SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ___________
Commission file number: 0-5860
----------------------------
RECOTON CORPORATION
(Exact name of Registrant as Specified in its Charter)
NEW YORK 11-1771737
(State or Other (IRS Employer
Jurisdiction of Identification No.)
Incorporation or
Organization)
2950 LAKE EMMA ROAD, LAKE MARY, FLORIDA 32746
(Address of principal executive offices, including zip code)
(407) 333-8900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
reporting requirements for the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 11,698,337 Common Shares, par
value $.20 per share, as of November 11, 1998.
<PAGE>
PART I - FINANCIAL INFORMATION
<PAGE>
Item 1. FINANCIAL STATEMENTS
RECOTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(TABULAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997
------ ----------- ----------
(UNAUDITED)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 14,913 $ 17,247
Accounts receivable (less allowance for doubtful accounts
of $4,020,000 in 1998 and $3,797,000 in 1997) 146,848 129,852
Inventories 205,867 142,362
Prepaid, refundable and deferred income taxes 21,119 18,220
Prepaid expenses and other current assets 8,904 9,484
--------- --------
TOTAL CURRENT ASSETS 397,651 317,165
PROPERTY AND EQUIPMENT (at cost, less accumulated
depreciation and amortization) 40,055 36,184
TRADEMARKS AND PATENTS (less accumulated amortization) 4,847 5,126
GOODWILL (less accumulated amortization) 37,995 38,554
DEFERRED INCOME TAXES 7,183 6,724
OTHER ASSETS 5,357 3,509
---------- ---------
T O T A L $493,088 $407,262
======== ========
LIABILITIES
CURRENT LIABILITIES:
Bank loans $ 10,000 $ 5,000
Current portion of long-term debt 9,312 9,570
Accounts payable 81,990 53,231
Accrued expenses 27,459 26,588
Income taxes payable 5,784 388
----------- ------------
TOTAL CURRENT LIABILITIES 134,545 94,777
LONG-TERM DEBT (less current portion above) 203,123 161,427
OTHER NONCURRENT LIABILITIES 2,066 11,775
---------- -----------
TOTAL LIABILITIES 339,734 267,979
---------- -----------
SHAREHOLDERS' EQUITY
PREFERRED STOCK - $1.00 par value each - authorized
10,000,000 shares; none issued -- --
COMMON STOCK - $.20 par value each - authorized
40,000,000 shares; issued
12,933,704 shares in
1998 and 12,797,601 shares in 1997 2,587 2,560
ADDITIONAL PAID-IN CAPITAL 80,380 78,376
RETAINED EARNINGS 81,272 70,758
CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENT (4,430) (6,295)
----------- ---------
TOTAL 159,809 145,399
TREASURY STOCK - 1,235,292 shares in 1998 and
1,225,167 shares in 1997, at cost (6,455) (6,116)
----------- --------
Total shareholders' equity 153,354 139,283
----------- --------
T O T A L $493,088 $407,262
======== ========
The attached notes are made a part hereof.
</TABLE>
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $177,092 $119,604 $455,913 $323,903
COST OF GOODS SOLD 108,752 72,747 278,284 197,526
--------- ---------- -------- --------
GROSS PROFIT 68,340 46,857 177,629 126,377
---------- ---------- --------- --------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 59,257 40,007 153,386 115,668
INTEREST EXPENSE 4,581 3,372 11,974 8,876
INVESTMENT INCOME (117) (67) (322) (387)
--------- ---------- -------- -------
T O T A L 63,721 43,312 165,038 124,157
--------- ---------- -------- --------
INCOME BEFORE INCOME TAXES 4,619 3,545 12,591 2,220
INCOME TAX CREDIT (PROVISION) (881) 808 (2,077) 3,748
--------- ---------- -------- --------
NET INCOME $ 3,738 $ 4,353 $ 10,514 $ 5,968
========= ========= ======== =======
INCOME PER SHARE:
Basic $.32 $.38 $.90 $.52
==== ==== ==== ====
Diluted $.30 $.38 $.86 $.52
==== ==== ==== ====
NUMBER OF SHARES USED
IN COMPUTING PER SHARE
AMOUNTS:
Basic 11,697 11,402 11,642 11,391
====== ====== ====== ======
Diluted 12,420 11,531 12,232 11,524
====== ====== ====== ======
DIVIDENDS NONE NONE NONE NONE
====== ====== ====== ======
The attached notes are made a part hereof.
</TABLE>
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(TABULAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1998 1997
------ -----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 10,514 $ 5,968
-------- --------
Adjustments to reconcile results of operations to net cash provided by
operating activities:
Depreciation 6,711 5,442
Amortization of intangibles 2,413 2,245
Provision for losses on accounts receivable 1,508 1,877
Deferred income taxes (4,057) (866)
Expense applicable to stock options granted at
prices less than fair market value 55
Change in asset and liability accounts
(net of effects of acquisitions):
Accounts receivable (16,996) (1,292)
Inventory (62,860) (31,379)
Prepaid and refundable income taxes 90 (4,054)
Prepaid expenses and other current assets 807 (41)
Other assets (2,139) (34)
Accounts payable and accrued expenses 19,439 8,747
Income taxes payable 4,905 534
Other noncurrent liabilities (154) 4,920
---------- --------
TOTAL ADJUSTMENTS (50,278) (13,901)
-------- --------
NET CASH USED FOR OPERATING ACTIVITIES (39,764) (7,933)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions (net of cash acquired of
approximately $97,000) (362)
Expenditures for trademarks, patents and
intellectual property (121) (168)
Expenditures for property and equipment (10,486) (9,283)
Loan to vendor (505)
-------- -------
NET CASH USED FOR INVESTING ACTIVITIES (10,607) (10,318)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under credit agreements
and other bank debt $28,500 $ 8,314
Repayment of bridge loans (75,000)
Proceeds from sale of senior notes 25,000 75,000
Repayments of bank loans assumed upon
acquisition of businesses (2,771)
Repayment of long-term bank borrowings (7,052) (3,730)
Proceeds from exercise of stock options 1,639 39
Purchase of treasury stock (126) (1)
---------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 47,961 1,851
-------- ---------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES
ON CASH OF FOREIGN SUBSIDIARIES 76 (371)
---------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,334) (16,771)
CASH AND CASH EQUIVALENTS - January 1 17,247 29,130
-------- ---------
CASH AND CASH EQUIVALENTS - SEPTEMBER 30 $14,913 $ 12,359
======= ========
SUPPLEMENTAL DISCLOSURES:
Interest paid $11,947 $ 7,890
======== ========
Income taxes paid (net of refunds received) $ 1,051 $ 189
======== ========
</TABLE>
NONCASH ACTIVITIES:
In connection with the exercise of stock options in 1998, 15,500 shares of
common stock were issued in exchange for 6,000 shares of previously issued
common stock with a market value of $213,000, plus cash of $14,965.
In 1997, equipment with an aggregate cost of approximately $345,000 was
financed by capital lease obligations.
The attached notes are made a part hereof.
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE A -The attached summarized financial information does not include all
disclosures required to be included in a complete set of financial
statements prepared in conformity with generally accepted accounting
principles. Such disclosures were included with the consolidated
financial statements of the Company at December 31, 1997, included in
its annual report on Form 10-K. Such statements should be read in
conjunction with the data herein.
NOTE B -The financial information reflects all normal recurring adjustments
which, in the opinion of management, are deemed necessary for a fair
presentation of the results for the interim periods. The results for the
interim periods are not necessarily indicative of the results to be
expected for the year. Historically, the Company's sales and earnings
have been higher in the second half of each year.
NOTE C -Inventory at September 30, 1998 is comprised of:
Raw materials and work-in-process $ 44,138
Finished goods 146,059
Merchandise in-transit 15,670
--------
T O T A L $205,867
========
NOTE D -Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", became effective on January 1, 1998. This
statement requires that all items recognized under accounting standards
as components of comprehensive income be reported in an annual financial
statement that is displayed with the same prominence as other annual
financial statements. This statement also requires that an entity
classify items of other comprehensive income by their nature in an
annual financial statement. For the Company, other comprehensive income
comprises the total of net income and foreign currency translation
adjustments. Annual financial statements for prior periods will be
reclassified, as required. For the three and nine months ended September
30, 1998 and 1997, total comprehensive income was as follows:
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
Net income $3,738 $4,353 $10,514 $ 5,968
Foreign currency
translation adjustments 3,039 60 1,865 (3,724)
------- --------- ------- --------
Net comprehensive
income $6,777 $4,413 $12,379 $ 2,244
====== ====== ======= =======
NOTE E -In July 1994, the U.S. Customs Service and U.S. Attorney's office
obtained certain property and business records from the Company's
Florida facility pursuant to a search warrant and commenced a criminal
and civil investigation. The Company is in communication with the
government regarding such investigation, which the Company has been
advised has focused on country of origin marking requirements, duty-free
import status under the Caribbean Basin Initiative, duties with respect
to dies, molds and tooling used overseas, commissions paid to agents,
importation of merchandise subject to textile quotas, other instances of
undervaluation and other miscellaneous matters. While the U.S. Customs
Service has still not issued any pre-penalty notice nor has the U.S.
Attorney filed any criminal charges, the Company continues to hold
informal discussions with each office with a view towards either
presenting documentation to substantially reduce the scope of potential
formal claims against the Company or reaching a settlement of the matter
without recourse to litigation. However, based on the current status of
the Company's communication with the government, the Company is unable
to make a realistic estimate of the probable amount or probable range of
amounts for its ultimate outcome, which could be material in relation to
the Company's results of operations and/or financial condition.
Accordingly, the Company has not at this time made a provision for any
estimated loss related to this matter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Comparison for the Quarters Ended September 30, 1998 and 1997 And the Nine
Months Ended September 30, 1998 and 1997
RESULTS OF OPERATIONS
Net sales for the quarter ended September 30, 1998 totaled $177.1 million,
an increase of $57.5 million or 48.1% from $119.6 million, for the quarter ended
September 30, 1997. Net sales for the nine months ended September 30, 1998
totaled $455.9 million, up $132.0 million or 40.8% from the $323.9 million for
the nine months ended September 30, 1997. The record sales performance achieved
by Recoton in the current year periods is primarily the result of the continuing
rapid growth of the Company's video game and multimedia accessory products sold
under the InterAct brand name and a significant increase in mobile electronic
and speaker sales. Higher sales in the 1998 periods as compared to the same 1997
periods also reflect increased distribution of Recoton products in Europe and
higher mobile electronics accessory sales due to the inclusion of the results of
AAMP of Florida, Inc. ("AAMP"), which was acquired in the fourth quarter of
1997.
Gross profit for the quarter ended September 30, 1998 was $68.3 million or
38.6% of sales. In comparison, for the quarter ended September 30, 1997 the
Company's gross profit was $46.9 million or 39.2% of sales. For the nine months
ended September 30, 1998, gross profit was $177.6 million or 39.0% of sales as
compared with $126.4 million or 39.0% of sales for the nine months ended
September 30, 1997. The dollar increase in gross profit was primarily reflective
of strong growth in the sales of video game, multimedia and mobile electronic
products and the additional sales due to the inclusion of AAMP. The decline in
the gross profit margin for the quarter was primarily attributable to sales mix
and lower than anticipated sales in home speaker products, resulting in factory
inefficiencies.
Selling, general and administrative expenses for the quarter ended
September 30, 1998 totaled $59.3 million or 33.5% of sales. For the quarter
ended September 30, 1997, these expenses totaled $40.0 million or 33.4% of
sales. Selling, general and administrative expenses totaled $153.4 million or
33.6% of sales for the nine months ended September 30, 1998 as compared to
$115.7 million or 35.7% for the same period in 1997. The dollar increase for the
quarter and nine months was attributable to the variable selling expenses
relating to the increased sales volume (i.e. freight out, commissions). There
were also additional expenses for promotional activities and market development.
Interest expense (net of investment income) totaled $4.5 million for the
quarter ended September 30, 1998 and $11.7 million for the nine month period.
Interest expense (net of investment income) totaled $3.3 million for the quarter
ended September 30, 1997 and $8.5 million for the nine-month period then ended.
The increase was attributable to increased borrowings (interest rates were
approximately the same) to support the inventory buildup required for
anticipated record sales in the fourth quarter.
In recent years, the Company's income taxes and effective consolidated
income tax rate have been materially affected by changes in the proportion of
domestic and foreign earnings. While earnings from operations in North America
and Western Europe are primarily taxed at or above United States income tax
rates, earnings from the Company's Asian operations are taxed at a current
maximum rate of 16.0% (16.5% in 1997). However, the actual tax rate from Asian
operations is dependent upon the proportion of earnings from Mainland China,
which have been subject to a "tax holiday." This tax rate is higher in 1998,
than in 1997, because of the expiration of a portion of the "tax holiday." The
Company's income tax expense for the nine months ended September 30, 1998 is
based upon a 16.5% estimated effective annual income tax rate for 1998. This
rate is estimated by management based upon its forecast of the Company's
profitability in each of its various foreign and domestic tax jurisdictions. An
estimated effective income tax rate of 15% was applied to the results of
operations for the first six months of 1998. Management continually reviews this
estimated rate throughout the year in comparison to actual results of
operations. For the nine months ended September 30, 1997, the Company's pretax
income of $2.2 million was comprised of the excess of foreign earnings over
domestic losses. This resulted in a net income tax credit which exceeds the
consolidated pretax profit for the period because the tax credits attributable
to the domestic losses were higher than the income tax expense attributable to
the foreign earnings.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." This statement, effective for fiscal years beginning after December 15,
1997, requires the Company to report components of comprehensive income in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income is defined as the change in equity of
a business enterprise during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity during a
period except those resulting from investments by owners and distributions to
owners. To date, the Company's comprehensive income has been comprised of the
Company's net income and foreign currency translation adjustments (which
adjustments were a positive $1.9 million in 1998 and a negative $3.7 million in
1997) included in the consolidated statements of stockholders' equity. As a
result of significant fluctuations in the value of the U.S. dollar in relation
to currencies in Western Europe in the nine months ended September 30, 1998 and
1997, and the related foreign currency translation adjustments recorded by the
Company, in addition to the changes in net income, comprehensive income for the
nine months ended September 30, 1998 was $12.4 million as compared to $2.2
million for the nine months ended September 30, 1997. Comprehensive income for
the quarter ended September 30, 1998 was $6.8 million as compared to $4.4
million for the quarter ended September 30, 1997. (See Note D to the Condensed
Consolidated Financial Statements.)
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share," which establishes revised standards for computing
and presenting earnings per share ("EPS"). In accordance with this standard, all
prior period EPS data has been restated. There was no change to EPS for the
quarter and nine months ended September 30, 1997 as a result of the adoption of
this standard. For the quarter ended September 30, 1998, basic EPS was
$.32/share and diluted EPS was $.30/share based on average shares of 11,697,000
(basic) and 12,420,000 (diluted). For the quarter ended September 30, 1997,
basic EPS and diluted EPS were $.38/share based on average shares of 11,402,000
(basic) and 11,531,000 (diluted). For the nine months ended September 30, 1998,
basic EPS was $.90/share and diluted EPS was $.86/share based on average shares
of 11,642,000 (basic) and 12,232,000 (diluted). In 1997, basic and diluted EPS
for the nine months ended September 30, 1997 were $.52/share based on average
shares of 11,391,000 (basic) and 11,524,000 (diluted).
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This statement, also effective for financial statements for
periods beginning after December 15, 1997, requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments. Generally, financial information is required to be reported
on the basis that is used internally for evaluating segment performance and
deciding how to allocate resources to segments. Management has evaluated the
provisions of SFAS No. 131 in the context of its present and planned operating
structure and believes that segment reporting is not applicable to its business.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds have historically been, and are
expected to continue to be, cash flow from operations, borrowings under credit
facilities provided by banks in the United States and abroad and proceeds from
the sale of the Company's securities, including the private placement of the
Company's notes. At September 30, 1998, the Company had cash and cash
equivalents of $14.9 million as compared with $17.3 million at December 31,
1997.
The Company currently has a multibank credit facility (the "Credit
Facility"), entered into in January 1997 and modified in June 1998, consisting
of a committed revolving line of credit of $101.5 million through November 30,
1998, which will be automatically reduced to $86.5 million on November 30, 1998
through December 1999, and a $15.0 million term loan, repayable in 12 quarterly
installments with the last installment due in May 2001 ($13.8 million balance as
of September 30, 1998). The outstanding borrowings and letters of credit under
the revolving facility were approximately $100.9 million at September 30, 1998
as compared to $65.5 million at December 31, 1997 under a previous version of
such facility. The revolving credit loans bear interest at various rates
depending on elections made by the Company. The applicable rates include rates
tied to the London Inter Bank Offering Rate (LIBOR) and rates tied to the
greater of the prime rate or a federal funds-based rate. As of September 30,
1998 loans tied to the LIBOR rate bore interest at approximately 8.13% to 8.35%
per annum and loans tied to the prime rate bore interest at approximately 8.75%.
The majority of the Company's borrowings under the revolver and the term loan
are at the LIBOR-based rate.
In January 1997, the Company issued $75.0 million in principal amount of
Adjustable Rate Senior Notes due January 6, 2007 (the "Senior Notes"), which
bear interest at 8.75% per annum. The Senior Notes require interest-only
payments for the first four years, then seven equal installments of principal on
each anniversary date, beginning January 2001. As noted below, the proceeds of
the Senior Notes were utilized to reduce borrowings under a previous version of
the Credit Facility . In September 1998, the Company issued an additional $25.0
million in principal amount of 10-year senior notes due September 1, 2008 (the
"Additional Senior Notes"), which bear interest at 8.52%, on terms substantially
identical to the Senior Notes. The Additional Senior Notes require interest-only
payments for the first four years, then seven equal installments of principal on
each anniversary date, beginning September 2002.
The previous versions of the Credit Facility were initially commenced in
August 1996, when the Company entered into multibank $120 million bridge
facility (which was subsequently increased to $135 million) to accommodate the
acquisition of Recoton Audio Corporation ("RAC") (formally International Jenson
Incorporated, which was acquired in August 1996) and to finance the Company's
on-going operations. In 1997, the Company completed the placement of the Senior
Notes, the proceeds of which were utilized to reduce the former version of the
Credit Facility, which was then converted to a four-year $15 million term loan
and a three-year $71.5 million committed revolving line of credit. The four-year
term loan refinanced at more favorable interest rates the $15 million of
indebtedness assumed on RAC's acquisition. In January 1998, the $71.5 million
committed revolving line of credit was restructured to a $66.5 million committed
revolving line of credit through December 1999 and a $5.0 million four-year term
loan amortized on a straight-line basis. In June 1998 the Credit Facility was
again amended to its current terms as noted above.
At December 31, 1997 and at various times prior to such date, the Company
was not in compliance with certain covenants, including those involving the
maintenance of financial ratios and minimum tangible net worth, under the Senior
Notes and the Credit Facility. Both the Senior Note holders and bank lenders
waived the Company's non-compliance with such covenants at December 31, 1997,
and at such other times, and temporarily relaxed such covenants until such time
as terms of the Credit Facility and Senior Notes were amended to include less
restrictive covenants. At March 31, 1998, the bank lenders and the holders of
the Senior Notes also waived the Company's non-compliance with certain financial
ratio covenants. The Credit Facility was amended in June 1998 and in August 1998
to include certain less restrictive requirements through December 30, 1998 and
the holders of the Senior Notes extended their prior waiver of noncompliance
through December 30, 1998 (or such time as the Company has received certain
minimum net proceeds from an offering of equity securities or is otherwise in
compliance with the original provisions of such covenants, if earlier). At
September 30, 1998, the Company was in compliance with the amended covenants
under the Senior Notes and the Credit Facility.
