amount payable by Seller or the Servicer under any
Agreement Document is not paid when due or any deposit for the benefit of
Purchaser is not made when required hereunder, or (ii) the Servicer shall fail
to perform or observe any term, covenant or agreement hereunder (other than as
referred to in clause (i) above) or under any Agreement Document and such
failure shall remain unremedied for five Business Days;
(b) Any representation or warranty made or deemed to be made by Seller
or Servicer under or in connection with any Agreement Document (other than
a representation or warranty set forth in Section 5.03 so long as the payments
required to be made by Seller as a result of the breach thereof have been made),
or any other information or report delivered pursuant hereto or thereto shall
prove to have been incorrect in any material respect when made;
(c) Seller shall fail to perform or observe (i) any term, covenant or
agreement contained in Section 6.02, or (ii) any other term, covenant or
agreement contained in any Agreement Document (excluding the terms, covenants
and agreements described above in Sections 8.01(a)), which failure, in the case
of this clause (ii), continues unremedied for thirty days after notice by
Purchaser to Seller;
(d) A Bankruptcy Event with respect to Seller;
(e) There shall occur any event which materially and adversely affects
the collectibility of the Sold Assets or the ability of Seller or the Servicer
to either collect Sold Assets or perform each of their respective obligations
under any Agreement Document;
(f) The Internal Revenue Service shall file notice of a lien pursuant
to Section 6323 of the Internal Revenue Code with regard to any of the assets of
Seller and such lien shall not have been released within 5 days, or the PBGC
shall, or shall indicate its intention to, file notice of a lien pursuant to
Section 4068 of ERISA with regard to any of the assets of Seller or any of its
Affiliates;
(g) Any Agreement Document, or any ownership or security interest
granted thereunder shall (except in accordance with its terms), in whole or in
part, cease to be in full force and effect or shall be declared to be null and
void, or the validity or enforceability thereof shall be contested by Seller or
the Servicer or any of their respective Affiliates; or
(h) The interest in the Sold Assets created hereby shall not be (or
shall be alleged by Seller or Servicer not to be) a valid first priority
ownership interest in favor of Purchaser.
Upon the occurrence of the Termination Event pursuant to this Section 8.01,
Purchaser shall have, in addition to all other rights and remedies under this
Agreement or otherwise, all other rights and remedies provided under the UCC of
each applicable jurisdiction and under all other applicable laws, which rights
shall be cumulative.
ARTICLE IX
INDEMNIFICATION; EXCULPATION
SECTION 9.01 Indemnities by Seller. Without limiting any other rights which
any Indemnified Party may have hereunder or under applicable law, Seller hereby
agrees to indemnify Purchaser and each of its Affiliates, and each of their
respective successors, transferees and assigns and all of their officers,
directors, shareholders, controlling persons, employees and agents (each an
"Indemnified Party"), forthwith on demand, from and against any and all damages,
losses, claims (whether on account of settlements or otherwise), judgments,
liabilities and related costs and expenses, including reasonable attorneys' fees
and disbursements and the allocated costs of in-house counsel, if any (all of
the foregoing being collectively called "Indemnified Amounts") that may be
incurred by or asserted against any Indemnified Party in each case arising out
of or in connection with or by reason of, or in connection with the preparation
for a defense of, any investigation, litigation or proceeding (whether or not an
Indemnified Party is a party thereto) or arising out of, related to or in
connection with, any Contract, Pool Receivable or Agreement Document, or the
transactions contemplated herein or therein or the acquisition of any Pool
Receivable or any other Sold Asset or the use by Seller or its Affiliates of
proceeds herefrom or therefrom; provided that no Indemnified Party shall be
indemnified under this Section 9.01 with respect to (i) matters for which such
Indemnified Party has been compensated pursuant to any other provision of this
Agreement or (ii) Indemnified Amounts caused by or resulting from the
intentional wrongful act or gross negligence of such Indemnified Party as
finally determined by a court of competent jurisdiction or (iii) losses on Pool
Receivables due to the financial inability of the Obligor thereof to pay such
Pool Receivables. All Obligations of Seller under this Section 9.01 shall
survive the making and repayment of the Obligations and the termination of this
Agreement.
ARTICLE X
MISCELLANEOUS
SECTION 10.01 Amendments, Waivers, Etc. No amendment, modification or
waiver of any provision of this Agreement nor consent to any departure therefrom
shall in any event be effective unless the same shall be in writing and signed
by (a) Seller, Servicer and Purchaser (with respect to an amendment or
modification) or (b) Purchaser (with respect to a waiver or consent by it) or
Seller or Servicer (with respect to a waiver or consent by it), as the case may
be, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. No failure or delay on
the part of Purchaser or any Indemnified Party to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by applicable
law.
SECTION 10.02 Notices, Etc. All notices and other communications provided
for hereunder shall, unless otherwise stated herein, be in writing (including
facsimile communication) and shall be personally delivered or sent by certified
mail, postage prepaid, by facsimile or by overnight courier, to the intended
party at the address or facsimile number of such party set forth under its name
on the signature pages hereof or at such other address or facsimile number as
shall be designated by such party in a written notice to the other parties
hereto given in accordance with this Section 10.02. All such notices and
communications shall be effective, (a) if personally delivered, when received,
(b) if sent by certified mail, five Business Days after having been deposited in
the mail, postage prepaid and properly addressed, (c) if transmitted by
facsimile, when sent, receipt confirmed by telephone or electronic means, and
(d) if sent by overnight courier, two Business Days after having been given to
such courier unless sooner received by the addressee.
SECTION 10.03 Binding Effect; Assignability; Survival of Provisions. (a)
This Agreement shall be binding upon and inure to the benefit of Seller,
Purchaser and the Servicer and their respective successors and assigns, and the
provisions of Section 6.03 and Article IX shall inure to the benefit of
Purchaser and the Indemnified Parties, respectively, and their respective
successors and assigns. Neither the Seller nor Servicer shall assign any of its
rights hereunder or any interest herein without the prior written consent of
Purchaser, except that the rights of the Seller hereunder may be assigned by
operation of law in connection with the merger contemplated by Section 10.03(b).
Purchaser may assign its rights and obligations hereunder at any time to any
Person. This Agreement shall create and constitute the continuing obligations of
the parties hereto in accordance with its terms, and shall remain in full force
and effect until the date following the date on which all Pool Receivables and
all Obligations that have ever been outstanding hereunder have been finally and
fully paid and performed. The rights and remedies with respect to any breach of
any representation and warranty made by Seller pursuant to Article V and the
indemnification and payment provisions of Article IX and Sections 3.02 shall be
continuing and shall survive any termination of this Agreement.
(b) The parties acknowledge that RC Acquisition Sub, Inc., a Delaware
corporation, shall be merged into Seller which shall subsequently renamed
Recoton Audio Corporation. Upon the completion of all of the events in the
preceding sentence, Recoton Audio Corporation shall succeed to the rights and
obligations of Seller hereunder, and under the other Agreement Documents, and
following such merger, all references herein and therein to Seller shall mean
Recoton Audio Corporation.
SECTION 10.04 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS.
SECTION 10.05 Costs, Expenses and Taxes. In addition to its obligations
under Article IX, Seller agrees to pay (without duplication of amounts paid to
Purchaser under Section 9.01) to Purchaser on demand:
(a) all reasonable out-of-pocket and other costs and expenses in
connection with the preparation, execution, delivery and administration of the
Agreement Documents, including the reasonable fees and expenses of counsel
(including local counsel and the allocated costs of in-house counsel, if any)
for Purchaser with respect thereto, and all costs and expenses, if any
(including reasonable counsel fees and expenses (including local counsel and the
allocated costs of in-house counsel, if any)), in connection with the
enforcement of the Agreement Documents or any claim of breach of contract,
breach of warranty or any other breach of any Agreement Document or any tort
claim relating to any of the foregoing;
(b) all present and future stamp and other taxes and governmental fees
and charges payable or determined to be payable in connection with the
execution, delivery, filing, recording or performance of the Agreement Documents
(other than taxes on the overall net income of Purchaser), and agrees to
indemnify each the Purchaser against all penalties and interest with respect to
or resulting from such taxes, charges and fees and against all other liabilities
with respect to or resulting from any delay in paying or omission to pay such
taxes, charges and fees;
(c) all reasonable costs and expenses of Purchaser in connection with
performing any of the obligations of Seller or the Servicer under or in
connection with the Agreement Documents; and
(d) all other reasonable costs and expenses incurred by Purchaser in
connection with the auditing of Seller's or Servicer's books relating to the
Receivables by certified public accountants at any time.
SECTION 10.06 Execution in Counterparts. This Agreement may be executed in
separate counterparts, each of which shall be deemed to be an original and all
of which shall constitute one and the same Agreement.
SECTION 10.07 Severability of Provisions. If any covenants, agreements,
provisions or terms of any Agreement Document shall for any reason whatsoever be
held invalid, then such covenants, agreements, provisions or terms shall be
deemed severable and shall in no way affect the validity or enforceability of
the other provisions of or any Agreement Document.
SECTION 10.08 Legal Representation of Parties. This Agreement and the other
Agreement Documents were negotiated by the parties with the benefit of legal
representation and any rule of construction or interpretation otherwise
requiring this Agreement or any other Agreement Document to be construed or
interpreted against any party shall not apply to any construction or
interpretation hereof or thereof. Without limiting the generality of the
foregoing, Seller acknowledges that it has made an independent determination to
enter into the transactions contemplated by the Agreement Documents and has not
relied on any representation or other assurance by or on behalf of Purchaser
regarding any legal, tax, accounting or other treatment or effect of such
transactions.
SECTION 10.09 Submission to Jurisdiction. EACH OF SELLER AND SERVICER
HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY ILLINOIS STATE OR FEDERAL
COURT SITTING IN CHICAGO, ILLINOIS OVER ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO ANY AGREEMENT DOCUMENT, AND HEREBY (A) IRREVOCABLY AGREES THAT
ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED
IN SUCH ILLINOIS STATE OR FEDERAL COURT; AND (B) IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO
THE MAINTENANCE OF SUCH ACTION OR PROCEEDING.
SECTION 10.10 Integration. The Agreement Documents contain a final and
complete integration of all prior expressions by the parties hereto with respect
to the subject matter hereof and thereof and shall together constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and thereof, superseding all prior oral or written understandings.
SECTION 10.11 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER ANY AGREEMENT DOCUMENT OR UNDER ANY
AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR WHICH MAY BE DELIVERED IN THE
FUTURE IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM OR RELATING TO ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN),
ACTIONS OF EITHER OF THE PARTIES HERETO OR ANY RELATIONSHIP EXISTING IN
CONNECTION WITH ANY AGREEMENT DOCUMENT AND AGREES THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
IN WITNESS WHEREOF, Seller, Servicer and Purchaser have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
INTERNATIONAL JENSEN INCORPORATED,
as Seller
By: /s/ Marc T. Tanenberg
Name: Marc T. Tanenberg
Title: Vice President and
Chief Financial Officer
25 Tristate
International Office Center
Lincolnshire, Illinois
Attention: Marc T. Tanenberg
Facsimile No.: (847) 317-3855
HARRIS TRUST AND SAVINGS BANK,
as Purchaser
By: /s/ John R. Smart
Name: John R. Smart
Title: Vice President
111 West Monroe Street, Floor 2 West
Chicago, Illinois 60603
Attention: John R. Smart
Facsimile No.: (312) 461-2591
IJI ACQUISITION CORP.
as Servicer
By: /s/ Robert G. Shaw
Name: Robert G. Shaw
Title: President
25 Tri-State
International Office Center
Lincolnshire, Illinois
Attention: Robert G. Shaw
Facsimile No.: (847) 317-3855
<PAGE>
SCHEDULE I
DEFINITIONS
"Adverse Claim" means any lien, security interest, charge, encumbrance or
right or claim of any Person but excluding any of the foregoing that arise under
any Agreement Document in favor of Purchaser or any other Indemnified Party.
"Agreement" is defined in the Preamble.
"Agreement Documents" means this Agreement and all agreements, instruments,
certificates, reports and documents executed and delivered or to be executed and
delivered under or in connection with any of the foregoing.
"Bankruptcy Event" shall be deemed to have occurred with respect to a
Person if either:
(a) a case or other proceeding shall be commenced, without the
application or consent of such Person, under any law relating to
bankruptcy, insolvency, reorganization, dissolution, winding up or
composition or adjustment of debts (each, an "Insolvency Law"), and
such case or proceeding shall continue undismissed, or unstayed and in
effect, for a period of 60 days; or an order for relief in respect of
such Person shall be entered in an involuntary case under an Insolvency
Law; or
(b) such Person shall commence a voluntary case or other
proceeding under any Insolvency Law, or shall consent to the
appointment of or taking possession by a receiver, liquidator or other
similar official for such Person or for any substantial part of its
property, or shall make any genal assignment for the benefit of
creditors.
"Business Day" means a day that is not Saturday or Sunday and on which
commercial banks in Chicago are not authorized or required to be closed for
business.
"Closing Date" means August 28, 1996.
"Collections" means, as to any Pool Receivable, all cash collections and
other cash proceeds of such Receivable and all other funds which are deemed to
have been received as a Collection pursuant to Section 2.01.
"Contract" means an agreement, invoice or arrangement between Seller and
any Person, pursuant to or under which such Person shall be obligated to make
payments to Seller from time to time.
"Defaulted Receivable" means a Receivable (a) which has been written off,
(b) as to which any payment, or part thereof, remains 60 or more days past due
as of the close of business on the Business Day immediately preceding the
Closing Date or (c) which is from an Obligor which is bankrupt or otherwise
determined to be insolvent.
"Delinquent Receivable" means a Receivable (other than a Defaulted
Receivable) as to which any payment, or part thereof, remains more than 30 days
past due as of the close of business on the Business Day immediately preceding
the Closing Date.
"Designated Obligor" means each Obligor identified on Schedule II hereof.
"Dollars" means lawful money of the United States of America.
"Eligible Receivable" means, at any time, a Receivable:
(a) which has a stated maturity and which stated maturity is
not more than 30 days after the date on which such Receivable was
generated;
(b) which arises under a Contract which is in full force and
effect and which is a legal, valid and binding obligation of the
related Obligor, enforceable against such Obligor in accordance with
its terms;
(c) which is not the subject of any dispute, offset, hold
back, defense, Adverse Claim or other claim and which does not arise
from the sale of inventory which is subject to any Adverse Claim;
(d) which complies with the requirements of the credit and
collection policy of the Seller;
(e) which does not require the consent of the related Obligor
to be sold or assigned;
(f) for which the Purchaser shall have a valid and enforceable
first priority ownership interest therein and in the Related Security
and Collections with respect thereto, in each case free and clear of
any Adverse Claim;
(g) for which the Seller has established no offset
arrangements with the related Obligor;
(h) the Obligor of which is a Designated Obligor;
(i) which does not constitute "bill and hold" receivables;
(j) which has been fully earned by performance by Seller of
all of its obligations giving rise thereto;
(k) which constitutes an "account" as defined in the Illinois
UCC;
(l) the Obligor of which (i) is a resident of the United
States of America, (ii) is not an Affiliate of any of the parties
hereto (iii) is not a government or governmental subdivision or agency
and (iv) except for Chrysler Corporation, is not the Obligor of any
Defaulted Receivables in an aggregate amount in excess of 10% of the
aggregate Unpaid Balance of all Receivables of such Obligor;
(m) which is not a Defaulted Receivable or Delinquent
Receivable;
(n) the assignment of which (including the transfer of which
to Purchaser) does not contravene or conflict with any law, rule or
regulation or any contractual or other restriction, limitation or
encumbrance;
(o) which is denominated and payable only in Dollars in the
United States;
(p) which, together with the Contract related thereto,
conforms in all material respects with all applicable laws, rules and
regulations and with respect to which no party to the Contract related
thereto is in violation of any such law, rule or regulation; and
(q) which has not been compromised, adjusted or modified
(including by extension of time for payment or the granting of any
discounts, allowances or credits).
"Federal Funds Rate" means the arithmetic weighted average of the rates for
the last transaction in overnight Federal funds arranged prior to 9:00 a.m.,
Chicago time, on that day by each of three leading brokers of Federal funds
transactions in Chicago, Illinois, selected by Purchaser.
"GAAP" means United States generally accepted accounting principles.
"Governmental Authority" means the United States of America, any state or
other political subdivision thereof and any entity in the United States of
America or any applicable foreign jurisdiction that exercises executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Indemnified Amounts" is defined in Section 9.01.
"Indemnified Party" is defined in Section 9.01.
"Insolvency Law" is defined in the definition of "Bankruptcy Event".
"Internal Revenue Code" means the Internal Revenue Code of 1986.
"Lock-Box Agreement" is defined in Section 2.03(a).
"Materially Adverse Effect" means a materially adverse effect on (a) the
financial condition, business, assets, operations or prospects of Seller; (b)
the ability of Seller or the Servicer to perform its obligations under any
Agreement Document; (c) the validity or enforceability of, or collectibility of
amounts payable under, any Agreement Document; (d) the status, existence,
perfection or priority of Purchaser's interest in the Sold Assets, free of any
Adverse Claim; or (e) the performance or value of the Pool Receivables.
"Obligations" means all obligations of Seller and the Servicer to
Purchaser, any assignee of Purchaser, any Indemnified Party and their respective
successors, permitted transferees and assigns, that arise under or in connection
with the Agreement Documents, howsoever created, arising or evidenced, whether
direct or indirect, absolute or contingent, now or hereafter existing, or due or
to become due.
"Obligor" means a Person obligated to make payments on a Pool Receivable.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, limited
liability company, joint venture, government or any agency or political
subdivision thereof or any other entity.
"Pool Receivables" is defined in Section 1.01.
"Purchase Price" is defined in Section 1.02.
"Purchaser" is defined in the Preamble.
"Purchaser Account" means the account maintained by Purchaser in the name
of Purchaser at Harris Trust and Savings Bank specified in Section 2.05.
"Receivable" means any right to payment from an Obligor, arising from the
sale of goods or services by the O.E.M. division of Seller in the ordinary
course of its business.
"Records" means all Contracts, purchase orders, invoices and other
agreements, documents, books, records and other media for the storage of
information (including computer programs, disks and tapes) maintained by Seller
or, if applicable, the Servicer with respect to the Sold Assets, the related
Contracts and/or the related Obligors or that are otherwise necessary or
desirable to collect Sold Assets.
"Reference Rate" means, on any date, a fluctuating per annum interest rate
equal to the higher of (a) the rate of interest most recently announced by
Purchaser as its reference rate in Chicago, Illinois (or if such rate is not
being quoted, the rate which is the successor to such rate, and if no successor
is being quoted, the rate conceptually equivalent to such rate which the
Purchaser is quoting); and
(b) the Federal Funds Rate plus 0.50%. The Reference Rate is a
rate set by Purchaser based on various factors, including its cost and
desired return, general economic conditions and other factors. Each
change in the Reference Rate shall immediately be given effect for
purposes of calculations under this Agreement.
"Related Assets" is defined in Section 1.01.
"Related Security" means, with respect to any Pool Receivable, (a) all of
Seller's right, title and interest in and to all Contracts or other agreements
to the extent related to such Receivable; (b) all of Seller's interest in (i)
the underlying goods (including returned goods), if any, and (ii) the underlying
patent rights, if any, relating to the sale which gave rise to such Receivable;
(c) all other security interests or liens and property subject thereto from time
to time purporting to secure payment of such Receivable, whether pursuant to the
Contract related to such Receivable or otherwise, to the extent related to such
Receivable; (d) the assignment to Purchaser of all UCC financing statements
covering any collateral securing payment of such Receivable, to the extent
related to such Receivable; and (e) all guarantees and other agreements or
arrangements of whatever character from time to time supporting or securing
payment of such Receivable whether pursuant to the Contract related to such
Receivable or otherwise, to the extent related to such Receivable.
"Seller" is defined in the Preamble.
"Servicer" means at any time the Person then authorized pursuant to Article
VII to service, administer and collect Sold Assets.
"Servicer Transfer Event" is defined in Section 7.01(a).
"Sold Assets" is defined in Section 1.01.
"Subsidiary" means, with respect to any Person, any other corporation,
partnership or other entity which owns, directly or indirectly, more than 50% of
the outstanding capital stock or other equity interests (as applicable) having
ordinary voting power for the election of directors or equivalent management
personnel.
"Successor Notice" is defined in Section 7.01(a).
"Successor Servicer" is defined in Section 7.04(f).
"Taxes" is defined in Section 3.04.
"Termination Event" is defined in Section 8.01.
"UCC" means the Uniform Commercial Code as from time to time in effect in
the applicable jurisdiction or jurisdictions.
"Unmatured Termination Event" means any event which, with the giving of
notice or lapse of time, or both, would become a Termination Event.
"Unpaid Balance" of any Pool Receivable means at any time the unpaid amount
thereof as shown on the books and records of Servicer, calculated in accordance
with GAAP and net of any applicable reserves on Seller's books and records.
<PAGE>
EXHIBIT 5 TO RECOTON
8-K FOR EVENT
OCCURRING AUGUST 28, 1996
CREDIT AGREEMENT, dated as of August 27, 1996, among RECOTON CORPORATION, a
New York corporation (the "Borrower"), the several banks and other financial
institutions from time to time parties to this Agreement (the "Lenders") and the
Administrative Agent.
W I T N E S S E T H:
WHEREAS, the Borrower, International Jensen Incorporated, a Delaware
corporation ("IJI"), and RC Acquisition Sub, Inc. ("RC"), a Delaware
corporation, have entered into a Fourth Amended and Restated Agreement and Plan
of Merger dated as of January 3, 1996 (the "Merger Agreement"), pursuant to
which RC will be merged with and into IJI (the "Merger"), which shall be the
surviving corporation of the Merger, and each outstanding share of common stock
of IJI will be converted into $11.00 in cash or $8.90 in cash in the case of
shares held beneficially by Robert G. Shaw or William Blair Leveraged Capital
Fund, L.P. (the "Cash Consideration"); and
WHEREAS, the Borrower has requested that the Lenders establish a credit
facility in the amount of $120,000,000 (the "Facility"), pursuant to which term
loans and revolving credit loans may be made to the Borrower and Letters of
Credit (as hereinafter defined) may be issued for the account of the Borrower;
and
WHEREAS, the proceeds of the Facility will be used by the Borrower (i) to
finance a portion of the Cash Consideration in connection with the Merger, (ii)
to repay certain existing indebtedness of the Borrower, (iii) to pay related
fees and expenses and (iv) to provide working capital for the Borrower and its
Subsidiaries (as hereinafter defined) after the Merger; and
WHEREAS, the Lenders are willing to provide the Facility to the Borrower
upon the terms and subject to the conditions set forth herein;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms shall
have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if necessary, to the
next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such
day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of
1%. For purposes hereof: "Prime Rate" shall mean the rate of interest per annum
publicly announced from time to time by the Administrative Agent as its prime
rate in effect at its principal office in New York City (the Prime Rate not
being intended to be the lowest rate of interest charged by the Administrative
Agent in connection with extensions of credit to debtors); and "Federal Funds
Effective Rate" shall mean, for any day, the weighted average of the rates on
overnight federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average of the quotations for
the day of such transactions received by the Administrative Agent from three
federal funds brokers of recognized standing selected by it. Any change in the
ABR due to a change in the Prime Rate or the Federal Funds Effective Rate shall
be effective as of the opening of business on the effective day of such change
in the Prime Rate or the Federal Funds Effective Rate, respectively.
"ABR Loans": Loans the rate of interest applicable to which is based upon
the ABR.
"Adjustment Date": each date on or after the date that is the second
Business Day following receipt by the Lenders of both (i) the financial
statements required to be delivered pursuant to subsection 6.1(a) or 6.1(b), as
applicable, for the most recently completed fiscal period and (ii) the related
Compliance Certificate required to be delivered pursuant to subsection 6.2(b)
with respect to such fiscal period.
"Administrative Agent": The Chase Manhattan Bank, together with its
affiliates, as the arranger of the Commitments and as the agent for the Lenders
under this Agreement and the other Loan Documents.
"Affiliate": as to any Person, any other Person (other than a Subsidiary)
which, directly or indirectly, is in Control of, is Controlled by, or is under
common Control with, such Person.
"Aggregate Outstanding Extensions of Credit": as to any Lender at any time,
an amount equal to the sum of (a) the aggregate principal amount of all Loans
made by such Lender then outstanding and (b) such Lender's Commitment Percentage
of the L/C Obligations then outstanding.
"Agreement": this Credit Agreement, as amended, supplemented or otherwise
modified from time to time.
"Applicable Margin": as applied to a given Type of Loan, the rate per annum
determined as follows: (a) during the period from the Closing Date until the
Conversion Date, the Applicable Margin in respect of Revolving Credit Loans
shall equal (i) with respect to ABR Loans, 0% per annum and (ii) with respect to
Eurodollar Loans, .875% per annum; and (b) after the Conversion Date, the rates
per annum described in clause (a) above; provided such Applicable Margin will be
adjusted on each Adjustment Date to the applicable rate per annum set forth
under the heading "ABR Loans Applicable Margin" or "Eurodollar Loans Applicable
Margin" on Schedule III which corresponds to the Leverage Ratio determined from
the financial statements and Compliance Certificate relating to the end of the
fiscal quarter immediately preceding such Adjustment Date, and provided further,
that in the event that the financial statements required to be delivered
pursuant to subsection 6.1(a) or 6.1(b), as applicable, and the related
Compliance Certificate required to be delivered pursuant to subsection 6.2(b),
are not delivered when due, then
(1) if such financial statements and Compliance
Certificate are delivered after the date such financial
statements and Compliance Certificate were required to be
delivered (without giving effect to any applicable cure
period) and the Applicable Margin increases from that
previously in effect as a result of the delivery of such
financial statements and Compliance Certificate, then the
Applicable Margin in respect of Revolving Credit Loans during
the period from the date upon which such financial statements
and Compliance Certificate were required to be delivered
(without giving effect to any applicable cure period) until
the date upon which they actually are delivered shall, except
as otherwise provided in clause (3) below, be the Applicable
Margin as so increased;
(2) if such financial statements and Compliance
Certificate are delivered after the date such financial
statements and Compliance Certificate were required to be
delivered and the Applicable Margin decreases from that
previously in effect as a result of the delivery of such
financial statements and Compliance Certificate, then such
decrease in the Applicable Margin shall not become applicable
until the date upon which such financial statements and
Compliance Certificate actually are delivered; and
(3) if such financial statements and Compliance
Certificate are not delivered prior to the expiration of the
applicable cure period, then, effective upon such expiration,
for the period from the date upon which such financial
statements and Compliance Certificate were required to be
delivered (after the expiration of the applicable cure period)
until two Business Days following the date upon which such
financial statements and Compliance Certificate actually are
delivered, the Applicable Margin in respect of Revolving
Credit Loans shall be 0.65% per annum, in the case of ABR
Loans, and 1.65% per annum, in the case of Eurodollar Loans;
provided, further, that in the event that the Borrower shall fail to
comply with the provisions of subsection 2.4(e), then (i) the amount of
interest paid hereunder shall be recomputed for the 12-month period
ending on the date of such non-compliance on the assumption that, for
purposes of the computation of the Leverage Ratio, all Revolving Credit
Loans outstanding during such period constituted Funded Indebtedness
and the Borrower shall within 5 days of such date of non-compliance
deliver to the Administrative Agent a certificate of a Responsible
Officer setting forth for the last Adjustment Date that shall have
occurred prior to the beginning of such 12-month period and for each
Adjustment Date that shall have occurred during such 12-month period a
recomputation of the Leverage Ratio in effect on each such Adjustment
Date based upon such assumption, (ii) the Applicable Margin shall be
adjusted retroactively for such period to the extent necessary to
reflect such recomputations of the Leverage Ratio and (iii) the
Borrower shall be required to pay, on demand, an additional amount of
interest which is equal to the excess of (x) the amount of interest
that would have accrued during such period on the basis of such
adjusted Applicable Margin over (y) the amount of interest otherwise
accrued during such period in accordance with the other provisions of
this Agreement. If the Borrower shall fail to deliver the certificate
required under clause (i) above within the period specified therein,
then the adjustment to the Applicable Margin required under clause (ii)
above shall cause the Applicable Margin to be 0.65% per annum, in the
case of ABR Loans, and 1.65% per annum, in the case of Eurodollar
Loans.
"Application": an application, in such form as the Issuing Bank may specify
from time to time, requesting the Issuing Bank to open a Letter of Credit.
"Assignee": as defined in subsection 10.6(c).
"Available Commitment": as to any Lender, at any time, an amount equal to
the excess, if any, of (a) such Lender's Commitment over (b) such Lender's
Aggregate Outstanding Extensions of Credit.
"Borrowing Date": any Business Day specified in a notice pursuant to
subsection 2.2 or 2.6 as a date on which the Borrower requests the Lenders to
make Loans hereunder.
"Business Day": a day other than a Saturday, Sunday or other day on which
commercial banks in New York City are authorized or required by law to close.
"Capital Expenditure": any expenditure in respect of the purchase or
acquisition of fixed or capital assets.
"Capital Stock": any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a corporation) and any
and all warrants or options to purchase any of the foregoing.
"Cash Equivalents": (a) securities with maturities of one year or less from
the date of acquisition issued or fully guaranteed or insured by the United
States Government or any agency thereof, (b) certificates of deposit and
eurodollar time deposits with maturities of one year or less from the date of
acquisition and overnight bank deposits of any Lender or of any commercial bank
having capital and surplus in excess of $500,000,000, (c) repurchase obligations
of any Lender or of any commercial bank satisfying the requirements of clause
(b) of this definition, having a term of not more than 30 days with respect to
securities issued or fully guaranteed or insured by the United States
Government, (d) commercial paper of a domestic issuer rated at least A-2 by
Standard and Poor's Ratings Services ("S&P") or P-2 by Moody's Investors
Service, Inc. ("Moody's"), (e) securities with maturities of one year or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States, by any political subdivision or
taxing authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government (as the case may be) are
rated at least A by S&P or A by Moody's, (f) securities with maturities of one
year or less from the date of acquisition backed by standby letters of credit
issued by any Lender or any commercial bank satisfying the requirements of
clause (b) of this definition or (g) shares of money market mutual or similar
funds which invest exclusively in assets satisfying the requirements of clauses
(a) through (f) of this definition.
"Chase": The Chase Manhattan Bank.
"Closing Date": the date on which the conditions precedent set forth in
subsection 5.1 shall be satisfied.
"Code": the Internal Revenue Code of 1986, as amended from time to time.
"Commitment": as to any Lender, the obligation of such Lender to make Loans
to and/or issue or participate in Letters of Credit issued on behalf of the
Borrower hereunder in an aggregate principal and/or face amount at any one time
outstanding not to exceed the amount set forth opposite such Lender's name on
Schedule I (as such amount may be adjusted from time to time in accordance with
the provisions of this Agreement, including, without limitation, subsections
2.4(a), 2.4(b), 2.4(c) and 10.6(c)).