The current Credit Facility contemplates that the Company will be making an
offering of equity securities or subordinated debt. If the Company does not
raise a minimum of $75.0 million in additional equity or subordinated debt by
November 30, 1998, it will be obligated to pay the lenders under the Credit
Facility a fee of $.5 million. At that time, under the terms of the Credit
Facility, the amount of the revolving credit portion of the Credit Facility is
reduced by $15.0 million from $101.5 million to $86.5 million. In addition, if
the Company does not raise such additional funds by the end of 1998 it will
likely be in default of certain covenants under the Credit Facility and the
Senior Notes, since at that time certain covenants, in the Credit Facility, will
revert to being more restrictive and the waivers of non-compliance granted to
the Company, by the Noteholders, will have expired. The Company is currently in
the process of negotiating with institutional lenders various financing
alternatives. In the absence of the required additional financing, the bank
group has indicated a willingness to forgo the reduction in the Credit Facility
from $101.5 million to $86.5 million at November 30, 1998. However, the Company
will then be obligated to pay all or a portion thereof of the $.5 million fee.
Both the bank group and Noteholders have further indicated a willingness to
amend certain covenants to permit the Company's compliance under the Credit
Facility and Senior Notes. There can be no assurance, however, that such
reduction will be foregone or such covenants will be amended.
The Company also has outstanding borrowings from one member of the
multibank credit lenders aggregating approximately $11.8 million at September
30, 1998, which are due at various times through August 2001. Covenants similar
to those applicable to the multibank credit facility apply to these loans. The
Company has granted two mortgages on Florida property which it owns to secure
repayment of $2.7 million of such indebtedness. Interest rates on such loans
ranged between 6.6% and 8.4%.
The Company's Hong Kong subsidiaries have lines of credit of approximately
$8.7 million with two overseas banks for letter of credit and trust receipt
financing. These banks have a security interest to the extent of merchandise
purchased using letters of credit. As of September 30, 1998, there were
approximately $6.6 million in trust receipt loans and $1.8 million of letters of
credit outstanding.
At September 30, 1998, the Company had working capital of approximately
$263.1 million as compared to approximately $222.4 million at December 31, 1997.
The Company's ratio of current assets to current liabilities was 3.0 to 1 at
September 30, 1998 and 3.3 to 1 at December 31, 1997. Trade receivables
increased $17.0 million to $146.8 million at September 30, 1998 as compared to
December 31, 1997. Inventories increased from December 31, 1997 levels by $63.5
million to $205.9 million at September 30, 1998. The increase in the inventory
levels was substantially attributable to the Company's InterAct and mobile
electronics' product lines. In anticipation of strong demand for such products
in the third and fourth quarter of 1998, the inventoried products were
manufactured in advance. Due to capacity constraints at the Company's Chinese
manufacturing facility, which is the primary supplier of InterAct products, the
Company acquired much of this inventory earlier than it would if such
constraints did not exist. Accounts payable and accrued expenses increased $29.6
million to $109.4 million at September 30, 1998. The increase is primarily
attributable to increases in inventories and certain accrued performance bonuses
payable in March 1999, which bonuses were noncurrent liabilities at December 30,
1997.
In August 1994, the Board of Directors authorized the repurchase by the
Company of up to 500,000 outstanding Common Shares. In 1995, 42,366 shares were
purchased for approximately $.7 million; no shares were repurchased pursuant to
such authorization in 1996, 1997 or 1998. In June 1996, the Board of Directors
authorized, under certain circumstances, the purchase from time to time of
additional shares from certain officers. In July 1996, the Company purchased
65,000 shares from an officer for approximately $1.2 million. Any future
repurchases may be limited by the terms of the Company's loan agreements.
In August 1996, Recoton acquired the branded product lines of RAC, a
leading marketer of home and automotive loudspeakers and automotive electronics,
for a total cost of approximately $61.6 million. In connection with the
acquisition, Recoton assumed approximately $34.0 million in notes and loans
payable. In December 1996, the Company acquired selected assets of Heco GmbH and
Heco Electronics GmbH (both in Germany) for a cost of approximately $1.3
million. Heco is a leading brand of home speakers in Germany.
In February 1997, Recoton acquired the outstanding stock of Recoton UK
(formally known as Tambalan Limited) at a cost of approximately $285,000 plus
closing costs and assumed certain outstanding debt of approximately $2.9
million. Recoton UK markets headphones and other consumer electronics products
in the United Kingdom and other European countries under the trade name ROSS and
has a branch operation in Hong Kong. In November 1997, the Company acquired AAMP
at a cost of approximately $2.4 million paid by the issuance of 169,706 Common
Shares. In conjunction with the acquisition, the Company assumed approximately
$4.5 million in debt, which was repaid in November 1997 from the proceeds of a
$5 million loan referred to below. AAMP is a leading car audio accessories
company based in Clearwater, Florida whose business includes the STINGER and
PERIPHERAL brands.
In November 1997, the Company borrowed $5.0 million under a demand note
agreement to finance the acquisition of AAMP. The note was paid in January 1998.
In May 1998, the Company borrowed an additional $10 million, under a demand note
agreement due no later than July 31, 1998, to provide additional working
capital. Such demand note was repaid with the proceeds of the increased Credit
Facility.
In December 1997, the Company acquired, out of bankruptcy, selected assets
of Capa Industries, Inc. at a cost of approximately $1.1 million. The
acquisition provided expanded manufacturing and electronic engineering capacity
to enhance the home and car audio products line.
In January 1998, the Company completed construction of an approximately
318,000 square foot expansion of its warehouse on its Lake Mary, Florida
property. The cost of the building construction was approximately $5.0 million.
To date there has been limited exposure to loss due to foreign currency
risks in the Company's Asian subsidiaries, because the Hong Kong dollar has been
pegged to the U.S. dollar at an official exchange rate of HK $7.75 to US $1.00.
Additionally, in recent years there have been no material fluctuations in the
Hong Kong/Chinese exchange rates. Also, the Company maintains the majority of
its currency in Asia in U.S. dollar accounts. However, as a result of on-going
turmoil in the Asian currency markets, there can be no assurance that these
relationships will continue.
The Company's operations, which are currently being transacted on a global
basis, are exposed to variations in foreign exchange rates. The Company's
shareholders' equity was increased by a foreign currency translation adjustment
of approximately $1.9 million in the nine months ended September 30, 1998.
During the nine months ended September 30, 1997, the Company's shareholders'
equity was reduced by a foreign currency translation adjustment of approximately
$3.7 million, of which approximately $3.2 million occurred in the first quarter
of 1997. The changes in the exchange rates of the German and Italian currencies,
which were the principle causes of the foreign currency translation adjustments,
had no material impact on the Company's results of operations.
If there are any material adverse changes in the relationships between the
European and/or Canadian currencies with the United States dollar or if the Hong
Kong or Chinese currencies should no longer be tied to the U.S. dollar, such
changes could adversely affect the results of the Company's European, Canadian
and/or Asian operations included in the consolidated financial statements and
could cause further increases in the amount of foreign currency translation
adjustments which are charged directly to shareholder's' equity.
As further described in Note E of the Notes to Condensed Consolidated
Financial Statements and in Part II, Item 1 of this Form 10-Q, the financial
impact of the pending criminal and civil customs investigation cannot be
determined at this time, but could be material to the Company. The Company has
at this time made no provision for any estimated loss related to these matters.
The Company has leased expanded facilities for sales and warehousing in
Germany and the U.K. and is considering enlarging its manufacturing facilities
in Mainland China. In addition the Company is considering the acquisition of
additional computer hardware and software to be used both in the United States
and in its foreign locations. The Company will also continue to evaluate
possible acquisitions that may be attractive to the growth of the Company.
YEAR 2000
The Company is in the process of analyzing and addressing what is known as
the year 2000 (or "Y2K") issue. Based on current information, the Company
believes that it will be year 2000 compliant in a timely manner and the cost of
achieving such compliance will not have a materially adverse effect on the
Company's results of operations or financial condition. As noted in the
following discussion, however, there are multiple variables in determining
whether full Y2K compliance can be achieved, many of which are dependent on
efforts of third parties.
BACKGROUND
This issue has arisen because many existing computer programs use only two
digits instead of four (e.g., "98" instead of "1998") to identify a year in the
date field. This is a holdover from the days when businesses first started using
computers and electronic memory was limited and storage was expensive. These
programs were designed and developed without considering the impact of the
upcoming change in the century. Accordingly, some computers can not determine if
the reference to the year "02" means 2002 or 1902. The failure of such
applications or systems to properly recognize the dates beginning in the year
2000 could result in miscalculations or even system failures.
The Company, through a team including its Vice President-Information
Systems and its Vice President-Compliance, is assessing its Y2K compliance
situation.
INTERNAL SYSTEMS
The Company's Vice President-Information Systems has the responsibility to
have the Company's entire computer and computer-dependent systems tested and, if
necessary, modified or replaced to ensure Y2K compliance. Based on its analysis
to date, including tests run on the Company's backup computer system and
analysis of the in-place systems, the Company believes that all of its domestic
and substantially all of its foreign internal computer systems (hardware, system
software and applications software) and computer-dependent systems, including
technology embedded in the Company's machinery and other equipment to the extent
that it is date sensitive, are currently Y2K compliant and that the foreign
operations which are not currently compliant will, through the replacement or
modification of existing hardware and software, be made compliant in a timely
manner. A target date of December 31, 1998 has been fixed for such compliance.
The Company believes at this time that it should be able to meet such a target
date. The Company has not retained any outside service provider to conduct
independent verification of the Company's compliance status and does not at this
time intend to hire any such service provider.
The Company is currently in the process of contacting its key vendors and
service providers, as well as key customers, to ascertain their Y2K compliance
to the extent that their problems could affect the Company's internal systems or
other aspects of the Company's business. The Company has not yet determined when
it will have that process completed. The Company at this time cannot make any
prediction as to the degree of compliance by such vendors and service providers
or the consequence to the Company of any noncompliance. Any serious Y2K problems
which significant vendors and service providers encounter could materially
adversely impact the Company. If significant customers (especially those which
are ordering from the Company electronically) have Y2K problems, that also could
materially adversely impact the Company by seriously impacting the level of
their purchases from the Company until such problems are resolved.
While the Company believes that the efforts which it has taken and plans to
take should be sufficient to identify and correct any Y2K problems before
December 31, 1999, there can be no assurance that the Company will be fully Y2K
compliant in a timely manner.
FINANCIAL RAMIFICATIONS
The expenses incurred to date to achieve year 2000 compliance have not had
a material impact on the Company's results of operations or financial condition.
Based on the Company's current status of internal Y2K compliance review and
other preliminary information, the Company does not anticipate that any expenses
yet to be incurred to achieve year 2000 compliance will have any material impact
on the Company's results of operations or financial condition or that its
business will be adversely affected by the Y2K issue in any material respect.
(The Company preliminarily estimates that the costs of achieving Y2K compliance,
including costs of personnel devoting significant effort on Y2K matters, will be
immaterial). The costs associated with any new computers or computer programs,
which are year 2000 compliant, have been and will be capitalized and amortized
over the computer's and/or software's expected useful life. Any system
modifications or maintenance costs necessary to make the Company's existing
computer programs Y2K compliant have been and will be expensed as incurred.
Achieving Y2K compliance, however, is dependent on multiple factors, many
of which are not within the Company's sole control. Accordingly, should one or
more of the internal systems of the Company or key customers or key vendors
exhibit significant Y2K problems, the Company's business and its results of
operations could be materially adversely affected.
No information technology projects have been deferred due to Y2K efforts.
RISKS
Until it has completed its Y2K assessment, and attempted to fix any
problems which such assessment may disclose, the Company can not be in a
position to determine what would be its most reasonably likely worst case Y2K
scenario or any plan for handling such scenario. The Company has not devised any
back-up plans should it suffer any internal Y2K problems or should any of its
vendors' or customers' Y2K problems affect the Company. After completion of its
Y2K assessment, including review of queries sent to such vendors and customers,
the Company will assess the need for any contingency plans.
The failure to correct a material Y2K problem could result in an
interruption of, or inability to perform on a timely fashion, a necessary
business activity or operation. Such failures could materially adversely affect
the Company's results of operations, liquidity and/or financial condition.
Because of the general uncertainty which companies face regarding the year 2000
issue, in part due to the fact that actions of third-parties could affect the
Company's compliance, it is not possible to determine at this time whether any
actual failures will have any material adverse impact on the Company.
IMPLICATIONS TO THE COMPANY FROM THE ADOPTION OF A EUROPEAN COMMON CURRENCY
The Company has extensive operations in certain European countries,
including Germany, Italy and the United Kingdom. It also sells to additional
countries in Europe. For the most recently competed fiscal year, approximately
15% of the Company's net sales were in Europe. With the exception of the United
Kingdom, all of the countries in which the Company has operations have confirmed
their participation in a new 11-country European common currency, the Euro. The
adoption of such common currency will be phased in over a three-year period
starting in January 1999. During such phase-in period, both the Euro and the
historical currency of a country will be valid, although new Euro-denominated
currency will not be issued until 2002. Each member-country will decide when its
legacy currency will cease to be legal tender, which will occur during the
period January 1 through June 30, 2002. Until the introduction of
Euro-denominated currency, the paying party will have the option to decide
whether to pay in the legacy currency or in Euro converted to the legacy
currency.
Among other possible economic implications, it is expected that the
adoption of such common currency will lead to greater price transparency and
thereby increased competition within such common currency zone. For instance,
with a single currency applicable to the entire region, consumers may be able to
more easily discern any material price differences for the Company's products
between different countries and modify their buying practices accordingly. This
may require adjustments in the Company's marketing and pricing strategies.
Whether any such price differentials will lead to significant changes in
purchasing practices by the Company's customers depends on factors such as
convenience and language-related matters as well as other factors which may
determine where a consumer will purchase products. The Company is not able at
this time to gauge whether the likelihood of increased competition arising from
the introduction of the Euro would have any significant long-term adverse impact
on the pricing for the Company's products.
The adoption of a common currency may require a significant modification to
the Company's accounting systems. Among other things, it will be necessary to
operate in each country with dual currencies until the three-year phase-in
period has passed. Management believes, however, that any necessary changes can
be rapidly and inexpensively implemented using "off-the-shelf" systems if the
Company's internal systems are not sufficient.
The Company does not believe that the adoption of a common currency will
give any parties to material contracts with the Company the right to terminate
or modify such contracts on the grounds of "frustration," "impossibility" or
"impracticability".
Other risks associated with such currency conversion include possible
currency exchange and tax risks, neither of which the Company believes will have
a significant affect.
While the Company does not at this time anticipate that the adoption of the
Euro and any resulting changes in European economic and market conditions will
have any material adverse impact on the Company or its European business, its
analysis of this issue has only commenced recently and the Company has not yet
fully evaluated the implications of the Euro's adoption. The Company has not
adopted, nor is at this time contemplating the adoption of, any contingency
plans regarding this issue.
FORWARD-LOOKING STATEMENTS
The foregoing discussion contains forward-looking statements, which should
be read in conjunction with "Other Information" in Item 5 in Part II of this
Form 10Q.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
All of the Company's foreign borrowings are denominated in U.S. dollars,
its functional currency. A substantial portion (over 90%) of the Company's
borrowings bear fixed interest rates. However, borrowings under the revolving
credit portion of the Credit Facility are made at rates in effect when the loans
are made and remain in effect until they are "rolled-over " (typically 30 to 60
days later), unless the Company has elected to borrow at the prime rate or other
floating interest rate under one of several interest rate options available to
it when each loan is made. A $15.0 million term loan ($13.8 million balance as
of September 30, 1998), which is due in installments through May 2001, bears
interest which varies on a quarterly basis with changes in the Company's
financial ratios and changes in LIBOR.
The Company and certain of its subsidiaries have intercompany loans which
are not denominated in their home country currency, which exposes the Company to
exchange rate fluctuations. The Company has not entered into any foreign
currency or derivative contracts to hedge these potential exchange adjustments,
which are initially recorded as cumulative foreign currency translation
adjustments (a component of shareholders' equity), but will ultimately be
reflected in operations when the debt is repaid. Exclusive of intercompany
receivables and payables for current transactions, the principal outstanding
exposure at September 30, 1998 (expressed in U.S. dollars at current exchange
rates) for foreign currency loans made by the Company and its subsidiaries to
subsidiaries is $27,290,000 in Germany and $7,457,000 in Italy. These loans have
no fixed due dates.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
CUSTOMS INVESTIGATION. In July 1994, agents of the United States Customs
Service, working in conjunction with the United States Attorney's office in
Orlando, Florida, seized property and business records from the Company's Lake
Mary, Florida facility pursuant to a search warrant and commenced a criminal and
civil investigation. The Company is in communication with the government
regarding such investigation, which the Company has been advised has focused on
country of origin marking, duty-free import status under the Caribbean Basin
Initiative, duties with respect to dies, molds and tooling used overseas,
commissions paid to agents, importation of merchandise subject to textile quota,
other instances of undervaluation and other miscellaneous matters. While the
U.S. Customs Service has still not issued any pre-penalty notice nor has the
U.S. Attorney filed any criminal charges, the Company continues to hold informal
discussions with each office with a view towards either presenting documentation
to substantially reduce the scope of potential formal claims against the Company
or reaching a settlement of the matter without recourse to litigation. However,
based on the current status of the Company's communication with the government,
the Company is unable to make a realistic estimate of the probable amount or
probable range of amounts for its ultimate outcome, which could be material in
relation to the Company's results of operations and/or financial condition.
Accordingly, the Company has not at this time made a provision for any estimated
loss related to this matter.
ITEM 5. OTHER INFORMATION.
When used in this Form 10-Q and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases and in oral
statements made with the approval of an authorized executive officer, the words
or phrases "will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project," "expect," "believe," "hope" or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
such forward-looking statements, which speak only as of the date made.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.35 Note Purchase Agreement dated as of September 1, 1998 for $25 million
principal amount of adjustable rate senior notes due September 1,
2008 with The Prudential Insurance Company of North America
27 Financial Data Schedule
(b) Reports on Form 8-K: none
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
undersigned thereunto duly authorized.
RECOTON CORPORATION
/S/ STUART MONT
Stuart Mont
COO, CFO, Exec. V.P.-Operations,
Secretary
/S/ JOSEPH H. MASSOT
Joseph H. Massot
Vice President, Treasurer and
Principal Accounting Officer
Dated: November 13, 1998
<PAGE>
EXHIBIT INDEX
10.35 Note Purchase Agreement dated as of September 1, 1998 for $25 million
principal amount of adjustable rate senior notes due September 1,
2008 with The Prudential Insurance Company of North America
27 Financial Data Schedule
EXHIBIT 10.35
RECOTON CORPORATION
-----------------------------------------------------
NOTE PURCHASE AGREEMENT
-----------------------------------------------------
DATED AS OF SEPTEMBER 1, 1998
$25,000,000
ADJUSTABLE RATE SENIOR NOTES DUE SEPTEMBER 1, 2008
<PAGE>
TABLE OF CONTENTS
(NOT PART OF AGREEMENT)
PAGE
1. AUTHORIZATION OF ISSUE OF NOTES..................................... 1
2. PURCHASE AND SALE OF NOTES.......................................... 1
3. CONDITIONS OF CLOSING............................................... 2
3A. Opinion of Purchaser's Special Counsel......................... 2
3B. Opinions of Company's Counsel and Subsidiaries'
Counsel........................................................ 2
3C. Subsidiary Guaranty and Sharing Agreement...................... 2
3D. Representations and Warranties; No Default..................... 2
3E. Purchase Permitted By Applicable Laws.......................... 2
3F. Private Placement Number....................................... 3
3G. Structuring Fee................................................ 3
3H. Closing Expenses............................................... 3
3I. Bank Consent................................................... 3
3J. Proceedings.................................................... 3
4. PREPAYMENTS AND INTEREST............................................ 3
4A. Required Prepayments........................................... 3
4B. Optional Prepayment With Yield-Maintenance Amount.............. 3
4C. Notice of Optional Prepayment.................................. 4
4D. Partial Payments Pro Rata...................................... 4
4E. Obligation to Purchase during Existence of Put
Condition...................................................... 4
4F. Retirement of Notes............................................ 5
4G. Interest Payments.............................................. 6
5. AFFIRMATIVE COVENANTS............................................... 6
5A. Financial Statements........................................... 6
5B. Information Required by Rule 144A.............................. 7
5C. Inspection of Property......................................... 8
5D. Other Information.............................................. 8
5E. Payment of Taxes and Claims.................................... 9
5F. Maintenance of Properties; Corporate Existence;
etc............................................................ 9
5G. Covenant to Secure Notes Equally............................... 10
5H. Delivery of Opinion of Italian Counsel......................... 10
6. NEGATIVE COVENANTS.................................................. 10
6A. Line of Business............................................... 10
6B. Current Debt................................................... 10
6C. Funded Debt.................................................... 11
6D. Interest Expense Coverage...................................... 12
6E. Net Worth...................................................... 13
6F. Restricted Investments and Restricted Payments................. 13
6G. Mergers and Consolidations..................................... 14
6H. Transfers of Property; Subsidiary Stock........................ 14
6I. Liens.......................................................... 17
6J. Permitted Investments.......................................... 19
6K. Transactions with Affiliates................................... 19
6L. Designation of Subsidiaries.................................... 19
6M. Subsidiary Guaranty............................................ 19
6N. PRC Subsidiaries............................................... 20
7. EVENTS OF DEFAULT................................................... 20
7A. Acceleration................................................... 20
7B. Rescission of Acceleration..................................... 23
7C. Notice of Acceleration or Rescission........................... 23
7D. Other Remedies................................................. 23
8. REPRESENTATIONS, COVENANTS AND WARRANTIES........................... 24
8A. Organization; Subsidiaries and Affiliates...................... 24
8B. Financial Statements........................................... 24
8C. Actions Pending................................................ 25
8D. Outstanding Debt............................................... 25
8E. Title to Properties............................................ 25
8F. Taxes.......................................................... 25
8G. Conflicting Agreements and Other Matters....................... 25
8H. Offering of Notes.............................................. 26
8I. Use of Proceeds................................................ 26
8J. ERISA.......................................................... 26
8K. Governmental Consent........................................... 26
8L. Environmental Compliance....................................... 27
8M. Disclosure..................................................... 27
9. REPRESENTATIONS OF THE PURCHASER.................................... 27
9A. Nature of Purchase............................................. 27
9B. Source of Funds................................................ 27
10.DEFINITIONS......................................................... 29
10A. Yield-Maintenance Terms........................................ 29
10B. Other Terms.................................................... 30
10C. Generally Accepted Accounting Principles....................... 42
11.MISCELLANEOUS....................................................... 42
11A. Note Payments.................................................. 42
11B. Expenses....................................................... 43
11C. Consent to Amendments.......................................... 43
11D. Form, Registration, Transfer and Exchange of
Notes; Lost Notes.............................................. 43
11E. Persons Deemed Owners; Participations.......................... 44
11F. Survival of Representations and Warranties;
Entire Agreement............................................... 44
11G. Successors and Assigns......................................... 44
11H. Notices........................................................ 44
11I. Payments Due on Non-Business Days.............................. 45
11J. Disclosure to Other Persons.................................... 45
11K. Satisfaction Requirement....................................... 46
11L. Governing Law.................................................. 46
11M. Severability................................................... 46
11N. Descriptive Headings........................................... 46
11O. Counterparts................................................... 46
11P. Severalty of Obligations....................................... 46
Annex 1 -- Purchaser Schedule
Annex 2 -- Wire Information
Annex 3 -- Information as to Company
Exhibit A -- Form of Note
Exhibit B1 -- Form of Opinion of Stroock & Stroock & Lavan LLP
Exhibit B2 -- Form of Opinion of McCarthy TJtrault
Exhibit B3 -- Form of Opinion of Siao, Wen and Leung
Exhibit B4 -- Form of Opinion of Lang & Rahmann
Exhibit B5 -- Form of Opinion of de Libero Camilli Boniello Bartoli Di Garbo
Exhibit C -- Form of Subsidiary Guaranty
Exhibit D -- Form of Sharing Agreement
<PAGE>
RECOTON CORPORATION
2950 LAKE EMMA ROAD
LAKE MARY, FLORIDA 32746
$25,000,000
ADJUSTABLE RATE SENIOR NOTES DUE SEPTEMBER 1, 2008
As of September 1, 1998
To the Purchaser Named in the
Purchaser Schedule Attached Hereto
Ladies and Gentlemen:
The undersigned, Recoton Corporation (herein called the "COMPANY"), hereby
agrees with the purchaser named in the Purchaser Schedule attached as Annex 1
hereto (herein called the "PURCHASER") as follows:
1. AUTHORIZATION OF ISSUE OF NOTES. The Company will authorize the issue of
its senior promissory notes in the aggregate principal amount of $25,000,000, to
be dated the date of issue thereof, to mature September 1, 2008, to bear
interest on the unpaid balance thereof as set forth in paragraph 4G hereof, and
to be substantially in the form of Exhibit A attached hereto. The term "NOTES"
as used herein shall include each such senior promissory note delivered pursuant
to any provision of this Agreement and each such senior promissory note
delivered in substitution or exchange for any other Note pursuant to any such
provision.
2. PURCHASE AND SALE OF NOTES. The Company hereby agrees to sell to the
Purchaser and, subject to the terms and conditions herein set forth, the
Purchaser agrees to purchase from the Company, the aggregate principal amount of
Notes set forth opposite the Purchaser's name in the Purchaser Schedule attached
as Annex 1 hereto at 100% of such aggregate principal amount. The Company will
deliver to the Purchaser, at the offices of Hebb & Gitlin, a Professional
Corporation, One State Street, Hartford, Connecticut 06103, one or more Notes
registered in the Purchaser's name, evidencing the aggregate principal amount of
Notes to be purchased by the Purchaser and in the denomination or denominations
specified with respect to the Purchaser in the Purchaser Schedule against
payment of the purchase price thereof by transfer of immediately available funds
for credit to the Company's account, as directed by the Company on Annex 2
hereto, on the date of closing, which shall be September 1, 1998 or any other
date on or before September 4, 1998 upon which the Company and the Purchaser may
mutually agree (the "CLOSING DATE").
3. CONDITIONS OF CLOSING. The Purchaser's obligation to purchase and pay
for the Notes to be purchased by the Purchaser hereunder is subject to the
satisfaction, on or before the Closing Date, of the following conditions:
3A. OPINION OF PURCHASER'S SPECIAL COUNSEL. The Purchaser shall have
received from Hebb & Gitlin, a Professional Corporation, which is acting as
special counsel for the Purchaser in connection with this transaction, a
favorable opinion satisfactory to the Purchaser as to such matters incident to
the matters herein contemplated as it may reasonably request.
3B. OPINIONS OF COMPANY'S COUNSEL AND SUBSIDIARIES' COUNSEL. The Purchaser
shall have received from
(i) Stroock & Stroock & Lavan LLP, regular counsel for the
Company, a favorable opinion satisfactory to the Purchaser and
substantially in the form of Exhibit B1 attached hereto;
(ii) McCarthy TJtrault, special counsel for Subsidiaries
organized in Canada, a favorable opinion satisfactory to the Purchaser
and substantially in the form of Exhibit B2 attached hereto;
(iii) Siao, Wen and Leung, special counsel for Subsidiaries
(other than Avelco Trading Limited) organized in Hong Kong, a favorable
opinion satisfactory to the Purchaser and substantially in the form of
Exhibit B3 attached hereto; and
(iv) Lang & Rahmann, special counsel for Subsidiaries
organized in Germany, a favorable opinion satisfactory to the Purchaser
and substantially in the form of Exhibit B4 attached hereto.
3C. SUBSIDIARY GUARANTY AND SHARING AGREEMENT. Each Restricted Subsidiary,
other than the Excluded Subsidiaries, shall have executed and delivered the
Subsidiary Guaranty and the Banks and the 1997 Noteholders shall have executed
and delivered the Sharing Agreement.
3D. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations and
warranties contained in paragraph 8 shall be true on and as of the Closing Date,
except to the extent of changes caused by the transactions herein contemplated;
there shall exist on the Closing Date no Event of Default or Default; and the
Company shall have delivered to the Purchaser an Officer's Certificate, dated
the Closing Date, to both such effects. In addition, the Company shall have
delivered to the Purchaser a certificate from the Secretary or an Assistant
Secretary of the Company certifying the incumbency of officers of the Company
executing this Agreement, the Notes and other documents, attaching copies of the
Company's by-laws and resolutions authorizing its execution of this Agreement
and its issuance of the Notes, and certifying as to such other matters as the
Purchaser shall reasonably request.
3E. PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and payment for
the Notes to be purchased by the Purchaser on the Closing Date on the terms and
conditions herein provided (including the use of the proceeds of such Notes by
the Company) shall not violate any applicable law or governmental regulation
(including, without limitation, section 5 of the Securities Act or Regulation T,
U or X of the Board of Governors of the Federal Reserve System) and shall not
subject the Purchaser to any tax, penalty, liability or other onerous condition
under or pursuant to any applicable law or governmental regulation, and the
Purchaser shall have received such certificates or other evidence as it may
request to establish compliance with this condition.
3F. PRIVATE PLACEMENT NUMBER. The Company shall have obtained or caused to
be obtained a private placement number for the Notes from the CUSIP Service
Bureau of Standard & Poor's.
3G. STRUCTURING FEE. The Company shall have paid a structuring fee to The
Prudential Insurance Company of America in the amount of $125,000.
3H. CLOSING EXPENSES. The Company shall have paid at the closing the
statement for fees and disbursements of the special counsel to the Purchaser
presented on the Closing Date.
3I. BANK CONSENT. The Banks shall have delivered to the Purchaser a written
consent in respect of the transactions contemplated by this Agreement and the
Subsidiary Guaranty.
3J. PROCEEDINGS. All corporate and other proceedings taken or to be taken
in connection with the transactions contemplated hereby and all documents
incident thereto shall be satisfactory in substance and form to the Purchaser,
and the Purchaser shall have received all such counterpart originals or
certified or other copies of such documents as it may reasonably request.
4. PREPAYMENTS AND INTEREST. The Notes shall be subject to required
prepayment as set forth in paragraph 4A hereof, optional prepayment at the
option of the Company as set forth in paragraph 4B hereof and prepayment at the
option of each holder of Notes as provided in paragraph 4E hereof. Interest
shall accrue and be payable as set forth in paragraph 4G hereof.
4A. REQUIRED PREPAYMENTS. Until the Notes shall be paid in full, the
Company shall apply to the prepayment of the Notes, without premium, the sum of
$3,571,429 on September 1 in each of the years 2002 to 2007, inclusive, and the
sum of $3,571,426 on September 1, 2008, and such principal amounts of the Notes,
together with interest thereon to the prepayment dates, shall become due on such
prepayment dates. The remaining unpaid principal amount of the Notes, if any,
together with interest accrued thereon, shall become due on the maturity date of
the Notes.
4B. OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT. The Notes shall be
subject to prepayment, in whole at any time or from time to time in part (in
multiples of $5,000,000), at the option of the Company, at 100% of the principal
amount so prepaid plus interest thereon to the prepayment date and the
Yield-Maintenance Amount, if any, with respect to each Note being prepaid. Any
partial prepayment of Notes pursuant to this paragraph 4B shall be applied,
FIRST, to the principal amount due on the maturity date of the Notes and,
SECOND, to the required prepayments applicable to the Notes, as set forth in
paragraph 4A hereof, in the inverse order of the maturity thereof.
4C. NOTICE OF OPTIONAL PREPAYMENT. The Company shall give the holder of
each Note irrevocable written notice of any prepayment pursuant to paragraph 4B
hereof not less than ten Business Days prior to the prepayment date, specifying
such prepayment date and the principal amount of the Notes, and of the Notes
held by such holder, to be prepaid on such date and stating that such prepayment
is to be made pursuant to paragraph 4B of this Agreement. Notice of prepayment
having been given as aforesaid, the principal amount of the Notes specified in
such notice, together with interest thereon to the prepayment date and together
with the Yield- Maintenance Amount, if any, with respect thereto, shall become
due and payable on such prepayment date. The Company shall, on or before the day
on which it gives written notice of any prepayment pursuant to paragraph 4B
hereof, also call to give telephonic notice of the principal amount of the Notes
to be prepaid and the prepayment date to each Significant Holder which shall
have designated a recipient of (and provided a current telephone number for)
such notices in the Purchaser Schedule attached hereto or by notice in writing
to the Company.
4D. PARTIAL PAYMENTS PRO RATA. Upon any partial prepayment of the Notes
pursuant to paragraph 4A hereof or paragraph 4B hereof, the principal amount so
prepaid shall be allocated to all Notes at the time outstanding (including, for
the purpose of this paragraph 4D only, all Notes prepaid or otherwise retired or
purchased or otherwise acquired by the Company or any of its Subsidiaries or
Affiliates other than by prepayment pursuant to paragraph 4A hereof or paragraph
4B hereof) in proportion to the respective outstanding principal amounts
thereof.
4E. OBLIGATION TO PURCHASE DURING EXISTENCE OF PUT CONDITION. In the event
that
(i) the Company delivers a written notice (a "WAIVER NOTICE")
to the holders of the Notes requesting a waiver (which notice shall set
forth detailed information concerning the transaction for which the
waiver is requested) of paragraph 6G hereof (a "MERGER PUT Condition"),
or
(ii) the Company or any Restricted Subsidiary shall have
Transferred Property pursuant to paragraph 6H(i)(d) (without giving
effect to the first proviso to paragraph 6H(i)) in any period of 12
consecutive calendar months with an aggregate book value equal to or
greater than 15% of Consolidated Total Assets or that has contributed
15% or more to Consolidated Operating Income (such book value or such
contribution, whichever exceeds the percentage limitation more, herein
called the "EXCESS AMOUNT") during such period (an "ASSET TRANSFER PUT
CONDITION"),
each holder of Notes shall have the right, by delivery of a written notice (a
"PUT NOTICE") within 60 days (the "SECOND PUT CUT-OFF DATE") after (a) receipt
of such request in respect of a Merger Put Condition or (b) the later of (1) the
expiration of such 12 month period or (2) its receipt of a notice pursuant to
paragraph 6H(iii) hereof in respect of an Asset Transfer Put Condition, to
require the Company to purchase, and the Company will purchase, the Put Amount
(determined as set forth in clause (A) or clause (B) below, as applicable).
Promptly, but in any event within two Business Days after its receipt of any Put
Notice, the Company shall give written notice thereof to all other holders of
Notes, such notice to include the First Put Date and the Second Put Date (as
such terms are defined below).
On the date (the "FIRST PUT DATE") which is 30 days after the date of the
first Put Notice delivered to the Company by a holder of Notes (or the first
Business Day thereafter if such 30th day shall not be a Business Day), but only
if the First Put Date would occur prior to the Second Put Date, the Company
shall prepay a principal amount of the Notes equal to the Put Amount to each
holder of Notes that has delivered a Put Notice not later than 25 days after
such first Put Notice (the "FIRST PUT CUT-OFF DATE"), at 100% of the principal
amount thereof, together with interest thereon to such Put Date and the
Yield-Maintenance Amount, if any, in respect thereof.
On the date (the "SECOND PUT DATE") which is 5 days after the Second Put
Cut-Off Date, the Company shall prepay a principal amount of the Notes equal to
the Put Amount to each holder of Notes that has delivered a Put Notice
subsequent to the First Put Cut-Off Date and not later than the Second Put
Cut-Off Date at 100% of the principal amount thereof, together with interest
thereon to such Put Date and the Yield-Maintenance Amount, if any, in respect
thereof. In addition, on the Second Put Date, the Company shall make a payment
to each holder of Notes that delivered a Put Notice on or prior to the First Put
Cut-Off Date in an amount equal to (1) the additional principal amount of Notes,
PLUS (2) interest thereon accrued to the Second Put Date and Yield-Maintenance
Amount in respect thereof determined as of the Second Put Date, that such holder
would have received had the Put Amount for the First Put Date been determined by
reference to the aggregate principal amount of Notes as to which Put Notices
have been delivered as of the Second Put Date, rather than the outstanding
principal amount of all Notes.
As used in this paragraph 4E, "PUT AMOUNT" shall mean,
(A) in the case of a Merger Put Condition, all or a part of
the Notes of the holder delivering the related Put Notice, as specified
in such Put Notice, or
(B) in the case of an Asset Transfer Put Condition, an amount
equal to the net proceeds received by the Company which are ratably
attributable to the Excess Amount MULTIPLIED BY a fraction, in the case
of the First Put Date, the numerator of which is the outstanding
principal amount of such holder's Notes (or such lesser amount of Notes
as such holder shall have specified in its Put Notice) and the
denominator of which is the outstanding principal amount of all Notes
and, in the case of the Second Put Date, the numerator of which is the
outstanding principal amount of such holder's Notes (or such lesser
amount of Notes as such holder shall have specified in its Put Notice)
and the denominator of which is the aggregate principal amount of all
Notes as to which Put Notices have been delivered in connection with
such Asset Transfer Put Condition.
Any partial prepayment of Notes pursuant to this paragraph 4E shall be applied
ratably to the principal amount due on the maturity date of the Notes and to the
required prepayments applicable to the Notes as set forth in paragraph 4A
hereof.
4F. RETIREMENT OF NOTES. The Company shall not, and shall not permit any of
its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or in
part prior to their stated final maturity (other than by prepayment pursuant to
paragraph 4A hereof, paragraph 4B hereof or paragraph 4E hereof or upon
acceleration of such final maturity pursuant to paragraph 7A hereof), or
purchase or otherwise acquire, directly or indirectly, Notes held by any holder
unless the Company or such Subsidiary or Affiliate shall have offered to prepay
or otherwise retire or purchase or otherwise acquire, as the case may be, the
same proportion of the aggregate principal amount of Notes held by each other
holder of Notes at the time outstanding upon the same terms and conditions. Any
Notes so prepaid or otherwise retired or purchased or otherwise acquired by the
Company or any of its Subsidiaries or Affiliates shall not be deemed to be
outstanding for any purpose under this Agreement, except as provided in
paragraph 4D hereof.