"Commitment Fee Rate": the rate per annum determined as follows: (a) during
the period from the Closing Date until the Conversion Date, the Commitment Fee
Rate shall equal 0.20% per annum; and (b) after the Conversion Date, the rate
per annum described in clause (a) above, provided such Commitment Fee Rate will
be adjusted on each Adjustment Date to the applicable rate per annum set forth
under the heading "Commitment Fee Rate" on Schedule III which corresponds to the
Leverage Ratio determined from the financial statements and Compliance
Certificate relating to the end of the complete fiscal quarter immediately
preceding such Adjustment Date, and provided further, that in the event that the
financial statements required to be delivered pursuant to subsection 6.1(a) or
6.1(b), as applicable, and the related Compliance Certificate required to be
delivered pursuant to subsection 6.2(b) are not delivered when due, then
(1) if such financial statements and Compliance
Certificate are delivered after the date such financial
statements and Compliance Certificate were required to be
delivered (without giving effect to any applicable cure
period) and the Commitment Fee Rate increases from that
previously in effect as a result of the delivery of such
financial statements and Compliance Certificate, then the
Commitment Fee Rate during the period from the date upon which
such financial statements and Compliance Certificate were
required to be delivered (without giving effect to any
applicable cure period) until the date upon which they
actually are delivered shall, except as otherwise provided in
clause (3) below, be the Commitment Fee Rate as so increased;
(2) if such financial statements and Compliance
Certificate are delivered after the date such financial
statements and Compliance Certificate were required to be
delivered and the Commitment Fee Rate decreases from that
previously in effect as a result of the delivery of such
financial statements and Compliance Certificate, then such
decrease in the Commitment Fee Rate shall not become
applicable until the date upon which such financial statements
and Compliance Certificate actually are delivered; and
(3) if such financial statements and Compliance
Certificate are not delivered prior to the expiration of the
applicable cure period, then, effective upon such expiration,
for the period from the date upon which such financial
statements and Compliance Certificate were required to be
delivered (after the expiration of the applicable cure period)
until two Business Days following the date upon which such
financial statements and Compliance Certificate actually are
delivered, the Commitment Fee Rate shall be 0.25% per annum.
provided, further, that in the event that the Borrower shall fail to
comply with the provisions of subsection 2.4(e), then (i) the amount of
interest paid hereunder shall be recomputed for the 12-month period
ending on the date of such non-compliance on the assumption that, for
purposes of computation of the Leverage Ratio, all Revolving Credit
Loans outstanding during such period constituted Funded Indebtedness
and the Borrower shall within 5 days of such date of non-compliance
deliver to the Administrative Agent a certificate of a Responsible
Officer setting forth for the last Adjustment Date that shall have
occurred prior to the beginning of such 12-month period and for each
Adjustment Date that shall have occurred during such 12-month period a
recomputation of the Leverage Ratio in effect on each such Adjustment
Date based upon such assumption, (ii) the Commitment Fee Rate shall be
adjusted retroactively for such period to the extent necessary to
reflect such recomputations of the Leverage Ratio and (iii) the
Borrower shall be required to pay, on demand, an additional amount of
commitment fee (as determined in accordance with subsection 2.3) which
is equal to the excess of (x) the amount of commitment fee that would
have been payable in respect of such period on the basis of such
adjusted Commitment Fee Rate over (y) the amount of commitment fee
otherwise payable in respect of such period in accordance with the
other provisions of this Agreement. If Borrower shall fail to deliver
the certificate required under clause (i) above within the period
specified therein, then the adjustment to the Commitment Fee Rate
required under clause (ii) above shall cause the Commitment Fee Rate to
be 0.25% per annum.
"Commitment Percentage": as to any Lender at any time, the percentage which
such Lender's Commitment then constitutes of the aggregate Commitments (or, at
any time after the Commitments shall have expired or terminated, the percentage
which the aggregate principal amount of such Lender's Loans then outstanding
constitutes of the aggregate principal amount of the Loans then outstanding).
"Commitment Period": the period from and including the date hereof to but
not including the Termination Date or such earlier date on which the Commitments
shall terminate as provided herein.
"Commonly Controlled Entity": an entity, whether or not incorporated, which
is under common control with the Borrower within the meaning of Section 4001 of
ERISA or is part of a group which includes the Borrower and which is treated as
a single employer under Section 414 of the Code.
"Compliance Certificate": as defined in subsection 6.2(b).
"Consolidated": when used in connection with any defined term, and not
otherwise defined, means such term as it applies to the Borrower and its
Subsidiaries on a consolidated basis, after eliminating all intercompany items.
"Consolidated Intangibles": at a particular date, all assets of the
Borrower and its Subsidiaries, determined on a consolidated basis at such date,
that would be classified as intangible assets in accordance with GAAP, but in
any event including, without limitation, unamortized debt discount and expense,
unamortized organization and reorganization expense, costs in excess of the net
book value of acquired companies, patents, trade or service marks, franchises,
trade names, goodwill and the amount of any write-up in the book value of any
assets resulting from any revaluation (other than revaluation arising out of
foreign currency valuations in accordance with GAAP).
"Consolidated Net Worth": at a particular date, all amounts which would be
included under shareholders' equity on a consolidated balance sheet of the
Borrower and its Subsidiaries determined on a consolidated basis in accordance
with GAAP as at such date.
"Consolidated Tangible Net Worth": at a particular date, the excess, if
any, of Consolidated Net Worth over Consolidated Intangibles as at such date.
"Contractual Obligation": as to any Person, any provision of any security
issued by such Person or of any agreement, instrument or other undertaking to
which such Person is a party or by which it or any of its property is bound.
"Control": of a Person means the power, directly or indirectly, either to
(a) vote more than 50% of the securities having ordinary voting power for the
election of directors of such Person or (b) direct or cause the direction of the
management and policies of such Person, whether by contract or otherwise. Among
other things, Control of any Person can be understood to mean that, in the good
faith judgment of the Required Lenders, management of the Borrower is
substantially the same as the management of such Person.
"Conversion Date": the earlier of the 120-Day Date and the date on which
the matters described in subsection 2.1(b) shall have occurred.
"Current Liabilities": of any Person, at the date of determination, all
liabilities of such Person which, in accordance with GAAP, would be classified
on a consolidated balance sheet of such Person as current liabilities.
"Default": any of the events specified in Section 8, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any other
condition, has been satisfied.
"Dollars" and "$": dollars in lawful currency of the United States of
America.
"Domestic Subsidiary": any Subsidiary of the Borrower organized under the
laws of any jurisdiction within the United States.
"EBITDA": for any period, with respect to the Borrower and its Subsidiaries
on a consolidated basis, determined in accordance with GAAP, an amount equal to
the sum of (a) Net Income for such period, plus (b) income taxes, plus (c)
Interest Expense for such period, plus (d) depreciation for such period, plus
(e) any other non-cash items (including minority interests) reducing Net Income
for such period, plus (f) amortization of deferred financing costs and expenses
and other intangible assets for such period, minus (g) all non-cash items
increasing Net Income for such period.
"Environmental Laws": any and all foreign, Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements of Law
(including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the environment,
as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended
from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a Eurodollar
Loan, the aggregate (without duplication) of the rates (expressed as a decimal
fraction) of reserve requirements in effect on such day (including, without
limitation, basic, supplemental, marginal and emergency reserves under any
regulations of the Board of Governors of the Federal Reserve System or other
Governmental Authority having jurisdiction with respect thereto) dealing with
reserve requirements prescribed for eurocurrency funding (currently referred to
as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a
member bank of such System.
"Eurodollar Base Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, the rate per annum equal to the rate at
which Chase is offered Dollar deposits at or about 10:00 A.M., New York City
time, two Business Days prior to the beginning of such Interest Period in the
interbank eurodollar market where the eurodollar and foreign currency and
exchange operations in respect of its Eurodollar Loans are then being conducted
for delivery on the first day of such Interest Period for the number of days
comprised therein and in an amount comparable to the amount of its Eurodollar
Loan to be outstanding during such Interest Period.
"Eurodollar Loans": Loans the rate of interest applicable to which is based
upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest Period
pertaining to a Eurodollar Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest 1/100th of
1%):
Eurodollar Base Rate
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in Section 8, provided that
any requirement for the giving of notice, the lapse of time, or both, or any
other condition, has been satisfied.
"Financing Lease": any lease of property, real or personal, the obligations
of the lessee in respect of which are required in accordance with GAAP to be
capitalized on a balance sheet of the lessee.
"Fixed Rate Loans": as defined in subsection 2.1(c).
"Fixed Charge Coverage Ratio": as of the end of each fiscal quarter of the
Borrower, for the twelve month period ending on such date, with respect to the
Borrower and its Subsidiaries on a consolidated basis, the ratio of (a) EBITDA
for such period minus an amount equal to the excess, if any, of Capital
Expenditures by the Borrower and its Subsidiaries during such period over the
amount by which Funded Indebtedness shall have increased during such period to
(b) Consolidated Fixed Charges for such period.
"Fixed Charges": for any Person for any period, the sum of (i) Interest
Expense for such period plus (ii) Lease Expense for such period plus required
amortization of Indebtedness for such period and discount or premium relating to
any such Indebtedness for such period, whether expensed or capitalized.
"Foreign Subsidiary": any Subsidiary of the Borrower organized under the
laws of any jurisdiction outside the United States of America.
"Funded Indebtedness": of any Person, as of any date of determination, all
Indebtedness of such Person which by its terms matures more than one year after
the date of calculation, including, in any event, the current portion of such
Indebtedness, and any such Indebtedness maturing within one year from such date
which is renewable or extendable at the option of such Person to a date more
than one year from such date, excluding, however, in the case of the Borrower,
the Revolving Credit Loans on any date on which the Borrower is in compliance
with the provisions of subsection 2.4(e).
"GAAP": generally accepted accounting principles in the United States of
America consistent with those utilized in preparing the audited financial
statements referred to in subsection 4.1.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guarantee": the Guarantee to be executed and delivered by each current and
future Subsidiary (other than ITI-FSC, Entel Limited and the PRC Subsidiaries),
substantially in the form of Exhibit A, as the same may be amended, supplemented
or otherwise modified from time to time.
"Guarantee Obligation": as to any Person (the "guaranteeing person"), any
obligation of (a) the guaranteeing person or (b) another Person (including,
without limitation, any bank under any letter of credit) to induce the creation
of which the guaranteeing person has issued a reimbursement, counterindemnity or
similar obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "primary obligations")
of any other third Person (the "primary obligor") in any manner, whether
directly or indirectly, including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such primary
obligation or any property constituting direct or indirect security therefor,
(ii) to advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, however, that the term
Guarantee Obligation shall not include endorsements of instruments for deposit
or collection in the ordinary course of business. The amount of any Guarantee
Obligation of any guaranteeing person shall be deemed to be the lower of (a) an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee Obligation is made and (b) the maximum amount
for which such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary obligation
and the maximum amount for which such guaranteeing person may be liable are not
stated or determinable, in which case the amount of such Guarantee Obligation
shall be such guaranteeing person's maximum reasonably anticipated liability in
respect thereof as determined by the Borrower in good faith.
"Guarantor": any Person which is a party to the Guarantee.
"Hazardous Substances": any gasoline or petroleum (including crude oil or
any fraction thereof) or petroleum products or any hazardous or toxic
substances, materials or wastes, defined or regulated as such in or under any
Environmental Law, including, without limitation, asbestos, polychlorinated
biphenyls and urea-formaldehyde insulation.
"IJI-FSC": IJI-FSC, a Virgin Islands corporation.
"Indebtedness": of any Person at any date, (a) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property or
services (other than current trade liabilities incurred in the ordinary course
of business and payable in accordance with customary practices), (b) any other
indebtedness of such Person which is evidenced by a note, bond, debenture or
similar instrument, (c) all obligations of such Person under Financing Leases,
(d) all obligations of such Person in respect of acceptances issued or created
for the account of such Person and (e) all liabilities secured by any Lien on
any property owned by such Person even though such Person has not assumed or
otherwise become liable for the payment thereof.
"Insolvency": with respect to any Multiemployer Plan, the condition that
such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Interest Expense": of any Person for any period, the amount of interest
expense, both expense and capitalized, of such Person, determined on a
consolidated basis in accordance with GAAP, for such period on the aggregate
principal amount of its Indebtedness.
"Interest Payment Date": (a) as to any ABR Loan, the last day of each
March, June, September and December, (b) as to any Eurodollar Loan having an
Interest Period of three months or less, the last day of such Interest Period,
and (c) as to any Eurodollar Loan having an Interest Period longer than three
months, each day which is three months, or a whole multiple thereof, after the
first day of such Interest Period and the last day of such Interest Period.
"Interest Period": (a) with respect to any Eurodollar Loan:
(i initially, the period commencing on the borrowing or conversion
date, as the case may be, with respect to such Eurodollar Loan and ending one,
two, three or six months thereafter (but in the case of Term Loans, only three
or six months thereafter), as selected by the Borrower in its notice of
borrowing or notice of conversion, as the case may be, given with respect
thereto; and
(ii thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Eurodollar Loan and ending one,
two, three or six months thereafter (but in the case of Term Loans, only three
or six months thereafter), as selected by the Borrower by irrevocable notice to
the Administrative Agent not less than three Business Days prior to the last day
of the then current Interest Period with respect thereto;
provided that all of the foregoing provisions relating to Interest
Periods are subject to the following:
(1) if any Interest Period pertaining to a Eurodollar
Loan would otherwise end on a day that is not a Business Day,
such Interest Period shall be extended to the next succeeding
Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month in
which event such Interest Period shall end on the immediately
preceding Business Day;
(2) any Interest Period that would otherwise extend
beyond the Termination Date or beyond the date final payment
is due on the Term Loans shall end on the Termination Date or
such date of final payment, as the case may be;
(3) any Interest Period pertaining to a Eurodollar
Loan that begins on the last Business Day of a calendar month
(or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period)
shall end on the last Business Day of a calendar month; and
(4) the Borrower shall select Interest Periods so as
not to require a payment or prepayment of any Eurodollar Loan
during an Interest Period for such Loan.
"Issuing Bank": Chase, in its capacity as issuer of any Letter of Credit.
"L/C Commitment": $25,000,000.
"L/C Fee Payment Date": the last day of each March, June, September and
December.
"L/C Obligations": at any time, an amount equal to the sum of (a) the
aggregate then undrawn and unexpired amount of the then outstanding Letters of
Credit and (b) the aggregate amount of drawings under Letters of Credit which
have not then been reimbursed pursuant to subsection .
"L/C Participants": the collective reference to all the Lenders other than
the Issuing Bank.
"Lease Expense": for any Person for any period, the aggregate amount of
fixed and contingent rentals payable by such Person for such period with respect
to leases of real and personal property.
"Letters of Credit": as defined in paragraph .
"Leverage Ratio": at any time, the ratio of (a) all Funded Indebtedness of
the Borrower and its Subsidiaries outstanding on such date plus all Guarantee
Obligations of the Borrower and its Subsidiaries in respect of Funded
Indebtedness of other Persons then outstanding to (b) EBITDA for the then most
recently ended period of four consecutive fiscal quarters for which financial
statements shall have been delivered to the Lenders pursuant to subsection 4.1
or 6.1.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement and any Financing Lease
having substantially the same economic effect as any of the foregoing).
"Loan": any loan made by any Lender pursuant to this Agreement.
"Loan Documents": this Agreement, the Notes, the Applications and the
Guarantee.
"Loan Parties": the Borrower and each Subsidiary of the Borrower which is a
party to a Loan Document.
"Majority Lenders": at any time, Lenders the Commitment Percentages of
which aggregate more than 50%.
"Material Adverse Effect": a material adverse effect on (a) the business,
operations, property, condition (financial or otherwise) or prospects of the
Borrower and its Subsidiaries taken as a whole or (b) the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Administrative Agent or the Lenders hereunder or thereunder.
"Materials of Environmental Concern": any gasoline or petroleum (including
crude oil or any fraction thereof) or petroleum products or any hazardous or
toxic substances, materials or wastes, defined or regulated as such in or under
any Environmental Law, including, without limitation, asbestos, polychlorinated
biphenyls and urea-formaldehyde insulation.
"Merger": as defined in the recitals hereto.
"Merger Agreement": as defined in the recitals hereto.
"Multiemployer Plan": a Plan which is a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Net Income" or "Net Loss": of any Person for any period, net income (or
net loss) of such Person, determined on a consolidated basis in accordance with
GAAP.
"Non-Excluded Taxes": as defined in subsection 2.16.
"Notes": the collective reference to the Revolving Credit Notes and the
Term Notes.
"120-Day Date": the date that is 120 days after the Closing Date (or, if
such Date is not a Business Day, the next succeeding Business Day).
"Participant": as defined in subsection 10.6(b).
"PBGC": the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA.
"Permitted Acquisition": any acquisition made by the Borrower or any of its
Subsidiaries, whether through a purchase of Capital Stock or assets or through a
merger or consolidation, of another Person or the assets constituting an
operating business unit of another Person, provided that (a) any such purchase
of stock shall be of a sufficient number of shares to cause the acquired Person
to become a Subsidiary and (b) no Default or Event of Default shall occur as a
result thereof.
"Person": an individual, partnership, corporation, business trust, joint
stock company, trust, unincorporated association, joint venture, Governmental
Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which is covered by
ERISA and in respect of which the Borrower or a Commonly Controlled Entity is
(or, if such plan were terminated at such time, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"PRC Subsidiary": any Subsidiary of the Borrower that is organized under
the laws of the People's Republic of China (other than Hong Kong).
"Properties": the facilities and properties owned, leased or operated by
the Borrower or any of its Subsidiaries.
"Receipt of Proceeds Date": each date subsequent to the Closing Date upon
which the Borrower shall receive proceeds from the incurrence by it of
Indebtedness permitted by subsection 7.2(g).
"Register": as defined in subsection 10.6(d).
"Regulation U": Regulation U of the Board of Governors of the Federal
Reserve System as in effect from time to time.
"Reimbursement Obligation": the obligation of the Borrower to reimburse the
Issuing Bank pursuant to subsection for amounts drawn under Letters of Credit.
"Reorganization": with respect to any Multiemployer Plan, the condition
that such plan is in reorganization within the meaning of Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(c) of
ERISA, other than those events as to which the thirty day notice period is
waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. ss. 2615,
or subsections .21 through .35, .62 through .65 or .67 of PBGL Reg. 4043 as
proposed and as comparable provisions of such regulation as it may be finalized.
"Required Lenders": at any time, Lenders the Commitment Percentages of
which aggregate at least 66-2/3%.
"Requirement of Law": as to any Person, the 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 any of its property or to which such Person or any of its property is
subject.
"Responsible Officer": the chief executive officer and the president of the
Borrower or, with respect to financial matters, the chief financial officer of
the Borrower.
"Revolving Credit Loans": as defined in subsection 2.1.
"Revolving Credit Note": as defined in subsection 2.6(e).
"Single Employer Plan": any Plan which is covered by Title IV of ERISA, but
which is not a Multiemployer Plan.
"Subsidiary": as to any Person, a corporation, partnership or other entity
of which shares of stock or other ownership interests having ordinary voting
power (other than stock or such other ownership interests having such power only
by reason of the happening of a contingency) to elect a majority of the board of
directors or other managers of such corporation, partnership or other entity are
at the time owned, or the management of which is otherwise controlled, directly
or indirectly through one or more intermediaries, or both, by such Person.
Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Borrower.
"Termination Date": the date three years after the Conversion Date (or, if
such date is not a Business Day, the next succeeding Business Day).
"Term Loan": as defined in subsection 2.5.
"Term Note": as defined in subsection 2.6(e).
"Total Assets": of any Person, as of any date of determination, all assets
of such Person determined in conformity with GAAP.
"Total Liabilities": of any Person, as of any date of determination, (a)
all liabilities of such Person determined in conformity with GAAP and (b) all
Guarantee Obligations of such Person in respect of liabilities of other Persons.
"Tranche": the collective reference to Eurodollar Loans the then current
Interest Periods with respect to all of which begin on the same date and end on
the same later date (whether or not such Loans shall originally have been made
on the same day).
"Transferee": as defined in subsection 10.6(f).
"Type": as to any Loan, its nature as an ABR Loan or a Eurodollar Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary Credits
(1993 Revision), International Chamber of Commerce Publication No. 500, as the
same may be amended from time to time.
1.2 Other Definitional Provisions. (a) Unless otherwise specified therein,
all terms defined in this Agreement shall have the defined meanings when used in
any Notes or any certificate or other document made or delivered pursuant
hereto.
(b) As used herein and in any Notes, and any certificate or
other document made or delivered pursuant hereto, accounting terms relating to
the Borrower and its Subsidiaries not defined in subsection 1.1 and accounting
terms partly defined in subsection 1.1, to the extent not defined, shall have
the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
subsection, Schedule and Exhibit references are to this Agreement unless
otherwise specified.
(d) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Revolving Credit Commitments. (a) Subject to the terms and conditions
hereof, each Lender severally agrees to make revolving credit loans ("Revolving
Credit Loans") to the Borrower from time to time during the Commitment Period in
an aggregate principal amount at any one time outstanding which, when added to
such Lender's Commitment Percentage of the then outstanding L/C Obligations,
does not exceed the amount of such Lender's Commitment. During the Commitment
Period the Borrower may use the Commitments by borrowing, prepaying the
Revolving Credit Loans in whole or in part, and reborrowing, all in accordance
with the terms and conditions hereof; provided, however, that the Aggregate
Outstanding Extensions of Credit (other than in respect of (A) the undrawn
portion of any Letters of Credit or (B) any Term Loans) with respect to all
Lenders at all times during at least one consecutive thirty day period during
each period of twelve consecutive calendar months must equal zero.
(b) If, on or before the 120-Day Date, the Commitments and the
Aggregate Outstanding Extensions of Credit shall each be reduced to $50,000,000
or less, then on the date of such reduction to $50,000,000 or less the amounts
of the respective Commitments of the Lenders then in effect shall be rearranged
so that they are in the same proportions as are set forth on Schedule II. Such
rearrangement shall be effected through assignments of Commitments and Loans
among the Lenders in accordance with subsection 10.6(b). If any such assignment
shall be of Eurodollar Loans and such assignment shall occur on a date which is
not the last day of an Interest Period then in effect with respect thereto, the
Borrower shall pay to each Lender which shall have assigned such Eurodollar
Loans any amount that would be payable pursuant to subsection 2.17 if an equal
amount of its Loans had been prepaid on the date of such assignment.
(c) The Revolving Credit Loans may from time to time be (i)
Eurodollar Loans, (ii) ABR Loans or (iii) a combination thereof, as determined
by the Borrower and notified to the Administrative Agent in accordance with
subsections 2.2 and 2.8, provided that no Revolving Credit Loan shall be made as
a Eurodollar Loan after the day that is one month prior to the Termination Date
and, provided, further, that, in connection with the Revolving Credit Loans to
be made to the Borrower on August 28, 1996 described in the second proviso to
the first sentence of subsection 2.2, (i) the Administrative Agent shall on
August 28, 1996 attempt to obtain from each Lender a bid for a fixed interest
rate at which such Lender would be willing to charge interest for a seven day
period on the Revolving Credit Loan to be made by such Lender on August 28,
1996, (ii) if all Lenders respond to such request before 12:00 Noon, New York
City time, on August 28, 1996, then all the Revolving Credit Loans made on
August 28, 1996 shall bear interest at a rate per annum equal to the highest
rate so bid for such seven-day period (such Revolving Credit Loans, while
bearing interest at such rate, being herein called "Fixed Rate Loans") and shall
thereafter be ABR Loans unless and until converted to Eurodollar Loans in
accordance with the provisions of this Agreement, and (iii) if all Lenders do
not respond to such request before 12:00 Noon, New York City time, on August 28,
1996, or if the rate per annum applicable to ABR Loans on August 28, 1996 is
less than such highest bid rate, then all the Revolving Credit Loans made on
August 28, 1996 shall be ABR Loans.
2.2 Procedure for Revolving Credit Borrowing. The Borrower may borrow under
the Commitments during the Commitment Period on any Business Day, provided that
the Borrower shall give the Administrative Agent irrevocable notice (which
notice must be received by the Administrative Agent prior to 10:00 A.M., New
York City time, (a) three Business Days prior to the requested Borrowing Date,
if all or any part of the requested Revolving Credit Loans are to be initially
Eurodollar Loans or (b) one Business Day prior to the requested Borrowing Date
otherwise), specifying (i) the amount to be borrowed, (ii) the requested
Borrowing Date, (iii) whether the borrowing is to be of Eurodollar Loans, ABR
Loans or a combination thereof, (iv) whether and to what extent the proceeds of
the borrowing will be used to finance an acquisition and (v) if the borrowing is
to be entirely or partly of Eurodollar Loans, the amount of such Type of Loan
and the length of the initial Interest Period therefor and, provided, further,
that the Borrower hereby requests that Loans be made to it on August 28, 1996 in
an aggregate amount (currently expected to be approximately $67,000,000) which
will be notified by the Borrower to the Administrative Agent prior to 10:00
A.M., New York City time, on August 28, 1996 sufficient to pay the Cash
Consideration in connection with the Merger, acquisition closing and other
transaction costs in connection therewith and all then outstanding borrowings
under lines of credit currently being made available to the Borrower by the
Lenders. Each borrowing under the Commitments shall be in an amount equal to (x)
in the case of ABR Loans, $1,000,000 or a whole multiple thereof (or, if the
then Available Commitments are less than $1,000,000, such lesser amount) and (y)
in the case of Eurodollar Loans, $2,500,000 or a whole multiple of $100,000 in
excess thereof. Upon receipt of any such notice from the Borrower, the
Administrative Agent shall promptly notify each Lender thereof. Each Lender will
make the amount of its pro rata share of each borrowing available to the
Administrative Agent for the account of the Borrower at the office of the
Administrative Agent specified in subsection 10.2 prior to 11:00 A.M., New York
City time, on the Borrowing Date requested by the Borrower in funds immediately
available to the Administrative Agent. Such borrowing will then be made
available to the Borrower by the Administrative Agent crediting the account of
the Borrower on the books of such office with the aggregate of the amounts made
available to the Administrative Agent by the Lenders and in like funds as
received by the Administrative Agent.
2.3 Commitment Fee. The Borrower agrees to pay to the Administrative Agent
for the account of each Lender a commitment fee for the period from and
including the first day of the Commitment Period to the Termination Date,
computed at the Commitment Fee Rate on the average daily amount of the Available
Commitment of such Lender during the period for which payment is made, payable
quarterly in arrears on the last day of each March, June, September and December
and on the Termination Date or such earlier date as the Commitments shall
terminate as provided herein, commencing on the first of such dates to occur
after the date hereof.
2.4 Termination or Reduction of Commitments; Mandatory Prepayments. (a) The
Borrower shall have the right, upon not less than five Business Days' notice to
the Administrative Agent, to terminate the Commitments or, from time to time, to
reduce the amount of the Commitments provided that no such termination or
reduction shall be permitted if, after giving effect thereto and to any
prepayments of the Revolving Credit Loans made on the effective date thereof,
the Aggregate Outstanding Extensions of Credit would exceed the Commitments then
in effect. Any such reduction shall be in an amount equal to $1,000,000 or a
whole multiple thereof and shall reduce permanently the Commitments then in
effect. Termination of the Commitments shall also terminate the obligation of
the Lenders to make the Term Loans.
(b) On each Receipt of Proceeds Date that occurs on or before the
120-Day Date, the Revolving Credit Loans shall be prepaid, and the Commitments
shall be reduced, by an amount equal to the net cash proceeds of the incurrence
of the related Indebtedness.
(c) On the 120-Day Date (if the matters described in
subsection 2.1(b) shall not have occurred prior to such 120-Day Date) (i) the
Commitments shall be automatically reduced to an amount equal to $50,000,000,
(ii) that portion of any then outstanding Revolving Credit Loans that exceeds
$95,000,000 shall be prepaid, and (iii) that portion of any then outstanding
Revolving Credit Loans remaining after giving effect to clause (ii) above that
does not exceed $45,000,000 shall be converted to Term Loans in accordance with
subsection 2.5.
(d) On each Receipt of Proceeds Date that occurs while any
Term Loans are outstanding, the Term Loans shall be prepaid by an amount equal
to the net cash proceeds of the incurrence of the related Indebtedness. Each
such prepayment shall be applied to the installments of principal of the Term
Loans in the inverse order of their stated maturity.
(e) The Borrower shall, without notice or demand, prepay the
Revolving Credit Loans, together with interest accrued to the date of such
payment or prepayment and any amounts payable under subsection 2.17 and/or repay
Reimbursement Obligations to the extent necessary so that the Aggregate
Outstanding Extensions of Credit (other than in respect of (A) the undrawn
portion of any Letters of Credit or (B) any Term Loans) with respect to all
Lenders is equal to zero for at least one consecutive thirty day period during
each period of twelve consecutive calendar months.
(f) Each prepayment of the Loans pursuant to paragraphs (b)
and (d) of this subsection shall be accompanied by payment of all accrued and
unpaid interest on the amount prepaid and any amounts payable pursuant to
subsection 2.18.
2.5 Term Loans. Subject to the terms and conditions hereof, each Lender
severally agrees to make a term loan (a "Term Loan") to the Borrower on the
120-Day Date pursuant to a conversion in accordance with subsection 2.4(c) of
Revolving Credit Loans to Term Loans in an amount equal to such Lender's
Commitment Percentage of the amount provided for in such subsection to be so
converted. The Term Loans may from time to time be (a) Eurodollar Loans, (b) ABR
Loans or (c) a combination thereof, as determined by the Borrower and notified
to the Administrative Agent in accordance with subsections 2.2 and 2.8.
2.6 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby
unconditionally promises to pay to the Administrative Agent for the account of
each Lender (i) the then unpaid principal amount of each Revolving Credit Loan
of such Lender on the Termination Date (or such earlier date on which the
Revolving Credit Loans become due and payable pursuant to Section 8), and (ii)
the principal amount of the Term Loan of such Lender, in 16 equal consecutive
quarterly installments, payable on the last day of each successive three-month
period following the 120-Day Date, commencing on the 120-Day Date (or the then
unpaid principal amount of such Term Loan, on the date that the Term Loans
become due and payable pursuant to Section 8). The Borrower hereby further
agrees to pay interest on the unpaid principal amount of the Loans from time to
time outstanding from the date hereof until payment in full thereof at the rates
per annum, and on the dates, set forth in subsection 2.10.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing indebtedness of the Borrower to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
(c) The Administrative Agent shall maintain the Register
pursuant to subsection 10.6(d), and a subaccount therein for each Lender, in
which shall be recorded (i) the amount of each Revolving Credit Loan and Term
Loan made hereunder, the Type thereof and each Interest Period applicable
thereto, (ii) the amount of any principal or interest due and payable or to
become due and payable from the Borrower to each Lender hereunder and (iii) both
the amount of any sum received by the Administrative Agent hereunder from the
Borrower and each Lender's share thereof.