4G. INTEREST PAYMENTS. Interest (computed on the basis of a 360-day year of
twelve 30-day months) shall accrue on the unpaid principal balance of the Notes,
from the date of each Note, and shall be payable to the holders thereof
quarterly on the first day of September, December, March and June in each year
(each an "INTEREST PAYMENT DATE"), commencing with the Interest Payment Date
next succeeding the date of such Note, until the principal thereof shall have
become due and payable, at the rate of
(i) 8.52% per annum, PROVIDED that a Rate Decrease
Event shall not have occurred, and
(ii) 8.02% per annum, if a Rate Decrease Event shall
have occurred,
and on any overdue payment (including any overdue prepayment) of principal, any
overdue payment of interest and any overdue payment of any Yield-Maintenance
Amount at the Applicable Default Interest Rate. If a Rate Decrease Event shall
occur, it shall be effective as of the Bank Debt Prepayment Date.
The term "RATE DECREASE EVENT" shall mean (A) the receipt by the Company of
any payment of at least $75,000,000 from the sale of its capital stock and (B)
the prepayment of the Debt outstanding under the Bank Credit Agreement in a
principal amount of at least $75,000,000.
5. AFFIRMATIVE COVENANTS.
5A. FINANCIAL STATEMENTS. The Company covenants that it will deliver to
each Significant Holder in duplicate:
(i) as soon as practicable and in any event within 50 days,
with respect to consolidated statements, or 65 days, with respect to
consolidating statements, after the end of each quarterly period (other
than the last quarterly period) in each fiscal year, consolidating and
consolidated statements of operations and cash flows of the Company and
the Restricted Subsidiaries for the period from the beginning of the
current fiscal year to the end of such quarterly period, and a
consolidating and consolidated balance sheet of the Company and the
Restricted Subsidiaries as at the end of such quarterly period, setting
forth in each case in comparative form figures for the corresponding
period in the preceding fiscal year, all in reasonable detail and
satisfactory in form to the Required Holders and certified by an
authorized financial officer of the Company, subject to changes
resulting from year-end adjustments;
(ii) as soon as practicable and in any event within 95 days,
with respect to consolidated statements, or 105 days, with respect to
consolidating statements, after the end of each fiscal year,
consolidating and consolidated statements of operations and cash flows
and a consolidated statement of stockholders' equity of the Company and
the Restricted Subsidiaries for such year, and a consolidating and
consolidated balance sheet of the Company and the Restricted
Subsidiaries as at the end of such year, setting forth in each case in
comparative form corresponding consolidated figures from the preceding
annual audit, all in reasonable detail and satisfactory in form to the
Required Holders and, as to the consolidated statements, reported on by
Cornick, Garber & Sandler, LLP or independent public accountants of
recognized national standing selected by the Company whose report shall
be without limitation as to the scope of the audit and satisfactory in
substance to the Required Holders and, as to the consolidating
statements, certified by an authorized financial officer of the
Company;
(iii) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as it shall
send to its public stockholders and copies of all registration
statements (without exhibits) and all financial statements and reports
which it files with or makes to the Securities and Exchange Commission
(or any governmental body or agency succeeding to the functions of the
Securities and Exchange Commission);
(iv) promptly upon receipt thereof, a copy of each other
report submitted to the Company or any Subsidiary by independent
accountants in connection with any annual, interim or special audit
made by them of the books of the Company or any Subsidiary, PROVIDED
that audits conducted with respect to foreign Subsidiaries to satisfy
statutory requirements need not be delivered unless requested by any
Significant Holder; and
(v) with reasonable promptness, such other financial data as
such Significant Holder may reasonably request.
The consolidating financial statements required by clause (i) and clause (ii)
above shall include the separate financial position of each direct Subsidiary of
the Company (each, a "FIRST TIER SUBSIDIARY"). The financial statements of each
First Tier Subsidiary, however, may reflect the consolidated position of such
First Tier Subsidiary and its direct and indirect Subsidiaries.
Together with each delivery of consolidating financial statements required
by clause (i) and clause (ii) above, the Company will deliver to each
Significant Holder an Officer's Certificate demonstrating (with computations in
reasonable detail) compliance by the Company and the Restricted Subsidiaries
with the provisions of paragraph 6A through paragraph 6J, inclusive, and
paragraph 6N, and stating that there exists no Event of Default or Default, or,
if any Event of Default or Default exists, specifying the nature and period of
existence thereof and what action the Company proposes to take with respect
thereto. Together with each delivery of consolidated financial statements
required by clause (ii) above, the Company will deliver to each Significant
Holder a certificate of such accountants stating that, in making the audit
necessary for their report on such financial statements, they have obtained no
knowledge of any Event of Default or Default, or, if they have obtained
knowledge of any Event of Default or Default, specifying the nature and period
of existence thereof. The Company also covenants that immediately after any
Responsible Officer obtains knowledge of an Event of Default or Default, it will
deliver to each Significant Holder an Officer's Certificate specifying the
nature and period of existence thereof and what action the Company proposes to
take with respect thereto.
5B. INFORMATION REQUIRED BY RULE 144A. The Company covenants that it will,
upon the request of the holder of any Note, provide such holder, and any
qualified institutional buyer designated by such holder, such financial and
other information as such holder may reasonably determine to be necessary in
order to permit compliance with the information requirements of Rule 144A under
the Securities Act in connection with the resale of Notes, except at such times
as the Company is subject to the reporting requirements of section 13 or 15(d)
of the Exchange Act. For the purpose of this paragraph 5B, the term "qualified
institutional buyer" shall have the meaning specified in Rule 144A under the
Securities Act.
5C. INSPECTION OF PROPERTY. The Company covenants that it will permit any
Person designated by any Significant Holder in writing, at such Significant
Holder's expense, to visit and inspect any of the properties of the Company and
the Subsidiaries, to inspect the corporate books and financial records of the
Company and the Subsidiaries and make copies thereof or extracts therefrom and
to discuss the affairs, finances and accounts of any of such corporations with
the principal officers of the Company and its independent public accountants,
all at such reasonable times and as often as such Significant Holder may
reasonably request.
5D. OTHER INFORMATION. The Company covenants that it will deliver to each
Significant Holder:
(I) ERISA --
(a) within 30 days of becoming aware of the
occurrence of any "reportable event" (as such term is defined
in section 4043 of ERISA) for which notice thereof has not
been waived pursuant to regulations of the Department of
Labor, or "prohibited transaction" (as such term is defined in
section 406 of ERISA or section 4975 of the Code) in
connection with any Pension Plan or any trust created
thereunder, a written notice specifying the nature thereof,
what action the Company is taking or proposes to take with
respect thereto, and, when known, any action taken by the
Internal Revenue Service, the Department of Labor or the PBGC
with respect thereto, and
(b) prompt written notice of and, where
applicable, a description of
(1) any notice from the PBGC in respect of
the commencement of any proceedings pursuant to
section 4042 of ERISA to terminate any Pension Plan
or for the appointment of a trustee to administer any
Pension Plan, and any distress termination notice
delivered to the PBGC under section 4041 of ERISA in
respect of any Pension Plan, and any determination of
the PBGC in respect thereof,
(2) the placement of any Multiemployer Plan
in reorganization status under Title IV of ERISA, any
Multiemployer Plan becoming "insolvent" (as such term
is defined in section 4245 of ERISA) under Title IV
of ERISA, or the whole or partial withdrawal of the
Company or any
ERISA Affiliate from any Multiemployer Plan and
the withdrawal liability incurred in connection
therewith, or
(3) the occurrence of any event, transaction
or condition that could result in the incurrence of
any liability of the Company or any ERISA Affiliate
or the imposition of a Lien on the Property of the
Company or any ERISA Affiliate, in either case
pursuant to Title I or Title IV of ERISA or pursuant
to the penalty or excise tax or security provisions
of the Code;
(II) ACTIONS, PROCEEDINGS -- promptly after the commencement
of any action or proceeding, of which the Company is aware, relating to
the Company or any Restricted Subsidiary in any court or before any
governmental authority or arbitration board or tribunal as to which
there is a reasonable possibility of an adverse determination and that,
if adversely determined, is reasonably likely to have a material
adverse effect on the business, condition (financial or otherwise) or
operations of the Company and the Restricted Subsidiaries taken as a
whole, a written notice specifying the nature and period of existence
thereof and what action the Company is taking or proposes to take with
respect thereto; and
(III) CERTAIN ENVIRONMENTAL MATTERS -- prompt written notice
of and a description of any event or circumstance that, had such event
or circumstance occurred or existed prior to the Closing Date, would
have been required to be disclosed as an exception to any statement set
forth in paragraph 8L hereof and a description of the action that the
Company is taking or proposes to take with respect thereto.
5E. PAYMENT OF TAXES AND CLAIMS. The Company covenants that it will, and
will cause each Restricted Subsidiary to, pay before they become delinquent
(i) all taxes, assessments and governmental charges
or levies imposed upon it or its Property, and
(ii) all claims or demands of materialmen, mechanics,
carriers, warehousemen, vendors, landlords and other like Persons that,
if unpaid, might result in the creation of a Lien upon its Property,
PROVIDED, that items of the foregoing description need not be paid so long as
such items are being actively contested in good faith and by appropriate
proceedings and reasonable book reserves have been established and maintained
with respect thereto.
5F. MAINTENANCE OF PROPERTIES; CORPORATE EXISTENCE; ETC. The Company
covenants that it will, and will cause each Restricted Subsidiary to:
(I) PROPERTY -- maintain its Property in good condition,
ordinary wear and tear and obsolescence excepted, and make all
necessary renewals, replacements, additions, betterments and
improvements thereto;
(II) INSURANCE -- maintain, with financially sound and
reputable insurers, insurance with respect to its Property and
business, against such casualties and contingencies, of such types and
in such amounts as is customary in the case of Persons of established
reputations engaged in the same or a similar business and similarly
situated;
(III) FINANCIAL RECORDS -- keep proper books of record and
account, in which full and correct entries shall be made of all
dealings and transactions of or in relation to the Properties and
business thereof, and that will permit the production of financial
statements in accordance with GAAP;
(IV) EXISTENCE AND RIGHTS -- do or cause to be done all things
necessary to preserve and keep in full force and effect its partnership
or corporate existence, rights and franchises, except as permitted by
paragraph 6G hereof; and
(V) COMPLIANCE WITH LAW -- comply with all laws, ordinances
and governmental rules and regulations to which it is subject
(including, without limitation, any environmental protection law) and
obtain all licenses, certificates, permits, franchises and other
governmental authorizations necessary to the ownership of its
Properties and the conduct of its business except for such violations
and failures to obtain that, in the aggregate, could not reasonably be
expected to have a material adverse effect on the business, condition
(financial or otherwise) or operations of the Company and the
Restricted Subsidiaries taken as a whole.
5G. COVENANT TO SECURE NOTES EQUALLY. The Company covenants that, if it or
any Subsidiary shall create or assume any Lien upon any of its Property, whether
now owned or hereafter acquired, other than Liens permitted by the provisions of
paragraph 6I hereof (unless prior written consent to the creation or assumption
thereof shall have been obtained pursuant to paragraph 11C hereof), it will make
or cause to be made effective provision whereby the Notes will be secured by
such Lien equally and ratably with any and all other Debt thereby secured so
long as any such other Debt shall be so secured (PROVIDED that, notwithstanding
the foregoing, each holder of Notes shall have the right to elect, at any time,
by delivery of written notice of such election to the Company, to cause the
Notes held by such holder not to be secured by such Lien, PROVIDED, FURTHER that
the creation or assumption of any such Lien shall constitute an Event of Default
regardless of whether the Notes shall be so equally and ratably secured).
5H. DELIVERY OF OPINION OF ITALIAN COUNSEL. The Company covenants that, not
later than September 30, 1998, it will deliver to the Purchaser a satisfactory
opinion of de Libero Camilli Boniello Bartoli Di Garbo, special counsel for
Subsidiaries organized in Italy, substantially in the form of Exhibit B5
attached hereto.
6. NEGATIVE COVENANTS.
6A. LINE OF BUSINESS. The Company will not, and will not permit any
Restricted Subsidiary to, engage in any material business if, as a result
thereof, the business and operations of the Company and its Restricted
Subsidiaries would not be in or directly related to the consumer electronics
industry or activities that are ancillary, incidental or necessary to such
business, PROVIDED that the Company and the Restricted Subsidiaries may acquire
businesses that have operations unrelated to the consumer electronics industry
if, with respect to each such acquisition, (i) the assets in respect of such
unrelated operations (the "UNRELATED ASSETS") constitute less than 50% of
consolidated total assets of any such business and contribute less than 50% to
consolidated operating income of any such business and (ii) the Investment in
such Unrelated Assets shall be permitted by the provisions of paragraph 6F
hereof.
6B. CURRENT DEBT. The Company will not, and will not permit any Restricted
Subsidiary to, have any Current Debt outstanding on any day unless, within the
12 consecutive complete calendar months immediately preceding such day, there
shall have been at least one period of not less than 30 consecutive days on each
of which Consolidated Current Debt did not exceed
(i) $5,000,000, PLUS
(ii) an amount equal to the amount of additional Funded Debt
that the Company would have been permitted to incur (but did not incur)
under paragraph 6C(iii) on such day.
6C. FUNDED DEBT. The Company will not, and will not permit any Restricted
Subsidiary to, at any time directly or indirectly create, incur, issue, assume,
guarantee or otherwise become liable with respect to any Funded Debt except:
(I) EXISTING FUNDED DEBT --
(a) Funded Debt evidenced by the Notes and the
Subsidiary Guaranty,
(b) other Funded Debt existing on the 1997 Closing
Date and described in Part 6C of Annex 3 hereto and
(c) Guarantees existing on the 1997 Closing Date by
Restricted Subsidiaries in respect of the obligations of the
Company under the Bank Credit Agreement and described in Part
6C of Annex 3 hereto;
(II) RESTRICTED SUBSIDIARY FUNDED DEBT --
(a) Funded Debt of Restricted Subsidiaries owing to
the Company or to another Restricted Subsidiary and
(b) other Funded Debt of Restricted Subsidiaries,
PROVIDED that, immediately after, and after giving effect to,
the incurrence of any such Funded Debt, the sum, without
duplication, of
(1) the aggregate amount of outstanding
Funded Debt of Restricted Subsidiaries which was not
outstanding on the 1997 Closing Date and which is
held by Persons other than the Company or a
Restricted Subsidiary and outstanding at such time,
PLUS
(2) the aggregate amount of outstanding Debt
secured by Liens permitted by clause (vi) and clause
(vii) of paragraph 6I hereof,
does not exceed 15% of Consolidated Tangible Net
Worth; and
(III) ADDITIONAL FUNDED DEBT -- additional Funded Debt of the
Company not otherwise permitted pursuant to this paragraph 6C, PROVIDED
that immediately after the incurrence of such Funded Debt and after
giving effect thereto and to any concurrent transactions,
(a) the SUM of (x) Consolidated Funded Debt plus (y)
Excess Current Debt shall be less than or equal to 50% of
Consolidated Tangible Gross Worth, determined as at the end of
the then most recently ended fiscal quarter of the Company,
PROVIDED, however, that compliance with the foregoing
provisions of this paragraph (a) shall not be a condition to
the incurrence of such additional Funded Debt until the first
to occur of
(I) December 31, 1998,
(II) such time as such sum shall be greater
than 65% of Consolidated Tangible Gross Worth
determined at the same time such sum is determined,
and
(III) such time as the Company has received
not less than $75,000,000 of net proceeds from the
public or private sale of its common or preferred
stock, and
(b) the ratio of (x) the SUM of (I) Consolidated
Funded Debt plus (II) Excess Current Debt to (y) Consolidated
Adjusted Cash Flow for the period of four consecutive complete
fiscal quarters of the Company most recently ended at such
time shall be less than or equal to
(1) 4.00 to 1.00, if the incurrence of such
Funded Debt occurs at any time from and including the
Closing Date through and including December 31, 1998,
and
(2) 3.50 to 1.00, if the incurrence of such
Funded Debt occurs at any time on or after January 1,
1999.
For purposes of this clause (iii), the following terms shall have the
following meanings:
"ADJUSTED CONSOLIDATED CURRENT DEBT" -- shall mean, as of any
date, the amount, if any, by which Consolidated Current Debt exceeds
$5,000,000.
"EXCESS CURRENT DEBT" shall mean, as of any date, the greatest
amount of Adjusted Consolidated Current Debt outstanding on any one day
during the then applicable
Excess Current Debt Measuring Period.
"EXCESS CURRENT DEBT MEASURING PERIOD" shall mean, at any
time, the period of 30 consecutive days occurring during the period of
12 consecutive complete calendar months then most recently ended during
which the greatest amount of Adjusted Consolidated Current Debt
outstanding on any one day of such period was lower than the greatest
amount of Adjusted Consolidated Current Debt outstanding on any one day
of any other period of 30 consecutive days occurring during such period
of 12 consecutive complete calendar months.
Any extension or renewal of Funded Debt in existence at any time shall be deemed
to be a new incurrence of such Funded Debt.
6D. INTEREST EXPENSE COVERAGE. The Company will not permit the ratio of
(i) Consolidated Adjusted Cash Flow for any period of
four consecutive complete fiscal quarters of the Company to
(ii) Consolidated Interest Expense for such period
to be less than 3.50 to 1.00, PROVIDED, however, that the Company shall not be
required to comply with the foregoing provisions of this paragraph 6D until the
earlier to occur of
(a) December 31, 1998 (or, if the Company has
received not less than $75,000,000 of net proceeds from the
public or private sale of its common or preferred stock on or
prior to December 31, 1998, the applicable date shall be June
3, 1999), and
(b) such time as such ratio shall be less than 2.50
to 1.00 for any period of four consecutive complete fiscal
quarters of the Company ending after the date hereof.
6E. NET WORTH. The Company will not at any time permit Consolidated
Tangible Net Worth to be less than the sum of
(i) $90,000,000, PLUS
(ii) the sum of the Annual Net Worth Increase Amounts for all
fiscal years ended after the 1997 Closing Date.
"Annual Net Worth Increase Amount" means, for any fiscal year of the Company
ended after December 31, 1996, the greater of (a) 50% of Consolidated Net Income
for such fiscal year and (b) $0.
6F. RESTRICTED INVESTMENTS AND RESTRICTED PAYMENTS. The Company will not,
and will not permit any Restricted Subsidiary to, make any Basket Investment, or
declare, make, set apart any funds or other Property for, or incur any liability
to make, any Restricted Payment unless:
(i) immediately after, and after giving effect to such Basket
Investment or such Restricted Payment, the aggregate amount of all
Basket Investments outstanding at such time PLUS all Restricted
Payments declared or made on or after the 1997 Closing Date would not
exceed the sum of
(a) $5,000,000, PLUS
(b) 50% (or minus 100% in the case of a loss) of
Consolidated Net Income for the period commencing on January
1, 1997 and ending on and including the last day of the fiscal
quarter of the Company most recently ended as of the date such
Basket Investment is made or such Restricted Payment is
declared or made; and
(ii) immediately before, and after giving effect to, such
Basket Investment or such Restricted Payment and any concurrent
transactions,
(a) no Default or Event of Default exists or
would exist, and
(b) the Company would be permitted by the provisions
of paragraph 6C hereof to incur at least $1.00 of additional
Funded Debt.