(d) The entries made in the Register and the accounts of each
Lender maintained pursuant to subsection 2.6(b) shall, to the extent permitted
by applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded; provided, however, that the
failure of any Lender or the Administrative Agent to maintain the Register or
any such account, or any error therein, shall not in any manner affect the
obligation of the Borrower to repay (with applicable interest) the Loans made to
such Borrower by such Lender in accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the
Administrative Agent by any Lender, the Borrower will execute and deliver to
such Lender (i) a promissory note of the Borrower evidencing the Revolving
Credit Loans of such Lender, substantially in the form of Exhibit A with
appropriate insertions as to date and principal amount (a "Revolving Credit
Note"), and/or (ii) a promissory note of the Borrower evidencing the Term Loan
of such Lender, substantially in the form of Exhibit B with appropriate
insertions as to date and principal amount (a "Term Note").
2.7 Optional Prepayments. The Borrower may on the last day of any Interest
Period with respect thereto, in the case of Eurodollar Loans, or at any time and
from time to time, in the case of ABR Loans, prepay the Loans, in whole or in
part, without premium or penalty, upon at least four Business Days' irrevocable
notice to the Administrative Agent, specifying the date and amount of prepayment
and whether the prepayment is of Eurodollar Loans, ABR Loans or a combination
thereof, and, if of a combination thereof, the amount allocable to each. Upon
receipt of any such notice, the Administrative Agent shall promptly notify each
Lender thereof. If any such notice is given, the amount specified in such notice
shall be due and payable on the date specified therein, together with any
amounts payable pursuant to subsection 2.17 and, in the case of prepayments of
the Term Loans only, accrued interest to such date on the amount prepaid.
Partial prepayments of the Term Loans shall be applied to the installments of
principal thereof in the inverse order of their scheduled maturities. Amounts
prepaid on account of the Term Loans may not be reborrowed. Partial prepayments
shall be in an aggregate principal amount of $1,000,000 or a whole multiple
thereof.
2.8 Conversion and Continuation Options. (a) The Borrower may elect from
time to time to convert Eurodollar Loans to ABR Loans, by giving the
Administrative Agent at least one Business Days' prior irrevocable notice of
such election provided that any such conversion of Eurodollar Loans may only be
made on the last day of an Interest Period with respect thereto. The Borrower
may elect from time to time to convert ABR Loans or Fixed Rate Loans to
Eurodollar Loans by giving the Administrative Agent at least three Business
Days' (except as provided in the second proviso to subsection 2.1(c)) prior
irrevocable notice of such election. Any such notice of conversion to Eurodollar
Loans shall specify the length of the initial Interest Period or Interest
Periods therefor. Upon receipt of any such notice the Administrative Agent shall
promptly notify each Lender thereof. All or any part of outstanding Eurodollar
Loans, Fixed Rate Loans and ABR Loans may be converted as provided herein,
provided that (i) no Loan may be converted into a Eurodollar Loan when any Event
of Default has occurred and is continuing and the Administrative Agent has or
the Required Lenders have determined that such a conversion is not appropriate
and (ii) no Loan may be converted into a Eurodollar Loan after the date that is
one month prior to the Termination Date (in the case of conversions of Revolving
Credit Loans) or the date of the final installment of principal of the Term
Loans.
(b) Any Eurodollar Loans may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower giving notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in subsection 1.1,
of the length of the next Interest Period to be applicable to such Loans,
provided that no Eurodollar Loan may be continued as such (i) when any Event of
Default has occurred and is continuing and the Administrative Agent has or the
Required Lenders have determined that such a continuation is not appropriate or
(ii) after the date that is one month prior to the Termination Date (in the case
of continuations of Revolving Credit Loans) or the date of the final installment
of principal of the Term Loans and provided, further, that if the Borrower shall
fail to give such notice or if such continuation is not permitted such Loans
shall be automatically converted to ABR Loans on the last day of such then
expiring Interest Period.
2.9 Minimum Amounts and Maximum Number of Tranches. All borrowings,
conversions and continuations of Loans hereunder and all selections of Interest
Periods hereunder shall be in such amounts and be made pursuant to such
elections so that, after giving effect thereto, the aggregate principal amount
of the Loans comprising (i) each Tranche shall be equal to $2,500,000 or a whole
multiple of $100,000 in excess thereof. In no event shall there be more than 5
Tranches outstanding at any time.
2.10 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall bear
interest for each day during each Interest Period with respect thereto at a rate
per annum equal to the Eurodollar Rate determined for such day plus the
Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum
equal to the ABR plus the Applicable Margin.
(c) Each Fixed Rate Loan shall bear interest as provided in
subsection 2.1(c).
(d) If all or a portion of (i) any principal of any Loan, (ii)
any interest payable thereon, (iii) any commitment fee or (iv) any other amount
payable hereunder shall not be paid after the expiration of any applicable grace
period (whether at the stated maturity, by acceleration or otherwise), the
principal of the Loans and any such overdue interest, commitment fee or other
amount shall bear interest at a rate per annum which is (x) in the case of
principal, the rate that would otherwise be applicable thereto pursuant to the
foregoing provisions of this subsection plus 2% or (y) in the case of any such
overdue interest, commitment fee or other amount, the rate described in
paragraph (b) of this subsection plus 2%, in each case from the date of such
non-payment until such overdue principal, interest, commitment fee or other
amount is paid in full (as well after as before judgment).
(e) Interest shall be payable in arrears on each Interest
Payment Date, provided that interest accruing pursuant to paragraph (d) of this
subsection shall be payable from time to time on demand.
(f) The Borrower shall also be required to pay any additional
interest determined in accordance with the final proviso to the definition of
the term "Applicable Margin".
2.11 Computation of Interest and Fees. (a) Commitment fees and, whenever it
is calculated on the basis of the Prime Rate, interest shall be calculated on
the basis of a 365- (or 366-, as the case may be) day year for the actual days
elapsed; and, otherwise, interest shall be calculated on the basis of a 360-day
year for the actual days elapsed. The Administrative Agent shall as soon as
practicable notify the Borrower and the Lenders of each determination of a
Eurodollar Rate. Any change in the interest rate on a Loan resulting from a
change in the Applicable Margin, the ABR or the Eurocurrency Reserve
Requirements shall become effective as of the opening of business on the day on
which such change becomes effective. The Administrative Agent shall as soon as
practicable notify the Borrower and the Lenders of the effective date and the
amount of each such change in interest rate.
(b) Each determination of an interest rate by the
Administrative Agent pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower and the Lenders in the absence of
manifest error. The Administrative Agent shall, at the request of the Borrower,
deliver to the Borrower a statement showing the quotations used by the
Administrative Agent in determining any interest rate pursuant to subsection
2.10 (a) or (b).
2.12 Inability to Determine Interest Rate. If prior to the first day of any
Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) 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 Administrative Agent shall have received notice from
the Majority Lenders that the Eurodollar Rate determined or to be
determined for such Interest Period will not adequately and fairly
reflect the cost to such Lenders (as conclusively certified by such
Lenders) of making or maintaining their affected Loans during such
Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the Lenders as soon as practicable thereafter. If such notice is
given (x) any Eurodollar Loans requested to be made on the first day of such
Interest Period shall be made as ABR Loans, (y) any Loans that were to have been
converted on the first day of such Interest Period to Eurodollar Loans shall be
converted to or continued as ABR Loans and (z) any outstanding Eurodollar Loans
shall be converted, on the first day of such Interest Period, to ABR Loans.
Until such notice has been withdrawn by the Administrative Agent, no further
Eurodollar Loans shall be made or continued as such, nor shall the Borrower have
the right to convert Loans to Eurodollar Loans.
2.13 Pro Rata Treatment and Payments. (a) Each borrowing by the Borrower
from the Lenders hereunder, each payment by the Borrower on account of any
commitment fee hereunder and any reduction of the Commitments of the Lenders
shall be made pro rata according to the respective Commitment Percentages of the
Lenders. Each payment (including each prepayment) by the Borrower on account of
principal of and interest on the Loans shall be made pro rata according to the
respective outstanding principal amounts of the Loans then held by the Lenders.
All payments (including prepayments) to be made by the Borrower hereunder,
whether on account of principal, interest, fees or otherwise, shall be made
without set off or counterclaim and shall be made prior to 2:00 P.M., New York
City time, on the due date thereof to the Administrative Agent, for the account
of the Lenders, at the Administrative Agent's office specified in subsection
10.2, in Dollars and in immediately available funds. The Administrative Agent
shall distribute such payments to the Lenders promptly upon receipt in like
funds as received. If any payment hereunder becomes due and payable on a day
other than a Business Day, such payment shall be extended to the next succeeding
Business Day, and, with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension.
(b) Unless the Administrative Agent shall have been notified
in writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its Commitment Percentage of such borrowing
available to the Administrative Agent, the Administrative Agent may assume that
such Lender is making such amount available to the Administrative Agent, and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower a corresponding amount. If such amount is not made available to the
Administrative Agent by the required time on the Borrowing Date therefor, such
Lender shall pay to the Administrative Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal Funds Effective
Rate for the period until such Lender makes such amount immediately available to
the Administrative Agent. A certificate of the Administrative Agent submitted to
any Lender with respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error. If such Lender's Commitment
Percentage of such borrowing is not made available to the Administrative Agent
by such Lender within three Business Days of such Borrowing Date, the
Administrative Agent shall also be entitled to recover such amount with interest
thereon at the rate per annum applicable to ABR Loans hereunder, on demand, from
the Borrower.
2.14 Illegality. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such
Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert ABR Loans to Eurodollar Loans shall forthwith be cancelled and (b) such
Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted
automatically to ABR Loans on the respective last days of the then current
Interest Periods with respect to such Loans or within such earlier period as
required by law. If any such conversion of a Eurodollar Loan occurs on a day
which is not the last day of the then current Interest Period with respect
thereto, the Borrower shall pay to such Lender such amounts, if any, as may be
required pursuant to subsection 2.17.
2.15 Requirements of Law. (a) If the adoption of or any change in any
Requirement of Law or in the interpretation or application thereof or compliance
by any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority made subsequent to
the date hereof:
(i) shall subject any Lender to any tax of any kind
whatsoever with respect to this Agreement, any Note, any Letter of
Credit, any Application or any Eurodollar Loan made by it, or change
the basis of taxation of payments to such Lender in respect thereof
(except for Non-Excluded Taxes covered by subsection 2.16 and changes
in the rate of tax on the overall net income of such Lender);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of,
advances, loans or other extensions of credit by, or any other
acquisition of funds by, any office of such Lender which is not
otherwise included in the determination of the Eurodollar Rate
hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay such Lender
such additional amount or amounts as will compensate such Lender for such
increased cost or reduced amount receivable.
(b) If any Lender shall have determined that the adoption of
or any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under any Letter of Credit to a
level below that which such Lender or such corporation could have achieved but
for such adoption, change or compliance (taking into consideration such Lender's
or such corporation's policies with respect to capital adequacy) by an amount
deemed by such Lender to be material, then from time to time, the Borrower shall
promptly pay to such Lender such additional amount or amounts as will compensate
such Lender for such reduction.
(c) If any Lender becomes entitled to claim any additional
amounts pursuant to this subsection, it shall promptly notify the Borrower (with
a copy to the Administrative Agent) of the event by reason of which it has
become so entitled. A certificate as to any additional amounts payable pursuant
to this subsection submitted by such Lender to the Borrower (with a copy to the
Administrative Agent) shall constitute prima facie evidence of such additional
amounts. The agreements in this subsection shall survive the termination of this
Agreement and the payment of the Loans and all other amounts payable hereunder.
2.16 Taxes. (a) All payments made by the Borrower under this Agreement and
any Notes shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on the Administrative Agent or any Lender as a result
of a present or former connection between the Administrative Agent or such
Lender and the jurisdiction of the Governmental Authority imposing such tax or
any political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from the Administrative Agent or such Lender
having executed, delivered or performed its obligations or received a payment
under, or enforced, this Agreement or any Note). If any such non-excluded taxes,
levies, imposts, duties, charges, fees deductions or withholdings ("Non-Excluded
Taxes") are required to be withheld from any amounts payable to the
Administrative Agent or any Lender hereunder or under any Note, the amounts so
payable to the Administrative Agent or such Lender shall be increased to the
extent necessary to yield to the Administrative Agent or such Lender (after
payment of all Non-Excluded Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement, provided,
however, that the Borrower shall not be required to increase any such amounts
payable to any Lender that is not organized under the laws of the United States
of America or a state thereof if such Lender fails to comply with the
requirements of paragraph (b) of this subsection. Whenever any Non-Excluded
Taxes are payable by the Borrower, as promptly as possible thereafter the
Borrower shall send to the Administrative Agent for its own account or for the
account of such Lender, as the case may be, a certified copy of an original
official receipt received by the Borrower showing payment thereof. If the
Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing
authority or fails to remit to the Administrative Agent the required receipts or
other required documentary evidence, the Borrower shall indemnify the
Administrative Agent and the Lenders for any incremental taxes, interest or
penalties that may become payable by the Administrative Agent or any Lender as a
result of any such failure. The agreements in this subsection shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
(b) Each Lender that is not incorporated under the laws of the
United States of America or a state thereof shall:
(i) deliver to the Borrower and the Administrative Agent
(A) two duly completed copies of United States Internal Revenue Service
Form 1001 or 4224, or successor applicable form, as the case may be,
and (B) an Internal Revenue Service Form W-8 or W-9, or successor
applicable form, as the case may be;
(ii) deliver to the Borrower and the Administrative Agent
two further copies of any such form or certification on or before the
date that any such form or certification expires or becomes obsolete
and after the occurrence of any event requiring a change in the most
recent form previously delivered by it to the Borrower; and
(iii) obtain such extensions of time for filing and
complete such forms or certifications as may reasonably be requested by
the Borrower or the Administrative Agent;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly
completing and delivering any such form with respect to it and such Lender so
advises the Borrower and the Administrative Agent. Such Lender shall certify (i)
in the case of a Form 1001 or 4224, that it is entitled to receive payments
under this Agreement without deduction or withholding of any United States
federal income taxes and (ii) in the case of a Form W-8 or W-9, that it is
entitled to an exemption from United States backup withholding tax. Each Person
that shall become a Lender or a Participant pursuant to subsection 10.6 shall,
upon the effectiveness of the related transfer, be required to provide all of
the forms and statements required pursuant to this subsection, provided that in
the case of a Participant such Participant shall furnish all such required forms
and statements to the Lender from which the related participation shall have
been purchased.
2.17 Indemnity. The Borrower agrees to indemnify each Lender and to hold
each Lender harmless from any loss or expense which such Lender may sustain or
incur as a consequence of (a) default by the Borrower in making a borrowing of,
conversion into or continuation of Eurodollar Loans or Fixed Rate Loans after
the Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (b) default by the Borrower in making any
prepayment after the Borrower has given a notice thereof in accordance with the
provisions of this Agreement or (c) the making of a prepayment of Eurodollar
Loans on a day which is not the last day of an Interest Period with respect
thereto. Such indemnification may include an amount equal to the excess, if any,
of (i) 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
such 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 Loans provided
for herein (excluding, however, the Applicable Margin included therein, if any)
over (ii) the amount of interest (as reasonably determined by such Lender) which
would have accrued to such Bank on such amount by placing such amount on deposit
for a comparable period with leading banks in the interbank eurodollar market.
This covenant shall survive the termination of this Agreement and the payment of
the Loans and all other amounts payable hereunder.
2.18 Change of Lending Office. Each Lender agrees that if it makes any
demand for payment under subsection 2.15 or 2.16(a), or if any adoption or
change of the type described in subsection 2.14 shall occur with respect to it,
it will use reasonable efforts (consistent with its internal policy and legal
and regulatory restrictions and so long as such efforts would not be
disadvantageous to it, as determined in its sole discretion) to designate a
different lending office if the making of such a designation would reduce or
obviate the need for the Borrower to make payments under subsection 2.15 or
2.16(a), or would eliminate or reduce the effect of any adoption or change
described in subsection 2.14.
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment.
(a) Subject to the terms and conditions hereof, the Issuing Bank, in
reliance on the agreements of the other Lenders set forth in subsection agrees
3.4(a), to issue letters of credit ("Letters of Credit") for the account of the
Borrower on any Business Day during the Commitment Period in such form as may be
approved from time to time by the Issuing Bank; provided that the Issuing Bank
shall have no obligation to issue any Letter of Credit if, after giving effect
to such issuance, (i) the L/C Obligations would exceed the L/C Commitment or
(ii) the Available Commitment would be less than zero.
(b) Each Letter of Credit shall: (i) be denominated in Dollars
and shall be a commercial letter of credit issued in respect of the purchase of
goods or services by the Borrower and its Subsidiaries in the ordinary course of
business and (ii) expire no later than the Termination Date.
(c) Each Letter of Credit shall be subject to the Uniform
Customs and, to the extent not inconsistent therewith, the laws of the State of
New York.
(d) The Issuing Bank shall not at any time be obligated to
issue any Letter of Credit hereunder if such issuance would conflict with, or
cause the Issuing Bank or any L/C Participant to exceed any limits imposed by,
any applicable Requirement of Law.
3.2 Procedure for Issuance of Letters of Credit. The Borrower may from time
to time request that the Issuing Bank issue a Letter of Credit by delivering to
the Issuing Bank at its address for notices specified herein an Application
therefor, completed to the satisfaction of the Issuing Bank, and such other
certificates, documents and other papers and information as the Issuing Bank may
request. Upon receipt of any Application, the Issuing Bank will process such
Application and the certificates, documents and other papers and information
delivered to it in connection therewith in accordance with its customary
procedures and shall promptly issue the Letter of Credit requested thereby (but
in no event shall the Issuing Bank be required to issue any Letter of Credit
earlier than three Business Days after its receipt of the Application therefor
and all such other certificates, documents and other papers and information
relating thereto) by issuing the original of such Letter of Credit to the
beneficiary thereof or as otherwise may be agreed by the Issuing Bank and the
Borrower. The Issuing Bank shall furnish a copy of such Letter of Credit to the
Borrower promptly following the issuance thereof.
3.3 Fees, Commissions and Other Charges.
(a) The Borrower shall pay to the Administrative Agent, for
the account of the Issuing Bank and the L/C Participants, a payment fee in an
amount equal to 0.125% of the amount of each payment made under a Letter of
Credit on the date that such payment is made. Such fee shall be payable to the
Administrative Agent to be shared ratably among the Lenders in accordance with
their respective Commitment Percentages.
(b) In addition to the foregoing fees and commissions, the
Borrower shall pay or reimburse the Issuing Bank for such normal and customary
costs and expenses as are incurred or charged by the Issuing Bank in issuing,
effecting payment under, amending or otherwise administering any Letter of
Credit.
(c) The Administrative Agent shall, not more often than
quarterly, distribute to the Issuing Bank and the L/C Participants all fees and
commissions received by the Administrative Agent for their respective accounts
pursuant to this subsection.
3.4 L/C Participations.
(a) The Issuing Bank irrevocably agrees to grant and hereby
grants to each L/C Participant, and, to induce the Issuing Bank to issue Letters
of Credit hereunder, each L/C Participant irrevocably agrees to accept and
purchase and hereby accepts and purchases from the Issuing Bank, on the terms
and conditions hereinafter stated, for such L/C Participant's own account and
risk an undivided interest equal to such L/C Participant's Commitment Percentage
in the Issuing Bank's obligations and rights under each Letter of Credit issued
hereunder and the amount of each draft paid by the Issuing Bank thereunder. Each
L/C Participant unconditionally and irrevocably agrees with the Issuing Bank
that, if a draft is paid under any Letter of Credit for which the Issuing Bank
is not reimbursed in full by the Borrower in accordance with the terms of this
Agreement, such L/C Participant shall pay to the Issuing Bank upon demand at the
Issuing Bank's address for notices specified herein an amount equal to such L/C
Participant's Commitment Percentage of the amount of such draft, or any part
thereof, which is not so reimbursed.
(b) If any amount required to be paid by any L/C Participant
to the Issuing Bank pursuant to paragraph in respect of any unreimbursed portion
of any payment made by the Issuing Bank under any Letter of Credit is paid to
the Issuing Bank within three Business Days after the date such payment is due,
such L/C Participant shall pay to the Issuing Bank on demand an amount equal to
the product of (i) such amount, times (ii) the daily average Federal funds rate,
as quoted by the Issuing Bank, during the period from and including the date
such payment is required to the date on which such payment is immediately
available to the Issuing Bank, times (iii) a fraction the numerator of which is
the number of days that elapse during such period and the denominator of which
is 360. If any such amount required to be paid by any L/C Participant pursuant
to paragraph is not in fact made available to the Issuing Bank by such L/C
Participant within three Business Days after the date such payment is due, the
Issuing Bank shall be entitled to recover from such L/C Participant, on demand,
such amount with interest thereon calculated from such due date at the rate per
annum applicable to ABR Loans hereunder. A certificate of the Issuing Bank
submitted to any L/C Participant with respect to any amounts owing under this
subsection shall be conclusive in the absence of manifest error.
(c) Whenever, at any time after the Issuing Bank has made
payment under any Letter of Credit and has received from any L/C Participant its
pro rata share of such payment in accordance with subsection , the Issuing Bank
receives any payment related to such Letter of Credit (whether directly from the
Borrower or otherwise, including proceeds of collateral applied thereto by the
Issuing Bank), or any payment of interest on account thereof, the Issuing Bank
will distribute to such L/C Participant its pro rata share thereof; provided,
however, that in the event that any such payment received by the Issuing Bank
shall be required to be returned by the Issuing Bank, such L/C Participant shall
return to the Issuing Bank the portion thereof previously distributed by the
Issuing Bank to it.
3.5 Reimbursement Obligation of the Borrower.
(a) The Borrower agrees to reimburse the Issuing Bank on each
date on which the Issuing Bank notifies the Borrower of the date and amount of a
draft presented under any Letter of Credit and paid by the Issuing Bank for the
amount of (i) such draft so paid and (ii) any taxes, fees, charges or other
costs or expenses incurred by the Issuing Bank in connection with such
payment. Each such payment shall be made to the Issuing Bank at its address for
notices specified herein in lawful money of the United States of America and in
immediately available funds.
(b) Interest shall be payable on any and all amounts remaining
unpaid by the Borrower under this subsection from the date such amounts become
payable (whether at stated maturity, by acceleration or otherwise) until payment
in full at the rate which would be payable on any outstanding ABR Loans which
were then overdue.
(c) Each drawing under any Letter of Credit which is not
reimbursed pursuant to subsection 3.5(a) on the same day it is drawn shall
constitute a request by the Borrower to the Administrative Agent for a borrowing
(pursuant to subsection 2.2) of ABR Loans in the amount of such drawing. The
Borrowing Date with respect to such borrowing shall be the date of such drawing.
3.6 Obligations Absolute.
(a) The Borrower's obligations under this Section shall be
absolute and unconditional under any and all circumstances and irrespective of
any set-off, counterclaim or defense to payment which the Borrower may have or
have had against the Issuing Bank or any beneficiary of a Letter of Credit.
(b) The Borrower also agrees with the Issuing Bank that the
Issuing Bank shall not be responsible for, and the Borrower's Reimbursement
Obligations under subsection shall not be affected by, among other things, (i)
the validity or genuineness of documents or of any endorsements thereon, even
though such documents shall in fact prove to be invalid, fraudulent or forged,
or (ii) any dispute between or among the Borrower and any beneficiary of any
Letter of Credit or any other party to which such Letter of Credit may be
transferred or (iii) any claims whatsoever of the Borrower against any
beneficiary of such Letter of Credit or any such transferee.
(c) The Issuing Bank shall not be liable for any error,
omission, interruption or delay in transmission, dispatch or delivery of any
message or advice, however transmitted, in connection with any Letter of Credit,
except for errors or omissions caused by the Issuing Bank's gross negligence or
willful misconduct.
(d) The Borrower agrees that any action taken or omitted by
the Issuing Bank under or in connection with any Letter of Credit or the related
drafts or documents, if done in the absence of gross negligence or willful
misconduct and in accordance with the standards of care specified in the Uniform
Commercial Code of the State of New York, shall be binding on the Borrower and
shall not result in any liability of the Issuing Bank to the Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented for payment
under any Letter of Credit, the Issuing Bank shall promptly notify the Borrower
of the date and amount thereof. The responsibility of the Issuing Bank to the
Borrower in connection with any draft presented for payment under any Letter of
Credit shall, in addition to any payment obligation expressly provided for in
such Letter of Credit, be limited to determining that the documents (including
each draft) delivered under such Letter of Credit in connection with such
presentment are in conformity with such Letter of Credit.
3.8 Application. To the extent that any provision of any Application
related to any Letter of Credit is inconsistent with the provisions of this
Section , the provisions of this Section shall apply.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Lenders to enter into this Agreement and to make the Loans
and issue or participate in the Letters of Credit, the Borrower hereby
represents and warrants to the Administrative Agent and each Lender that:
4.1 Organization, Corporate Powers, etc. (a) It is a corporation duly
incorporated, validly existing and in good standing (or equivalent) under the
laws of its state or country of incorporation (as applicable), (b) has the
corporate power and authority to own its properties and to carry on its business
as now being conducted, (c) is duly qualified to do business in every
jurisdiction wherein the conduct of its business or the ownership of its
properties is such as to require such qualification in all cases where failure
to do so would be reasonably likely to have a Material Adverse Effect, (d) has
the corporate power to execute and perform this Agreement and all other Loan
Documents to which it is a party, and (e) with respect to the Borrower only, has
the corporate power to borrow the Loans.
4.2 Authorization of Borrowing, etc. Its execution, delivery and
performance of this Agreement and the other Loan Documents to which it is a
party, (a) have been duly authorized by all requisite corporate action, (b) will
not violate (i) any provision of law applicable to it, any applicable
governmental rule or regulation, or its respective charter or by-laws, or (ii)
any order of any court or other agency of government binding on it, or any
indenture, agreement or other instrument to which it is a party or by which it
or any of its property is bound, and (c) will not be in conflict with, result in
a breach of or constitute (with due notice and/or lapse of time) a default
under, any such indenture, agreement or other instrument, or result in the
creation or imposition of any Lien upon any of its property or assets.
4.3 Financial Condition. The Borrower has heretofore furnished to each
Lender consolidated financial statements, including a balance sheet and
statements of income and of cash flows, for the fiscal year ended December 31,
1995, prepared and audited by Cornick, Garber & Sandler LLP, as well as
unaudited statements for the quarter ending June 30, 1996. Such financial
statements present fairly the financial condition of the Borrower and its
Subsidiaries on a consolidated basis as of such date and their consolidated
results of operations and cash flows for the periods covered thereby in
conformity with GAAP. Since June 30, 1996, no material adverse change in the
financial condition, the business or the operations of the Borrower or any of
its Subsidiaries, on a consolidated basis, has occurred. There is no obligation
or liability, contingent or otherwise, of the Borrower or any of its
Subsidiaries, which is material in amount and which is not reflected in such
financial statements.
4.4 Taxes. It has not received any notice of deficiencies from any taxing
authority having jurisdiction over it or any of its property other than those
that could not reasonably be expected to have a Material Adverse Effect. It has
filed or caused to be filed all Federal, state and local tax returns which are
required to be filed, and has paid or caused to be paid all taxes as shown on
said returns or on any assessment received by it to the extent that such taxes
have become due.
4.5 Title to Properties. It has good and marketable title to its properties
and assets. There are no Liens on any of its properties and assets, except for
those in favor of each Lender or as may otherwise be disclosed in Schedule 7.3
or as are allowed under subsection 7.3.
4.6 Litigation. Except as set forth in the Borrower's Form 10-K for the
year ended December 31, 1995 or any subsequent Forms 10-Q or 8-K filed with the
Securities and Exchange Commission and delivered to the Lenders prior to the
date hereof, (a) there are no actions, suits or proceedings (whether or not
purportedly on behalf of the Borrower or any Guarantor) pending or, to its
knowledge, threatened against it at law or in equity or before or by any
Federal, state, municipal, or other governmental department, commission, board,
bureau, agency, or instrumentality, domestic or foreign, which could reasonably
be expected to have a Material Adverse Effect; and (b) it is not in default with
respect to any judgment, writ, injunction, decree, rule, or regulation of any
court or Federal, state, municipal, or other governmental department,
commission, board, bureau, agency, or instrumentality, domestic or foreign in
any respect which could reasonably be expected to have a Material Adverse
Effect.
4.7 Agreements. It is not a party to any agreement or instrument or subject
to any charter or other corporate restriction or any judgment, order, writ,
injunction, decree or regulation which would be reasonably likely to materially
and adversely affect its business, properties, assets, operations, or condition
(financial or otherwise) as currently existing. It is not in material default in
its performance, observance, or fulfillment of any material obligation,
covenant, or condition contained in any other agreement or instrument to which
it is a party, including, without limitation, those involving the Lenders
(including this Agreement).
4.8 Employee Benefit Plans. If applicable, it is in compliance in all
material respects with the applicable provisions of ERISA and the regulations
and published interpretations thereunder. No Reportable Event has occurred with
respect to a Plan, if any, administered by it or an administrator designated by
it. The present value of all accrued benefits under each Single Employer Plan
(based on those assumptions used to fund such Plans) did not, as of the last
annual valuation date prior to the date on which this representation is made or
deemed made, exceed the value of the assets of such Plan allocable to such
accrued benefits by an amount which could reasonably be expected to have a
Material Adverse Effect.
4.9 Federal Reserve Regulations.
(a) It is not engaged principally in, and does not have as one
of its important activities, the business of extending credit for the purpose of
purchasing or carrying any "margin stock" (within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System of the United States, as
amended to the date hereof). If requested by any Lender, it will furnish to each
Lender a statement on Federal Reserve Form U-1.
(b) No part of the proceeds of the Loans will be used, whether
directly or indirectly, and whether immediately, incidentally or ultimately, (i)
to purchase or carry margin stock or to extend credit to others for the purpose
of purchasing or carrying margin stock, or to refund Indebtedness originally
incurred for such purpose, or (ii) for any purpose which violates or is
inconsistent with the provisions of Regulations G, T, U or X of the Board of
Governors of the Federal Reserve System.
4.10 Governmental Approval; Licenses. No license, permit or certificate,
registration with or consent or approval of, or other action by, any Federal,
state, municipal or other Governmental Authority is required in connection with
its execution, delivery, and performance of this Agreement or any of the other
Loan Documents. It possesses all licenses, permits, certificates, approvals and
the like ("Licenses") necessary for the lawful operation of its business, to the
extent that failure to possess such Licenses would have a Material Adverse
Effect on the business of the Borrower. All such Licenses are in full force and
effect, and there exists no threat of a revocation or suspension of any
Licenses, except as could not reasonably be expected to have a Material Adverse
Effect.