6G. MERGERS AND CONSOLIDATIONS. The Company will not, and will not permit
any Restricted Subsidiary to, merge or consolidate with or into any other
Person, or convey, transfer, spin-off or lease all or substantially all of its
assets in a single transaction or series of transactions to any Person, except
that:
(i) any such Restricted Subsidiary may merge or consolidate
with or into, or convey, transfer or spin-off all or substantially all
of its assets to, the Company (provided that the Company is the
continuing or surviving corporation), another Restricted Subsidiary or
any Person that concurrently with such merger, consolidation,
conveyance, transfer or spin-off becomes a Restricted Subsidiary, and
(ii) the Company may merge or consolidate with or into, or
convey, transfer or spin-off all or substantially all of its assets to,
another corporation, PROVIDED that
(a) the successor formed by such consolidation or the
survivor of such merger or the Person that acquires by
conveyance, transfer or spin-off all or substantially all of
the assets of the Company as an entirety, as the case may be
(the "SUCCESSOR CORPORATION"), shall be a solvent corporation
organized and existing under the laws of the United States of
America, any state thereof or the District of Columbia,
(b) if the Company is not the Successor Corporation,
the Successor Corporation shall have executed and delivered to
each holder of Notes its assumption of the due and punctual
performance and observance of each covenant and condition of
this Agreement and the Notes pursuant to such agreements and
instruments as shall be reasonably satisfactory to the
Required Holders, and the Company shall have caused to be
delivered to each holder an opinion, in form and substance
satisfactory to the Required Holders, of independent counsel
reasonably satisfactory to the Required Holders, to the effect
that all agreements or instruments effecting such assumption
are enforceable in accordance with their terms and comply with
the terms hereof, and
(c) immediately after, and immediately after giving
effect to, such transaction, no Default or Event of Default
would exist and the Successor Corporation would be permitted
by the provisions of paragraph 6C hereof to incur at least
$1.00 of additional Funded Debt.
6H. TRANSFERS OF PROPERTY; SUBSIDIARY STOCK.
(I) TRANSFERS OF PROPERTY. The Company will not, and will not
permit any Restricted Subsidiary to, sell, lease as lessor, transfer or
otherwise dispose of any Restricted Subsidiary Stock, except pursuant
to clause (ii) of this paragraph 6H, or any other Property
(collectively, "TRANSFERS") except for:
(a) any Transfer made in compliance with
paragraph 6G hereof or any Transfer of Unrelated
Assets;
(b) Transfers of inventory, payments to vendors and
suppliers, payments of compensation (including, without
limitation, salaries, bonuses, options, insurance, benefits,
payments pursuant to employment agreements and other
perquisites), and other similar payments, in each case in the
ordinary course of business of the Company or such Restricted
Subsidiary;
(c) any Transfer of Property by a Restricted
Subsidiary to the Company or any other Restricted
Subsidiary;
(d) any other Transfer at any time of any Property to
a Person, other than an Affiliate (whether effected in a
single transaction or in a series of related transactions) not
otherwise permitted under clauses (a) through (c), inclusive,
of this paragraph 6H(i) (for purposes of this clause (d), a
"CURRENT TRANSFER"), if each of the following conditions would
be satisfied with respect to such Transfer:
(1) the consideration received in respect of
such current Transfer is an amount not less than that
reasonably obtainable in a comparable arm's-length
transaction or series of transactions with a Person
that is not an Affiliate of the Company or any
Subsidiary, with neither the seller nor the buyer
being under any compulsion to sell or buy,
respectively,
(2) immediately after giving effect to such
current Transfer, no Default or Event of Default
would exist,
(3) the sum of
(A) the net book value of the Property
that is the subject of such current
Transfer, PLUS
(B) the aggregate net book value of
all other items of Property of the Company
and the Restricted Subsidiaries that were
the subject of prior Transfers under this
clause (d) consummated during the period
beginning on the first day of the four
consecutive complete fiscal quarters of the
Company then most recently ended and ending
immediately prior to the time of such
current Transfer,
would not exceed 20% of Consolidated Total
Assets, determined as at the beginning of such
period, and
(4) the sum of
(A) the contribution (expressed as a
percentage and exclusive of losses) to
Consolidated Operating Income of such
Property, plus
(B) the contribution (expressed as a
percentage and exclusive of losses) to
Consolidated Operating Income of all other
items of Property of the Company and the
Restricted Subsidiaries that were the
subject of prior Transfers under this clause
(d) consummated during the period beginning
on the first day of the four consecutive
complete fiscal quarters of the Company then
most recently ended and ending immediately
prior to the time of such current Transfer,
would not exceed 20%;
PROVIDED that the net book value or the contribution to
Consolidated Operating Income of any item of Property shall be
excluded for purposes of clause (3) and clause (4) of this
paragraph 6H(i)(d) if, prior to consummation of any Transfer,
the Company gives written notice (a "REINVESTMENT NOTICE") to
all holders of Notes that, within 12 months after such
Transfer, the entire proceeds of such Transfer, net of
ordinary and reasonable transaction costs and expenses
incurred in connection with such Transfer, will be applied by
the Company or such Restricted Subsidiary to the purchase of
Capital Assets of the Company or any Restricted Subsidiary to
be used in the business of the Company, as described in
paragraph 6A hereof; PROVIDED further that such exclusions
only apply to the extent that the aggregate net book value of
all Property so excluded at any one time shall not exceed 25%
of Consolidated Tangible Net Worth and the sum of the
contributions to Consolidated Operating Income (expressed as a
percentage, with each such contribution being determined as of
the date of Transfer of the Property generating such
contribution) of all Property so excluded at any one time
shall not exceed 25%.
If the Company shall fail to apply the proceeds of any Transfer in
accordance with a Reinvestment Notice given in respect thereof, such
failure shall constitute an Event of Default.
(II) TRANSFERS OF SUBSIDIARY STOCK. The Company will not, and
will not permit any Restricted Subsidiary to, Transfer any shares of
the stock (or any warrants, rights or options to purchase stock or
other Securities exchangeable for or convertible into stock) of a
Restricted Subsidiary (such stock, warrants, rights, options and other
Securities herein called "RESTRICTED SUBSIDIARY STOCK"), nor will any
Restricted Subsidiary issue, sell or otherwise dispose of any shares of
its own Restricted Subsidiary Stock, PROVIDED that the foregoing
restrictions do not apply to:
(a) the issuance by a Restricted Subsidiary of
shares of its own Restricted Subsidiary Stock to the
Company or another Restricted Subsidiary;
(b) Transfers by the Company or a Restricted
Subsidiary of shares of Restricted Subsidiary Stock
to the Company or another Restricted Subsidiary;
(c) the issuance by a Restricted Subsidiary of
directors' qualifying shares or shares to holders (who hold
for the benefit of the Company or a Restricted Subsidiary) to
meet statutory requirements for domestic holdings or minimum
numbers of stockholders;
(d) the Transfer of all of the Restricted Subsidiary
Stock of a Restricted Subsidiary owned by the Company and the
other Restricted Subsidiaries if:
(1) such Transfer satisfies the requirement
of paragraph 6H(i)(d) hereof (for purposes of such
paragraph, the net book value of such Restricted
Subsidiary Stock being deemed to be the aggregate net
book value of all assets of such Restricted
Subsidiary);
(2) in connection with such Transfer, the
entire investment (whether represented by stock,
Debt, claims or otherwise) of the Company and the
other Restricted Subsidiaries in such Restricted
Subsidiary is Transferred to a Person other than the
Company or a Restricted Subsidiary
not simultaneously being disposed of;
(3) the Restricted Subsidiary being disposed
of has no continuing investment in any other
Restricted Subsidiary not simultaneously being
disposed of or in the Company; and
(4) immediately before and after the
consummation of such Transfer, and after giving
effect thereto, no Default or Event of Default would
exist; and
(e) Transfers of Unrelated Assets consisting of
Restricted Subsidiary Stock if the requirements set forth in
subclauses (2), (3) and (4) of the foregoing clause (d) have
been satisfied.
(III) NOTICES WITH RESPECT TO TRANSFERS. The Company shall
give written notice to each holder of Notes at least ten days prior to
the consummation of any Transfer that would give rise to a potential
prepayment obligation under paragraph 4E hereof specifying:
(a) the anticipated consummation date of the
related Transfer; and
(b) an estimate of the net proceeds to be
received for the Property subject to such Transfer.
6I. LIENS. The Company will not, and it will not permit any Restricted
Subsidiary to, create, assume or suffer to exist any Lien upon any of its
Property, whether now owned or hereafter acquired, except:
(i) Liens outstanding on the 1997 Closing Date and
listed in Part 6I(i) of Annex 3 hereto;
(ii) Liens incurred or deposits made in the ordinary
course of business,
(a) in connection with workers' compensation,
unemployment insurance, social security and other
like laws,
(b) to secure the performance of letters of credit,
bids, tenders, sales contracts, surety and performance bonds
(of a type other than set forth in clause (iv) of this
paragraph 6I) and other ordinary course obligations not
incurred in connection with the borrowing of money, the
obtaining of advances or the payment of the deferred purchase
price of Property, and
(c) in respect of statutory obligations or claims or
demands of materialmen, mechanics, carriers, warehousemen,
landlords and other like Persons, PROVIDED that the
obligations secured by such Liens shall not be in default and
the title of the Company or the Restricted Subsidiary, as the
case may be, to, and its right to use, the Property subject to
such Lien, is not materially adversely affected thereby;
(iii) Liens for taxes not yet due or that are
being actively contested in good faith by appropriate
proceedings;
(iv) Liens, arising in connection with court
proceedings,
(a) in the nature of attachments, remedies and
judgments, PROVIDED that the execution or other enforcement of
such Liens is effectively stayed and the claims secured
thereby are being actively contested in good faith and by
appropriate proceedings, and
(b) securing appeal bonds, supersedeas bonds and
other similar Liens arising in connection with court
proceedings (including, without limitation, surety bonds and
letters of credit) or any other instrument serving a similar
purpose,
PROVIDED that the aggregate amount so secured pursuant to
this clause (iv) shall not at any time exceed $2,500,000;
(v) reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions and other similar
title exceptions or encumbrances affecting real property, PROVIDED they
do not in the aggregate materially detract from the value of such real
property or materially interfere with their use in the ordinary conduct
of the owning Person's business;
(vi) any Lien on Property that is acquired or constructed by
the Company or any Restricted Subsidiary that secures Debt incurred by
the owner of such Property to pay for all or a portion of the related
purchase price or construction costs of such Property, PROVIDED that
(a) such Lien shall not extend to or cover any
Property other than Property acquired or constructed after the
1997 Closing Date with the proceeds of the Debt secured
thereby and shall not secure Debt other than such Debt,
(b) such Lien shall be created within 12 months after
the acquisition or substantial completion of such Property,
and
(c) such Lien shall secure Debt in an amount not
exceeding 100% of the lesser of (1) the cost of acquisition or
construction of the Property to which such Debt relates and
(2) the Fair Market Value of the Property to which such Debt
relates, determined as the time of the incurrence of such
Debt; and
(vii) Liens securing Debt other than those Liens permitted by
clause (i) through clause (vi) of this paragraph 6I, PROVIDED that,
immediately after, and immediately after giving effect to, the
incurrence of any Debt secured by any such Lien,
(a) the sum of
(1) the aggregate amount of all Debt
secured by such Liens, plus
(2) the aggregate amount of all Debt secured
by Liens permitted by clause (vi) of this paragraph
6I, plus
(3) the aggregate amount of all Debt of
Restricted Subsidiaries then outstanding which was
incurred pursuant to paragraph 6C(ii)(b) hereof,
would not exceed 15% of Consolidated Tangible Net
Worth, and
(b) the Company would be permitted by the provisions
of paragraph 6C hereof to incur at least $1.00 of additional
Funded Debt.
A violation of this paragraph 6I will constitute an Event of Default, whether or
not any provision is made for an equal and ratable Lien pursuant to paragraph
5G.
6J. PERMITTED INVESTMENTS. The Company will not, nor will it permit any of
its Restricted Subsidiaries to, make any Investment other than a Permitted
Investment or a Basket Investment.
6K. TRANSACTIONS WITH AFFILIATES. The Company will not, and will not permit
any Restricted Subsidiary to, enter into any transaction, including, without
limitation, the purchase, sale or exchange of Property or the rendering of any
service, with any Affiliate, except in the ordinary course of and pursuant to
the reasonable requirements of the business of the Company or such Restricted
Subsidiary and upon fair and reasonable terms no less favorable to the Company
or such Restricted Subsidiary than would be obtained in a comparable
arm's-length transaction with a Person not an Affiliate.
6L. DESIGNATION OF SUBSIDIARIES. Each Person which shall become a
Subsidiary for the first time after the Closing Date shall be a Restricted
Subsidiary unless, within 30 days after such Person shall first have become a
Subsidiary, the Company shall give written notice to all holders of the Notes
stating that such Person shall be an Unrestricted Subsidiary. Any Person so
designated as an Unrestricted Subsidiary may not thereafter be redesignated as a
Restricted Subsidiary without the approval of the Required Holders.
6M. SUBSIDIARY GUARANTY. The Company will cause each Subsidiary that, after
the Closing Date, executes a guaranty of obligations outstanding under the Bank
Credit Agreement, to execute and deliver to each holder of Notes, simultaneously
with its execution and delivery of any such guaranty of obligations under the
Bank Credit Agreement, a copy of the Joinder Agreement in the form attached to
the Subsidiary Guaranty as Annex 2, duly executed by such Subsidiary. If the
dissolution process with respect to any Inactive Subsidiary shall be abandoned
or otherwise cease, the Company shall promptly, but in any event within not less
than fifteen (15) days after such abandonment or cessation, cause such Inactive
Subsidiary to execute and deliver to each holder of Notes a copy of the Joinder
Agreement in the form attached to the Subsidiary Guaranty as Annex 2, duly
executed by such Inactive Subsidiary.
6N. PRC SUBSIDIARIES. The Company will not permit, on the last day of any
fiscal quarter or any fiscal year of the Company, the aggregate net book value
of the assets (as reported in the consolidating financial statements referred to
in clause (i) and clause (ii) of paragraph 5A hereof, respectively) of the PRC
Subsidiaries to be greater than an amount equal to 20% of Consolidated Tangible
Net Worth.
7. EVENTS OF DEFAULT.
7A. ACCELERATION. If any of the following events shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) the Company defaults in the payment of any principal of or
Yield- Maintenance Amount payable with respect to any Note when the
same shall become due, either by the terms thereof or otherwise as
herein provided; or
(ii) the Company defaults in the payment of any interest on
any Note for more than five days after the date due; or
(iii) the Company fails to perform or observe any agreement
contained in paragraph 6 hereof (other than any default caused by the
incurrence of Debt by a Subsidiary in an amount less than $1,000,000,
PROVIDED that such default is remedied within 15 days after such
incurrence); or
(iv) the Company fails to perform or observe any other
agreement, term or condition contained herein and such failure shall
not be remedied within 30 days after any Responsible Officer obtains
actual knowledge thereof; or
(v) any representation or warranty made by the Company herein
or by the Company or any of its officers in any writing furnished in
connection with or pursuant to this Agreement shall be false in any
material respect on the date as of which made; or
(vi) the Company or any Restricted Subsidiary defaults
(whether as primary obligor or as guarantor or other surety) in any
payment of principal of or interest on any other obligation for money
borrowed (or any Capitalized Lease Obligation, any obligation under a
conditional sale or other title retention agreement, any obligation
issued or assumed as full or partial payment for Property whether or
not secured by a purchase money mortgage or any obligation under notes
payable or drafts accepted representing extensions of credit) beyond
any period of grace (not to exceed 30 days) provided with respect
thereto, or the Company or any Restricted Subsidiary fails to perform
or observe any other agreement, term or condition contained in any
agreement under which any such obligation is created (or if any other
event thereunder or under any such agreement shall occur and be
continuing) and the effect of such failure or other event is to cause,
or to permit the holder or holders of such obligation (or a trustee on
behalf of such holder or holders) to cause, such obligation to become
due (or to be repurchased by the Company or any Restricted Subsidiary)
prior to any stated maturity, PROVIDED that the aggregate amount of all
obligations as to which such a payment default shall occur and be
continuing or such a failure or other event causing or permitting
acceleration (or resale to the Company or any Restricted Subsidiary)
shall occur and be continuing exceeds $5,000,000 (it being understood
that a failure to make a prepayment of a portion of any obligations
shall be deemed to be a payment default in respect of the entire amount
of such obligations); or
(vii) the Company or any Restricted Subsidiary (other than a
Minor Subsidiary) makes an assignment for the benefit of creditors or
is generally not paying its debts as such debts become due; or
(viii) any decree or order for relief in respect of the
Company or any Restricted Subsidiary (other than a Minor Subsidiary) is
entered under any bankruptcy, reorganization, compromise, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar
law, whether now or hereafter in effect (the "BANKRUPTCY LAW"), of any
jurisdiction; or
(ix) the Company or any Restricted Subsidiary (other than a
Minor Subsidiary) petitions or applies to any tribunal for, or consents
to, the appointment of, or taking possession by, a trustee, receiver,
custodian, liquidator or similar official of the Company or any
Restricted Subsidiary (other than a Minor Subsidiary), or of the
majority of the assets of the Company or any Restricted Subsidiary
(other than a Minor Subsidiary), or commences a voluntary case under
the Bankruptcy Law of the United States or any proceedings (other than
proceedings for the voluntary liquidation and dissolution of a
Restricted Subsidiary) relating to the Company or any Restricted
Subsidiary (other than a Minor Subsidiary) under the Bankruptcy Law of
any other jurisdiction; or
(x) any such petition or application is filed, or any such
proceedings are commenced, against the Company or any Restricted
Subsidiary (other than a Minor Subsidiary) and the Company or such
Restricted Subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein, or an order, judgment or
decree is entered appointing any such trustee, receiver, custodian,
liquidator or similar official, or approving the petition in any such
proceedings, and such order, judgment or decree remains unstayed and in
effect for more than 60 days; or
(xi) any order, judgment or decree is entered in any
proceedings against the Company decreeing the dissolution of the
Company or any Restricted Subsidiary (other than a Minor Subsidiary)
and such order, judgment or decree remains unstayed and in effect for
more than 60 days; or
(xii) any order, judgment or decree is entered in any
proceedings against the Company or any Restricted Subsidiary (other
than a Minor Subsidiary) decreeing a split-up of the Company or such
Restricted Subsidiary which requires the divestiture of assets
representing a material part, or the divestiture of the stock of a
Restricted Subsidiary whose assets represent a material part, of the
consolidated assets of the Company and the Restricted Subsidiaries
(determined in accordance with GAAP) or which requires the divestiture
of assets, or stock of a Restricted Subsidiary, which shall have
contributed a material part of the consolidated net income of the
Company and the Restricted Subsidiaries (determined in accordance with
GAAP) for any of the three fiscal years then most recently ended, and
such order, judgment or decree remains unstayed and in effect for more
than 60 days; or
(xiii) (a) the Subsidiary Guaranty shall cease to be in full
force and effect or shall be declared by a court or governmental
authority of competent jurisdiction to be void, voidable or
unenforceable against any Subsidiary (other than a Minor Subsidiary),
(b) the validity or enforceability of the
Subsidiary Guaranty against any Subsidiary shall be
contested by such Subsidiary, the Company or any
Affiliate, or
(c) any Subsidiary, the Company or any Affiliate
shall deny that such Subsidiary has any further liability or
obligation under the Subsidiary Guaranty; or
(xiv) a final judgment in an amount in excess of $1,000,000 is
rendered against the Company or any Restricted Subsidiary and, within
60 days after entry thereof, such judgment is not discharged or
execution thereof stayed pending appeal, or within 60 days after the
expiration of any such stay, such judgment is not discharged;
(xv) the Company or any ERISA Affiliate, in its capacity as an
employer under a Multiemployer Plan, makes a complete or partial
withdrawal from such Multiemployer Plan resulting in the incurrence by
such withdrawing employer of a withdrawal liability in an amount
exceeding $1,000,000; or
(xvi) (a) 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 section 14(d) of the
Exchange Act) not controlled by Robert L. Borchardt, his estate, any
trust established by him or his heirs (other than any holder of shares
of any outstanding class of the capital stock of the Company that shall
have been designated as a "permitted holder" in a resolution duly
adopted by the board of directors of the Company and that shall have
been approved in writing by the Required Holders)
(1) shall have acquired beneficial ownership
of 20% or more of any outstanding class of Voting
Stock of the Company or
(2) shall obtain the power (whether or not
exercised) to elect a majority of the Company's
directors or
(b) the board of directors of the Company shall not
consist of a majority of continuing directors (for purposes of
this clause (b), "CONTINUING directors" shall mean the members
of the board of directors of the Company on the Closing Date
and each other director nominated for election to the board of
directors of the Company by a majority of the then continuing
directors);
then
(a) if such event is an Event of Default specified in clause
(viii), clause (ix) or clause (x) of this paragraph 7A with respect to
the Company, all of the Notes at the time outstanding shall
automatically become immediately due and payable, together with
interest accrued thereon, and together with the Yield-Maintenance
Amount, if any, with respect to each Note, without presentment, demand,
protest or notice of any kind, all of which are hereby waived by the
Company;
(b) if such Event of Default is any other Event of Default,
the Required Holders may at their option, by notice in writing to the
Company, declare all of the Notes to be, and all of the Notes shall
thereupon be and become, immediately due and payable together with
interest accrued thereon and together with the Yield-Maintenance
Amount, if any, with respect to each Note, without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by
the Company, and
(c) if such event is an Event of Default specified in clause
(i) or clause (ii) of this paragraph 7A, the holder of any Note (other
than the Company or any of its Subsidiaries or Affiliates) may at its
option, by notice in writing to the Company, declare such Note to be,
and such Note shall thereupon be and become, immediately due and
payable at par together with interest accrued thereon, without
presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Company.