4.11 Affiliates; Subsidiaries; Shareholders. As of the date hereof. and
except for the Guarantors, the Borrower has no Affiliates or Subsidiaries except
as set forth on Schedule 4.11.
4.12 Compliance with Applicable Laws. It is in compliance with the material
requirements of all applicable laws, rules, regulations, and orders of any
Governmental Authority applicable to it, except as could not reasonably be
expected to have a Material Adverse Effect.
4.13 Environmental Matters. In the ordinary course of its business, the
Borrower conducts an ongoing review of the effect of Environmental Laws on the
business, operations and properties of the Borrower and its Subsidiaries (not,
however, necessarily including PRC Subsidiaries), in the course of which it
identifies and evaluates associated liabilities and costs (including, without
limitation, any capital or operating expenditures required for clean-up or
closure of properties presently or previously owned, any capital or operating
expenditures required to achieve or maintain compliance with environmental
protection standards imposed by law or as a condition of any license, permit or
contract, any related constraints on operating activities, including any
periodic or permanent shutdown of any facility or reduction in the level of or
change in the nature of operations conducted thereat, any costs or liabilities
in connection with off-site disposal of wastes or Hazardous Substances, and any
actual or potential liabilities to third parties, including employees, and any
related costs and expenses). On the basis of this review, the Borrower has
reasonably concluded that such associated liabilities and costs, including the
costs of compliance with Environmental Laws, could not reasonably be expected to
exceed $1,500,000.
4.14 Intellectual Property. It owns, or is taking appropriate actions to
secure the ownership of (and believes in good faith that, prior to obtaining
such ownership, it is entitled to use) or is licensed to use, all trademarks,
trade names, patents, copyrights, technology, know-how and processes necessary
for the conduct of its business as currently conducted, except for those where
the failure to own or license the same could not have a Material Adverse Effect
(the "Intellectual Property"). To the best of its knowledge, no claim 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
except as otherwise disclosed to the Administrative Agent and each Lender in
writing prior to the date hereof, nor does it know of any valid basis for any
such claim other than claims which could reasonably be expected to have a
Material Adverse Effect. The use of such Intellectual Property does not infringe
on the rights of any Person, except for such claims and infringements that, in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
4.15 Schedules. All of the information which is required to be scheduled
pursuant to this Agreement is correct and accurate on the date hereof.
4.16 Purpose of Loans. The proceeds of the Loans shall be used by the
Borrower: (a) to the extent of not more than $60,000,000, to pay the Cash
Consideration in connection with the Merger and to pay acquisition closing and
other transaction costs in connection therewith, (b) to the extent of not more
than $60,000,000 at any one time outstanding (less any amounts then outstanding
borrowed for the purposes described in clauses (c) and (d) of this sentence) for
working capital purposes in the ordinary course of business, (c) to repay
approximately $15,000,000 of existing Indebtedness owed under IJI's and its
Subsidiaries currently existing bank credit facilities and (d) to the extent of
not more than $5,000,000 at any one time outstanding, and an additional
$15,000,000 at any one time outstanding after the matters described in
subsection 2.1(b) shall have occurred, to finance Permitted Acquisitions and
transactions permitted by subsection 7.5(d). No proceeds of the Loans shall be
used to finance any Permitted Acquisition or any transaction permitted by
subsection 7.5(d): (i) prior to the date upon which the Commitments shall have
been reduced to $50,000,000 or less (other than the Merger or pursuant to clause
(d) of the preceding sentence) or (ii) unless the board of directors of such
corporation shall have approved such acquisition, and in no event may more than
$20,000,000 of the proceeds of the Loans be used to finance Permitted
Acquisitions and transactions permitted by subsection 7.5(d) (excluding the
acquisition of IJI pursuant to the Merger). No proceeds of the Revolving Credit
Loans may be used to make any payment of principal of the Term Loans required
hereunder. For purposes of determinations pursuant to this subsection, no
prepayment of the Loans shall be deemed to have been applied to reduce any of
the Loans made for the purposes described in clause (d) of the first sentence of
this subsection unless all Loans made for the other purposes described in such
sentence shall have been reduced to zero.
4.17 Delivery of the Merger Agreement and Related Documents. The Borrower
has delivered to each Lender a complete and correct copy of the Merger Agreement
and all related agreements and other documents (including all exhibits,
schedules and disclosure letters referred to therein or delivered pursuant
thereto, if any) delivered on or prior to the Closing Date in connection with
the transactions contemplated and all amendments thereto, waivers relating
thereto and other side letters or agreements affecting the terms thereof
(collectively, the "Merger Documents"). The representations and warranties of
each of the parties thereto contained in the Merger Agreement (after giving
effect to any amendments, supplements, waivers or other modifications of the
Merger Agreement prior to the Closing Date in accordance with this Agreement)
are to the best of the Borrower's knowledge (in the case of representations by
parties other than the Borrower or any of its Subsidiaries) true and correct in
all material respects except as otherwise disclosed to the Lenders in writing
prior to the date hereof.
4.18 Certain Subsidiaries. IJI-FSC has no material assets, and the assets
of Entel Limited, which shall become a Subsidiary of the Borrower after the
Merger and which is a U.K. corporation, do not materially exceed the value of
its liabilities and such corporation is in the process of being liquidated.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extension of Credit. The agreement of each Lender
to make the initial extension of credit requested to be made by it is subject to
the satisfaction, immediately prior to or concurrently with the making of such
extension of credit on the Closing Date, of the following conditions precedent:
(a) Loan Documents. The Administrative Agent shall have
received (i) this Agreement, executed and delivered by a duly
authorized officer of the Borrower, with a counterpart for each Lender
and (ii) the Guarantee, executed and delivered by a duly authorized
officer of each Subsidiary (other than the PRC Subsidiaries), with a
counterpart or a conformed copy for each Lender.
(b) Corporate Proceedings of the Borrower. The Administrative
Agent shall have received, with a counterpart for each Lender, a copy
of the resolutions, in form and substance satisfactory to the
Administrative Agent, of the Board of Directors of the Borrower
authorizing (i) the execution, delivery and performance of this
Agreement and the other Loan Documents to which it is a party and (ii)
the borrowings contemplated hereunder, certified by the Secretary or an
Assistant Secretary of the Borrower as of the Closing Date, which
certificate shall be in form and substance satisfactory to the
Administrative Agent and shall state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded.
(c) Borrower Incumbency Certificate. The Administrative Agent
shall have received, with a counterpart for each Lender, a Certificate
of the Borrower, dated the Closing Date, as to the incumbency and
signature of the officers of the Borrower executing any Loan Document
satisfactory in form and substance to the Administrative Agent,
executed by the President or any Vice President and the Secretary or
any Assistant Secretary of the Borrower.
(d) Corporate Proceedings of Subsidiaries. The Administrative
Agent shall have received, with a counterpart for each Lender, a copy
of the resolutions, in form and substance satisfactory to the
Administrative Agent, of the Boards of Directors of each Subsidiary of
the Company which is a party to a Loan Document authorizing the
execution, delivery and performance of the Loan Documents to which it
is a party, certified by the Secretary or an Assistant Secretary of
each such Subsidiary as of the Closing Date, which certificate shall be
in form and substance satisfactory to the Administrative Agent and
shall state that the resolutions thereby certified have not been
amended, modified, revoked or rescinded.
(e) Subsidiary Incumbency Certificates. The Administrative
Agent shall have received, with a counterpart for each Lender, a
certificate of each Subsidiary of the Borrower which is a Loan Party,
dated the Closing Date, as to the incumbency and signature of the
officers of such Subsidiaries executing any Loan Document, satisfactory
in form and substance to the Administrative Agent, executed by the
President or any Vice President and the Secretary or any Assistant
Secretary of each such Subsidiary.
(f) Corporate Documents. The Administrative Agent shall have
received, with a counterpart for each Lender, true and complete copies
of the certificate of incorporation and by-laws of each Loan Party,
certified as of the Closing Date as complete and correct copies thereof
by the Secretary or an Assistant Secretary of such Loan Party.
(g) Fees. The Administrative Agent shall have received all
fees that the Borrower has agreed to pay to it on or before the Closing
Date.
(h) Legal Opinions. The Administrative Agent shall have
received, with a counterpart for each Lender, the following executed
legal opinions:
(i) the executed legal opinion of Stroock &
Stroock & Lavan, counsel to the Borrower and the other Loan Parties,
substantially in the form of Exhibit E; and
(ii) the executed legal opinions of special local counsel to
the Borrower in Canada and Hong Kong, each of which shall be in form
and substance satisfactory to the Administrative Agent.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent
may reasonably require;
5.2 Conditions to Each Extension of Credit. The agreement of each Lender to
make any extension of credit requested to be made by it on any date (including,
without limitation, its initial extension of credit) is subject to the
satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by the Borrower and each Subsidiary
in or pursuant to the Loan Documents shall be true and correct in all
material respects on and as of such date as if made on and as of such
date.
(b) No Default. No Default or Event of Default shall have
occurred and be continuing on such date or after giving effect to the
extensions of credit requested to be made on such date.
(c) Additional Matters. All corporate and other proceedings,
and all documents, instruments and other legal matters in connection
with the transactions contemplated by this Agreement and the other Loan
Documents shall be satisfactory in form and substance to the
Administrative Agent, and the Administrative Agent shall have received
such other documents and legal opinions in respect of any aspect or
consequence of the transactions contemplated hereby or thereby as it
shall reasonably request.
Each borrowing by and Letter of Credit issued on behalf of the
Borrower hereunder shall constitute a representation and warranty by the
Borrower as of the date of such Loan or issuance that the conditions contained
in this subsection have been satisfied.
5.3 Conditions to Each Extension of Credit Subsequent to the Initial
Extension of Credit. The agreement of each Lender to make any extension of
credit requested to be made by it on any date subsequent to the date of the
initial extensions of credit hereunder (to be made pursuant to the second
proviso to the first sentence of subsection 2.2) is subject to the satisfaction
of the conditions precedent that the Merger shall have been completed in
accordance with the terms of the Merger Agreement, without any waiver or
modification of any of the terms thereof, and the Administrative Agent shall
have received, with a copy for each Lender, a certificate of a Responsible
Officer of the Borrower so certifying.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect, any Note or any Letter of Credit remains outstanding and unpaid or any
other amount is owing to any Lender or the Administrative Agent hereunder, the
Borrower shall and (except in the case of delivery of financial information,
reports and notices) shall cause each of its Subsidiaries to:
6.1 Financial Statements. Furnish to each Lender:
(a) as soon as available, but in any event within (x) 95 days,
in the case of consolidated financial statements and the related
accountants report, or (y) 105 days, in the case of consolidating
financial statements and the related certificate of a Responsible
Officer after the end of each fiscal year of the Borrower, copies of
the consolidated and consolidating balance sheets of the Borrower and
its consolidated Subsidiaries as at the end of such year and the
related consolidated and consolidating statements of income and
retained earnings and of cash flows for such year, setting forth in
each case in comparative form the figures for the previous year, (i) in
the case of such consolidated financial statements, reported on without
a "going concern" or like qualification or exception, or qualification
arising out of the scope of the audit, by Cornick, Garber & Sandler,
LLP or other independent certified public accountants of nationally
recognized standing and (ii) in the case of such consolidating
financial statements, certified by a Responsible Officer as being
fairly stated in all material respects (subject to normal year-end
audit adjustments); and
(b) as soon as available, but in any event not later than (x)
50 days, in the case of consolidated financial statements, or (y) 65
days, in the case of consolidating financial statements, after the end
of each of the first three quarterly periods of each fiscal year of the
Borrower, the unaudited consolidated and consolidating balance sheets
of the Borrower and its consolidated Subsidiaries as at the end of such
quarter and the related unaudited consolidated and consolidating
statements of income and retained earnings and of cash flows of the
Borrower and its consolidated Subsidiaries for such quarter and the
portion of the fiscal year through the end of such quarter, setting
forth in each case in comparative form the figures for the previous
year, certified by a Responsible Officer as being fairly stated in all
material respects (subject to normal year-end audit adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
6.2 Certificates; Other Information. Furnish to each Lender:
(a) concurrently with the delivery of the consolidated
financial statements referred to in subsection 6.1(a), a certificate of
the independent certified public accountants reporting on such
financial statements stating that in making the examination necessary
therefor no knowledge was obtained of any Default or Event of Default,
except as specified in such certificate;
(b) concurrently with the delivery of the financial statements
referred to in subsections 6.1(a) and (b), a certificate of a
Responsible Officer ("Compliance Certificate") stating that, to the
best of such Officer's knowledge, during such period (i) no Subsidiary
has been formed or acquired (or, if any such Subsidiary has been formed
or acquired, the Borrower has complied with the requirements of
subsection 6.9 with respect thereto), (ii) the Borrower has observed or
performed all of its covenants and other agreements, and satisfied
every condition, contained in this Agreement and the other Loan
Documents to be observed, performed or satisfied by it, (iii) the
Borrower has set forth in reasonable detail any and all calculations
necessary to show compliance with subsection 2.1(a) and all of the
financial condition covenants set forth in subsections 7.1, including,
without limitation, calculations and reconciliations, if any, necessary
to show compliance with such financial condition covenants on the basis
of GAAP consistent with those utilized in preparing the audited
financial statements referred to in subsection 6.1, and (iv) that such
Officer has obtained no knowledge of any Default or Event of Default
except as specified in such certificate;
(c) prior to the end of each fiscal year of the Borrower, a
copy of the projections by the Borrower of the operating budget and
cash flow budget of the Borrower and its Subsidiaries for the
succeeding fiscal year, such projections to be accompanied by a
certificate of a Responsible Officer to the effect that such
projections have been prepared on the basis of sound financial planning
practice and that such Officer has no reason to believe they are
incorrect or misleading in any material respect;
(d) within five days after the same are sent, copies of all
financial statements and reports which the Borrower sends to its
stockholders, and within five days after the same are filed, copies of
all financial statements and reports which the Borrower may make to, or
file with, the Securities and Exchange Commission or any successor or
analogous Governmental Authority; and
(e) promptly, such additional financial and other information
as any Lender may from time to time reasonably request.
6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
obligations of whatever nature, except where the amount or validity thereof is
currently being contested in good faith by appropriate proceedings and reserves
in conformity with GAAP with respect thereto have been provided on the books of
the Borrower or its Subsidiaries, as the case may be.
6.4 Conduct of Business and Maintenance of Existence. Continue to engage in
business of the same general type as now conducted by it and preserve, renew and
keep in full force and effect its corporate existence and take all reasonable
action to maintain all rights, privileges and franchises necessary or desirable
in the normal conduct of its business except as otherwise permitted pursuant to
subsection 7.5; and comply with all Contractual Obligations and Requirements of
Law except to the extent that failure to comply therewith could not, in the
aggregate, be reasonably expected to have a Material Adverse Effect.
6.5 Maintenance of Property; Insurance. Keep all property useful and
necessary in its business in good working order and condition; maintain with
financially sound and reputable insurance companies insurance on all its
property in at least such amounts and against at least such risks (but including
in any event public liability, product liability and business interruption) as
are usually insured against in the same general area by companies engaged in the
same or a similar business; and furnish to each Lender at the Borrower's
expense, upon written request, full information as to the insurance carried.
6.6 Inspection of Property; Books and Records; Discussions. Keep proper
books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; and permit
representatives of any Lender to visit and inspect any of its properties and
examine and make abstracts from any of its books and records at any reasonable
time and as often as may reasonably be desired and to discuss the business,
operations, properties and financial and other condition of the Borrower and its
Subsidiaries with officers and employees of the Borrower and its Subsidiaries
and with its independent certified public accountants.
6.7 Notices. Promptly give notice to the Administrative Agent and each
Lender of:
(a) the occurrence of any Default or Event of Default of which
it is aware;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any of its Subsidiaries of which it is
aware or (ii) litigation, investigation or proceeding of which it is
aware which may exist at any time between the Borrower or any of its
Subsidiaries and any Governmental Authority, which in either case, if
not cured or if adversely determined, as the case may be, could
reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding of which it is aware
affecting the Borrower or any of its Subsidiaries in which the amount
involved is $1,000,000 or more and not covered by insurance or in which
injunctive or similar relief is sought;
(d) the following events, as soon as possible and in any event
within 30 days after the Borrower knows or has reason to know thereof:
(i) the occurrence or expected occurrence of any Reportable Event with
respect to any Plan, a failure to make any required contribution to a
Plan where such failure could reasonably be expected to have a Material
Adverse Effect or to result in the creation of a Lien, the creation of
any Lien in favor of the PBGC or a Plan or the Reorganization or
Insolvency of, any Multiemployer Plan or any withdrawal from, or
termination of, any Multiemployer Plan where such withdrawal or
termination could reasonably be expected to have a Material Adverse
Effect, or (ii) the institution of proceedings or the taking of any
other action by the PBGC or the Borrower or any Commonly Controlled
Entity or any Multiemployer Plan with respect to the Reorganization or
Insolvency of any Plan or any withdrawal from, or termination of, any
Multiemployer Plan where such withdrawal or termination could
reasonably be expected to have a Material Adverse Effect; and
(e) Any development or event of which it is aware which has
had or could reasonably be expected to have a Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Borrower proposes to take with respect thereto.
6.8 Environmental Laws. (a) Comply with, and ensure compliance by all
tenants and subtenants, if any, with, all applicable Environmental Laws and
obtain and comply in all material respects with and maintain, and ensure that
all tenants and subtenants obtain and comply in all material respects with and
maintain, any and all licenses, approvals, notifications, registrations or
permits required by applicable Environmental Laws except to the extent that
failure to do so could not be reasonably expected to have a Material Adverse
Effect.
(b) Conduct and complete all investigations, studies, sampling
and testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws except to the extent that the same are being contested in good faith by
appropriate proceeds and the pendency of such proceedings could not reasonably
expected to have a Material Adverse Effect.
6.9 Additional Guarantors. With respect to any Person that, subsequent to
the Closing Date, becomes a Subsidiary, promptly upon the request of the
Administrative Agent: (i) cause such new Subsidiary to become a Guarantor under
the Guarantee pursuant to documentation which is in form and substance
satisfactory to the Administrative Agent, (ii) cause such new Subsidiary (other
than IJI - FSC and Entel Limited) to deliver to the Administrative Agent the
certificates and documents relating thereto that are described in subsections
5.1(d), (e) and (f), and (iii) if requested by the Administrative Agent, deliver
to the Administrative Agent legal opinions relating to the matters described in
clause (i) above, which opinions shall be in form and substance, and from
counsel, reasonably satisfactory to the Administrative Agent, provided that with
respect to IJI and any other Person (other than IJI - FSC and Entel Limited)
that shall become a Subsidiary of the Borrower as a result of the Merger, the
documents described in this subsection shall be delivered within one week of the
Closing Date, including, without limitation, opinions of local counsel in
Germany and Italy.
6.10 Entel Limited. Exercise best efforts to cause Entel Limited, a U.K.
corporation, to be liquidated as soon as practicable.
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect, any Note or any Letter of Credit remains outstanding and unpaid or any
other amount is owing to any Lender or the Administrative Agent hereunder, the
Borrower shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly:
7.1 Financial Condition Covenants.
(a) Quick Assets Ratio. Permit at any time after December 30,
1996, the ratio of (x) the sum of (i) cash and Cash Equivalents of the
Borrower and its Subsidiaries at such time plus (ii) the amount shown
on a consolidated balance sheet of the Borrower and its Subsidiaries at
such time as accounts receivable (less provision for doubtful accounts)
at such time to (y) Consolidated Current Liabilities to be less than 1
to 1.
(b) Maintenance of Tangible Net Worth. Permit Consolidated
Tangible Net Worth (i) on September 30, 1996 to be less than
$90,000,000 or (ii) on the last day of any fiscal year to be less than
(1) in the case of the fiscal year ending December 31, 1996,
$90,000,000 or (2) in the case of any fiscal year thereafter, an amount
equal to the sum of (x) an amount equal to 50% of the Borrower's Net
Income (but only if positive) for such fiscal year plus (y)
Consolidated Tangible Net Worth as at the last day of the immediately
preceding fiscal year.
(c) Total Liabilities to Tangible Net Worth. Permit the ratio
of Consolidated Total Liabilities to Consolidated Tangible Net Worth at
any time during any fiscal quarter set forth below to be greater than
the amount set forth opposite such fiscal quarter below:
(A) If the matters described in subsection 2.1(b)
shall have occurred:
Fiscal Quarters Ending
During the Following Periods: Ratio
December 31, 1996 through December 30, 1997 2.75 to 1.00
December 31, 1997 through December 30, 1998 2.25 to 1.00
December 31, 1998 through December 30, 1999 2.00 to 1.00
December 31, 1999 through December 30, 2000 1.75 to 1.00
December 31, 2000 through December 30, 2001 1.25 to 1.00
(B) If the matters described in subsection
2.1(b) shall not have occurred:
Fiscal Quarters Ending
During the Following Periods: Ratio
June 30, 1996 through December 30, 1996 2.50 to 1.00
December 31, 1996 through December 30, 1997 2.00 to 1.00
December 31, 1997 through December 30, 1998 1.75 to 1.00
December 31, 1998 through December 30, 1999 1.50 to 1.00
December 31, 1999 through December 30, 2000 1.25 to 1.00
December 31, 2000 through December 30, 2001 1.00 to 1.00
December 31, 2001 through December 30, 2002 1.00 to 1.00
(d) Fixed Charge Coverage. Permit the Fixed Charge Coverage
Ratio as of the end of any fiscal quarter set forth below to be less
than the ratio set forth opposite such fiscal quarter set forth below:
(A) If the matters described in subsection 2.1(b)
shall have occurred:
Fiscal Quarters Ending
During the Following Periods: Ratio
December 31, 1996 through December 30, 1997 2.00 to 1.00
December 31, 1997 through December 30, 1998 2.00 to 1.00
December 31, 1998 through December 30, 1999 2.00 to 1.00
December 31, 1999 through December 30, 2000 2.00 to 1.00
December 31, 2000 through December 30, 2001 2.00 to 1.00
(B) If the matters described in subsection
2.1(b) shall not have occurred:
Fiscal Quarters Ending
During the Following Periods: Ratio
June 30, 1996 through December 30, 1996 1.50 to 1.00
December 31, 1996 through December 30, 1997 1.50 to 1.00
December 31, 1997 through December 30, 1998 1.50 to 1.00
December 31, 1998 through December 30, 1999 1.50 to 1.00
December 31, 1999 through December 30, 2000 2.00 to 1.00
December 31, 2000 through December 30, 2001 2.00 to 1.00
December 31, 2001 through December 30, 2002 2.00 to 1.00
(e) Leverage Ratio. Permit the Leverage Ratio at any time during any
fiscal quarter set forth below to be greater than the amount set forth opposite
such fiscal quarter below:
(A) If the matters described in subsection 2.1(b)
shall have occurred:
Fiscal Quarters Ending
During the Following Periods: Ratio
December 31, 1996 through December 30, 1997 4.50 to 1.00
December 31, 1997 through December 30, 1998 3.75 to 1.00
December 31, 1998 through December 30, 1999 3.00 to 1.00
December 31, 1999 through December 30, 2000 2.75 to 1.00
December 31, 2000 through December 30, 2001 2.50 to 1.00
(B) If the matters described in subsection
2.1(b) shall not have occurred:
Fiscal Quarters Ending
During the Following Periods: Ratio
June 30, 1996 through December 30, 1996 4.25 to 1.00
December 31, 1996 through December 30, 1997 3.00 to 1.00
December 31, 1997 through December 30, 1998 2.00 to 1.00
December 31, 1998 through December 30, 1999 2.00 to 1.00
December 31, 1999 through December 30, 2000 2.00 to 1.00
December 31, 2000 through December 30, 2001 2.00 to 1.00
December 31, 2001 through December 30, 2002 2.00 to 1.00
7.2 Limitation on Indebtedness. Create, incur, assume or suffer to
exist any Indebtedness, except:
(a) Indebtedness of the Borrower under this Agreement;
(b) Indebtedness of the Borrower to any Subsidiary and of
any Subsidiary to the Borrower or any other Subsidiary;
(c) Indebtedness of the Borrower and any of its Subsidiaries
incurred to finance the acquisition of real property or fixed or
capital assets (whether pursuant to a loan, a Financing Lease or
otherwise) in a principal amount not exceeding 100% of the purchase
price of such asset;
(d) Indebtedness outstanding on the date hereof and listed on
Schedule 7.2, provided that on the date of the initial borrowing
hereunder all then outstanding borrowings under lines of credit
currently being made available to the Borrower by the Lenders shall be
paid in full;
(e) Indebtedness of a corporation which becomes a Subsidiary
after the date hereof, provided that (i) such indebtedness existed at
the time such corporation became a Subsidiary and was not created in
anticipation thereof and (ii) immediately after giving effect to the
acquisition of such corporation by the Borrower no Default or Event of
Default shall have occurred and be continuing;
(f) Indebtedness constituting amounts owing in respect of
goods and services purchased pursuant to corporate credit cards in an
aggregate amount for the Borrower and its Subsidiaries not to exceed
$500,000 at any one time outstanding; and
(g) other Indebtedness of the Borrower incurred subsequent to
the date hereof, provided that the net cash proceeds thereof shall be
applied in accordance with subsection 2.4(b) or 2.4(d), as applicable,
and that all the terms and conditions thereof shall be satisfactory in
form and substance to the Required Lenders, as evidenced by their prior
written approval thereof.
7.3 Limitation on Liens. Create, incur, assume or suffer to exist any Lien
upon any of its property, assets or revenues, whether now owned or hereafter
acquired, except for:
(a) Liens for taxes, assessments and governmental charges or
levies not yet due or which are being contested in good faith by
appropriate proceedings, provided that adequate reserves with respect
thereto are maintained on the books of the Borrower or its
Subsidiaries, as the case may be, in conformity with GAAP;
(b) landlords', carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like Liens arising in the ordinary
course of business which are not overdue for a period of more than 20
days or which are being contested in good faith by appropriate
proceedings;
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation and deposits securing liability to insurance carriers under
insurance or self-insurance arrangements;
(d) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of
business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the
Borrower or such Subsidiary;
(f) Liens in existence on the date hereof listed on Schedule
7.3, securing Indebtedness permitted by subsection 7.2(d), provided
that such Liens are not to be renewed, extended, amended or refinanced
and provided further that no such Lien is spread to cover any
additional property after the Closing Date and that the amount of
Indebtedness secured thereby is not increased;
(g) Liens securing Indebtedness of the Borrower and its
Subsidiaries permitted by subsection 7.2(c) incurred to finance the
acquisition of fixed or capital assets, provided that (i) such Liens
shall be created in the ordinary course of business and substantially
simultaneously with the acquisition of such fixed or capital assets,
(ii) such Liens do not at any time encumber any property other than the
property financed by such Indebtedness, (iii) the amount of
Indebtedness secured thereby is not increased and (iv) the principal
amount of Indebtedness secured by any such Lien shall at no time exceed
100% of the original purchase price of such property of such property
at the time it was acquired; and
(h) Liens on the property or assets of a Person which becomes
a Subsidiary after the date of this Agreement or on property or assets
acquired by the Borrower or any Subsidiary after the date of this
Agreement, in each case securing Indebtedness permitted by subsection
7.2(c) or (e), provided that (i) such Liens exist at the time such
Person becomes a Subsidiary or such property or assets are acquired, as
the case may be, and are not created in anticipation thereof and (ii)
any such Lien is not extended to cover any
property or assets of such Person or any other property or assets of
the Borrower or such Subsidiary, as the case may be, after the time
such Person becomes a Subsidiary or such property or assets are
acquired, as the case may be;
(i) Liens arising from judgments in amounts less than
$5,000,000 in circumstances not constituting a Default or Event of
Default;
(j) attachments, judgments, or other similar Liens arising in
connection with court proceedings, provided that the execution or other
enforcement of such Liens is effectively stayed by being contested in
good faith by appropriate proceedings;
(k) Liens on goods (and the documents of title related
thereto) the purchase price of which is financed by a Letter of Credit
issued for the account of the Borrower or its Subsidiaries, provided
that such Lien secures only the obligations of the Borrower or such
Subsidiaries in respect of such Letter of Credit; and
(l) any other security interests granted to the Administrative
Agent to secure the obligations and liabilities of the Borrower
hereunder.
7.4 Limitation on Guarantee Obligations. Create, incur, assume or suffer to
exist any Guarantee Obligation except:
(a) Guarantee Obligations of the Borrower in existence on the
date hereof and listed on Schedule 7.4, provided that those Guarantee
Obligations so designated on said Schedule shall be terminated not
later than two weeks after the date hereof;
(b) Guarantee Obligations of the Borrower to be created after
the completion of the Merger with respect to Indebtedness of IJI in the
amount of $15,000,000 owed to Massachusetts Mutual Life Insurance
Company that is outstanding on the date hereof;
(c) guarantees made in the ordinary course of its business by
the Borrower of obligations of any of its Subsidiaries, and guaranties
made in the ordinary course of its business by any Guarantor of
obligations of the Borrower or any Subsidiary of the Borrower, which
obligations are not prohibited by this Agreement; and
(d) the Guarantee.
7.5 Limitation on Fundamental Changes and Sales of Assets. Enter into any
merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself
(or suffer any liquidation or dissolution), or, except if such transaction is in
the ordinary course of business, convey, sell, lease, assign, transfer or
otherwise dispose of its property, business or assets, or make any material
change in its present method of conducting business, except:
(a) any Subsidiary of the Borrower may be merged or
consolidated with or into the Borrower (provided that the Borrower
shall be the continuing or surviving corporation) or with or into any
one or more wholly owned Subsidiaries of the Borrower (provided that
the wholly owned Subsidiary or Subsidiaries shall be the continuing or
surviving corporation);
(b) any wholly owned Subsidiary may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to the Borrower or any other wholly owned
Subsidiary of the Borrower;
(c) the Merger may be completed;
(d) the Borrower or any of its Subsidiaries may (provided that
the requirements of subsection 7.7(c) shall be complied with in
connection therewith) consolidate with or merge into any other
corporation or organization of any kind, or permit another corporation
or organization of any kind to merge into it, so long as either (i) the
Borrower or a Guarantor is the surviving entity, or (ii) if the
surviving entity is not the Borrower or a Guarantor, then (A) the
surviving entity shall have assumed all obligations to the Lenders with
respect to any Indebtedness of the Borrower or such Guarantor
(including, without limitation, the covenants and agreements contained
herein), (B) shares having at least 51% of the aggregate voting power
of all Capital Stock of the surviving entity must be held by the
Borrower or by a Guarantor or by Robert L. Borchardt, and must be
ultimately beneficially owned by Robert L. Borchardt, (C) Robert L.
Borchardt must continue to be primarily involved in the management of
the surviving entity, (D) no other covenant contained in this Agreement
shall be violated by such merger or consolidation and no Default or
Event of Default shall have occurred and be continuing after giving
effect thereto, and (E) all documentation pertaining to the said
assumption of obligations must be satisfactory to the Required Lenders
in their reasonable discretion;
(e) the sale or other disposition of any property in the
ordinary course of business; and
(f) the sale or discount without recourse, in the ordinary
course of business, of accounts receivable arising in the ordinary
course of business in connection with the compromise or collection
thereof.
7.6 PRC Subsidiaries. Permit on the last day of any fiscal quarter the
aggregate net book value of the assets (as reported on the consolidating
financial statements referred to in subsections 4.1 and 6.1) of the PRC
Subsidiaries to be greater than an amount equal to 15% of Consolidated Tangible
Net Worth.
7.7 Limitation on Investments, Loans and Advances. Make any advance, loan,
extension of credit or capital contribution to, or purchase any stock, bonds,
notes, debentures or other securities of or any assets constituting a business
unit of, or make any other investment in, any other Person, except:
(a) extensions of trade credit in the ordinary course of
business;
(b) investments in Cash Equivalents;
(c) Permitted Acquisitions, provided that no such acquisition,
and no transaction described in subsection 7.5(d), shall be permitted
that would cause the Consolidated Total Liabilities to increase by more
than 75% over the Consolidated Total Liabilities outstanding
immediately prior to the completion of such acquisition or other
transaction unless, after giving effect thereto, the ratio of Total
Liabilities to Total Assets would be less than .50 to 1.0.;
(d) loans and advances to (i) employees of the Borrower or its
Subsidiaries and (ii) companies to be acquired by the Borrower with
whom the Borrower has entered into a binding, written agreement
entitling the Borrower to merge with or acquire such company or
substantially all of its assets in exchange for specified consideration
or a letter of intent for the same, provided that the aggregate amount
of all loans and advances pursuant to clauses (i) and (ii) shall not,
in the aggregate, exceed $5,000,000 at any one time outstanding and
provided, further, that no loan or advance made pursuant to clause (ii)
shall be outstanding for more than 180 days; and
(e) investments by the Borrower in its Subsidiaries and
investments by such Subsidiaries in the Borrower and in other
Subsidiaries.
7.8 Limitation on Transactions with Affiliates. Enter into any transaction,
including, without limitation, any purchase, sale, lease or exchange of property
or the rendering of any service, with any Affiliate unless such transaction is
(a) not prohibited by this Agreement, (b) in the ordinary course of the
Borrower's or such Subsidiary's business and (c) upon fair and reasonable terms
no less favorable to the Borrower or such Subsidiary, as the case may be, than
it would obtain in a comparable arm's length transaction with a Person which is
not an Affiliate.
7.9 Limitation on Changes in Fiscal Year. Permit the fiscal year of the
Borrower to end on a day other than December 31.
7.10 Limitation on Lines of Business. Engage in any material business other
than those in or directly related to the consumer electronics industry.
7.11 Limitation on IJI-FSC Assets. Permit IJI-FSC to have any material
assets.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Note
or any Reimbursement Obligation when due in accordance with the terms
thereof or hereof; or the Borrower shall fail to pay any interest on
any Note, or any other amount payable hereunder, within five days after
any such interest or other amount becomes due in accordance with the
terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by the
Borrower or any other Loan Party herein or in any other Loan Document
or which is contained in any certificate, document or financial or
other statement furnished by it at any time under or in connection with
this Agreement or any such other Loan Document shall prove to have been
incorrect in any material respect on or as of the date made or deemed
made; or
(c) The Borrower shall default in the observance or
performance of any agreement
contained in Section 7 (except any such default caused by the
incurrence of Indebtedness in an amount less than $1,000,000 by any
Subsidiary of the Borrower provided that such default is cured within
15 days after the date of such incurrence);
(d) The Borrower or any other Loan Party shall default in the
observance or performance of any other agreement contained in this
Agreement or any other Loan Document (other than as provided in
paragraphs (a) through (c) of this Section), and such default shall
continue unremedied for a period of 30 days after notice from the
Administrative Agent or any Lender of such default is given to the
Borrower; or
(e) The Borrower or any of its Subsidiaries shall (i) default
in any payment of principal of or interest of any Indebtedness (other
than the Loans) or in the payment of any Guarantee Obligation, beyond
the period of grace (not to exceed 30 days), if any, provided in the
instrument or agreement under which such Indebtedness or Guarantee
Obligation was created; or (ii) default in the observance or
performance of any other agreement or condition relating to any such
Indebtedness or Guarantee Obligation or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event
shall occur or condition exist, the effect of which default or other
event or condition is to cause, or to permit the holder or holders of
such Indebtedness or beneficiary or beneficiaries of such Guarantee
Obligation (or a trustee or agent on behalf of such holder or holders
or beneficiary or beneficiaries) to cause, with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity
or such Guarantee Obligation to become payable; provided, however, that
no Default or Event of Default shall exist under this paragraph unless
the aggregate amount of Indebtedness and/or Guarantee Obligations in
respect of which any default or other event or condition referred to in
this paragraph shall have occurred shall be equal to at least
$1,000,000; or
(f) (i) The Borrower or any of its Subsidiaries shall commence
any case, proceeding or other action (A) under any existing or future
law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an
order for relief entered with respect to it, or seeking to adjudicate
it a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian, conservator or other similar official for
it or for all or any substantial part of its assets, or the Borrower or
any of its Subsidiaries shall make a general assignment for the benefit
of its creditors; or (ii) there shall be commenced against the Borrower
or any of its Subsidiaries any case, proceeding or other action of a
nature referred to in clause (i) above which (A) results in the entry
of an order for relief or any such adjudication or appointment or (B)
remains undismissed, undischarged or unbonded for a period of 60 days;
or (iii) there shall be commenced against the Borrower or any of its
Subsidiaries any case, proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar process against
all or any substantial part of its assets which results in the entry of
an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days from the
entry thereof; or (iv) the Borrower or any of its Subsidiaries shall
take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause
(i), (ii), or (iii) above; or (v) the Borrower or any of its
Subsidiaries shall generally not, or shall be unable to, or shall admit
in writing its inability to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the
Code) involving any Plan, (ii) any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist
with respect to any Plan or any Lien in favor of the PBGC or a Plan
shall arise on the assets of the Borrower or any Commonly Controlled
Entity, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee
shall be appointed, to administer or to terminate, any Single Employer
Plan, which Reportable Event or commencement of proceedings or
appointment of a trustee is, in the reasonable opinion of the Required
Lenders, likely to result in the termination of such Plan for purposes
of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for
purposes of Title IV of ERISA, (v) the Borrower or any Commonly
Controlled Entity shall, or in the reasonable opinion of the Required
Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a
Multiemployer Plan or (vi) any other event or condition shall occur or
exist with respect to a Plan; and in each case in clauses (i) through
(vi) above, such event or condition, together with all other such
events or conditions, if any, could reasonably be expected to have a
Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against
the Borrower or any of its Subsidiaries involving in the aggregate a
liability (not paid or fully covered by insurance) of $5,000,000 or
more, and all such judgments or decrees shall not have been vacated,
discharged, stayed or bonded pending appeal within 60 days from the
entry thereof; or
(i) The Guarantee shall cease, for any reason, to be in full
force and effect or any Guarantor shall so assert; or
(j) (i) Any natural person other than Robert L. Borchardt, his
estate, any trust established by him or his heirs, or any Person or
"group" (within the meaning of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended) not controlled by Robert L.
Borchardt, his estate, any trust established by him or his heirs (other
than a Permitted Holder, as defined below) (A) shall have acquired
beneficial ownership of 20% or more of any outstanding class of Capital
Stock having ordinary voting power in the election of directors of the
Borrower or (B) shall obtain the power (whether or not exercised) to
elect a majority of the Borrower's directors or (ii) the Board of
Directors of the Borrower shall not consist of a majority of Continuing
Directors; "Continuing Directors" shall mean the directors of the
Borrower on the Closing Date and each other director, if such other
director's nomination for election to the Board of Directors of the
Borrower is recommended by a majority of the then Continuing Directors;
as used in this paragraph the term "Permitted Holder" shall mean any
holder of shares of any outstanding class of the Capital Stock of the
Borrower that shall have been designated as a Permitted Holder in a
resolution duly adopted by the Board of Directors of the Borrower and
that shall have been approved in writing by the Required Lenders; or
(k) The Merger shall not have been completed on or before
September 3, 1996 in accordance with the terms of the Merger Agreement,
without any waiver or modification of any of the material terms
thereof, or there shall not have been delivered on or before such date
to the Administrative Agent, with a copy of each Lender, a certificate
of a Responsible Officer of the Borrower confirming such completion;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower or in
paragraph (k) above, automatically the Commitments shall immediately terminate
and the Loans hereunder (with accrued interest thereon) and all other amounts
owing under this Agreement (including, without limitation, all amounts of L/C
Obligations, whether or not the beneficiaries of the then outstanding Letters of
Credit shall have presented the documents required thereunder) and the Notes
shall immediately become due and payable, and (B) if such event is any other
Event of Default, either or both of the following actions may be taken: (i) with
the consent of the Required Lenders, the Administrative Agent may, or upon the
request of the Required Lenders, the Administrative Agent shall, by notice to
the Borrower declare the Commitments to be terminated forthwith, whereupon the
Commitments shall immediately terminate; and (ii) with the consent of the
Required Lenders, the Administrative Agent may, or upon the request of the
Required Lenders, the Administrative Agent shall, by notice of default to the
Borrower, declare the Loans hereunder (with accrued interest thereon) and all
other amounts owing under this Agreement (including, without limitation, all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) and the Notes to be due and payable forthwith, whereupon the same
shall immediately become due and payable.
With respect to all Letters of Credit with respect to which presentment
for honor shall not have occurred at the time of an acceleration pursuant to the
preceding paragraph, the Borrower shall at such time deposit in a cash
collateral account opened by the Administrative Agent an amount equal to the
aggregate then undrawn and unexpired amount of such Letters of Credit. The
Borrower hereby grants to the Administrative Agent, for the benefit of the
Issuing Bank and the L/C Participants, a security interest in such cash
collateral to secure all obligations of the Borrower under this Agreement and
the other Loan Documents. Amounts held in such cash collateral account shall be
applied by the Administrative Agent to the payment of drafts drawn under such
Letters of Credit, and the unused portion thereof after all such Letters of
Credit shall have expired or been fully drawn upon, if any, shall be applied to
repay other obligations of the Borrower hereunder and under the Notes. After all
such Letters of Credit shall have expired or been fully drawn upon, all
Reimbursement Obligations shall have been satisfied and all other obligations of
the Borrower hereunder and under the Notes shall have been paid in full, the
balance, if any, in such cash collateral account shall be returned to the
Borrower. The Borrower shall execute and deliver to the Administrative Agent,
for the account of the Issuing Bank and the L/C Participants, such further
documents and instruments as the Administrative Agent may request to evidence
the creation and perfection of the security interest in such cash collateral
account.
Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
SECTION 9. THE ADMINISTRATIVE AGENT
9.1 Appointment. Each Lender hereby irrevocably designates and appoints the
Administrative Agent as the agent of such Lender under this Agreement and the
other Loan Documents, and each such Lender irrevocably authorizes the
Administrative Agent, in such capacity, to take such action on its behalf under
the provisions of this Agreement and the other Loan Documents and to exercise
such powers and perform such duties as are expressly delegated to the
Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.
9.2 Delegation of Duties. The Administrative Agent may execute any of its
duties under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Administrative Agent shall not be
responsible for the negligence or misconduct of any agents or attorneys in-fact
selected by it with reasonable care.
9.3 Exculpatory Provisions. Neither the Administrative Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be
(i) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Agreement or any other Loan Document
(except for its or such Person's own gross negligence or willful misconduct) or
(ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by the Borrower or any officer
thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Administrative Agent under or in connection with, this
Agreement or any other Loan Document or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document or for any failure of the Borrower to perform its obligations hereunder
or thereunder. The Administrative Agent shall not be under any obligation to any
Lender to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower or any
of its Subsidiaries.
9.4 Reliance by Administrative Agent. The Administrative Agent shall be
entitled to rely, and shall be fully protected in relying, upon any Note,
writing, resolution, notice, consent, certificate, affidavit, letter, telecopy,
telex or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower or any of its
Subsidiaries), accountants of the Borrower, independent accountants and other
experts selected by the Administrative Agent. The Administrative Agent may deem
and treat the payee of any Note as the owner thereof for all purposes unless a
written notice of assignment, negotiation or transfer thereof shall have been
filed with the Administrative Agent. The Administrative Agent shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Loan Document unless it shall first receive such advice or concurrence of
the Required Lenders as it deems appropriate or 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 or continuing to take any such action.
The Administrative Agent shall in all cases be fully protected held harmless and
indemnified in acting, or in refraining from acting, under this Agreement and
the other Loan Documents in accordance with a request of the Required Lenders,
and such request and any action taken or failure to act pursuant thereto shall
be binding upon all the Lenders and all future holders of the Loans.
9.5 Notice of Default. The Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received notice from a Lender or
the Borrower, referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event that
the Administrative Agent receives such a notice, the Administrative Agent shall
give notice thereof to the Lenders. The Administrative Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Required Lenders; provided that unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders.
9.6 Non-Reliance on Administrative Agent and Other Lenders. Each Lender
expressly acknowledges that neither the Administrative Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates has made
any representations or warranties to it and that no act by the Administrative
Agent hereinafter taken, including any review of the affairs of the Borrower,
shall be deemed to constitute any representation or warranty by the
Administrative Agent to any Lender. Each Lender represents to the Administrative
Agent that it has, independently and without reliance upon the Administrative
Agent or any other Lender, and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, operations, property, financial and other condition and
creditworthiness of the Borrower and its Subsidiaries and made its own decision
to make its Loans hereunder and enter into this Agreement. Each Lender also
represents that it will, independently and without reliance upon the
Administrative 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
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigation as
it deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Borrower and its
Subsidiaries. Except for notices, reports and other documents expressly required
to be furnished to the Lenders by the Administrative Agent hereunder (including
matters with respect to which the Borrower is required to deliver to the
Administrative Agent a sufficient number of copies of counterparts for each
Lender), the Administrative Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the business,
operations, property, condition (financial or otherwise), prospects or
creditworthiness of the Borrower or any of its Subsidiaries which may come into
the possession of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
9.7 Indemnification. The Lenders agree to indemnify the Administrative
Agent in its capacity as such (to the extent not reimbursed by the Borrower and
without limiting the obligation of the Borrower to do so), ratably according to
their respective Commitment Percentages in effect on the date on which
indemnification is sought (or, if indemnification is sought after the date upon
which the Commitments shall have terminated and the Loans and Reimbursement
Obligations shall have been paid in full, ratably in accordance with their
Commitment Percentages immediately prior to such date), from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever which may at any
time (including, without limitation, at any time following the payment of the
Loans) be imposed on, incurred by or asserted against the Administrative Agent
in any way relating to or arising out of, the Commitments, this Agreement, any
of the other Loan Documents or any documents contemplated by or referred to
herein or therein or the transactions contemplated hereby or thereby or any
action taken or omitted by the Administrative Agent under or in connection with
any of the foregoing; provided that no Lender shall be liable for the payment of
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting solely
from the Administrative Agent's gross negligence or willful misconduct. The
agreements in this subsection shall survive the payment of the Loans, the
termination of the Commitments, and all other amounts payable hereunder.
9.8 Administrative Agent in Its Individual Capacity.
(a) The Administrative Agent and its Affiliates may make loans
to, accept deposits from and generally engage in any kind of business with the
Borrower as though the Administrative Agent were not the Administrative Agent
hereunder and under the other Loan Documents.
(b) With respect to its Loans made or renewed by it and any
Note issued to it and with respect to any Letter of Credit issued or
participated in by it, the Administrative Agent shall have the same rights and
powers under this Agreement and the other Loan Documents as any Lender and may
exercise the same as though it were not the Administrative Agent, and the terms
"Lender" and "Lenders" shall include the Administrative Agent in its individual
capacity.
9.9 Successor Administrative Agent. The Administrative Agent may resign as
Administrative Agent upon 30 days' notice to the Lenders and the Borrower. If
the Administrative Agent shall resign as Administrative Agent under this
Agreement and the other Loan Documents, then the Borrower shall appoint from
among the Lenders a successor agent for the Lenders, whereupon such successor
agent (provided that it shall have been approved by the Required Lenders), shall
succeed to the rights, powers and duties of the Administrative Agent hereunder.
Effective upon such appointment and approval, the term "Administrative Agent"
shall mean such successor agent, and the former Administrative Agent's rights,
powers and duties as Administrative Agent shall be terminated, without any other
or further act or deed on the part of such former Administrative Agent or any of
the parties to this Agreement or any holders of the Loans. After any retiring
Administrative Agent's resignation as Administrative Agent, the provisions of
this Section 9 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Administrative Agent under this Agreement and the
other Loan Documents.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement nor any other Loan
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this subsection. The
Required Lenders may, or, with the written consent of the Required Lenders, the
Administrative Agent may, from time to time, (a) enter into with the Borrower
written amendments, supplements or modifications hereto and to the other Loan
Documents for the purpose of adding any provisions to this Agreement or the
other Loan Documents or changing in any manner the rights of the Lenders or of
the Borrower hereunder or thereunder or (b) waive, on such terms and conditions
as the Required Lenders or the Administrative Agent, as the case may be, may
specify in such instrument, any of the requirements of this Agreement or the
other Loan Documents or any Default or Event of Default and its consequences;
provided, however, that no such waiver and no such amendment, supplement or
modification shall (i) reduce the amount or extend the scheduled date of
maturity of any Loan or of any installment thereof, or reduce the stated rate of
any interest or fee payable hereunder or extend the scheduled date of any
payment thereof or increase the amount or extend the expiration date of any
Lender's Commitment or modify the provisions of subsection 2.13 with regard to
pro rata treatment of the Lenders, in each case without the consent of each
Lender affected thereby, or (ii) amend, modify or waive any provision of this
subsection or reduce the percentage specified in the definition of Required
Lenders or Majority Lenders, or consent to the assignment or transfer by the
Borrower of any of its rights and obligations under this Agreement and the other
Loan Documents, in each case without the written consent of all the Lenders, or
(iii) amend, modify or waive any provision of Section 9 without the written
consent of the then Administrative Agent. Any such waiver and any such
amendment, supplement or modification shall apply equally to each of the Lenders
and shall be binding upon the Borrower, the Lenders, the Administrative Agent
and all future holders of the Loans. In the case of any waiver, the Borrower,
the Lenders and the Administrative Agent shall be restored to their former
positions and rights hereunder and under the other Loan Documents, and any
Default or Event of Default waived shall be deemed to be cured and not
continuing, but no such waiver shall extend to any subsequent or other Default
or Event of Default or impair any right consequent thereon.
10.2 Notices. All notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing (including by facsimile
transmission) and, unless otherwise expressly provided herein, shall be deemed
to have been duly given or made (a) in the case of delivery by hand, when
delivered, (b) in the case of delivery by registered or certified mail, five
days (or ten days, in the case of mailings between locations inside and outside
of the United States) days after being deposited in the mails, postage prepaid
(airmail, in the case of mailings between locations inside and outside of the
United States), or (c) in the case of delivery by facsimile transmission, when
sent and receipt has been confirmed, addressed as follows in the case of the
Borrower and the Administrative Agent, and as set forth in Schedule I in the
case of the other parties hereto, or to such other address as may be hereafter
notified by the respective parties hereto:
The Borrower: Recoton Corporation
2950 Lake Emma Road
Lake Mary, Florida 32746
Attention: Stuart Mont
Fax: 407-444-0559
With a copy to:
Mr. Theodore Lynn, Esq.
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004
Fax: 212-806-6006
The Administrative
Agent: The Chase Manhattan Bank
92-25 Queens Boulevard, 11th Floor
Rego Park, New York 11374
Attention: Recoton Account Officer
Fax: 718-830-9310
provided that any notice, request or demand to or upon the Administrative Agent
or the Lenders pursuant to subsection 2.2, 2.4, 2.7, 2.8 or 2.13 shall not be
effective until received.
10.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of the Administrative Agent or any Lender, any right,
remedy, power or privilege hereunder or under the other Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
10.4 Survival of Representations and Warranties. All representations and
warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans hereunder.
10.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or
reimburse the Administrative Agent for all its out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to, this Agreement and the other Loan
Documents and any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby and the syndication by the Administrative Agent of the Commitments,
including, without limitation, the reasonable fees and disbursements of counsel
to the Administrative Agent, (b) to pay or reimburse each Lender and the
Administrative Agent for all its costs and expenses incurred in connection with
the enforcement or preservation of any rights under this Agreement, any
amendment, supplement or modification to this Agreement the other Loan Documents
and any such other documents, including, without limitation, the fees and
disbursements of counsel (including the allocated fees and expenses of in-house
counsel) to each Lender and of counsel to the Administrative Agent, (c) to pay,
indemnify, and hold each Lender and the Administrative Agent harmless from, any
and all recording and filing fees and any and all liabilities with respect to,
or resulting from any delay in paying, stamp, excise and other taxes, if any,
which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation or administration of any of the
transactions contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement, the other Loan
Documents and any such other documents, and (d) to pay, indemnify, and hold each
Lender and the Administrative Agent harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever with respect
to the execution, delivery, enforcement, performance and administration of this
Agreement, the other Loan Documents, the Merger Agreement, the Merger or the use
of the proceeds of the Loans in connection with the Merger and any such other
documents, including, without limitation, any of the foregoing relating to the
violation of, noncompliance with or liability under, any Environmental Law
applicable to the operations of the Borrower, any of its Subsidiaries or any of
the Properties (all the foregoing in this clause (d), collectively, the
"indemnified liabilities"), provided that the Borrower shall have no obligation
hereunder to the Administrative Agent or any Lender with respect to indemnified
liabilities arising from the gross negligence or willful misconduct of such
Person. The agreements in this subsection shall survive repayment of the Loans
and all other amounts payable hereunder.
10.6 Successors and Assigns; Participations and Assignments. (a) This
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Lenders, the Administrative Agent, all future holders of the Notes and their
respective successors and assigns, except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of each Lender.
(b) Any Lender may, in the ordinary course of its commercial
banking business and in accordance with applicable law, at any time sell to one
or more banks or other entities ("Participants") participating interests in any
portion of any Loan or Reimbursement Obligation owing to such Lender, any Note
held by such Lender, any Commitment of such Lender or any other interest of such
Lender hereunder and under such Lender's Notes or any other Loan Documents
provided that the aggregate principal amount of the portion of the Loans or
Reimbursement Obligations or the aggregate amount of the Commitments, as the
case may be, in which any such participating interest is sold shall not be less
than U.S.$1,000,000. In the event of any such sale by a Lender of a
participating interest to a Participant, such Lender's obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, such
Lender shall remain solely responsible for the performance thereof, such Lender
shall remain the holder of any such Loan for all purposes under this Agreement
and the other Loan Documents, and the Borrower and the Administrative Agent
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement and the other Loan
Documents. No Lender shall be entitled to create in favor of any Participant, in
the participation agreement pursuant to which such Participant's participating
interest shall be created or otherwise, any right to vote on, consent to or
approve any matter relating to this Agreement or any other Loan Document except
for those specified in clauses (i) and (ii) of the proviso to subsection 10.1.
The Borrower agrees that if amounts outstanding under this Agreement and the
Notes are due or unpaid, or shall have been declared or shall have become due
and payable upon the occurrence of an Event of Default, each Participant shall,
to the maximum extent permitted by applicable law, be deemed to have the right
of setoff in respect of its participating interest in amounts owing under this
Agreement and any Note to the same extent as if the amount of its participating
interest were owing directly to it as a Lender under this Agreement or any Note,
provided that, in purchasing such participating interest, such
Participant shall be deemed to have agreed to share with the Lenders the
proceeds thereof as provided in subsection 10.7(a) as fully as if it were a
Lender hereunder. The Borrower also agrees that each Participant shall be
entitled to the benefits of subsections 2.15, 2.16 and 2.17 with respect to its
participation in the Commitments and the Loans outstanding from time to time as
if it was a Lender; provided that, in the case of subsection 2.16, such
Participant shall have complied with the requirements of said subsection and
provided, further, that no Participant shall be entitled to receive any greater
amount pursuant to any such subsection than the transferor Lender would have
been entitled to receive in respect of the amount of the participation
transferred by such transferor Lender to such Participant had no such transfer
occurred.
(c) Any Lender may, in the ordinary course of its commercial
banking business and in accordance with applicable law, at any time and from
time to time assign to any Lender or any affiliate thereof or, with the consent
of the Administrative Agent (which shall not be unreasonably withheld), to an
additional bank or financial institution (an "Assignee") all or any part of its
rights and obligations under this Agreement and the other Loan Documents
pursuant to an Assignment and Acceptance, substantially in the form of Exhibit
C, executed by such Assignee, such assigning Lender (and, in the case of an
Assignee that is not then a Lender or an affiliate thereof, by the
Administrative Agent) and delivered to the Administrative Agent for its
acceptance and recording in the Register, provided that, in the case of any such
assignment to an additional bank or financial institution, the sum of the
aggregate principal amount of the Loans, the aggregate amount of the L/C
Obligations and the aggregate amount of the Available Commitment being assigned
is equal to at least $5,000,000 (or such lesser amount as may be agreed to by
the Borrower and the Administrative Agent). Upon such execution, delivery,
acceptance and recording, from and after the effective date determined pursuant
to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party
hereto and, to the extent provided in such Assignment and Acceptance, have the
rights and obligations of a Lender hereunder with a Commitment as set forth
therein, and (y) the assigning Lender thereunder shall, to the extent provided
in such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender's rights and obligations under this
Agreement, such assigning Lender shall cease to be a party hereto).
Notwithstanding any provision of this paragraph (c) and paragraph (e) of this
subsection, the consent of the Borrower shall not be required, and, unless
requested by the Assignee and/or the assigning Lender, new Notes shall not be
required to be executed and delivered by the Borrower, for any assignment which
occurs at any time when any of the events described in Section 8(f) shall have
occurred and be continuing.
(d) The Administrative Agent, on behalf of the Borrower, shall
maintain at the address of the Administrative Agent referred to in subsection
10.2 a copy of each Assignment and Acceptance delivered to it and a register
(the "Register") for the recordation of the names and addresses of the Lenders
and the Commitment[s] of, and principal amount[s] of the Loans owing to, each
Lender from time to time. The entries in the Register shall be conclusive, in
the absence of manifest error, and the Borrower, the Administrative Agent and
the Lenders may (and, in the case of any Loan or other obligation hereunder not
evidenced by a Note, shall) treat each Person whose name is recorded in the
Register as the owner of a Loan or other obligation hereunder as the owner
thereof for all purposes of this Agreement and the other Loan Documents,
notwithstanding any notice to the contrary. Any assignment of any Loan or other
obligation hereunder not evidenced by a Note shall be effective only upon
appropriate entries with respect thereto being made in the Register. The
Register shall be available for inspection by the
Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender and an Assignee (and, in the case of an Assignee that is
not then a Lender or an affiliate thereof, by the Administrative Agent) together
with payment by the Assignee to the Administrative Agent of a registration and
processing fee of $3,500, the Administrative Agent shall (i) promptly accept
such Assignment and Acceptance and (ii) on the effective date determined
pursuant thereto record the information contained therein in the Register and
give notice of such acceptance and recordation to the Lenders and the Borrower.
(f) The Borrower authorizes each Lender to disclose to any
Participant or Assignee (each, a "Transferee") and any prospective Transferee
any and all financial information in such Lender's possession concerning the
Borrower and its Affiliates which has been delivered to such Lender by or on
behalf of the Borrower pursuant to this Agreement or which has been delivered to
such Lender by or on behalf of the Borrower in connection with such Lender's
credit evaluation of the Borrower and its Affiliates prior to becoming a party
to this Agreement.
(g) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this subsection concerning assignments of
Loans and Notes relate only to absolute assignments and that such provisions do
not prohibit assignments creating security interests, including, without
limitation, any pledge or assignment by a Lender of any Loan or Note to any
Federal Reserve Bank in accordance with applicable law.
10.7 Adjustments; Set-off. (a) If any Lender (a "benefitted Lender") at any
time shall receive any payment of all or part of its Loans or the Reimbursement
Obligations owing to it, or interest thereon, or receive any collateral in
respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to
events or proceedings of the nature referred to in Section 8(f), or otherwise),
in a greater proportion than any such payment to or collateral received by any
other Lender, if any, in respect of such other Lender's Loans or the
Reimbursement Obligations owing to it, or interest thereon, such benefitted
Lender shall purchase for cash from the other Lenders a participating interest
in such portion of each such other Lender's Loan or the Reimbursement
Obligations owing to it, or shall provide such other Lenders with the benefits
of any such collateral, or the proceeds thereof, as shall be necessary to cause
such benefitted Lender to share the excess payment or benefits of such
collateral or proceeds ratably with each of the Lenders; and if after taking
into account such sharing the benefitted Lender continues to have access to
addition funds of or collateral granted by the Borrower for application on
account of its debt, then the benefitted Lender shall use such funds or
collateral to reduce indebtedness of the Borrower held by it and share such
payments and the benefits of such collateral with the other Lenders; provided,
however, that if all or any portion of such excess payment or benefits is
thereafter recovered from such benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest. The Borrower agrees that each Lender so
purchasing a portion of another Lender's Loan may exercise all rights of payment
(including, without limitation, rights of set-off) with respect to such portion
as fully as if such Lender were the direct holder of such portion.
(b) In addition to any rights and remedies of the Lenders
provided by law, each Lender shall have the right, without prior notice to
the Borrower, any such notice being expressly waived by the Borrower to the
extent permitted by applicable law, upon any amount becoming due and payable by
the Borrower hereunder or under the Notes (whether at the stated maturity, by
acceleration or otherwise) to set-off and appropriate and apply against such
amount any and all deposits (general or special, time or demand, provisional or
final), in any currency, and any other credits, indebtedness or claims, in any
currency, in each case whether direct or indirect, absolute or contingent,
matured or unmatured, at any time held or owing by such Lender or any branch or
agency thereof to or for the credit or the account of the Borrower. Each Lender
agrees promptly to notify the Borrower and the Administrative Agent after any
such set-off and application made by such Lender, provided that the failure to
give such notice shall not affect the validity of such set-off and application.