7B. RESCISSION OF ACCELERATION. At any time after any or all of the Notes
shall have been declared immediately due and payable pursuant to paragraph
7A(b), the Required Holders may, by notice in writing to the Company, rescind
and annul such declaration and its consequences if (i) the Company shall have
paid all overdue interest on the Notes, the principal of and Yield-Maintenance
Amount, if any, payable with respect to any Notes which have become due
otherwise than by reason of such declaration, and interest on such overdue
interest and overdue principal and Yield-Maintenance Amount at the rate
specified in the Notes, (ii) the Company shall not have paid any amounts which
have become due solely by reason of such declaration, (iii) all Events of
Default and Defaults, other than non-payment of amounts which have become due
solely by reason of such declaration, shall have been cured or waived pursuant
to paragraph 11C hereof, and (iv) no judgment or decree shall have been entered
for the payment of any amounts due pursuant to the Notes or this Agreement. No
such rescission or annulment shall extend to or affect any subsequent Event of
Default or Default or impair any right arising therefrom.
7C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall be
declared immediately due and payable pursuant to paragraph 7A hereof or any such
declaration shall be rescinded and annulled pursuant to paragraph 7B hereof, the
Company shall forthwith give written notice thereof to the holder of each Note
at the time outstanding.
7D. OTHER REMEDIES. If any Event of Default or Default shall occur and be
continuing, the holder of any Note may proceed to protect and enforce its rights
under this Agreement and such Note by exercising such remedies as are available
to such holder in respect thereof under applicable law, either by suit in equity
or by action at law, or both, whether for specific performance of any covenant
or other agreement contained in this Agreement or in aid of the exercise of any
power granted in this Agreement. No remedy conferred in this Agreement upon the
holder of any Note is intended to be exclusive of any other remedy, and each and
every such remedy shall be cumulative and shall be in addition to every other
remedy conferred herein or now or hereafter existing at law or in equity or by
statute or otherwise.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents,
covenants and warrants as of the date hereof as follows:
8A. ORGANIZATION; SUBSIDIARIES AND AFFILIATES.
(I) ORGANIZATION. The Company is a corporation duly organized
and existing in good standing under the laws of the State of New York
and each Subsidiary is duly organized and existing in good standing
under the laws of the jurisdiction in which it is incorporated.
(II) OWNERSHIP OF SUBSIDIARIES. Part 8A(ii) of Annex 3 hereto
states the name of each of the Subsidiaries, its jurisdiction of
organization and the percentage of its Voting Stock beneficially owned
by the Company and each other Subsidiary.
(III) AFFILIATES. Part 8A(iii) of Annex 3 hereto sets forth
the name of each Affiliate and the nature of the affiliation of such
Affiliate.
(IV) TITLE TO SHARES. Each of the Company and the Subsidiaries
has good title to all of the shares it purports to own of the stock of
each Subsidiary, free and clear in each case of any Lien. All such
shares have been duly issued and are fully paid and nonassessable.
(V) SUBSIDIARY GUARANTORS. All Subsidiaries, other than
Inactive Subsidiaries, that have guaranteed the Company's obligations
under the Bank Credit Agreement are parties to the Subsidiary Guaranty.
Each of the Inactive Subsidiaries is in the process of being dissolved.
None of the Excluded Subsidiaries has guaranteed the obligations
outstanding under the Bank Credit Agreement.
8B. FINANCIAL STATEMENTS. The Company has furnished the Purchaser with the
following financial statements, identified by a principal financial officer of
the Company: (i) a consolidated balance sheet of the Company and the
Subsidiaries as at December 31 in each of the years 1995, 1996 and 1997, and
consolidated statements of operations, stockholders' equity and cash flows of
the Company and the Subsidiaries for each such year, all reported on by Cornick,
Garber & Sandler, LLP; and (ii) a consolidated balance sheet of the Company and
the Subsidiaries as at September 30, 1997 and September 30, 1996 and
consolidated statements of operations and cash flows for the nine-month period
ended on each such date, prepared by the Company. Such financial statements
(including any related schedules and/or notes) are true and correct in all
material respects (subject, as to interim statements, to changes resulting from
audits and year-end adjustments), have been prepared in accordance with GAAP
consistently followed throughout the periods involved and show all liabilities,
direct and contingent, of the Company and the Subsidiaries required to be shown
in accordance with GAAP. The balance sheets fairly present the financial
condition of the Company and the Subsidiaries as at the dates thereof, and the
statements of income, stockholders' equity and cash flows fairly present the
results of the operations of the Company and the Subsidiaries and their cash
flows for the periods indicated. There has been no material adverse change in
the business, condition (financial or otherwise) or operations of the Company
and the Subsidiaries taken as a whole since December 31, 1997.
8C. ACTIONS PENDING. Except as set forth in Part 8C of Annex 3 hereto,
there is no action, suit, investigation or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of the
Subsidiaries, or any Properties of the Company or any of the Subsidiaries, by or
before any court, arbitrator or administrative or governmental body which might
result in any material adverse change in the business, condition (financial or
otherwise) or operations of the Company and the Subsidiaries taken as a whole.
8D. OUTSTANDING DEBT. Consolidated Funded Debt outstanding on the 1997
Closing Date is set forth in Part 6C of Annex 3 hereto. Consolidated Current
Debt outstanding on the Closing Date, immediately after giving effect to the
application of the proceeds of the sale of the Notes, is in an amount not in
excess of $25,000,000. There exists no default under the provisions of any
instrument evidencing such Debt or of any agreement relating thereto.
8E. TITLE TO PROPERTIES. Each of the Company and the Subsidiaries has good
and indefeasible title to its respective real Property (other than Property
which it leases) and good title to all of its other respective Property (other
than Property which it leases), including the Property reflected in the balance
sheet as at December 31, 1997 referred to in paragraph 8B hereof (other than
Property disposed of in the ordinary course of business), subject to no Lien of
any kind except Liens permitted by paragraph 6I hereof. All leases necessary in
any material respect for the conduct of the respective businesses of the Company
and the Subsidiaries are valid and subsisting and are in full force and effect.
8F. TAXES. Each of the Company and the Subsidiaries has filed all federal,
state and other income tax returns which, to the knowledge of the officers of
the Company, are required to be filed, and each has paid all taxes as shown on
such returns and on all assessments received by it to the extent that such taxes
have become due, except such taxes as are being contested in good faith by
appropriate proceedings for which adequate reserves have been established in
accordance with GAAP.
8G. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the Company nor any
of the Subsidiaries is a party to any contract or agreement or subject to any
charter or other corporate restriction which materially and adversely affects
its business, Property or financial condition. Neither the execution nor
delivery of this Agreement or the Notes, nor the offering, issuance and sale of
the Notes, nor fulfillment of nor compliance with the terms and provisions
hereof and of the Notes will conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under, or result in any
violation of, or result in the creation of any Lien upon any of the Property of
the Company or any of the Subsidiaries pursuant to, the charter or by-laws of
the Company or any of the Subsidiaries, any award of any arbitrator or any
agreement (including any agreement with stockholders), instrument, order,
judgment, decree, statute, law, rule or regulation to which the Company or any
of the Subsidiaries is subject. Neither the Company nor any of the Subsidiaries
is a party to, or otherwise subject to any provision contained in, any
instrument evidencing Debt of the Company or such Subsidiary, any agreement
relating thereto or any other contract or agreement (including its charter)
which limits the amount of, or otherwise imposes restrictions on the incurring
of, Debt of the Company of the type to be evidenced by the Notes except as set
forth in the agreements listed in Part 8G of Annex 3 hereto.
8H. OFFERING OF NOTES. Neither the Company nor any agent acting on its
behalf has, directly or indirectly, offered the Notes or any similar Security of
the Company for sale to, or solicited any offers to buy the Notes or any similar
Security of the Company from, or otherwise approached or negotiated with respect
thereto with, any Person other than the Purchaser, and neither the Company nor
any agent acting on its behalf has taken or will take any action which would
subject the issuance or sale of the Notes to the provisions of section 5 of the
Securities Act or to the provisions of any securities or Blue Sky law of any
applicable jurisdiction.
8I. USE OF PROCEEDS. Neither the Company nor any Subsidiary owns or has any
present intention of acquiring any "margin stock" as defined in Regulation U (12
CFR Part 221) of the Board of Governors of the Federal Reserve System ("MARGIN
STOCK"). The proceeds of sale of the Notes will be used to repay the Debt set
forth in Part 8I of Annex 3 hereto and for general corporate purposes. None of
such proceeds will be used, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying any margin stock or
for the purpose of maintaining, reducing or retiring any Debt which was
originally incurred to purchase or carry any stock that is currently a margin
stock or for any other purpose which might constitute this transaction a
"purpose credit" within the meaning of such Regulation U. Neither the Company
nor any agent acting on its behalf has taken or will take any action which might
cause this Agreement or the Notes to violate Regulation U, Regulation T or any
other regulation of the Board of Governors of the Federal Reserve System or to
violate the Exchange Act, in each case as in effect now or as the same may
hereafter be in effect.
8J. ERISA. No accumulated funding deficiency (as defined in section 302 of
ERISA and section 412 of the Code), whether or not waived, exists with respect
to any Plan (other than a Multiemployer Plan). No liability to the PBGC has been
or is expected by the Company or any ERISA Affiliate to be incurred with respect
to any Plan (other than a Multiemployer Plan) by the Company, any Subsidiary or
any ERISA Affiliate which is or would be materially adverse to the business,
condition (financial or otherwise) or operations of the Company and the
Subsidiaries taken as a whole. Neither the Company, any Subsidiary nor any ERISA
Affiliate has incurred or presently expects to incur any withdrawal liability
under Title IV of ERISA with respect to any Multiemployer Plan which is or would
be materially adverse to the business, condition (financial or otherwise) or
operations of the Company and the Subsidiaries taken as a whole. The execution
and delivery of this Agreement and the issuance and sale of the Notes will be
exempt from, or will not involve any transaction which is subject to, the
prohibitions of section 406 of ERISA and will not involve any transaction in
connection with which a penalty could be imposed under section 502(i) of ERISA
or a tax could be imposed pursuant to section 4975 of the Code. The
representation by the Company in the next preceding sentence is made in reliance
upon and subject to the accuracy of the Purchaser's representation in paragraph
9B hereof.
8K. GOVERNMENTAL CONSENT. Neither the nature of the Company or of any
Subsidiary, nor any of their respective businesses or properties, nor any
relationship between the Company or any Subsidiary and any other Person, nor any
circumstance in connection with the offering, issuance, sale or delivery of the
Notes is such as to require any authorization, consent, approval, exemption or
other action by or notice to or filing with any court or administrative or
governmental body (other than routine filings after the Closing Date with the
Securities and Exchange Commission and/or state Blue Sky authorities) in
connection with the execution and delivery of this Agreement, the offering,
issuance, sale or delivery of the Notes or fulfillment of or compliance with the
terms and provisions hereof or of the Notes.
8L. ENVIRONMENTAL COMPLIANCE. The Company and the Subsidiaries and all of
their respective Properties and facilities have complied at all times and in all
respects with all federal, state, local and regional statutes, laws, ordinances
and judicial or administrative orders, judgments, rulings and regulations
relating to protection of the environment except, in any such case, where
failure to comply would not result in a material adverse effect on the business,
condition (financial or otherwise) or operations of the Company and the
Subsidiaries taken as a whole.
8M. DISCLOSURE. Neither this Agreement nor any other document, certificate
or statement furnished to the Purchaser by or on behalf of the Company in
connection herewith contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
and therein not misleading. There is no fact peculiar to the Company or any of
the Subsidiaries which materially adversely affects or in the future may (so far
as the Company can now foresee) materially adversely affect the business,
Property or financial condition of the Company or any of the Subsidiaries and
which has not been set forth in this Agreement or in the other documents,
certificates and statements furnished to the Purchaser by or on behalf of the
Company prior to the date hereof in connection with the transactions
contemplated hereby.
9. REPRESENTATIONS OF THE PURCHASER.
9A. NATURE OF PURCHASE. The Purchaser represents as of the Closing Date
that the Purchaser is an accredited investor (as defined in the Securities Act)
and is not acquiring the Notes to be purchased by it hereunder with a view to or
for sale in connection with any distribution thereof within the meaning of the
Securities Act, PROVIDED that the disposition of the Purchaser's Property shall
at all times be and remain within its control.
9B. SOURCE OF FUNDS. The Purchaser represents as of the Closing Date:
(i) if it is acquiring the Notes for its own account with
funds from or attributable to its general account, and in reliance upon
the Company's representations set forth in paragraph 8J, that the
amount of the reserves and liabilities for the general account
contracts (as defined by the annual statement for life insurance
companies as in effect on the date hereof and approved by the National
Association of Insurance Commissioners (the "NAIC Annual Statement"))
held by or on behalf of any Pension Plan together with the amount of
the reserves and liabilities for the general account contracts held by
or on behalf of any other Pension Plans maintained by the same employer
(or affiliate thereof, as such term is defined in section V of DOL
Prohibited Transaction Exemption 95-60 (60 FR 35925, July 12, 1995)) or
by the same employee organization (as defined in ERISA) in the general
account do not exceed 10% of the total reserves and liabilities of the
general account (exclusive of separate account liabilities) PLUS
surplus as set forth in the NAIC Annual Statement filed with the state
of domicile of the insurance company; for purposes of the percentage
limitation in this clause (i), the amount of reserves and liabilities
for the general account contracts held by or on behalf of a Pension
Plan shall be determined before reduction for credits on account of any
reinsurance ceded on a coinsurance basis; or
(ii) if any part of the funds being used by it to purchase the
Notes shall come from assets of an employee benefit plan (as defined in
section 3(3) of ERISA) or a plan (as defined in section 4975(e)(1) of
the Code):
(a) if such funds are attributable to a separate
account (as defined in section 3(17) of ERISA), then
(I) all requirements for an exemption under
DOL Prohibited Transaction Exemption 90-1 (issued
January 29, 1990) are met with respect to the use of
such funds to purchase the Notes, or
(II) the employee benefit plans with an
interest in such separate account have been
identified in a writing delivered by the Purchaser to
the Company;
(b) if such funds are attributable to a separate
account (as defined in section 3(17) of ERISA) that is
maintained solely in connection with fixed contracted
obligations of an insurance company, any amounts payable, or
credited, to any employee benefit plan having an interest in
such account and to any participant or beneficiary of such
plan (including an annuitant) are not affected in any manner
by the investment performance of the separate account;
(c) if such funds are attributable to an investment
fund managed by a qualified plan asset manager (as such terms
are defined in Part V of DOL Prohibited Transaction Exemption
84-14, issued March 13, 1984), all requirements for an
exemption under such Exemption are met with respect to the use
of such funds to purchase the Notes; or
(d) such employee benefit plan is excluded from the
provisions of section 406 of ERISA by virtue of section 4(b)
of ERISA; or
(iii) the source of funds being used by it to
purchase the Notes is:
(a) a governmental plan (as defined in section
3(32) of ERISA);
(b) a bank collective investment fund (within the
meaning of DOL Prohibited Transaction Exemption 91-38, issued
July 12, 1991), and it has identified in writing to the
Company each plan (as defined in section 3(3) of ERISA) or
group of related plans that comprises ten percent of the
assets of such fund; or
(c) one or more plans (as defined in section 3(3) of
ERISA), or a separate account (as defined in section 3(17) of
ERISA) or a trust fund comprised of one or more plans, each of
which has been identified in writing to the Company.
10. DEFINITIONS. For the purpose of this Agreement, the terms defined in
the introductory sentence and in paragraphs 1 and 2 shall have the respective
meanings specified therein, and the following terms shall have the meanings
specified with respect thereto below:
10A. YIELD-MAINTENANCE TERMS.
"CALLED PRINCIPAL" shall mean, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to paragraph 4B or paragraph 4E or is
declared to be immediately due and payable pursuant to paragraph 7A, as the
context requires.
"DISCOUNTED VALUE" shall mean, with respect to the Called Principal of any
Note, the amount obtained by discounting all Remaining Scheduled Payments with
respect to such Called Principal from their respective scheduled due dates to
the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on the Notes is payable) equal to the
Reinvestment Yield with respect to such Called Principal.
"REINVESTMENT YIELD" shall mean, with respect to the Called Principal of
any Note, 0.50% over the yield to maturity implied by (i) the yields reported,
as of 10:00 a.m. (New York City time) on the Business Day next preceding the
Settlement Date with respect to such Called Principal, on the display designated
as "Page 678" on the Bridge Telerate Service (or such other display as may
replace Page 678 on the Bridge Telerate Service) for actively traded U.S.
Treasury securities having a maturity equal to the Remaining Average Life of
such Called Principal as of such Settlement Date, or if such yields shall not be
reported as of such time or the yields reported as of such time shall not be
ascertainable, (ii) the Treasury Constant Maturity Series yields reported, for
the latest day for which such yields shall have been so reported as of the
Business Day next preceding the Settlement Date with respect to such Called
Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable
successor publication) for actively traded U.S. Treasury securities having a
constant maturity equal to the Remaining Average Life of such Called Principal
as of such Settlement Date. Such implied yield shall be determined, if
necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent
yields in accordance with accepted financial practice and (b) interpolating
linearly between yields reported for various maturities.
"REMAINING AVERAGE LIFE" shall mean, with respect to the Called Principal
of any Note, the number of years (calculated to the nearest one-twelfth year)
obtained by dividing (i) such Called Principal into (ii) the sum of the products
obtained by multiplying (a) each Remaining Scheduled Payment of such Called
Principal (but not of interest thereon) by (b) the number of years (calculated
to the nearest one-twelfth year) which will elapse between the Settlement Date
with respect to such Called Principal and the scheduled due date of such
Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due on or after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to its
scheduled due date.
"SETTLEMENT DATE" shall mean, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant to
paragraph 4B or paragraph 4E or is declared to be immediately due and payable
pursuant to paragraph 7A, as the context requires.
"YIELD-MAINTENANCE AMOUNT" shall mean, with respect to any Note, an amount
equal to the excess, if any, of the Discounted Value of the Called Principal of
such Note over the sum of (i) such Called Principal plus (ii) interest accrued
thereon as of (including interest due on) the Settlement Date with respect to
such Called Principal. The Yield-Maintenance Amount shall in no event be less
than zero.
10B. OTHER TERMS.
"ADJUSTED CONSOLIDATED CURRENT DEBT" shall have the meaning assigned to it
in paragraph 6C of this Agreement.
"AFFILIATE" shall mean any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with, the Company,
except a Restricted Subsidiary. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by contract or
otherwise.
"AGREEMENT, THIS" shall mean this Agreement as it may from time to time be
amended, supplemented, modified or restated.
"APPLICABLE DEFAULT INTEREST RATE" shall mean, at any time, the greater of
(i) the rate of interest which is 2.0% in excess of
the interest rate then applicable to the Notes or
(ii) 2.0% over the rate of interest publicly announced by
Morgan Guaranty Trust Company of New York from time to time in New York
City as its prime rate.
"ASSET TRANSFER PUT CONDITION" shall have the meaning assigned to it in
paragraph 4E(ii) of this Agreement.
"BANK" shall mean the banks that are parties to the Bank Credit Agreement
from time to time.
"BANK CREDIT AGREEMENT" shall mean the Second Amended and Restated Credit
Agreement, dated as of June 18, 1998, among the Company, The Chase Manhattan
Bank, as administrative agent and as a lender, SunTrust Bank, Central Florida,
National Association, Marine Midland Bank, Harris Trust and Savings Bank and
First Union National Bank, as amended or restated from time to time.
"BANK DEBT PREPAYMENT DATE" shall mean any date on which there is a
prepayment of Debt outstanding under the Bank Credit Agreement, as contemplated
by the definition of Rate Decrease Event.
"BANKRUPTCY LAW" shall have the meaning assigned to it in clause (viii) of
paragraph 7A of this Agreement.
"BASKET INVESTMENT" shall mean any Investment (including, without
limitation, any Investment in Unrelated Assets) other than a Permitted
Investment.
"BUSINESS DAY" shall mean a day other than a Saturday, a Sunday or a day on
which the national banks located in New York City, New York, are required by law
(other than a general banking moratorium or holiday for a period exceeding four
consecutive days) to be closed.
"CAPITAL ASSETS" shall mean all tangible assets of a Person that at the
time of acquisition or construction have an expected economic useful life of
more that one year, and would be shown on a balance sheet of the acquiring or
constructing Person as an asset.
"CAPITALIZED LEASE OBLIGATION" shall mean any rental obligation which,
under GAAP, is or will be required to be capitalized on the books of the Company
or any of its Subsidiaries, taken at the amount thereof accounted for as
indebtedness (net of interest expense) in accordance with GAAP.
"CLOSING DATE" shall have the meaning assigned to it in paragraph 2 of this
Agreement.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMPANY" shall have the meaning assigned to it in the introductory
sentence of this Agreement.
"CONFIDENTIAL INFORMATION" shall have the meaning assigned to it in
paragraph 11J of this Agreement.
"CONSOLIDATED ADJUSTED CASH FLOW" shall mean, for any period, the sum of
(i) Consolidated Operating Income, PLUS
(ii) to the extent, and only to the extent, that such amount
was deducted in the computation of such Consolidated Net Income, the
aggregate amount of depreciation and amortization of the Company and
the Restricted Subsidiaries, determined on a consolidated basis for
such Persons.
"CONSOLIDATED CURRENT DEBT" shall mean, at any time, all Current Debt of
the Company and the Restricted Subsidiaries, determined at such time on a
consolidated basis for such Persons.
"CONSOLIDATED FUNDED DEBT" shall mean, at any time, the aggregate amount of
Funded Debt of the Company and the Restricted Subsidiaries, determined at such
time on a consolidated basis for such Persons.
"CONSOLIDATED INTEREST EXPENSE" shall mean, for any period, the
consolidated interest expense of the Company and the Restricted Subsidiaries for
such period (including the interest component of Capitalized Lease Obligations)
payable in cash.
"CONSOLIDATED NET INCOME" shall mean, for any period, net earnings (or
loss), after income taxes, of the Company and the Restricted Subsidiaries for
such period, determined on a consolidated basis for such Persons in accordance
with GAAP, but excluding on an after-tax basis:
(i) any gain or loss during such period resulting from the
receipt of any proceeds of any insurance policy, except business
interruption insurance;
(ii) any gains or Permitted Losses arising from any sale,
abandonment or other disposition of Capital Assets other than in the
ordinary course of business;
(iii) any gain arising from any re-evaluation or write-up of
assets;
(iv) any gain resulting from the redemption of Debt at a price
below the outstanding principal amount of, and accrued interest on,
such Debt;
(v) extraordinary gains or Permitted Losses, gains or
Permitted Losses resulting from transactions of a non-recurring, or
non-operating, and material nature, and gains or Permitted Losses
arising from the discontinuance of operations;
(vi) net earnings or losses of any Restricted Subsidiary
accrued prior to the date it became a Restricted Subsidiary;
(vii) net earnings of any Person (other than a Restricted
Subsidiary) in which the Company or any of the Restricted Subsidiaries
shall have an ownership interest unless such net earnings shall have
actually been received by the Company or such Restricted Subsidiary in
the form of a cash distribution;
(viii) any portion of the net earnings of any Restricted
Subsidiary that by reason of contract, charter restriction or
applicable law is unavailable for payment to the Company;
(ix) any earnings or losses of any successor to the Company,
whether through purchase, merger, consolidation, acquisition of assets
or otherwise, for any period prior to
the date of acquisition;
(x) any deferred credit (or the amortization of any deferred
credit) arising in connection with the acquisition of any Person
acquired by the Company or a Restricted Subsidiary through purchase,
merger, consolidation, acquisition of assets or otherwise; and
(xi) any restoration during such period to income of any
contingency reserve, except to the extent that provision for such
reserve was made during such period out of income accrued during such
period.
As used in this definition,
"PERMITTED LOSSES" means, for any period for which
Consolidated Net Income is being measured, (a) if aggregate gains for
either item (ii) or item (v) exceed aggregate losses for such item
during such period, actual aggregate losses for such period or (b) if
aggregate losses for either item (ii) or item (v) exceed aggregate
gains for such item during such period, the LESSER of (1) that amount
by which such aggregate losses exceed such aggregate gains during such
period and (2) $2,500,000.
"CONSOLIDATED OPERATING INCOME" shall mean, for any period, the sum of
(i) Consolidated Net Income for such period, plus
(ii) to the extent, and only to the extent, that such amount
was deducted in the computation of Consolidated Net Income for such
period, the aggregate amount of income tax expense and interest expense
of the Company and the Restricted Subsidiaries during such period,
determined on a consolidated basis for such Persons.
"CONSOLIDATED TANGIBLE GROSS WORTH" shall mean, at any time, the sum of
(i) Consolidated Tangible Net Worth at such time plus
(ii) Consolidated Funded Debt at such time.
"CONSOLIDATED TANGIBLE NET WORTH" shall mean, at any time, the result of
(i) the shareholders' equity of the Company and the
Restricted Subsidiaries, minus
(ii) all Intangible Assets of the Company and the
Restricted Subsidiaries, minus
(iii) (a) all Basket Investments, (b) Investments by the
Company or any Restricted Subsidiary set forth in clause (vii) of the
definition of Permitted Investments, and (c) Insider Loans in excess of
the sum of (1) $2,500,000 PLUS (2) up to an additional $2,500,000 so
long as such additional amount consists of Insider Loans referred to in
subclause (A) of clause (viii) of the definition of "Permitted
Investments", and then only to the extent that such Insider Loans are
each in an original principal amount of $500,000 or less and are used
solely for relocation costs of officers, directors and employees of the
Company or any Restricted Subsidiary (including, without limitation,
financing the purchase of homes),
in each case as would be reflected on a consolidated balance sheet of such
Persons at such time.
"CONSOLIDATED TOTAL ASSETS" means, at any time, the net book value of all
of the assets of the Company and its Restricted Subsidiaries, as such net book
value would be reflected on the Company's balance sheet as of its most recent
fiscal year end prepared at such time on a consolidated basis in accordance with
GAAP.
"CURRENT DEBT" shall mean, with respect to any Person, all Debt of such
Person for borrowed money which by its terms or by the terms of any instrument
or agreement relating thereto matures on demand or within one year from the date
of the creation thereof and is not directly or indirectly renewable or
extendible at the option of the debtor to a date more than one year from the
date of the creation thereof, PROVIDED that
(i) Debt for borrowed money outstanding under a revolving
credit or similar agreement, notwithstanding that it obligates the
lender or lenders to extend credit over a period of more than one year,
shall constitute Current Debt and
(ii) Debt for borrowed money which constitutes the current
maturities of Debt with a stated maturity of more than one year from
the date of creation thereof shall constitute Funded Debt and not
Current Debt, even though such current maturities of Debt by their
terms mature within one year.
"DEBT" shall mean, with respect to any Person, without duplication,
(i) all obligations of such Person for borrowed money
(including, without limitation, all obligations of such Person
evidenced by any debenture, bond, note, commercial paper or Security,
but also including all such obligations for borrowed money not so
evidenced);
(ii) all obligations for borrowed money secured by any Lien
existing on Property owned by such Person (whether or not such
obligations have been assumed by such Person or recourse in respect
thereof is available against such Person);
(iii) all Capitalized Lease Obligations of such Person;
(iv) all obligations of such Person to pay the deferred
purchase price of Property or services, all conditional sale
obligations of such Person and all obligations of such Person under any
title retention agreements, PROVIDED that trade account payables
incurred in the ordinary course of business of such Person shall be
excluded from this clause (iv);
(v) all obligations of such Person in respect of banker's
acceptances, other acceptances, stand-by letters of credit and other
instruments serving a similar function issued or accepted by banks and
other financial institutions for the account of such Person (whether or
not incurred in connection with the borrowing of money); and
(vi) any Guarantee of such Person of any obligation or
liability of another Person of a type described in any of clause (i)
through clause (v), inclusive, of this definition.
"DOL" shall mean the Department of Labor of the government of the United
States of America or any other department or agency of such government that
shall succeed to the functions of the Department of Labor.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" shall mean any corporation which is a member of the same
controlled group of corporations as the Company within the meaning of section
414(b) of the Code, or any trade or business which is under common control with
the Company within the meaning of section 414(c) of the Code.
"EVENT OF DEFAULT" shall mean any of the events specified in paragraph 7A
of this Agreement, PROVIDED that there has been satisfied any requirement in
connection with such event for the giving of notice, or the lapse of time, or
the happening of any further condition, event or act, and "DEFAULT" shall mean
any of such events, whether or not any such requirement has been satisfied.
"EXCESS AMOUNT" shall have the meaning assigned to it in paragraph 4E(ii)
of this Agreement.
"EXCESS CURRENT DEBT" shall have the meaning assigned to it in paragraph 6C
of this Agreement.
"EXCESS CURRENT DEBT MEASURING PERIOD" shall have the meaning assigned to
it in paragraph 6C of this Agreement.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"EXCLUDED SUBSIDIARIES" shall mean the PRC Subsidiaries, the Inactive
Subsidiaries, RAC-FSC, a U.S. Virgin Islands corporation, Entel Limited, an
English corporation, Avelco Trading Limited, a Hong Kong corporation, Recoton
(UK) Limited, an English corporation, and Tambalan Limited, an English
corporation.
"FAIR MARKET VALUE" shall mean, with respect to any Property, the sale
value of such Property that would be realized in an arm's-length sale at such
time between an informed and willing buyer and an informed and willing seller
under no compulsion to buy or sell, respectively.
"FIRST PUT DATE" shall have the meaning assigned to it in paragraph 4E of
this Agreement.
"FIRST PUT CUT-OFF DATE" shall have the meaning assigned to it in paragraph
4E of this Agreement.
"FIRST TIER SUBSIDIARY" shall have the meaning assigned to it in paragraph
5A of this Agreement.
"FUNDED DEBT" shall mean, with respect to any Person, at any time, all Debt
of such Person other than Current Debt.
"GAAP" means accounting principles as promulgated from time to time in
statements, opinions and pronouncements by the American Institute of Certified
Public Accountants and the Financial Accounting Standards Board and in such
statements, opinions and pronouncements of such other entities with respect to
financial accounting of for-profit entities as shall be accepted by a
substantial segment of the accounting profession in the United States.
"GUARANTEE" shall mean, with respect to any Person (for the purposes of
this definition, the "guarantor"), any obligation (except the endorsement in the
ordinary course of business of negotiable instruments for deposit or collection)
of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend
or other obligation of any other Person (the "Primary Obligor") in any manner,
whether directly or indirectly, including, without limitation, obligations
incurred through an agreement, contingent or otherwise, by the guarantor:
(i) to purchase such indebtedness or obligation or
any Property constituting security therefor;
(ii) to advance or supply funds
(a) for the purchase or payment of such
indebtedness, dividend or obligation, or
(b) to maintain working capital or other balance
sheet condition or any income statement condition of the
Primary Obligor or otherwise to advance or make available
funds for the purchase or payment of such indebtedness,
dividend or obligation;
(iii) to lease Property or to purchase securities or other
Property or services primarily for the purpose of assuring the owner of
such indebtedness or obligation of the ability of the Primary Obligor
to make payment of the indebtedness or obligation; or
(iv) otherwise to assure the owner of the indebtedness or
obligation of the Primary Obligor against loss in respect thereof.
For purposes of computing the amount of any Guarantee, in connection with any
computation of indebtedness or other liability,
(i) in each case where the obligation that is the subject of
such Guarantee is in the nature of indebtedness for money borrowed it
shall be assumed that the amount of the Guarantee is the amount of the
direct obligation then outstanding, and
(ii) in each case where the obligation that is the subject of
such Guarantee is not in the nature of indebtedness for money borrowed
it shall be assumed that the amount of the Guarantee is the maximum
aggregate amount (if any) of such obligation.
"INACTIVE SUBSIDIARIES" shall mean STD Plastic Industrial Limited, a Hong
Kong corporation, STD Trading Limited, a Hong Kong corporation, and Peak Hero
Limited, a Hong Kong corporation.
"INSIDER LOANS" shall mean the Investments described in clause (viii) of
the definition of "Permitted Investments."
"INTANGIBLE ASSETS" shall mean any assets of a Person that would be
classified as "intangible assets" under GAAP, including, without limitation,
goodwill, trademarks, trade names, patents, copyrights, franchises and other
intangible assets of such Person.
"INTEREST PAYMENT DATE" shall have the meaning assigned to it in paragraph
4G of this Agreement.
"INVESTMENT" shall mean any investment made in cash or by delivery of
Property by the Company or a Restricted Subsidiary (i) in any Person, whether by
acquisition of stock, indebtedness or other obligation or Security, or by loan,
Guarantee, advance, capital contribution or otherwise, or (ii) in any Property.
Investments shall be valued at the greater of:
(x) the amount at which such Investment is shown on
the books of the Company or any Restricted Subsidiary; and
(y) either
(1) in the case of any Guarantee of the obligation of
any Person, the amount which the Company or any Restricted
Subsidiary has paid on account of such obligation less any
recoupment by the Company or such Restricted Subsidiary of any
such payments, or
(2) in the case of any other Restricted Investment,
the excess of (A) the greater of (I) the amount originally
entered on the books of the Company or any Restricted
Subsidiary with respect thereto and (II) the cost thereof to
the Company or such Restricted Subsidiary over (B) any return
of capital (after income taxes applicable thereto) upon such
Restricted Investment through the sale or other liquidation
thereof or any part thereof or otherwise.
"LIEN" shall mean any mortgage, pledge, security interest, encumbrance,
lien (statutory or otherwise) or charge of any kind (including any agreement to
give any of the foregoing, any conditional sale or other title retention
agreement, any lease in the nature thereof, and the filing of or agreement to
give any financing statement under the Uniform Commercial Code of any
jurisdiction) or any other type of preferential arrangement for the purpose, or
having the effect, of protecting a creditor against loss or securing the payment
or performance of an obligation.
"MARGIN STOCK" shall have the meaning assigned to it in paragraph 8I of
this Agreement.
"MERGER PUT CONDITION" shall have the meaning assigned to it in paragraph
4E(i) of this Agreement.
"MINOR SUBSIDIARY" shall mean, at any time, any Subsidiary that is
organized under a jurisdiction other than the United States of America or any
State thereof and that satisfies the following conditions:
(i) the portion of Consolidated Total Assets, determined as of
the end of the then most recently ended fiscal quarter of the Company,
attributable to such Subsidiary in accordance with GAAP is less than
five percent, determined at such time, of Consolidated Total Assets;
and
(ii) the portion of Consolidated Operating Income, determined
for the then most recently ended period of four consecutive fiscal
quarters of the Company, attributable to such Subsidiary in accordance
with GAAP is less than five percent, determined for such period, of
Consolidated Operating Income.
"MOODY'S" shall mean Moody's Investor Services, Inc.
"MULTIEMPLOYER PLAN" shall mean any Plan which is a "multiemployer plan"
(as such term is defined in section 4001(a)(3) of ERISA).
"1997 CLOSING DATE" means the "Closing Date," as defined in the 1997 Note
Agreement.
"1997 NOTE AGREEMENT" means, collectively, the separate Note Purchase
Agreements, each dated as of January 6, 1997, between the Company and each of
the purchasers identified in Annex 1 thereto, as may be amended, modified,
supplemented or restated from time to time.