10.8 Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts (including by
facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Agreement signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
10.9 Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
10.10 Integration. This Agreement and the other Loan Documents represent
the agreement of the Borrower, the Administrative Agent and the Lenders with
respect to the subject matter hereof and thereof, and there are no promises,
undertakings, representations or warranties by the Administrative Agent or any
Lender relative to subject matter hereof and thereof not expressly set forth or
referred to herein or in the other Loan Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
10.12 Submission To Jurisdiction; Waivers. The Borrower hereby irrevocably
and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to
which it is a party, or for recognition and enforcement of any
judgement in respect thereof, to the non-exclusive general jurisdiction
of the Courts of the State of New York, the courts of the United States
of America for the Southern District of New York, and appellate courts
from any thereof;
(b) consents that any such action or proceeding may be brought
in such courts and waives any objection that it may now or hereafter
have to the venue of any such action or proceeding in any such court or
that such action or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the Borrower at its address set forth in subsection 10.2 or
at such other address of which the Administrative Agent shall have been
notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall
limit the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding
referred to in this subsection any special, exemplary, punitive or
consequential damages.
10.13 Acknowledgements. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent nor any Lender has any
fiduciary relationship with or duty to the Borrower arising out of or
in connection with this Agreement or any of the other Loan Documents,
and the relationship between Administrative Agent and Lenders, on one
hand, and the Borrower, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Lenders or among the Borrower and the
Lenders.
10.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE AGENT AND THE
LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND
FOR ANY COUNTERCLAIM THEREIN.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
RECOTON CORPORATION
By: /s/ Stuart Mont
Title: Executive Vice President -
Operations and Chief
Operating Officer
THE CHASE MANHATTAN BANK,
as Administrative Agent and as a Lender
By: /s/ Robert A. Bloch
Title: Vice President
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION, as a Lender
By: /s/ William C. Barr III
Title: First Vice President
HARRIS TRUST AND SAVINGS BANK, as a
Lender
By: /s/ John R. Smart
Title: Vice President
MARINE MIDLAND BANK, as a Lender
By: /s/ Roger Coleman
Title: Vice President
<PAGE>
EXHIBIT 6 TO RECOTON
FORM 8-K FOR EVENT
OCCURRING ON AUGUST 28, 1996
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (the "AGREEMENT"), is made as of this
28th day of August, 1996 (the "EFFECTIVE DATE"), by and between IJI ACQUISITION
CORP., an Illinois corporation ("PURCHASER"), the name of which is about to be
changed to INTERNATIONAL JENSEN INCORPORATED, and INTERNATIONAL JENSEN
INCORPORATED ("SELLER"), a Delaware corporation, the name of which is about to
be changed to RECOTON AUDIO CORPORATION after the merger of a subsidiary of
Recoton Corporation, a New York corporation into Seller and RECOTON CORPORATION
("RECOTON").
W I T N E S S E T H:
WHEREAS, Seller has agreed to sell to Purchaser and Purchaser has agreed to
purchase from Seller substantially all of the assets of Seller's original
equipment manufacturer's business on the terms and conditions as set forth in
the Third Amended and Restated Agreement for the Purchase and Sale of Assets of
International Jensen Incorporated, dated as of January 3, 1996, by and between
Purchaser and Seller (the "PURCHASE AGREEMENT");
WHEREAS, Seller currently employs Robert G. Shaw ("SHAW"), Marc T.
Tanenberg ("TANENBERG"), James E. Sula ("SULA"), Larry P. Bentley ("BENTLEY"),
Jule DuBach ("DUBACH"), and Rae Seeley ("SEELEY") (Shaw, Tanenberg, Sula,
Bentley, DuBach and Seeley and any accepted replacements thereof together are
the "MANAGEMENT SERVICE PROVIDERS" or "MSPS"); and
WHEREAS, Seller wishes to provide to Purchaser, and Purchaser wishes to
receive from Seller, the services of the MSPs.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
SERVICES
1.1 SERVICES PERFORMED. During the Term, as defined herein, Seller shall
direct the following individuals, so long as they are employed by Seller or an
affiliate of Seller and so long as requested by Purchaser, to provide services
(the "DUTIES") to Purchaser as set forth below:
(A) SHAW: Shaw shall perform various managerial and administrative
duties for Purchaser as the Chief Executive Officer of Purchaser, which
duties are consistent with those typically performed by a Chief Executive
Officer in the OEM Business (as defined in the Purchase Agreement);
(B) TANENBERG: Tanenberg shall perform various managerial and
administrative duties for Purchaser which duties are consistent with
those typically performed by a Chief Financial Officer in the OEM
Business;
(C) SULA: Sula shall perform various managerial and administrative
duties for Purchaser, which duties are consistent with those typically
performed by a Controller in the OEM Business;
(D) BENTLEY: Bentley shall perform various managerial and
administrative duties for Purchaser, which duties are consistent with
those typically performed by a Vice President of Human Resources in the
OEM Business;
(E) DUBACH: DuBach shall perform various managerial and administrative
duties for Purchaser, which duties are consistent with those typically
performed by an Administrative Assistant in the OEM Business; and
(F) SEELEY: Seeley shall perform various managerial and administrative
duties for Purchaser, which duties are consistent with those typically
performed by an Administrative Assistant in the OEM Business.
1.2 STANDARD ALLOCATION. Seller shall cause each of the MSPs to devote
approximately twenty-five percent (25%) of his or her business time and
attention to the performance of his or her Duties if so required by Purchaser
(the "STANDARD ALLOCATION").
1.3 METHOD OF DETERMINING TIME ALLOCATED TO DUTIES. Seller shall cause each
of the MSPs to submit a written report to Tanenberg, or his successor, and to
the Treasurer of Recoton, on a weekly basis, setting forth his or her respective
percentage time spent in the performance of his or her Duties ("REPORT") during
such week.
1.4 REVIEW OF PERCENTAGE OF TIME ALLOCATED TO DUTIES. Promptly after the
conclusion of each calendar quarter after the Effective Date ("QUARTERLY"), the
parties to this Agreement shall review the Reports submitted with respect to the
quarter just ended in order to determine the actual percentage of time spent by
each of the MSPs in the performance of his or her Duties for such quarterly
period (the "ACTUAL ALLOCATION").
1.5 TERMINATION OF ONE OR MORE OF THE MSPS. If Seller terminates the
employment of any MSPs or any MSP terminates his or her employment with Seller,
Seller shall not be obligated to replace said terminated MSP. If Seller hires
any person to replace a terminated MSP, then Seller shall offer the services of
such newly hired person to Purchaser on the same terms and conditions as set
forth in this Agreement. Notwithstanding anything to the contrary contained in
the Agreement, Purchaser shall be under no obligation to either accept the
services of any such replacement MSP or to reimburse the costs to Seller of the
replacement MSP unless Purchaser accepts the services of such replacement MSP.
Furthermore, Purchaser may elect to exclude any MSP from the terms of this
Agreement, for any reason and at any time, upon Purchaser providing thirty (30)
days prior written notice to Seller. Under no circumstances shall Purchaser be
under any obligation to make severance or termination payments or other
separation benefits to an MSP which has been terminated by Seller or has been
excluded by Purchaser from this Agreement; provided, however, that if Purchaser
employs an MSP (other than Shaw) who was not terminated (actually or
constructively) by Seller prior to the employment of the MSP (other than Shaw)
by Purchaser, Purchaser shall assume all obligations of Seller to such MSP
(other than Shaw) under any employment or severance agreement with such MSP
(other than Shaw) and Purchaser shall indemnify and hold harmless Seller for any
liability under any such agreements.
ARTICLE II
TERM
2.1 TERM. The term of this Agreement shall commence on the Effective Date
and shall continue for a period of twelve (12) consecutive months (the "TERM"),
which Term shall renew automatically for additional twelve (12) month periods
unless otherwise terminated pursuant to this Agreement.
2.2 TERMINATION OF THIS AGREEMENT. Purchaser may terminate this Agreement
at any time upon giving Seller ninety (90) days prior written notice and Seller,
upon the expiration of the first six (6) months of the Term, may terminate this
Agreement at any time upon giving Purchaser one hundred eighty (180) days prior
written notice.
2.3 CHANGE IN CONTROL. Upon a change of control of Purchaser, this
Agreement shall terminate. A change of control of Purchaser shall have occurred
if Shaw shall not: (i) be a member of the Board of Directors of Purchaser; (ii)
be either an executive officer or Chairman of the Board of Purchaser; and (iii)
own beneficially more shares of the voting stock of Purchaser than any other
stockholder of Purchaser (or "group" of stockholders, as referred to in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended) but in any event
more than 30% of the outstanding voting stock. For purposes of this Agreement, a
person shall be deemed to own beneficially any shares of Purchaser which are
owned by himself, his spouse, any descendant of his, or any trust, partnership,
corporation, joint venture, or limited liability company which has been created
primarily for his benefit and/or for the benefit of his spouse or any descendant
of such person. Notwithstanding anything to the contrary contained herein, if
Shaw dies during the Term of this Agreement, the Agreement shall continue for a
period of six (6) months after his death.
ARTICLE III
BASE COMPENSATION AND BENEFITS
3.1 BASE COMPENSATION AND BENEFITS.
(A) COMPENSATION. On the Effective Date and on each anniversary
thereafter (or annually on a date consistent with the date at which
Recoton generally awards annual salary increases), Seller shall determine
the gross compensation and benefits (including without limitation salary,
benefits, perquisites, car allowances, 401(k) pension and profit sharing
arrangements) to be paid to each of the MSPs for the subsequent twelve
month period ("COMPENSATION") and so advise Purchaser.
(B) PAYMENT. On a monthly basis, Purchaser shall pay to Seller an
amount equal to twenty-five percent (25%) of the Compensation of each
MSP for such month, the amount payable shall be subject to adjustment,
pursuant to the Actual Allocation as described below.
(I) If the Actual Allocation for any MSP is less than
twenty-five percent (25%), then Seller shall credit Purchaser an amount
for such MSP computed as follows:
(ai) Standard (-) Actual = Allocation
Allocation Allocation Difference
(aii) Quarterly
Allocation (x) Compensation = Amount
Difference for an MSP Credited
Example:
Standard Allocation = 25%
Actual Allocation = 20%
Quartrly Compensation = $100,000
(ai) 25% (-) 20% = 5%
(aii) 5% (x) $100,000 = $5,000
Result: $5,000 is the amount credited by Seller to Purchaser subject
to the netting provisions set forth in (iii) below;
(ii) If the Actual Allocation for any MSP exceeds twenty-five
percent (25%), then Purchaser shall remit to Seller an amount for such
MSP computed as follows:
(ai) Actual (-) Standard = Allocation
Allocation Allocation Difference
(aii) Quarterly
Allocation (x) Compensation = Amount
Difference for an MSP Reimbursed
Example:
Standard Allocation = 25%
Actual Allocation = 30%
Quarterly Compensation = $100,000
(ai) 30% (-) 25% = 5%
(aii) 5% (x) $100,000 = $5,000
Result: $5,000 is the amount reimbursed by Purchaser to Seller,
subject to the netting provisions set forth in (iii) below;
(III) All credits and reimbursements for the MSPs as a group
shall be netted prior to any credit or reimbursement accruing to Seller
or Purchaser, as the case may be.
(IV) All credits or reimbursements due to Purchaser shall be
appended to the next monthly payment due to Seller from Purchaser
without interest.
(V) Any amounts which remain due and owing as of the
expiration of the Term shall be paid to the owed party within thirty
(30) days of the expiration of the Term.
(C) THE COST OF BENEFITS. The cost of vacation days, sick days and
similar benefits, as set forth in Section 3.1(a), shall be allocated
between Seller and Purchaser on the basis of the Standard Allocation,
unless otherwise agreed upon by the parties.
3.2 PAYMENT OF BONUS. If Seller shall pay a bonus to an MSP (a "BONUS"),
Seller shall advise Purchaser of such Bonus in writing and after receipt of such
notice Purchaser shall promptly reimburse Seller for the amount of such Bonus
multiplied by the Actual Allocation for such MSP for the applicable bonus period
and multiplied by a fraction the numerator of which is the number of days in
such bonus period which are within the Term and the denominator of which is the
number of days in such bonus period. To the extent that such Bonus is awarded
under any formula plan requiring an evaluation of the MSP's performance, Seller
shall seek the advice of Purchaser regarding the performance of such MSP and
take such advice into account in determining the Bonus.
Notwithstanding anything to the contrary contained herein, Purchaser, in
its sole discretion and at its sole expense, may pay a bonus to an MSP (a
"DISCRETIONARY BONUS"). Seller shall have no obligation to pay all or a portion
of any Discretionary Bonus.
3.3 TRAVEL, DIRECT AND UNALLOCABLE EXPENSES. Travel and direct expenses
incurred by any MSP shall be paid or reimbursed by that entity for which the
travel or direct expenses were incurred. Any expenses which cannot be allocated
directly to Seller or Purchaser shall be reimbursed by Purchaser in an amount
equal to the Actual Allocation multiplied by the amount of the unallocable
expense.
ARTICLE IV
MISCELLANEOUS
4.1 NOT A CONTRACT OF EMPLOYMENT. The parties to this Agreement acknowledge
that this is not a contract of employment, that the MSPs are not employees of
Purchaser and the MSPs shall not be entitled to any employment rights or other
benefits from Purchaser except as otherwise provided herein.
4.2 INDEMNIFICATION.
(a) It is acknowledged by the parties to this Agreement that while the
MSPs are employees of Seller or Recoton, they shall be acting at the
direction of, or under instructions from, Purchaser or its designees or
other MSPs in performing their Duties. Accordingly, if, in the
performance of their Duties, any MSP takes any action or fails to take
any action, which action or failure to take action results in any loss,
cost, damage or expense (including reasonable attorneys fees) to Recoton
or Seller, Purchaser shall indemnify and hold harmless Seller, Recoton
and their subsidiaries and respective officers, directors and employees
therefor, unless such action or failure to take action was at the
direction of or with the knowing approval of a Recoton executive officer
(other than Shaw).
(b) It is further acknowledged by the Parties to the Agreement that
while the MSPs may be operating under this Agreement at the direction of
or under instructions from Purchaser or its designee, or other MSPs, they
frequently will be acting at the direction of, or under instructions
from, Recoton or its designees (other than MSPs) in performing their
duties. Accordingly, if in the performance of their responsibilities on
behalf of Recoton, any MSP takes any action or fails to take any action,
which action or failure to take action results in any loss, cost, damage
or expense (including reasonable attorneys fees) to Purchaser, Recoton
and Seller shall indemnify and hold harmless Purchaser and its
subsidiaries and its officers, directors and employees therefore, unless
such action or failure to take action was at the direction or with the
knowing approval of Purchaser or its designees or another MSP.
4.3 NOTICE. Any notice, request, consent or communication (collectively
"NOTICE") sent under this Agreement shall be effective only if it is in writing
and (a) personally delivered, (b) sent by certified or registered mail, return
receipt requested, postage prepaid, (c) sent by a nationally recognized
overnight delivery service, with delivery confirmed, or (d) telexed or
telecopied with receipt confirmed, addressed as follows:
If to Seller:
International Jensen Incorporated/Recoton Audio Corporation
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Marc T. Tanenberg
Telecopier: (847) 317-3855
Telephone: (847) 317-3700
and
Recoton Corporation
2950 Lake Emma Road
Lake Mary, FL 32746
Attention: Mr. Stuart Mont
Telecopier: (407) 333-8903
Telephone: (407) 333-8900
with a copy to:
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004
Attention: Theodore S. Lynn, Esq.
Telecopier: (212) 806-6006
Telephone: (212) 806-5400
If to Purchaser:
IJI Acquisition Corp./International Jensen Incorporated
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Robert G. Shaw
Telecopier: (847) 317-3774
Telephone: (847) 317-3777
with a copy to:
Wildman, Harrold, Allen & Dixon
225 West Wacker Drive
Chicago, Illinois 60606-1229
Attention: Richard B. Thies, Esq.
Telecopier: (312) 201-2555
Telephone: (312) 201-2000
or such other persons or addresses as shall be furnished in writing by any party
to the other party. A Notice shall be deemed to have been given as of the date
when (i) personally delivered, (ii) five (5) days after the date when deposited
with the United States mail properly addressed, (iii) when receipt of a Notice
sent by an overnight delivery service is confirmed by such overnight delivery
service, or (iv) when receipt of the telex or telecopy is confirmed, as the case
may be, unless the sending party has actual knowledge that a Notice was not
received by the intended recipient.
4.4 WAIVER. The failure of either of the parties to insist, in any one or
more instances, upon performance of any of the terms or conditions of this
Agreement, shall not be construed as a waiver or relinquishment of any rights
granted hereunder or the future performance of any such term, covenant or
condition.
4.5 COMPLETE UNDERSTANDING. This Agreement constitutes the complete
understanding among the parties. No alteration or modification of any of this
Agreement's provisions shall be valid unless made in writing and signed by all
the parties to this Agreement.
4.6 APPLICABLE LAW. The laws of the State of Illinois shall govern all
aspects of this Agreement, irrespective of the fact that one or more of the
parties now is or may become a resident of a different state, or that the one or
more of the parties now or hereafter locates its principal office outside the
State of Illinois. The parties shall submit all disputes which arise under this
Agreement to state or federal courts located in the City of Chicago, Illinois
for resolution. The parties acknowledge the aforesaid courts shall have
exclusive jurisdiction over this Agreement and specifically waive any claims
which they may have that involve jurisdiction or venue, including but not
limited to forum non conveniens. Service of process for any claim which arises
under this Agreement shall be valid if made in accordance with the notice
provisions set forth in Section 4.3 of this Agreement. If service of process is
made as aforesaid, the party served agrees that such service shall constitute
valid service, and specifically waives any objections the party served may have
under any state or federal law or rule concerning service of process. Service of
process in accordance with this Section shall be in addition to and not to the
exclusion of any other service of process method legally available.
4.7 DESCRIPTIVE HEADINGS. All section headings, titles and subtitles are
inserted in this Agreement for the convenience of reference only, and are to be
ignored in any construction of this Agreement's provisions.
4.8 SEVERABILITY. If a court of competent jurisdiction rules that any one
or more of this Agreement's provisions are invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any of this Agreement's other provisions, and this Agreement shall be construed
as if it had never contained such invalid, illegal or unenforceable provision.
4.9 SUCCESSORS AND ASSIGNS AND THIRD PARTY BENEFICIARIES. This Agreement
may not be assigned without the prior written consent of all parties hereto.
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto or their respective successors and permitted assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
4.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts for all purposes shall constitute an
original.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the Effective Date.
IJI ACQUISITION CORP.,
an Illinois corporation
By: /s/ Jule DuBach
Its: Secretary
INTERNATIONAL JENSEN INCORPORATED,
a Delaware corporation
By: /s/ Marc T. Tanenberg
Its: Vice President
RECOTON CORPORATION,
a New York corporation
By: /s/ Stuart Mont
Its: Executive Vice President
<PAGE>
EXHIBIT 7 TO RECOTON
FORM 8-K FOR EVENT
OCCURRING AUGUST 28, 1996
SUPPLY AND SERVICES AGREEMENT
THIS SUPPLY AND SERVICES AGREEMENT (the "AGREEMENT") is made as of August
28, 1996 (the "EFFECTIVE DATE"), by and among IJI ACQUISITION CORP., an Illinois
corporation, the name of which is about to be changed to INTERNATIONAL JENSEN
INCORPORATED, an Illinois corporation ("SUPPLIER"), and INTERNATIONAL JENSEN
INCORPORATED, a Delaware corporation, the name of which is about to be changed
to RECOTON AUDIO CORPORATION ("CUSTOMER").
W I T N E S S E T H:
WHEREAS, Customer has agreed to sell to Supplier and Customer has agreed to
purchase from Supplier substantially all of the assets of Customer's original
equipment manufacturer's business comprising (i) the loudspeaker assembly plant
facility and operations in Lumberton, North Carolina, (ii) the metal and plastic
parts manufacturing/home loudspeaker assembly plant facility and operations in
Punxsutawney, Pennsylvania, (iii) the magnet manufacturing facilities and
general offices of the General Magnetic division in Dallas, Texas, (iv) the cone
manufacturing facilities and general offices of Fuji Cone, Inc. in Clinton,
North Carolina, (v) the OEM value-add facility in Livonia, Michigan, (vi) the
Bingham Farms, Michigan sales office, and (vii) the original equipment
manufacturing portion of the engineering, research and development center and
distribution facility in Schiller Park, Illinois (the "OEM BUSINESS ASSETS"), on
the terms and conditions as set forth in the Third Amended and Restated
Agreement For the Purchase and Sale of Assets dated as of January 3, 1996 by and
between Supplier and Customer (the "PURCHASE AGREEMENT");
WHEREAS, the original equipment manufacturer's business consists of the
business of designing, manufacturing and marketing of speakers and speaker
components and related products for and to domestic and international
automotive, truck, recreational vehicle, aircraft or other motorized vehicle
("VEHICULAR") original equipment manufacturers (the "OEM BUSINESS"); and
WHEREAS, Supplier is not purchasing Customer's business which consists of
designing, manufacturing, and marketing of speakers and speaker components, and
related branded products in the domestic and international Vehicular aftermarket
and home audio market (the "BRANDED BUSINESS").
NOW, THEREFORE, in consideration of the above premises, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
SUPPLY OBLIGATIONS
1.1 GENERAL DUTIES. Upon the terms and conditions set forth in this
Agreement, Customer shall purchase from Supplier all of its requirements for
products currently manufactured in Punxsutawney, Pennsylvania and Lumberton,
North Carolina for and as required by Customer's Branded Products Division and
IJI-European Holdings (the "PRODUCTS"). The broad product groupings of the
Products are as follows: (a) Jensen Car Aftermarket Speakers; (b) Advent Mobile
Aftermarket Speakers; (c) Jensen Home Hi-Fi Speakers; and (d) Advent Home Hi-Fi
Speakers. The term "SUPPLY OBLIGATION" shall mean Supplier's obligation to
supply Customer with Seller's requirements for the Products which satisfy all
warranties and quality standards identified in this Agreement, within the time
periods agreed to by the parties, which time periods include the granting of
adequate lead time and in manner consistent with past practices and for the
prices identified in this Agreement. Supplier shall devote that portion of its
professional time, attention and personnel to the Supply Obligation as is
necessary for Supplier to fulfill said Supply Obligations in accordance with the
terms of this Agreement.
1.2 NEW PRODUCTS. Supplier shall have the opportunity to bid on new
products required by Customer during the Term (as that term is defined in
Section 1.4 of this Agreement).
1.3 PRODUCT STANDARDS. All Products which Supplier supplies to Customer
under this Agreement shall satisfy quality and warranty standards which are
consistent with the Products produced by Supplier prior to this Agreement and
shall meet all applicable legal requirements.
1.4 RETENTION OF RIGHTS. If Supplier is unable to satisfy the Supply
Obligation for any Product in accordance with Customer's delivery requirements,
if such inability is not cured within ten (10) days after written notice,
Customer may terminate its obligations under this Agreement to purchase its
requirements for such Product, unless the Supplier's inability to perform is due
to (a) "Force Majeure." For the purposes of this Agreement "Force Majeure"
means, the consequences, direct or indirect, of strikes, lockouts or any other
labor disputes, fires, accidents, floods, hostilities, shortages of
transportation equipment or facilities, the failure, suspension or curtailment
of the production or delivery due to shortages of supply of components or
materials from any available sources or due to the acts, regulations,
allocations or other requirements of any federal, state or local government, and
any and all like or different causes beyond the reasonable control of the
parties hereto shall excuse performance by either party to the extent by which
performance is prevented thereby. During any period of shortage due to any of
said causes, the Supplier may allocate the supply of the Products among all of
its customers in such manner as it finds equitable; or (b) Customer's failure to
fulfill its obligations under this Agreement.
1.5 TERM. The term of this Agreement shall commence on the Effective Date
and shall continue for a period of twelve (12) consecutive months (the "TERM"),
unless otherwise terminated pursuant to this Agreement.
1.6 TERMINATION FOR CAUSE. The occurrence of any of the following events
shall give rise to the rights of the parties to terminate this Agreement for
cause:
a. Either party is in breach of any of the substantial and material
provisions of this Agreement, and such breach continues for thirty (30)
days after the non-breaching party has given notice in writing to the
other party demanding cure thereof;
b. (i) A court of competent jurisdiction shall enter a decree or order,
not stayed within sixty (60) days from the date of entry hereof,
appointing a trustee or receiver of a party or any substantial part of
its property, or shall approve a petition for or effecting an
arrangement in bankruptcy, a reorganization pursuant to a bankruptcy act,
or other judicial modification or alteration of the rights of its
creditors, (ii) a party itself shall file such petition or take or
consent to take any other action seeking any such judicial decree or
order, or shall make an assignment for the benefit of creditors, or shall
admit in writing its inability to pay its debts generally as they become
due, or (iii) any court of competent jurisdiction shall enter a decree or
order adjudicating a party as bankrupt or insolvent.
1.7 STATUS. Supplier and Customer expressly acknowledge that the status of
Supplier shall be that of an independent contractor and not that of an agent or
employee of Customer.
ARTICLE II
PRICING
2.1 PRICING. Supplier shall charge Customer for the Products at its cost in
an amount consistent with the current internal pricing policies of Customer and
which pricing policies shall be consistent with past practice ("Product Cost").
The charge for each Product shall be updated annually on each March 1 to reflect
changes to the Product Costs. If the charge for any Product or Products
increases more than five percent (5%) from the prior year and Customer gives
Supplier ninety (90) days prior written notice of its intent to discontinue
purchasing such Product or Products, then Customer shall no longer be obligated
to purchase such Product or Products under this Agreement. Cancellation of the
obligation to purchase certain Products shall not eliminate or relieve Customer
from the obligation to purchase Products which are not subject to cancellation.
2.2 TAXES. The prices for Products and the increase in Product Cost are
exclusive of any taxes, excises or other governmental charges applicable to the
sale of the Products. Supplier's invoices shall include as a separate item all
taxes, excises or other governmental charges imposed on Supplier by reason of
the sale of the products to Customer, except taxes based upon net income of
Supplier.
2.3 PAYMENT AND OTHER TERMS. Payment by Customer for Products delivered by
Supplier shall be made within ten (10) days of the receipt of Seller's invoices
but in no event shall Customer be obligated to issue more than one (1) check,
with respect to the invoices received, each week.
ARTICLE III
CERTAIN OBLIGATIONS OF SUPPLIER
3.1 INSURANCE. During the Term, Supplier shall obtain and maintain products
liability and general comprehensive insurance, in the minimum coverage amount of
One Million Dollars ($1,000,000) (the "MINIMUM COVERAGE"). Supplier shall
maintain such insurance with insurance companies having a Best's rating of no
less than A+.
3.2 TERMS AND CONDITIONS. The terms and conditions set forth in this
Agreement shall apply to and govern all sales from Supplier to Customer,
irrespective of any contrary terms and conditions stated on invoices, billing
notices, bills of lading or other forms of any type or nature which Supplier or
Customer may submit. Supplier shall have no right to alter the terms and
conditions set forth in this Agreement for sales from Supplier to Customer.
3.3 DELIVERY. Supplier shall deliver Product to Customer F.O.B. a common
carrier (a "COMMON CARRIER") at Supplier's business premises. Customer assumes
all risk of loss from the time it deposits any such items with a Common Carrier,
until actual delivery to Customer. Risk of loss prior to actual receipt by
Customer shall be borne by Customer. Customer shall pay all shipping, freight,
transportation and related costs associated with shipping any items under this
Agreement.
3.4 WORKING CAPITAL MANAGEMENT. All raw material stock and piece parts used
in the manufacture of Products shall be financed by Customer (either by advance
payments or by consignment, at Customer's option). Supplier shall take all
appropriate actions requested by Customer to protect Customer's ownership
interest in any consigned goods or to grant Customer a security interest in
financed inventory.
ARTICLE IV
SERVICES
4.1 PERSONNEL. To the extent requested by Customer, Supplier shall make
available to Customer the services of Supplier's MIS Equipment, MIS Operations
Support, MIS Programming Support and Travel Agency personnel during the Term.
4.2 COST. Supplier shall charge Customer for such services at Supplier's
cost in an amount consistent with the current internal cost allocation practice
of Supplier. However, no direct charge shall be made to Customer for the
services of any Travel Agency personnel.
4.3 PAYMENT. Payment by Customer for such services shall be made within ten
(10) days after the beginning of a month with respect to invoiced services in
the prior month.
ARTICLE V
GENERAL
5.1 NOTICE. Any notice, request, consent or communication (collectively
"NOTICE") sent under this Agreement shall be effective only if it is in writing
and (a) personally delivered, (b) sent by certified or registered mail, return
receipt requested, postage prepaid, (c) sent by a nationally recognized
overnight delivery service, with delivery confirmed, or (d) telexed or
telecopied, with receipt confirmed, addressed as follows:
If to Customer: International Jensen Incorporated/Recoton
Audio Corporation
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Marc T. Tanenberg
Telecopier: (708) 317-3855
Telephone: (708) 317-3700
and
Recoton Corporation
2950 Lake Emma Road
Lake May, FL 32746
Attention: Mr. Stuart Mont
Telecopier: 407-333-8903
Telephone: 407-333-8900
with a copy to: Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004
Attention: Theodore S. Lynn, Esq.
Telecopier: (212) 806-6006
Telephone: (212) 806-5400
If to Supplier: IJI Acquisition Corp./International
Jensen Incorporated
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Robert G. Shaw
Telecopier: (708) 317-3774
Telephone: (708) 317-3777
with a copy to: Wildman, Harrold, Allen & Dixon
225 West Wacker Drive
Chicago, Illinois 60606-1229
Attention: Richard B. Thies, Esq.
Telecopier: (312) 201-2555
Telephone: (312) 201-2521
or such other persons or addresses as shall be furnished in writing by any party
to the other party. A Notice shall be deemed to have been given as of the date
when (i) personally delivered, (ii) five (5) days after the date when deposited
with the United States mail properly addressed, (iii) when receipt of a Notice
sent by an overnight delivery service is confirmed by such overnight delivery
service, or (iv) when receipt of the telex or telecopy is confirmed, as the case
may be, unless the sending party has actual knowledge that a Notice was not
received by the intended recipient.
5.2 PATENT INFRINGEMENT. Customer shall indemnify and hold harmless
Supplier, its successors and assigns, against any and all loss, damage or injury
arising out of a claim or suit for alleged infringement of any patents related
to the Products to the extent such infringement arises from Customer's
specifications and Customer shall assume the defense of any and all such suits
and pay all costs and expenses incidental thereto.
5.3 NONDISCLOSURE. Data, drawings, specifications or other technical
information furnished directly or indirectly, in writing or otherwise, to either
party hereto by the other party pursuant to this Agreement shall in no event
become the property of the recipient and shall be used only in fulfilling the
obligations imposed by this Agreement and shall not be duplicated or disclosed
to others or used in whole or in part for any other purpose. Such furnishing of
data, drawings, specifications or other technical information shall not be
construed as granting any rights whatsoever, express or implied, under any
patents of the furnishing party. The parties acknowledge the existence of a
certain Management Services Agreement dated as of August 28, 1996 between
Customer and Supplier ("MS Agreement") and recognize that such agreement shall
govern information transmitted to either party as a result of the MS Agreement.
5.4 WAIVER. The failure of either of the parties to insist, in any one or
more instances, upon performance of any of the terms or conditions of this
Agreement, shall not be construed as a waiver or relinquishment of any rights
granted hereunder or the future performance of any such term, covenant or
condition.
5.5 COMPLETE UNDERSTANDING. This Agreement constitutes the complete
understanding among the parties. No alteration or modification of any of this
Agreement's provisions shall be valid unless made in writing and signed by all
the parties to this Agreement.
5.6 APPLICABLE LAW. The laws of the State of Illinois shall govern all
aspects of this Agreement, irrespective of the fact that one or more of the
parties now is or may become a resident of a different state, or that one or
more of the parties now or hereafter locates its principal office outside the
State of Illinois. The parties shall submit all disputes which arise under this
Agreement to state or federal courts located in the City of Chicago, Illinois
for resolution. The parties acknowledge the aforesaid courts shall have
exclusive jurisdiction over this Agreement and specifically waive any claims
which they may have that involve jurisdiction or venue, including but not
limited to forum non conveniens. Service of process for any claim which arises
under this Agreement shall be valid if made in accordance with the notice
provisions set forth in Section 5.1 of this Agreement. If service of process is
made as aforesaid, the party served agrees that such service shall constitute
valid service, and specifically waives any objections the party served may have
under any state or federal law or rule concerning service of process. Service of
process in accordance with this Section shall be in addition to and not to the
exclusion of any other service of process method legally available.
5.7 DESCRIPTIVE HEADINGS. All section headings, titles and subtitles are
inserted in this Agreement for convenience of reference only, and are to be
ignored in any construction of this Agreement's provisions.
5.8 SEVERABILITY. If a court of competent jurisdiction rules that any one
or more of this Agreement's provisions are invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any of this Agreement's other provisions, and this Agreement shall be construed
as if it had never contained such invalid, illegal or unenforceable provision.
5.9 ASSIGNMENT. This Agreement shall not be assignable without the prior
written consent of all parties hereto. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective heirs, successors and permitted assigns.
5.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts for all purposes shall constitute an
original.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the Effective Date.
IJI ACQUISITION CORP., an Illinois corporation
By: /s/ Jule DuBach
Its: Secretary
INTERNATIONAL JENSEN INCORPORATED,
a Delaware corporation,
By: /s/ Marc T. Tanenberg
Its: Vice President
<PAGE>
EXHIBIT 8 TO RECOTON
FORM 8-K FOR EVENT
OCCURRING AUGUST 28, 1996
SHARED FACILITIES AGREEMENT
THIS SHARED FACILITIES AGREEMENT (the "AGREEMENT") is made as of August 28,
1996 ("EFFECTIVE DATE"), by and between IJI ACQUISITION CORP., an Illinois
corporation the name of which is about to be changed to INTERNATIONAL JENSEN
INCORPORATED ("LICENSEE"), and INTERNATIONAL JENSEN INCORPORATED, a Delaware
corporation, the name of which is about to be changed to RECOTON AUDIO
CORPORATION ("LICENSOR").
W I T N E S S E T H:
WHEREAS, Licensor has agreed to sell to Licensee and Licensee has agreed to
purchase from Licensor substantially all of the assets of Licensor's original
equipment manufacturer's business (the "OEM Business") on the terms and
conditions as set forth in the Third Amended and Restated Agreement for Purchase
and Sale of Assets, dated as of January 3, 1996, by and between Licensee and
Licensor (the "PURCHASE AGREEMENT").
WHEREAS, Licensor currently leases space at (i) 4136 North United Parkway,
Schiller Park, Illinois (the "SCHILLER PARK FACILITY") pursuant to the terms as
outlined in the Schiller Park Facility Lease, a copy of which is attached hereto
and incorporated herein as SCHEDULE A(I) (the "SCHILLER LEASE"); and (ii) the
fourth (4th) floor in Building 25 of the Tri-State International Office Center,
Lincolnshire, Illinois (the "LINCOLNSHIRE FACILITY"), pursuant to the terms as
outlined in the Lincolnshire Facility Lease, a copy of which is attached hereto
and incorporated herein as SCHEDULE A(II), the ("LINCOLNSHIRE LEASE") (the
Schiller Park Facility and the Lincolnshire Facility are collectively referred
to as the "SHARED FACILITIES").
WHEREAS, Licensor desires to permit Licensee to utilize a portion of the
space located at the Schiller Park Facility and a portion of the space located
at the Lincolnshire Facility, and Licensee wishes to utilize a portion of the
space located at the Schiller Park Facility and a portion of the space located
at the Lincolnshire Facility, and in connection therewith Licensee and Licensor
shall share certain costs and expenses attributable to the Shared Facilities,
all in accordance with the terms and provisions of this Agreement.
NOW, THEREFORE, in consideration of the above premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
DESCRIPTION OF THE LICENSED PREMISES
1.1 SCHILLER PARK FACILITY. Subject to and in accordance with the terms and
conditions of this Agreement, Licensor hereby grants to Licensee, and Licensee
hereby accepts from Licensor, a non-transferable license (the "SCHILLER
LICENSE") to use and occupy that portion of the Schiller Park Facility (the
"SCHILLER PARK LICENSED PORTION") for office use, engineering use and for no
other purpose. "LICENSEE'S SCHILLER PARK PROPORTIONATE SHARE" shall be based on
a fraction, the numerator of which is the total square footage of the office
portion of the Schiller Park Facility utilized exclusively by Licensee and the
denominator of which shall be the total gross square footage of the Schiller
Park Facility utilized exclusively by Licensee plus the total square footage of
the office portion of the Schiller Park Facility utilized exclusively by
Licensor. In no event shall any part of the warehouse portion of the Schiller
Park Facility be included within the Schiller Park Licensed Portion, and no
expenses, of any nature or kind, attributable to the warehouse portion of the
Schiller Park Facility shall be included as a portion of the License Fee
(defined below) or the Operation Costs (defined below). As of the date of this
Agreement, based upon the foregoing formula, the Licensee's Schiller Park
Proportionate Share shall be fifty-eight percent (58%).
1.2 LINCOLNSHIRE FACILITY. Subject to and in accordance with the terms and
conditions of this Agreement, Licensor hereby grants to Licensee, and Licensee
hereby accepts from Licensor, a non-transferable license (the "LINCOLNSHIRE
LICENSE") to use and occupy that portion of the Lincolnshire Facility described
below (the "LINCOLNSHIRE LICENSED PORTION") for office use and for no other
purpose. "LICENSEE'S LINCOLNSHIRE PROPORTIONATE SHARE" shall be based on a
fraction, the numerator of which is the square footage in the Lincolnshire
Facility to be utilized exclusively by Licensee (which shall include, as of the
date of this Agreement, the square footage occupied by the IJI accounting
department cubicles, the MIS department cubicles, the travel desk cubicles plus
twenty-five percent (25%) of the gross square footage of all offices and
cubicles utilized by persons subject to that certain Management Services
Agreement, of even date herewith, by and between Licensor and Licensee (the "MS
AGREEMENT") and the denominator shall be the total square footage of the
Lincolnshire Facility utilized exclusively by Licensee plus the total square
footage of the Lincolnshire Facility utilized exclusively by Licensor. As of the
date of this Agreement, based on the foregoing formula, the Licensee's
Lincolnshire Proportionate Share shall be twenty-one and 7/10 percent (21.7%).
The Schiller Park Licensed Portion and the Lincolnshire Licensed Portion are
sometimes referred to as the "LICENSED PREMISES."
1.3 ADJUSTMENT OF LICENSED PORTION. The Schiller Park Licensed Portion and
the Lincolnshire Licensed Portion, and the corresponding Schiller Park
Proportionate Share and Lincolnshire Proportionate Share, shall be adjusted from
time to time in accordance with the formulae set forth in Sections 1.1 and 1.2
hereof.
1.4 NOT A LEASE. This Agreement does not and shall not be deemed to
constitute a lease or a conveyance of the Licensed Premises by Licensor to
Licensee, or to confer upon Licensee any right, title, estate or interest in the
Licensed Premises. This Agreement grants to Licensee only a personal privilege
to use and occupy the Licensed Premises for the License Period on and subject to
the terms and conditions set forth herein. Licensee shall not permit the whole
or any portion of the Licensed Premises to be occupied by any person or entity
other than Licensee, and its officers, directors and employees in the
performance of their duties on behalf of Licensee and Licensee's invitees, in
the ordinary course of business.
1.5 LICENSOR'S DEPARTURE FROM LINCOLNSHIRE FACILITY. Licensor shall have no
obligation under this Agreement to remain in occupancy at the Lincolnshire
Facility. Licensor shall, however, give Licensee at least six month's prior
notice of its intention to vacate space at Lincolnshire and, if Licensor no
longer occupies the Lincolnshire Facility, Licensor shall offer Licensee
suitable space at the Schiller Park Facility or such other facilities to which
Licensor shall have moved the operation currently conducted at the Lincolnshire
Facility.
ARTICLE 2
SHARING OF RENT AND BUSINESS OPERATION COSTS
2.1 LICENSE FEE. Licensee shall pay to Licensor, on a monthly basis within
ten (10) days after Licensee's receipt of a written invoice from Licensor (but
in no event prior to the date that Licensor is required to pay monthly rent
pursuant to the Schiller Lease and the Lincolnshire Lease, as applicable) an
amount equal to (x) Licensee's Schiller Park Proportionate Share of the monthly
base rent, additional rent and all other charges payable by Licensor under the
Schiller Lease (exclusive of any portion of such items attributable, or
apportioned or allocated to the warehouse portion of the Schiller Park
Facility), and (y) Licensee's Lincolnshire Proportionate Share of the monthly
base rent, additional rent and all other charges payable by Licensor under the
Lincolnshire Lease.
2.2 BUSINESS OPERATION COSTS. Licensee shall pay Licensor, on a monthly
basis within ten (10) days after Licensee's receipt of a written invoice from
Licensor, an amount equal to the sum of (x) Licensee's Schiller Park
Proportionate Share of all Operation Costs (as hereinafter defined) attributable
to the Schiller Park Facility, and (y) Licensee's Lincolnshire Proportionate
Share of all Operation Costs attributable to the Lincolnshire Facility. For
purposes of this Agreement, the term "OPERATION COSTS" shall mean any and all
costs and expenses incurred in operating and maintaining the Shared Facilities
(exclusive of any and all amounts payable as or included within base rent or
additional rent or otherwise charged to Licensee pursuant to Section 2.1 above)
including without limitation utilities, property taxes, property and liability
insurance to the extent payable by Licensor under the Schiller Lease or the
Lincolnshire Lease, maintenance, repairs, telephone costs (including, without
limitation, the telephone charges attributable to facsimile machines, but
specifically excluding, with respect to the Lincolnshire Facility, the cost of
the 800 telephone number and the cost of all international calls and with
respect to the Schiller Park Facility the cost of all international calls), the
cost of depreciation (based upon generally accepted accounting principles) of
all furniture and fixtures owned by Licensor and located within the Shared
Facilities (other than any furniture or equipment located within the warehouse
portion of the Schiller Park Facility and other than MIS equipment located in
the Lincolnshire Facility, which MIS equipment is owned by Licensee), coffee
service costs, mail room supply costs, the salary and benefits payable to
reception and mail room personnel employed by Licensor and servicing the Shared
Facilities (other than the warehouse portion of the Schiller Park Facility) and
costs of personnel providing building and similar services, such as
receptionists, housekeepers, custodians and operators and similar support
personnel. In no event shall Licensee be responsible for any Operation Costs
attributable to the warehouse portion of the Schiller Park Facility.
2.3 SUBSEQUENT ADJUSTMENTS. Any subsequent adjustments to the monthly base
rent, additional rent and all other charges pursuant to this Agreement shall be
borne and/or enjoyed by Licensee in an amount equal to the Licensee's Schiller
Park Proportionate Share and the Licensee's Lincolnshire Proportionate Share of
such adjustment, as such shares may be adjusted from time to time. In addition,
under no circumstances shall Licensee be liable to Licensor for any charges or
costs related to Licensor's failure to pay, or late payments made by Licensor of
any amounts due under the Schiller Lease or the Lincolnshire Lease.
2.4 AUDIT. Licensee, upon reasonable prior written request to Licensor, may
at its expense examine the books and records of the Licensor pertaining to
Operation Costs, monthly base rent, additional rent and all other charges
pursuant to this Agreement. Any such audit shall be conducted at the facility of
Licensor where such records are maintained and shall be during normal business
hours. Licensee shall maintain the results of any such audits in confidence
except as otherwise required by law.
ARTICLE 3
TERM
3.1 LICENSE PERIOD. The license period for each of the Licensed Premises
under this Shared Facilities Agreement will commence on the Effective Date and
will continue until such time as the lease term for such Shared Facility expires
(the "LICENSE PERIOD"), subject to earlier termination as set forth in Section
5.1 below.
ARTICLE 4
CERTAIN COVENANTS
4.1 BUSINESS INTERFERENCE. Neither party shall take any action which would
violate the other's labor contracts, if any, affecting the building, or create
any unreasonable building construction interruption, work stoppage, picketing,
labor disruption or dispute, or take any action which is likely to interfere
with the business of the other party at the Shared Facilities without the prior
written consent of the other party, which consent shall not be unreasonably
withheld or delayed.
4.2 INDEMNIFICATION.
(a) Licensee shall, irrespective of whether it shall have been
negligent in connection therewith, indemnify, protect, defend and save
harmless Licensor and Licensor's officers, directors, contractors, agents
and employees from and against any and all liability (statutory or
otherwise), claims, suits, demands, damages (other than consequential
damages), judgments, costs, fines, penalties, interest and expenses
(including reasonable counsel and other professional fees and
disbursements incurred in any action or proceeding), to which Licensor
and/or any such officer, director, contractor, agent or employee may be
subject or suffer arising from, or in connection with (i) the use and
occupancy of the Licensed Premises by Licensee, or from any work,
installation or thing whatsoever done or omitted (other than by Licensor
or its agents or employees other than MSPs acting on behalf of Licensee)
in or about the Licensed Premises during the License Period, (ii) any
default by Licensee in the performance of Licensee's obligations under
this Agreement, or (iii) any act, omission, carelessness, negligence or
misconduct of Licensee or of Licensee's agents, representatives,
invitees, guests, and employees (including MSPs acting for or with the
knowing approval of Licensee).
(b) Licensor shall, irrespective of whether it shall have been
negligent in connection therewith, indemnify, protect, defend and save
harmless Licensee and Licensee's officers,
directors, contractors, agents and employees from and against any and all
liability (statutory or otherwise), claims, suits, demands, damages
(other than consequential damages), judgments, costs, fines, penalties,
interest and expenses (including reasonable counsel and other
professional fees and disbursements incurred in any action or
proceeding), to which Licensee and/or any such officer, director,
contractor, agent or employee may be subject or suffer arising from, or
in connection with (i) the use and occupancy of the Shared Facilities, or
from any work, installation or thing whatsoever done or omitted (other
than by Licensee or its agents or employees) in or about the Shared
Facilities during the License Period, (ii) any default by Licensor in the
performance of Licensor's obligations under this Agreement, or (iii) any
act, omission, carelessness, negligence or misconduct of Licensor or
Licensor's agents, representatives, invitees, guests and employees (other
than MSPs acting for or with the knowing approval of Licensee).
4.3 INSURANCE. During the License Period, Licensee shall, at its own cost
and expense:
(a) Provide and keep in force commercial general liability insurance
against liability for death, personal injury and property damage in an
amount that shall not be less than (i) FIVE MILLION DOLLARS
($5,000,000.00) in respect of injuries to any one person, (ii) FIVE
MILLION DOLLARS ($5,000,000.00) in respect of injuries from any one
occurrence, and (iii) TWO MILLION DOLLARS ($2,000,000.00) in respect of
property damage from any one occurrence. Licensor shall be named as an
additional insured and covered under the insurance contracts.
(b) Provide and keep in force insurance providing against loss by fire,
lightning, the perils of extended coverage and malicious mischief
covering the assets of Licensee at the Shared Facilities and any other
alterations, improvements, equipment, furnishings, fixtures, property and
contents in the Licensed Premises (collectively, "LICENSEE'S PROPERTY"),
at full replacement value.
Each of Licensee and Licensor shall cause each policy carried by such
parties insuring, as to Licensee, the Licensed Premises and Licensee's Property
and, as to Licensor, the Licensor's Premises and the Licensor's personal
property, against loss, damage, or destruction by fire or other casualty, to be
written in a manner so as to provide that the insurance company waives all
rights of recovery by way of subrogation against Licensor or Licensee, as the
case may be, in connection with any loss or damage covered by any such policy.
All policies of insurance required to be obtained and maintained pursuant
to Section 4.3(a) shall name Licensor as an additional insured. All policies of
insurance required hereunder shall be written and signed by solvent and
responsible insurance companies reasonably satisfactory to Licensor. Unless
otherwise provided herein, certificates of insurance for insurance coverages
required hereunder shall be deposited with Licensor prior to occupancy of either
of the Shared Facilities by Licensee. Not less than fifteen (15) days prior to
the expiration dates of said insurance coverages, renewal certificates shall be
deposited with Licensor. If Licensee fails to deposit with Licensor any
certificate of insurance required hereunder, after thirty (30) days advance
notice and prior to the provision of such certificate, Licensor may, at its
option, obtain the insurance coverages in respect of which the required policy
or certificate was not provided, at the expense of the Licensee, and the cost
thereof shall be paid to the Licensor upon written demand.
4.4 ALTERATION OF LICENSED PREMISES. Licensor shall have no obligation to
alter, improve, decorate, or otherwise prepare the Licensed Premises for
Licensee's use and occupancy. Licensee shall make no installations, changes,
alterations, restorations, renovations, replacements, additions, improvements
and betterments, whether structural or non-structural, without Licensor's prior
written consent and then only by contractors or mechanics approved in writing by
Licensor.
4.5 USE OF LICENSED PREMISES. Licensee shall, at all times, use the
Licensed Premises only in a manner which is in full compliance with all present
and future laws, orders, rules and regulations of all state, federal, municipal
and local governments, departments, commissions and boards asserting
jurisdiction over Licensee, Licensor or the Shared Facilities, and any direction
of any public officer pursuant to law.
4.6 REPAIR OF LICENSED PREMISES. Licensee shall, throughout the License
Period, take good care of the Licensed Premises and the fixtures and
appurtenances therein. The parties acknowledge and agree that all repairs that
may arise in the ordinary course of business shall be made by Licensor, and the
cost thereof shall be included within the definition of Operation Costs. All
damage or injury to the Licensed Premises or to any other part of the Shared
Facilities or the buildings in which the Shared Facilities are located, or to
their fixtures, equipment and appurtenances, whether requiring structural or
non-structural repairs, but specifically excluding ordinary wear and tear,
caused by or resulting from carelessness, omission, neglect or improper conduct
of Licensee, or Licensee's agents, employees, contractors, representatives or
guests, shall be repaired promptly by Licensee at its sole cost and expense, to
the reasonable satisfaction of Licensor. All damage or injury to the Shared
Facilities or the buildings in which the Shared Facilities are located, or to
their fixtures, equipment and appurtenances, whether requiring structural or
non-structural repairs, but specifically excluding ordinary wear and tear,
caused by or resulting from carelessness, omission, neglect or improper conduct
of Licensor, or Licensor's agents, employees, contractors, representatives or
guests, shall be repaired promptly by Licensor at its sole cost and expense, to
the reasonable satisfaction of the Licensee. Licensee shall also repair all
damage to the Shared Facilities and the Licensed Premises and to the buildings
in which the Shared Facilities are located caused by the installation of any
improvements by or on behalf of Licensee or the moving of Licensee's Property.
All of the aforesaid repairs shall be of quality or class equal to the original
work or construction.
4.7 COVENANTS OF LICENSOR. Licensor covenants and agrees that throughout
the License Period, Licensor shall:
(a) Pay all minimum rent, additional rent and other charges due and
payable under the Schiller Park Lease and the Lincolnshire Lease and
otherwise full comply with all terms and conditions of the Schiller Park
Lease and the Lincolnshire Lease; and
(b) Cause Licensee to be named an additional insured under all
liability insurance policies covering the Shared Facilities.
ARTICLE 5
TERMINATION
5.1 TERMINATION.
(a) The license granted by this Agreement with respect to a Shared
Facility shall terminate upon the earlier of the following events:
(i) The expiration of the underlying lease term for each such Shared
Facility;
(ii) If all or a material portion of such Licensed Premises or
such Shared Facility shall be appropriated or taken under the power of
eminent domain by any public or quasi-public authority, or conveyance
shall be made in lieu of appropriation or taking, or are destroyed by
fire, in which case all items required to be paid by Licensee pursuant
to Article 2 of this Agreement shall be prorated to the date of the
taking;
(iii) For any reason or no reason: (i) by Licensee, upon not
less than six (6) month's prior written notice to Licensor; and (ii)
after the first six (6) months of the Term, by Licensor, upon not less
than six (6) month's prior written notice to Licensee, provided that in
no event shall any such termination by Licensor be effective prior to
the first anniversary of the date of full execution and delivery of
this Agreement except as otherwise set forth in Section 1.5; or
(b) If Licensee shall default in fulfilling any of its covenants or
obligations hereunder and such default shall remain uncured for a period
in excess of ten (10) days after written notice of such default with
respect to monetary defaults and thirty (30) days after written notice of
such default with respect to non-monetary defaults (provided that if
Licensee commences any such cure of a non-monetary default within such
thirty (30) day period and thereafter diligently pursues such cure to
completion, such thirty (30) day cure period shall be automatically
extended to such period as is reasonably necessary to cure such
non-monetary default but in no event longer than 90 days), in addition to
any other rights and remedies available to Licensor, Licensor may
terminate the license for either or both Licensed Premises by the giving
of written notice to Licensee, whereupon such license shall terminate on
the date set forth in said notice, and Licensee shall vacate such
Licensed Premise(s) on said date as if that date were the date of the
expiration of the License Period as set forth herein.
5.2 REMOVAL OF PURCHASED ASSETS. All of Licensee's Property, including the
Purchased Assets as that term is defined in the Purchase Agreement, shall be
removed by Licensee from a Shared Facility not later than thirty (30) days
following the termination of the license for such facility, at the expense of
Licensee.
ARTICLE 6
CONDEMNATION, DAMAGE OR DESTRUCTION OF PREMISES
6.1 CONDEMNATION. In the event of any condemnation or taking of all or a
portion of either of both of the Shared Facilities, Licensor shall, except as
specifically set forth in this sentence, be entitled to receive the entire award
in the condemnation proceeding, and Licensee hereby expressly assigns to
Licensor any and all right, title and interest of Licensor now or hereafter
arising in or to any award or any part thereof, and Licensee shall be entitled
to receive no part of any award except to the extent that any award is related
to the cost of Licensee moving out to the Licensed Premises. Licensor shall have
no obligation to relocate Licensee or substitute new facilities for the Shared
Facility.
6.2 DAMAGE OR DESTRUCTION OF THE PREMISES. Except as otherwise set forth
herein, Licensor shall have no obligation to relocate Licensee, restore any
damaged premises, or substitute new premises for any damaged or destroyed
portions of a Shared Facility in question.
ARTICLE 7
MISCELLANEOUS
7.1 LANDLORD CONSENT. If either or both of the Schiller Lease or the
Lincolnshire Lease require that Licensor obtain the consent of the landlord
thereunder in connection with the performance of this Agreement, Licensor shall
exercise commercially reasonable efforts to obtain such consent from the
landlord in question at Licensee's sole cost and expense. Licensee shall
exercise commercially reasonable efforts to cooperate with Licensor in obtaining
all such consents. If Licensor shall not be able to obtain such consent, the
License with respect to such Leased Premises shall be of no force or effect.
7.2 NOTICE. Any notice, request, consent or communication (collectively
"NOTICE") sent under this Agreement shall be effective only if it is in writing
and (a) personally delivered, (b) sent by certified or registered mail, return
receipt requested, postage prepaid, or (c) sent by a nationally recognized
overnight delivery service, with delivery confirmed, or (d) telexed or
telecopied with receipt confirmed, addressed as follows:
If to Licensor: International Jensen Incorporated/Recoton Audio
Corporation
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Marc T. Tanenberg
Telecopier: (847) 317-3855
Telephone: (847) 317-3700
and
Recoton Corporation
2950 Lake Emma Road
Lake Mary, Florida 32746
Attention: Mr. Stuart Mont
Telecopier: (407) 333-8903
Telephone: (407) 333-8900
with a copy to: Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004
Attention: Theodore S. Lynn, Esq.
Telecopier: (212) 806-6006
Telephone: (212) 806-5400
If to Licensee: IJI Acquisition Corp.
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Robert G. Shaw
Telecopier: (847) 317-3774
Telephone: (847) 317-3777
with a copy to: Wildman, Harrold, Allen & Dixon
225 West Wacker Drive
Chicago, Illinois 60606-1229
Attention: Richard B. Thies, Esq.
Telecopier: (312) 201-2555
Telephone: (312) 201-2000
or such other persons or addresses as shall be furnished in writing by any party
to the other party. A Notice shall be deemed to have been given as of the date
when (i) personally delivered, (ii) five (5) days after the date when deposited
with the United States mail properly addressed, (iii) when receipt of a Notice
sent by an overnight delivery service is confirmed by such overnight delivery
service, or (iv) when receipt of the telex or telecopy is confirmed, as the case
may be, unless the sending party has actual knowledge that a Notice was not
received by the intended recipient.
7.3 WAIVER. The failure of either of the parties to insist, in any one or
more instances, upon performance of any of the terms or conditions of this
Agreement, shall not be construed as a waiver or relinquishment of any rights
granted hereunder or the future performance of any such term, covenant or
condition.
7.4 APPLICABLE LAW. The laws of the State of Illinois shall govern all
aspects of this Agreement, irrespective of the fact that one or more of the
parties now is or may become a resident of a different state, or that one or
more of the parties now or hereafter locates its principal office outside the
State of Illinois. The parties shall submit all disputes which arise under this
Agreement to state or federal courts located in the City of Chicago, Illinois
for resolution. The parties acknowledge the aforesaid courts shall have
exclusive jurisdiction over this Agreement and specifically waive any claims
which they may have that involve jurisdiction or venue, including but not
limited to forum non conveniens. Service of process for any claim which arises
under this Agreement shall be valid if made in accordance with the notice
provisions set forth in Section 7.2 of this Agreement. If service of process is
made as aforesaid, the party served agrees that such service shall constitute
valid service, and specifically waives any objections the party served may have
under any state or federal law or rule concerning service of process. Service of
process in accordance with this Section shall be in addition to and not to the
exclusion of any other service of process method legally available.
7.5 DESCRIPTIVE HEADINGS. All section headings, titles and subtitles are
inserted in this Agreement for the convenience of reference only, and are to be
ignored in any construction of this Agreement's provisions.
7.6 SEVERABILITY. If a court of competent jurisdiction rules that any one
or more of this Agreement's provisions are invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any of this Agreement's other provisions, and this Agreement shall be construed
as if it had never contained such invalid, illegal or unenforceable provision.
7.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts for all purposes shall constitute an
original.
7.8 COMPLETE UNDERSTANDING. This Agreement constitutes the complete
understanding among the parties with respect to the subject matter of this
Agreement. No alteration or modification of any of this Agreement's provisions
shall be valid unless made in writing and signed by all the parties to this
Agreement.
7.9 SURVIVAL. Notwithstanding anything herein to the contrary, the
provisions of Sections 2.4, 4.2, 4.6 and 5.2 shall survive termination of the
licenses granted herein.
7.10 NO AGENCY. Neither party shall be considered as, or hold itself out to
be, an agent of the other party or act for or bind the other party in any
dealing with a third party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the Effective Date.
LICENSEE:
IJI ACQUISITION CORP., an Illinois corporation
By: /s/ Jule DuBach
Its: Secretary
LICENSOR:
INTERNATIONAL JENSEN INCORPORATED,
a Delaware corporation
By: /s/ Marc T. Tanenberg
Its: Vice President
<PAGE>
EXHIBIT 9 TO RECOTON
FORM 8-K FOR EVENT
OCCURRING AUGUST 28, 1996
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (the "AGREEMENT") is made as of August 28,
1996 (the "EFFECTIVE DATE"), by and among IJI ACQUISITION CORP., an Illinois
corporation, the name of which is about to be changed to INTERNATIONAL JENSEN
INCORPORATED ("PURCHASER"), INTERNATIONAL JENSEN INCORPORATED, a Delaware
corporation, the name of which is about to be changed to RECOTON AUDIO
CORPORATION after its acquisition by RC Acquisition Sub, Inc. ("SELLER"),
RECOTON CORPORATION, a New York corporation ("RECOTON"), RC ACQUISITION SUB,
INC., a Delaware corporation and wholly-owned subsidiary of Recoton
("ACQUISITION SUB"), and FUJI CONE, INC., a Delaware corporation and
wholly-owned subsidiary of Seller ("FUJI CONE") (Recoton, Acquisition Sub and
Fuji Cone together are the "RELATED COMPANIES").
W I T N E S S E T H:
WHEREAS, Seller has agreed to sell to Purchaser and Purchaser has agreed to
purchase from Seller substantially all of the assets of Seller's original
equipment manufacturer's business (the "PURCHASED ASSETS"), on the terms and
conditions as set forth in the Third Amended and Restated Agreement for the
Purchase and Sale of Assets of International Jensen Incorporated, dated as of
January 3, 1996, by and between Purchaser and Seller (the "PURCHASE AGREEMENT");
WHEREAS, the original equipment manufacturer's business consists of the
business of designing, manufacturing and marketing of speakers and speaker
components and related products for and to domestic and international
automotive, truck, recreational vehicle, aircraft or other motorized vehicle
("VEHICULAR") original equipment manufacturers (the "OEM BUSINESS") (the term
"related products" shall include, without limitation, new products or extensions
of existing product lines which are complimentary to the OEM Business and not
competitive with the Branded Business (as defined below) as now conducted);
WHEREAS, Purchaser is not purchasing that portion of Seller's business
which consists of designing, manufacturing, and marketing of speakers and
speaker components and related branded products in the domestic and
international Vehicular aftermarket and home audio markets (the "BRANDED
BUSINESS") (the term "related branded products" shall include, without
limitation, new products or extensions of existing product lines which are
complimentary to the Branded Business and not competitive with the OEM Business
as now conducted);
WHEREAS, the continued involvement by Seller in a business in competition
with Purchaser would diminish the value of the Purchased Assets;
WHEREAS, the involvement by Purchaser in a business in competition with
Seller would diminish the value of those assets retained and used by Seller with
respect to the Branded Business; and
WHEREAS, as an inducement to Purchaser to consummate its purchase of the
OEM Business, Seller is willing to not compete with Purchaser, or any of its
affiliates, with respect to the OEM Business, as more fully set forth herein,
and, as an inducement to Seller to consummate its sale of the OEM Business to
Purchaser, Purchaser is willing to not compete with Seller or any of its
affiliates with respect to the Branded Business, as more fully set forth herein.
NOW, THEREFORE, in consideration of the above premises, the consideration
under the Purchase Agreement and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. RESTRICTIVE COVENANT BY SELLER AND RELATED COMPANIES. Except as
otherwise stated herein, for a period of time which is the lesser of (A) three
(3) consecutive years commencing as of the Effective Date, or (B) so long as a
change in control of Purchaser (within the meaning of Section 2.3 of the MS
Agreement), has not occurred, Seller and the Related Companies shall not:
(a) Directly or indirectly, either individually or as a principal,
partner, agent, employer, consultant, stockholder, joint venturer, or
investor, or in any other manner or capacity whatsoever, engage in,
assist or have any active interest in a business that engages in the OEM
Business as it exists on the Effective Date, located anywhere in the
United States of America or any foreign country in which Purchaser,
Seller or any of the Related Companies have conducted business within the
past three (3) years. Notwithstanding anything to the contrary contained
herein, this Section shall not preclude Seller or any of the Related
Companies from owning less than five percent (5%) of the outstanding
securities of a corporation which is publicly traded either on a
securities exchange or over-the-counter and which engages in a business
or lines of business similar to the OEM Business.
(b) Directly or indirectly, either individually or as a principal,
partner, agent, employer, consultant, stockholder, joint venturer, or
investor, or in any other manner or capacity whatsoever:
(i) divert or attempt to divert from Purchaser, or any of its
affiliates, any OEM Business with respect to any customer or account
with which Seller or any of the Related Companies had any contact or
association, or which was under the supervision of Seller or any of the
Related Companies or the identity of which was learned by Seller as a
result of Seller's ownership of the Purchased Assets, in each case
within three (3) years prior thereto; or
(ii) induce any employee, salesperson, distributor, supplier,
vendor, manufacturer, representative, agent, jobber or other person
transacting OEM Business with Purchaser or any of its affiliates, to
terminate their relationship or association with Purchaser, or any of
its affiliates or to represent, distribute or sell services or products
in competition with services or products relating to the OEM Business
of Purchaser, or any of its affiliates.
2. RESTRICTIVE COVENANT BY PURCHASER. Except as otherwise stated herein,
for a period of time which is the lesser of (A) three (3) consecutive years
commencing as of the Effective Date, or (B) so long as a change in control of
Purchaser (within the meaning of Section 2.3 of the MS Agreement), has not
occurred, Purchaser shall not:
(a) Directly or indirectly, either individually or as a principal,
partner, agent, employer, consultant, stockholder, joint venturer, or
investor, or in any other manner or capacity whatsoever, engage in,
assist or have any active interest in a business that engages in the
Branded Business or any business of Recoton or its affiliates as it
exists on the Effective Date, located anywhere in the United States of
America or any foreign country in which Purchaser, Seller or any of the
Related Companies have conducted business within the past three (3)
years. Notwithstanding anything to the contrary contained herein, this
Section shall not preclude Purchaser from owning not more than five
percent (5%) of the outstanding securities of a corporation which is
publicly traded either on a securities exchange or over-the-counter and
which engages in a business or lines of business similar to the Branded
Business.
(b) Directly or indirectly, either individually or as a principal,
partner, agent, employer, consultant, stockholder, joint venturer, or
investor, or in any other manner or capacity whatsoever:
(i) divert or attempt to divert from Seller or any of the
Related Companies or any of their affiliates any Branded Business with
respect to any customer or account with which Seller or any of the
Related Companies had any contact or association, or which was under
the supervision of Seller or any of the Related Companies, in each case
within three (3) years prior thereto; or
(ii) induce any employee, salesperson, distributor, supplier,
vendor, manufacturer, representative, agent, jobber or other person
transacting business relating to the Branded Business with Seller, any
of the Related Companies, or any of their affiliates, to terminate
their relationship or association with Seller, any of the Related
Companies, or any of their affiliates, or to represent, distribute or
sell services or products in competition with services or products
relating to the Branded Business of Seller, any of the Related
Companies, or any of their affiliates.
3. NON-DISCLOSURE BY SELLER. Seller and the Related Companies shall not at
any time or in any manner, directly or indirectly use or disclose to any party,
other than Purchaser, any OEM Business Confidential Information (as that term is
defined below). "OEM BUSINESS CONFIDENTIAL INFORMATION" means trade secrets or
other information known, learned or obtained by Seller and/or the Related
Companies or disclosed to Seller and/or the Related Companies as a consequence
of Seller's ownership of the OEM Business or otherwise, and which is not
generally known in the industry, and that relates solely to the OEM Business or
its products, processes, services, inventions (whether patentable or not),
formulas, techniques or know-how, including, but not limited to, information
relating to distribution systems and methods, research, development,
manufacturing, purchasing, accounting, engineering, marketing, merchandising and
selling.
4. NON-DISCLOSURE BY PURCHASER. Purchaser shall not at any time or in any
manner, directly or indirectly use or disclose to any party, other than Seller
and/or the Related Companies, any Branded Business Confidential Information (as
that term is defined below). "BRANDED BUSINESS CONFIDENTIAL INFORMATION" means
trade secrets or other information known, learned, or obtained by Purchaser or
disclosed to Purchaser as a consequence of its purchase of the OEM Business or
otherwise, and which is not generally known in the industry and which relates
solely to the Branded Business or its products, processes, services, inventions
(whether patentable or not), formulas, techniques or know-how, including, but
not limited to, information relating to distribution systems and methods,
research, development, manufacturing, purchasing, accounting, engineering,
marketing, merchandising and selling.
5. EXCEPTION TO NON-DISCLOSURE. The parties acknowledge the existence of a
certain Management Services Agreement dated as of August 28, 1996 between
Purchaser and Seller (the "MS AGREEMENT") and the Supply and Services Agreement
dated as of August 28, 1996 between Purchaser and Seller (the "SUPPLY
AGREEMENT") and recognize that the non-disclosure provisions as set forth in
Sections 3 and 4 of this Agreement will not apply to information properly
transmitted to either party pursuant to the MS Agreement and the Supply
Agreement.
6. EXCLUSIONS TO AGREEMENT. Notwithstanding anything to the contrary
contained herein, the following activities shall be excluded from the scope of
this Agreement and shall not constitute a violation of this Agreement:
(a) Selling by Seller and/or the Related Companies of antennas and
airplane headsets and selling by Seller and/or the Related Companies of
12-Volt products to Vehicular customers for aftermarket applications;
(b) Designing, manufacturing, marketing and selling of "non-branded
speakers" and speaker components and related products by Purchaser to any
original equipment manufacturer customer, whether or not such customer
competes with the Seller or any of the Related Companies. For purposes of
this Agreement "non-branded speakers" shall mean any speakers to be sold
under the trademark of an original equipment manufacturer or without any
trademark;
(c) Selling by Purchaser of assembled speakers to other speaker
companies for Vehicular installation;
(d) Selling of licensed trademarked speakers by Purchaser to Vehicular
original equipment manufacturers as permitted under the License
Agreement, dated August 28, 1996 by and between Purchaser and Seller; and
(e) Purchaser inducing or causing any MSP, as that term is defined in
the MS Agreement, to leave the employ of Seller or any Related Company
within the period during of the term of employment of Robert G. Shaw by
Seller or any Related Company and ending six months thereafter on
condition that Purchaser shall assume all obligations to such employee
(other than Robert G. Shaw) under any then-existing employment or
severance agreements and shall indemnify and hold the prior employer
harmless from any liability
under any such agreements. Notwithstanding the foregoing, if the MSP is
terminated (actually or constructively) by Seller or any Related Company,
Purchaser may employ such MSP and shall not be required to assume the
obligations to such MSP under any employment agreement or severance
agreement and shall not indemnify the Seller or any Related Company.
7. REMEDIES.
(a) The parties to this Agreement acknowledge that this Agreement is
intended to protect and preserve legitimate business interests of Seller,
the Related Companies and Purchaser. Each of Seller, the Related
Companies and Purchaser acknowledge that any violation of the provisions
of this Agreement by the other may cause serious and irreparable damage
to the non-breaching party, and further acknowledge that it might not be
possible to measure such damages in money in such event. Accordingly, the
parties agree that, in the event of a violation of the provisions of this
Agreement, the non-breaching party may seek, in addition to any other
rights or remedies, including money damages, an injunction or restraining
order restraining the breaching party from doing or continuing to do or
performing any acts constituting such a violation.
(b) The parties' remedies under this Agreement shall be cumulative and
not exclusive and the recovery of money damages hereunder or under any
other agreement to which Seller and Purchaser are a party shall not
preclude the non-breaching party from pursuing temporary or permanent
injunctive relief as otherwise provided herein.
8. NOTICE. Any notice, request, consent or communication (collectively
"NOTICE") sent under this Agreement shall be effective only if it is in writing
and (a) personally delivered, (b) sent by certified or registered mail, return
receipt requested, postage prepaid, (c) sent by a nationally recognized
overnight delivery service, with delivery confirmed addressed as follows, or (d)
telexed or telecopied with receipt confirmed, addressed as follows:
If to Seller and the Related Companies:
International Jensen Incorporated/Recoton Audio Corporation
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Marc T. Tanenberg
Telecopier: (847) 317-3855
Telephone: (847) 317-3700
and
Recoton Corporation
2950 Lake Emma Road
Lake Mary, Florida 32746
Attention: Mr. Stuart Mont
Telecopier: (407) 333-8903
Telephone: (407) 333-8900
with a copy to:
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004
Attention: Theodore S. Lynn, Esq.
Telecopier: (212) 806-6006
Telephone: (212) 806-5400
If to Purchaser:
IJI Acquisition Corp./International Jensen Incorporated
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Robert G. Shaw
Telecopier: (847) 317-3774
Telephone: (847) 317-3777
with a copy to:
Wildman, Harrold, Allen & Dixon
225 West Wacker Drive
Chicago, Illinois 60606-1229
Attention: Richard B. Thies, Esq.
Telecopier: (312) 201-2555
Telephone: (312) 201-2521
or such other persons or addresses as shall be furnished in writing by any party
to the other party. A Notice shall be deemed to have been given as of the date
(i) when personally delivered, (ii) five (5) days after the date when deposited
with the United States mail properly addressed, (iii) when receipt of a Notice
sent by an overnight delivery service is confirmed by such overnight delivery
service, or (iv) when receipt of the telex or telecopy is confirmed, as the case
may be, unless the sending party has actual knowledge that a Notice was not
received by the intended recipient.
9. COMPLETE UNDERSTANDING. This Agreement constitutes the complete
understanding among the parties. No alteration or modification of any of this
Agreement's provisions shall be valid unless made in writing and signed by all
the parties to this Agreement.
10. APPLICABLE LAW. The laws of the State of Illinois shall govern all
aspects of this Agreement, irrespective of the fact that one or more of the
parties now is or may become a resident of a different state, or that one or
more of the parties now or hereafter locates its principal office outside the
State of Illinois. The parties shall submit all disputes which arise under this
Agreement to state or federal courts located in the City of Chicago, Illinois
for resolution. The parties acknowledge the aforesaid courts shall have
exclusive jurisdiction over this Agreement and specifically waive any claims
which they may have that involve jurisdiction or venue, including but not
limited to forum non conveniens. Service of process for any claim which arises
under this Agreement shall be valid if made in accordance with the notice
provisions set forth in Section 8 of this Agreement. If service of process is
made as aforesaid, the party served agrees that such service shall constitute
valid service, and specifically waives any objections the party served may have
under any state or federal law or rule concerning service of process. Service of
process in accordance with this Section shall be in addition to and not to the
exclusion of any other service of process method legally available.
11. DESCRIPTIVE HEADINGS. All section headings, titles and subtitles are
inserted in this Agreement for the convenience of reference only, and are to be
ignored in any construction of this Agreement's provisions.
12. SEVERABILITY. If a court of competent jurisdiction rules that any one
or more of this Agreement's provisions are invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any of this Agreement's other provisions, and this Agreement shall be construed
as if it had never contained such invalid, illegal or unenforceable provision.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts for all purposes shall constitute an
original.
14. WAIVER. The failure of either of the parties to insist, in any one or
more instances, upon performance of any of the terms or conditions of this
Agreement, shall not be construed as a waiver or relinquishment of any rights
granted hereunder or the future performance of any such term, covenant or
condition.
IN WITNESS WHEREOF, the parties have made and entered into this Agreement
as of the Effective Date.
INTERNATIONAL JENSEN INCORPORATED,
a Delaware corporation
By: /s/ Marc T. Tanenberg
Its: Vice President
IJI ACQUISITION CORP., an Illinois corporation
By: /s/ Jule DuBach
Its: Secretary
RECOTON CORPORATION, a New York corporation
By: /s/ Stuart Mont
Its: Executive Vice President
RC ACQUISITION SUB, INC., a Delaware corporation
By: /s/ Stuart Mont
Its: Secretary
FUJI CONE, INC., a Delaware corporation
By: /s/ James E. Sula
Its: Vice President
<PAGE>
EXHIBIT 10 TO RECOTON
FORM 8-K FOR EVENT
OCCURRING AUGUST 28, 1996
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "AGREEMENT") is made as of August 28, 1996 (the
"EFFECTIVE DATE"), by and between INTERNATIONAL JENSEN INCORPORATED, a Delaware
corporation the name of which is about to be changed to RECOTON AUDIO
CORPORATION ("LICENSOR"), and IJI ACQUISITION CORP., an Illinois corporation the
name of which is about to be changed to INTERNATIONAL JENSEN INCORPORATED
("LICENSEE").
W I T N E S S E T H:
WHEREAS, Licensor has been engaged in the business of, inter alia,
designing, manufacturing and marketing speakers and speaker components and
related products, including, without limitation, new products or extensions of
existing product lines which are complimentary to the OEM Business as defined
below (collectively hereinafter "SPEAKER EQUIPMENT") for and to domestic and
international automotive, truck, recreational vehicle, aircraft or other
motorized vehicle ("VEHICULAR") original equipment manufacturers (the "OEM
BUSINESS");
WHEREAS, Licensor has used various trademarks in connection with the OEM
Business and its other businesses, including, but not limited to, the trademarks
identified in Schedule 1 of this Agreement (the "TRADEMARKS") which are
registered in the countries noted in Schedule 1;
WHEREAS, Licensor has sold the OEM Business to Licensee pursuant to the
terms and conditions of that certain Third Amended and Restated Agreement for
Purchase and Sale of Assets by and between Licensor and Licensee, dated as of
January 3, 1996; and
WHEREAS, Licensee desires to utilize the Trademarks in the conduct of the
OEM Business.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Licensor and Licensee agree as follows:
1. GRANT OF LICENSE. Licensor hereby grants to Licensee, and Licensee
hereby accepts, upon the terms and conditions set forth in this Agreement, the
exclusive right (the "LICENSE") to use the Trademarks in the countries where
Licensor has registered rights for the Trademarks (and in those countries where
Licensor subsequently acquires registered rights for the Trademarks) for Speaker
Equipment sold to Vehicular original equipment manufacturers through the OEM
Business ("OEM SPEAKER EQUIPMENT").
2. TERM OF LICENSE. Subject to the terms of Paragraph 5 hereof, the term
of the License is ten (10) years from the Effective Date (the "ORIGINAL TERM").
Upon written notice to Licensor given no earlier than one hundred eighty (180)
days or no later than thirty (30) days before the then-scheduled expiration of
the term, Licensee, in its sole discretion may elect to renew this Agreement for
two (2) additional five (5) year terms (the "RENEWAL TERMS") (the Original Term
and the Renewal Terms, if applicable, hereinafter collectively are referred to
as the "TERM") if Licensee is in compliance with the terms of this Agreement at
the time of such notice. Any written notice to renew the Term of the License
shall be made not less than thirty (30) days prior to the end of the Original
Term or the first Renewal Term, as the case may be.
3. ROYALTY.
(a) Licensee shall pay to Licensor during the Term the following
royalties (collectively hereinafter referred to as the "ROYALTY" or the
"ROYALTIES"):
(i) with respect to OEM Speaker Equipment utilizing the mark
"JENSEN" or any derivative of "JENSEN," a royalty to be agreed upon by
the parties which shall be no less than one percent (1%) and no more
than two percent (2%) of Net Revenues (as defined below); and
(ii) with respect to OEM Speaker Equipment utilizing any
Trademark other than "JENSEN" or any derivative of "JENSEN," the
royalty shall be five percent (5%) of Net Revenues.
OEM Speaker Equipment sold in connection with the use of any of the
Trademarks is hereinafter referred to as "LICENSED PRODUCTS."
(b) Such Royalty shall accrue when the Licensed Products are shipped by
Licensee or a wholly-owned subsidiary of Licensee to a party not wholly
owned by Licensee (a "THIRD PARTY"). If a Third Party is owned in part by
Licensee or an affiliate of Licensee, a further Royalty shall be due
(against which any prior Royalty may be credited) upon any further sale
of a Licensed Product by such Third Party.
(c) As used herein, the term "NET REVENUES" shall mean gross sales to
Third Parties, less returns actually credited.
4. SUBLICENSE. Licensee may sublicense, subject to the terms of this
Agreement (including without limitation the right of Licensor to audit the books
of the sublicensee), any rights (other than the right to sublicense) granted to
it under this Agreement to any domestic or international Vehicular original
equipment manufacturer for the term of the license hereunder. Any royalties
derived from any such sublicense shall be divided equally between Licensor and
Licensee.
5. CHANGE IN CONTROL. Upon a "CHANGE OF CONTROL OF LICENSEE" (as defined
below), the terms and conditions governing the License granted to Licensee
hereunder shall change, as follows:
There shall be a minimum annual royalty for each trademark of One
Hundred Thousand Dollars ($100,000) commencing two (2) years after the
Change of Control (prior to the end of the two (2) year period, as
described herein and by written notice to Licensor, the successor
licensee may elect not to retain its License for any one or more
Trademark or Trademarks);
No sublicenses shall be granted after the Change of Control of Licensee
other than with Licensor's prior written approval and the royalties on
such sublicenses shall be divided seventy percent (70%) to Licensor and
thirty percent (30%) to the Licensee;
The successor licensee may renew the Term of this Agreement for a
period of up to ten (10) years, which when added to the expired portion
of the Term does not exceed twenty (20) years; and
Royalties on the mark "Jensen" shall immediately increase to three
percent (3%).
A "CHANGE OF CONTROL OF LICENSEE" shall have occurred if Robert G. Shaw
("SHAW") shall not: (i) be a member of the Board of Directors of Licensee; (ii)
be either an executive officer or chairman of the Board of Licensee; and (iii)
own beneficially more shares of the voting stock of Licensee than any other
stockholder of Licensee (or "group" of stockholders, as referred to in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended) but in any event
more than thirty percent (30%) of the outstanding voting stock; provided,
however, that the death or permanent disability of Shaw shall not be considered
a "Change of Control of Licensee" so long as Shaw's estate or heirs, or any
trust for the benefit solely of the heirs of Shaw, collectively, meet the test
set forth above in clause (iii). For purposes of this Agreement, a person shall
be deemed to own beneficially any shares of Licensee which are owned by himself,
his spouse, any descendant of his, or any trust, partnership, corporation, joint
venture, or limited liability company which has been created primarily for his
benefit and/or for the benefit of his spouse or any descendant of such person.
6. ACCOUNTING.
(a) Licensee shall deliver to Licensor on the fifteenth (15th) day
following the end of each calendar year quarter, and on the thirtieth
(30th) day of the month following termination or expiration of this
Agreement, a complete and accurate statement (a "ROYALTY STATEMENT") of
sales of Licensed Products (including sales by any sublicensee), for the
immediately preceding calendar year quarter or portion thereof by
Licensee and its affiliates thereof ("ROYALTY PERIOD"). Each Royalty
Statement shall be certified as accurate by an officer of Licensee and
shall include a computation of Gross Revenues and Royalty due. A Royalty
Statement shall be furnished to Licensor with respect to each Royalty
Period whether or not any Licensed Products have been shipped,
distributed or sold, and whether or not Royalties have been earned during
such Royalty Period.
(b) The amount shown in the Royalty Statements as being due Licensor,
unless otherwise directed in writing by Licensor, shall be paid by wire
transfer to an account designated in writing by Licensor on the dates
provided herein for submission of such statements and Licensee shall
transmit by facsimile to Licensor on such payment date a copy of the
applicable Royalty Statement.
7. BOOKS AND RECORDS.
(a) Licensee shall keep accurate books of account and records at its
principal place of business, or such other reasonable locations at it may
designate in writing to Licensor, covering all transactions relating to
the License. Licensor and its duly authorized representatives shall have
the right, upon two (2) business days written notice, during normal
business hours, to audit the books of account and records of Licensee and
its sublicensees, and to make copies and extracts thereof. If any
underpayment is in excess of five percent (5%) and Ten Thousand Dollars
($10,000), the cost of any such audit shall be borne by Licensee.
(b) All books of account and records of Licensee concerning
transactions relating to the License granted herein shall be retained by
Licensee for at least five (5) years after the end of the year in which
such transaction occurs for possible inspection by Licensor in accordance
with the terms hereof.
Licensor shall not at any time or in any manner, directly or indirectly use
or disclose to any party other than Licensee, Books and Records Confidential
Information (as that term is defined below). "BOOKS AND RECORDS CONFIDENTIAL
INFORMATION" means trade secrets or other information known, learned or obtained
by Licensor or disclosed to Licensor as a consequence of the inspection rights
as provided under this Section, which is not generally known in the industry.
8. OWNERSHIP OF TRADEMARKS. Licensee confirms and acknowledges, and each
sublicensee shall confirm and acknowledge, Licensor's exclusive ownership of
each of the Trademarks, and agrees, and each sublicensee shall agree, that at no
time will it take any actions which challenge, contest or otherwise dispute
Licensor's ownership, use, or registration of any of the Trademarks, and/or the
validity and/or enforceability thereof. Neither Licensee nor any sublicensee
shall seek to register, use, license, cancel or otherwise seek trademark
protection for any Trademarks in any jurisdiction where such marks are not
registered or otherwise protected by Licensor.
9. AGREEMENT TO ASSIGN. All use by Licensee and any sublicensee of any of
the Trademarks will inure to Licensor's benefit. If Licensee or any sublicensee
should acquire any rights in any of the Licensor Trademarks other than as a
result of the grant of rights made in this Agreement, upon thirty (30) days
written notice and at Licensor's expense, Licensee or such sublicensee shall
assign all such rights to Licensor.
10. ADDITIONAL AGREEMENT. Licensee will, at Licensor's expense, execute and
deliver such documents as Licensor reasonably deems necessary for Licensor to
register, and/or to protect Licensor's rights in, each of the Trademarks,
including, without limitation, any separate licenses for foreign Trademarks.
11. COOPERATION TO PROTECT RIGHT. Licensee and any sublicensee will inform
Licensor of any uses of any of the Trademarks by third parties which become
known to it. Licensor shall have no obligation to take any action against any
such infringement. Licensee and any sublicensee will take no action against such
third-party use, unless Licensor, within thirty (30) days of receiving notice of
such third party use from Licensee or such sublicensee, fails to file a civil
action against such use or to take other action which is intended to cause such
use to cease. If Licensor takes action respecting such use, it will be at
Licensor's cost and expense, and Licensor will be entitled to all monetary
awards granted therein, other than awards of damages based upon lost sales of
Licensee. If Licensee or a sublicensee brings an action against such third party
use, it will be at Licensee's or such sublicensee's cost and expense (including
attorneys' fees), and Licensee or such sublicensee will be entitled to all
monetary awards granted therein. Each party hereto, at the other's request and
expense, shall provide all reasonable cooperation, including execution of all
reasonably necessary documents, with respect to the other's efforts to protect
the Trademarks.
12. TERMINATION.
(a) Except as otherwise provided herein, the License may be terminated
by Licensor for a breach of any material term of this Agreement by
Licensee, provided that Licensor first gives Licensee written notice of
such breach and such breach is not cured within forty-five (45) days of
delivery of such written notice with respect to domestic trademarks and
ninety (90) days of delivery of such written notice with respect to
foreign trademarks.
(b) The License may be terminated by Licensee upon ninety (90) days
written notice.
13. RIGHTS FOLLOWING TERMINATION. Upon the expiration or termination of the
License for any reason, Licensee will discontinue permanently all use of any of
the Trademarks, or any trademark confusingly similar thereto, provided, however,
that Licensee shall have the right to continue to sell Licensed Products for the
longer of (i) one hundred and eighty (180) days to exhaust its existing
inventory of Licensed Products, or (ii) such time as is reasonably necessary to
fill product orders or complete product programs in effect as of the effective
date of expiration or termination of this Agreement, on condition that all
obligations of Licensee with respect thereto, including, without limitation, the
obligation to pay Royalties, shall continue.
14. QUALITY. All Licensed Products and any products sold by any sublicensee
bearing any of the Trademarks shall be of a quality at least equal to OEM
Speaker Equipment sold by Licensor immediately prior to the date of this
Agreement and shall comply in all respects with all applicable federal, state
and local rules, regulations and other laws.
15. CLAIMS AND INDEMNIFICATION.
(a) Except to the extent that such claims fall within the scope of
subsection (b) of this section, Licensee shall indemnify and defend and
hold Licensor harmless, during the term of this Agreement and at any time
thereafter, from any and all claims, causes of action, costs, expenses,
fines, penalties, liabilities (including statutory and other liability
under worker's compensation and other employer's liability laws),
damages, suits or judgments, including costs of investigation, court
costs and reasonable attorney's fees (hereinafter collectively "CLAIMS"),
arising directly or indirectly from, as a result of, or in connection
with the manufacture, marketing, advertising, distributing or sale of
Licensed Products, and Licensor will have no obligation or liability in
connection therewith or arising from such Claims. Licensee will, within
ten (10) days of notice of any such action in which Licensor is named,
notify Licensor in writing thereof.
(b) Licensor shall indemnify and defend and hold Licensee harmless,
during the term of this Agreement and at any time thereafter, from Claims
made by third parties against Licensee or Licensor for trademark
infringement or the like respecting any of the (i) U.S. Trademarks and
(ii) any foreign Trademarks obtained after the date of this Agreement and
Licensee will have no obligation or liability in connection therewith or
arising from such claims. Licensor will, within ten (10) days of notice
of any such action in which Licensee is named, notify Licensee in writing
thereof.
16. NO AGENCY. Neither party will be considered as, or hold itself out to
be, an agent of the other party, or act for or bind the other party in any
dealing with a third party.
17. NOTICES. Any notice, request, consent or communication (collectively
"NOTICE") sent under this Agreement shall be effective only if it is in writing
and (a) personally delivered, (b) sent by certified or registered mail, return
receipt requested, postage prepaid, or (c) sent by a nationally recognized
overnight delivery service, with delivery confirmed addressed as follows, or (d)
telexed or telecopied, with receipt confirmed, addressed as follows:
If to Licensor:
International Jensen Incorporated/Recoton Audio Corporation
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Marc T. Tanenberg
Telecopier: (847) 317-3855
Telephone: (847) 317-3700
and
Recoton Corporation
2950 Lake Emma Road
Lake Mary, Florida 32746
Attention: Mr. Stuart Mont
Telecopier: (407) 333-8903
Telephone: (407) 333-8900
with a copy to:
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004
Attention: Theodore S. Lynn, Esq.
Telecopier: (212) 806-6006
Telephone: (212) 806-5400
If to Licensor:
Jensen Acquisition Corp./International Jensen Incorporated
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Robert G. Shaw
Telecopier: (847) 317-3774
Telephone: (847) 317-3777
with a copy to:
Wildman, Harrold, Allen & Dixon
225 West Wacker Drive
Chicago, Illinois 60606-1229
Attention: Richard B. Thies, Esq.
Telecopier: (312) 201-2555
Telephone: (312) 201-2521
or such other persons or addresses as shall be furnished in writing by any party
to the other party. A Notice shall be deemed to have been given as of the date
(i) when personally delivered, (ii) five (5) days after the date when deposited
with the United States mail properly addressed, (iii) when receipt of a Notice
sent by an overnight delivery service is confirmed by such overnight delivery
service, or (iv) when receipt of the telex or telecopy is confirmed, as the case
may be, unless the sending party has actual knowledge that a Notice was not
received by the intended recipient.
18. WAIVER. The failure of either of the parties to insist, in any one or
more instances, upon performance of any of the terms or conditions of this
Agreement, shall not be construed as a waiver or relinquishment of any rights
granted hereunder or the future performance of any such term, covenant or
condition.
19. COMPLETE UNDERSTANDING. This Agreement constitutes the complete
understanding among the parties. No alteration or modification of any of this
Agreement's provisions shall be valid unless made in writing and signed by all
the parties to this Agreement.
20. APPLICABLE LAW. The laws of the State of Illinois shall govern all
aspects of this Agreement, irrespective of the fact that one or more of the
parties now is or may become a resident of a different state, or that the one or
more of the parties now or hereafter locates its principal office outside the
State of Illinois. The parties shall submit all disputes which arise under this
Agreement to state or federal courts located in the City of Chicago, Illinois
for resolution. The parties acknowledge the aforesaid courts shall have
exclusive jurisdiction over this Agreement and specifically waive any claims
which they may have that involve jurisdiction or venue, including but not
limited to forum non conveniens. Service of process for any claim which arises
under this Agreement shall be valid if made in accordance with the notice
provisions set forth in Section 17 of this Agreement. If service of process is
made as aforesaid, the party served agrees that such service shall constitute
valid service, and specifically waives any objections the party served may have
under any state or federal law or rule concerning service of process. Service of
process in accordance with this Section shall be in addition to and not to the
exclusion of any other service of process method legally available. In the event
of litigation hereunder, the court shall be authorized to award the prevailing
party in such action or proceeding any or all reasonable attorney fees and
disbursements paid by it in pursuing or defending such action.
21. DESCRIPTIVE HEADINGS. All section headings, titles and subtitles are
inserted in this Agreement for the convenience of reference only, and are to be
ignored in any construction of this Agreement's provisions.
22. SEVERABILITY. If a court of competent jurisdiction rules that any one
or more of this Agreement's provisions are invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any of this Agreement's other provisions, and this Agreement shall be construed
as if it had never contained such invalid, illegal or unenforceable provision.
23. SUCCESSORS AND ASSIGNS AND THIRD PARTY BENEFICIARIES. This Agreement
may not be assigned without the prior written consent of all parties hereto.
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto or their respective successors and permitted assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
24. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts for all purposes shall constitute an
original.
IN WITNESS WHEREOF, the parties have made and entered into this Agreement
as of the Effective Date.
INTERNATIONAL JENSEN INCORPORATED
By: /s/ Marc T. Tanenberg
Title: Vice President
IJI ACQUISITION CORP.
By: /s/ Jule DuBach
Title: Secretary