"1997 NOTEHOLDERS" means, at any time, the holders of the Company's
Adjustable Rate Senior Notes Due January 6, 2007, at such time.
"NOTES" shall have the meaning assigned to it in paragraph 1 of this
Agreement.
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of the
Company by its President, one of its Vice Presidents or its Treasurer.
"PBGC" means the Pension Benefit Guaranty Corporation and any successor
corporation or governmental agency.
"PENSION PLAN" means any "employee pension benefit plan" (as such term is
defined in ERISA) maintained by the Company or any ERISA Affiliate for employees
of the Company or such ERISA Affiliate, excluding any Multiemployer Plan, but
including, without limitation, any Multiple Employer Pension Plan.
As used in this definition,
"MULTIPLE EMPLOYER PENSION PLAN" means any employee benefit
plan within the meaning of Section 3(3) of ERISA (other than a
Multiemployer Plan), subject to Title IV of ERISA, to which the Company
or any ERISA Affiliate and an employer (as such term is defined in
Section 3 of ERISA), other than an ERISA Affiliate or the Company,
contribute.
"PERMITTED INVESTMENTS" means and includes the following:
(i) Investments existing on the 1997 Closing Date (other than
Insider Loans) and described in Part 10B-1 of Annex 3 hereto, and
Investments in Property used by the Company or any Restricted
Subsidiary in its operations in the ordinary course of its business;
(ii) Investments in the ordinary course of business of the
Company in one or more Restricted Subsidiaries or any corporation that
concurrently with such Investment becomes a Restricted Subsidiary
(except to the extent that any such Investment is in Unrelated Assets);
(iii) Investments in direct obligations of the United States
of America or any agency thereof, maturing within one year of the date
of acquisition thereof;
(iv) Investments in commercial paper maturing within 270 days
from the date of acquisition and rated A-1 or P-1 (or the equivalent)
or better at the date of acquisition by Standard & Poor's or Moody's;
(v) Investments in debt obligations of corporations organized
under the laws of the United States of America or any state thereof or
obligations of any state of the United States of America or any
municipality thereof, in each case maturing within one year from the
date of acquisition and rated AA or Aa (or the equivalent) or better at
the date of acquisition by Standard & Poor's or Moody's;
(vi) Investments in certificates of deposit issued by an
Acceptable Bank and, in each case, maturing within one year of the date
of acquisition thereof, PROVIDED that such Investments issued by banks
deemed to be "Acceptable Banks" pursuant to the proviso of the
definition of "Acceptable Bank" shall not exceed $2,500,000 in any one
such deemed Acceptable Bank, or $5,000,000 in the aggregate for all
such deemed Acceptable Banks, at any one time;
(vii) Investments in any other Person in an amount not
exceeding the net proceeds of a concurrent sale of capital stock of the
Company (other than an Investment of the type referred to in clause
(ii) of this definition); and
(viii) Investments (A) in loans and advances in the ordinary
course of business, and necessary to carrying on the business of the
Company or any Restricted Subsidiary, to officers, directors and
employees of the Company or any Restricted Subsidiary, (B) in loans and
advances to corporations that are acquisition targets of the Company or
any Restricted Subsidiary, and (C) consisting of short term advances or
prepayments to suppliers, PROVIDED that the aggregate amount of all
Investments referred to in subclauses (A), (B) and (C) of this clause
(viii) does not at any time exceed $7,000,000.
As used in this definition,
"ACCEPTABLE BANK" means (i)(a) a commercial bank or trust
company organized in the United States of America and having combined
capital, surplus and undivided profits aggregating at least
$500,000,000 or (b) any other commercial bank having capital, surplus
and undivided profits of at least $1,000,000,000 and (ii) the long-term
unsecured debt obligations of which (or the long-term unsecured debt
obligations of the bank holding company owning all of the capital stock
of such bank) are rated "A" or higher by Standard & Poor's or "A2" or
higher by Moody's, PROVIDED that a commercial bank not organized in the
United States of America that satisfies the requirement set forth in
the foregoing clause (i)(b) but whose long-term unsecured debt
obligations (or the long-term unsecured debt obligations of the bank
holding company owning all of the capital stock of such bank) are not
rated by Standard & Poor's or Moody's shall be deemed to be an
"Acceptable Bank" if the Required Holders shall have consented in
writing to Investments in certificates of deposit issued by such bank.
"PERSON" shall mean and include an individual, a partnership, a limited
liability company, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
"PLAN" shall mean any "employee pension benefit plan" (as such term is
defined in section 3 of ERISA) which is or has been established or maintained,
or to which contributions are or have been made, by the Company or any ERISA
Affiliate.
"PRC SUBSIDIARIES" shall mean Subsidiaries organized under the laws of the
People's Republic of China, other than Subsidiaries organized under the laws of
Hong Kong.
"PREFERRED STOCK" shall mean any class of capital stock of a Person that is
preferred over any other class of capital stock of such Person as to the payment
of dividends or the payment of any amount upon liquidation of such Person.
"PROPERTY" shall mean any interest in any kind of property or assets,
whether real, personal or mixed, and whether tangible or intangible.
"PURCHASER" shall have the meaning assigned to it in the introductory
sentence of this Agreement.
"PUT AMOUNT" shall have the meaning assigned to it in paragraph 4E of this
Agreement.
"PUT NOTICE" shall have the meaning assigned to it in paragraph 4E of this
Agreement.
"RATE DECREASE EVENT" shall have the meaning assigned to it in paragraph 4G
of this Agreement.
"REINVESTMENT NOTICE" shall have the meaning assigned to it in paragraph 6H
of this Agreement.
"REQUIRED HOLDERS" shall mean the holder or holders of at least 66b% of the
aggregate principal amount of the Notes from time to time outstanding (exclusive
of Notes then owned by any one or more of the Company, any Subsidiary or any
Affiliate).
"RESPONSIBLE OFFICER" shall mean the chief executive officer, chief
operating officer, chief financial officer or chief accounting officer of the
Company or any other officer of the Company involved principally in its
financial administration or its controllership function.
"RESTRICTED PAYMENT" means and includes
(i) any dividend or other distribution, direct or indirect and
whether payable in cash or Property, on account of any capital stock or
other equity interests of the Company or any of the Restricted
Subsidiaries, except to the extent such dividend or distribution
(a) is payable solely to the Company or any
Restricted Subsidiary;
(b) is payable solely in capital stock or other
equity interests of the Company or such Restricted
Subsidiary; or
(c) is payable in respect of Preferred Stock issued
by the Company after the 1997 Closing Date, PROVIDED that the
full purchase price of such Preferred Stock was paid in cash
to the Company prior to the payment of such dividend or
distribution;
(ii) any redemption, retirement, purchase or other
acquisition, direct or indirect, of any capital stock or other equity
interests of the Company or any of the Restricted Subsidiaries now or
hereafter outstanding, or of any warrants, rights or options to acquire
any such capital stock or other equity interests or any Securities
convertible into such capital stock or other equity interests, except
to the extent that any amount due in respect of such redemption,
retirement, purchase or other acquisition
(a) is payable to the Company or any of its
Restricted Subsidiaries; or
(b) is payable solely in capital stock or other
equity interests of the Company or such Restricted
Subsidiary; or
(c) is payable with the proceeds of the sale of
capital stock of the Company consummated after the 1997
Closing Date.
"RESTRICTED SUBSIDIARY" shall mean each Wholly-Owned Subsidiary of the
Company which is a Wholly-Owned Subsidiary on the Closing Date and each
Wholly-Owned Subsidiary that becomes a Wholly-Owned Subsidiary after the Closing
Date and that has not been designated as an Unrestricted Subsidiary by the
Company pursuant to paragraph 6L of this Agreement.
"RESTRICTED SUBSIDIARY STOCK" shall have the meaning assigned to it in
paragraph 6H(ii) of this Agreement.
"SECOND PUT CUT-OFF DATE" shall have the meaning assigned to it in
paragraph 4E of this Agreement.
"SECOND PUT DATE" shall have the meaning assigned to it in paragraph 4E of
this Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SECURITY" shall mean "security" as defined in section 2(1) of the
Securities Act.
"SHARING AGREEMENT" shall mean the Sharing Agreement in the form of Exhibit
D hereto.
"SIGNIFICANT HOLDER" shall mean (i) the Purchaser, so long as the Purchaser
shall hold (or be committed under this Agreement to purchase) any Note, or (ii)
any other holder of at least five percent of the aggregate principal amount of
the Notes from time to time outstanding.
"STANDARD & POOR'S" shall mean Standard & Poor's Rating Group, a division
of McGraw- Hill, Inc.
"SUBSIDIARY" shall mean any corporation more than 50% of the total combined
voting power of all classes of Voting Stock of which shall, at the time as of
which any determination is being made, be owned by the Company either directly
or through Subsidiaries.
"SUBSIDIARY GUARANTY" shall mean the Subsidiary Guaranty in the form of
Exhibit C hereto.
"SUCCESSOR CORPORATION" shall have the meaning assigned to it in paragraph
6G(ii)(a) of this Agreement.
"TRANSFEREE" shall mean any direct or indirect transferee of all or any
part of any Note purchased by the Purchaser under this Agreement.
"TRANSFERS" shall have the meaning assigned to it in paragraph 6H(i) of
this Agreement.
"UNRELATED ASSETS" shall have the meaning assigned to it in paragraph 6A of
this Agreement.
"UNRESTRICTED SUBSIDIARY" shall mean, at any time, any Subsidiary other
than a Restricted Subsidiary.
"VOTING STOCK" shall mean, with respect to any corporation, any shares of
stock of such corporation whose holders are entitled under ordinary
circumstances to vote for the election of directors of such corporation
(irrespective of whether at the time stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).
"WAIVER NOTICE" shall have the meaning assigned to it in paragraph 4E(i) of
this Agreement.
"WHOLLY-OWNED SUBSIDIARY" shall mean any corporation 100% of the total
combined voting power of all classes of Voting Stock of which shall, at the time
as of which any determination is being made, be beneficially owned by the
Company either directly or through Wholly-Owned Subsidiaries.
10C. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Where the character or
amount of any asset or liability or item of income or expense, or any
consolidation or other accounting computation is required to be made for any
purpose hereunder, it shall be done in accordance with GAAP as in effect on the
date of, or at the end of the period covered by, the financial statements from
which such asset, liability, item of income, or item of expense, is derived, or,
in the case of any such computation, as in effect on the date as of which such
computation is required to be determined; PROVIDED, however, that if any term
defined herein includes or excludes amounts, items, or concepts that would not
be included in or excluded from such term if such term were defined with
reference solely to GAAP, such term will be deemed to include or exclude such
amounts, items or concepts as set forth herein.
11. MISCELLANEOUS.
11A. NOTE PAYMENTS. The Company agrees that, so long as the Purchaser shall
hold any Note, it will make payments of principal of, interest on and any
Yield-Maintenance Amount payable with respect to such Note by wire transfer of
immediately available funds for credit (not later than 12:00 noon, New York City
time, on the date due) to the Purchaser's account or accounts as specified in
the Purchaser Schedule attached hereto, or such other account or accounts in the
United States as the Purchaser may designate in writing, notwithstanding any
contrary provision herein or in any Note with respect to the place of payment.
The Purchaser agrees that, before disposing of any Note, the Purchaser will make
a notation thereon (or on a schedule attached thereto) of all principal payments
previously made thereon and of the date to which interest thereon has been paid.
The Company agrees to afford the benefits of this paragraph 11A to any
Transferee which shall have made the same agreement as the Purchaser has made in
this paragraph 11A.
11B. EXPENSES. The Company agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay, and save the Purchaser and any
Transferee harmless against liability for the payment of, all out-of-pocket
expenses arising in connection with such transactions, including (i) all
document production and duplication charges and the reasonable fees and expenses
of any special counsel engaged by the Purchaser or such Transferee in connection
with this Agreement, the transactions contemplated hereby and any subsequent
proposed modification, amendment or waiver of, or proposed consent under, this
Agreement or the Notes, whether or not such proposed modification, amendment or
waiver shall be effected or proposed consent granted, and (ii) the costs and
expenses, including reasonable attorneys' fees, incurred by the Purchaser or
such Transferee in enforcing or defending (or determining whether or how to
enforce or defend) any rights under this Agreement or the Notes or in responding
to any subpoena or other legal process or informal investigative demand issued
in connection with this Agreement or the transactions contemplated hereby or by
reason of the Purchaser's or such Transferee's having acquired any Note,
including without limitation costs and expenses (including the costs and
expenses of financial advisors) incurred in any bankruptcy case or in connection
with any work-out or restructuring of the transactions contemplated by this
Agreement and the Notes. The Company will pay, and will save each holder of a
Note harmless from all claims in respect of any fees, costs or expenses, if any,
of brokers and finders (other than those retained by any such holder). The
obligations of the Company under this paragraph 11B shall survive the transfer
of any Note or portion thereof or interest therein by the Purchaser or any
Transferee and the payment of any Note.
11C. CONSENT TO AMENDMENTS. This Agreement may be amended, and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if the Company shall obtain the written consent
to such amendment, action or omission to act, of the Required Holders except
that, without the written consent of the holder or holders of all Notes at the
time outstanding, no amendment to this Agreement shall change the maturity of
any Note, or change the principal of, or the rate or time of payment of interest
on or any Yield- Maintenance Amount payable with respect to any Note, or affect
the time, amount or allocation of any prepayments, or change the proportion of
the principal amount of the Notes required with respect to any consent,
amendment, waiver or declaration. Each holder of any Note at the time or
thereafter outstanding shall be bound by any consent authorized by this
paragraph 11C, whether or not such Note shall have been marked to indicate such
consent, but any Notes issued thereafter may bear a notation referring to any
such consent. No course of dealing between the Company and the holder of any
Note nor any delay in exercising any rights hereunder or under any Note shall
operate as a waiver of any rights of any holder of such Note.
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES. The
Notes are issuable as registered notes without coupons in denominations of at
least $100,000, except as may be necessary to reflect any principal amount not
evenly divisible by $100,000. The Company shall keep at its principal office a
register in which the Company shall provide for the registration of Notes and of
transfers of Notes. Upon surrender for registration of transfer of any Note at
the principal office of the Company, the Company shall, at its expense, execute
and deliver one or more new Notes of like tenor and of a like aggregate
principal amount, registered in the name of such Transferee or Transferees. At
the option of the holder of any Note, such Note may be exchanged for other Notes
of like tenor and of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Note to be exchanged at the principal office of
the Company. Whenever any Notes are so surrendered for exchange, the Company
shall, at its expense, execute and deliver the Notes which the holder making the
exchange is entitled to receive. Every Note surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer duly executed, by the holder of such Note or such
holder's attorney duly authorized in writing. Any Note or Notes issued in
exchange for any Note or upon transfer thereof shall carry the rights to unpaid
interest and interest to accrue which were carried by the Note so exchanged or
transferred, so that neither gain nor loss of interest shall result from any
such transfer or exchange. Upon receipt of written notice from the holder of any
Note of the loss, theft, destruction or mutilation of such Note and, in the case
of any such loss, theft or destruction, upon receipt of such holder's unsecured
indemnity agreement, or in the case of any such mutilation upon surrender and
cancellation of such Note, the Company will make and deliver a new Note, of like
tenor, in lieu of the lost, stolen, destroyed or mutilated Note.
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment for
registration of transfer, the Company may treat the Person in whose name any
Note is registered as the owner and holder of such Note for the purpose of
receiving payment of principal of, interest on and any Yield-Maintenance Amount
payable with respect to such Note and for all other purposes whatsoever, whether
or not such Note shall be overdue, and the Company shall not be affected by
notice to the contrary. Subject to the preceding sentence, the holder of any
Note may from time to time grant participations in such Note to any Person on
such terms and conditions as may be determined by such holder in its sole and
absolute discretion, PROVIDED that any such participation shall be in a
principal amount of at least $100,000.
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All
representations and warranties contained herein or made in writing by or on
behalf of the Company in connection herewith shall survive the execution and
delivery of this Agreement and the Notes, the transfer by the Purchaser of any
Note or portion thereof or interest therein and the payment of any Note, and may
be relied upon by any Transferee, regardless of any investigation made at any
time by or on behalf of the Purchaser or any Transferee. Subject to the
preceding sentence, this Agreement and the Notes embody the entire agreement and
understanding between the Purchaser and the Company and supersede all prior
agreements and understandings relating to the subject matter hereof.
11G. SUCCESSORS AND ASSIGNS. All covenants and other agreements in this
Agreement contained by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto (including, without limitation, any Transferee) whether so expressed or
not.
11H. NOTICES. All written communications provided for hereunder shall be
sent by first class mail, by nationwide overnight delivery service (with charges
prepaid) or by facsimile transmission (confirmed by delivery by nationwide
overnight delivery service sent on the day of the sending of such facsimile
transmission) and (i) if to the Purchaser, addressed to the Purchaser at the
address specified for such communications in the Purchaser Schedule attached as
Annex 1 hereto, or at such other address as the Purchaser shall have specified
to the Company in writing, (ii) if to any other holder of any Note, addressed to
such other holder at such address as such other holder shall have specified to
the Company in writing or, if any such other holder shall not have so specified
an address to the Company, then addressed to such other holder in care of the
last holder of such Note which shall have so specified an address to the
Company, and (iii) if to the Company, addressed to it at 2950 Lake Emma Road,
Lake Mary, Florida 32746, Attention: Stuart Mont (facsimile no. 407-444-0559),
with a copy (which shall not constitute notice) to Stroock & Stroock & Lavan
LLP, 180 Maiden Lane, New York, New York 10038, Attention: Theodore S. Lynn,
Esq. (facsimile no. 212-806-6006), or at such other address as the Company shall
have specified to the holder of each Note in writing; PROVIDED, HOWEVER, that
any such communication to the Company may also, at the option of the holder of
any Note, be delivered by any other means either to the Company at its address
specified above or to any officer of the Company.
11I. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the
Notes to the contrary notwithstanding, any payment of principal of or interest
on any Note that is due on a date other than a Business Day shall be made on the
next succeeding Business Day. If the date for any payment is extended to the
next succeeding Business Day by reason of the preceding sentence, the period of
such extension shall be excluded in the computation of the interest payable on
such Business Day.
11J. DISCLOSURE TO OTHER PERSONS. For purposes of this paragraph 11J,
"CONFIDENTIAL INFORMATION" means information delivered to the Purchaser or its
representatives by or on behalf of the Company or any Subsidiary in connection
with the transactions contemplated by or otherwise pursuant to this Agreement or
the Subsidiary Guaranty that is proprietary in nature and that was clearly
marked or labeled or otherwise adequately identified when received by the
Purchaser as being confidential information of the Company or such Subsidiary,
PROVIDED that such term does not include information that (i) was publicly known
or otherwise known to the Purchaser prior to the time of such disclosure, (ii)
subsequently becomes publicly known through no act or omission by the Purchaser
or any Person acting on the Purchaser's behalf, (iii) otherwise becomes known to
the Purchaser other than through disclosure by the Company or any Subsidiary or
(iv) constitutes financial statements delivered to the holders of the Notes
pursuant to this Agreement that are otherwise publicly available. The Purchaser
will use its best efforts to maintain the confidentiality of such Confidential
Information in accordance with procedures adopted by it in good faith to protect
confidential information of third parties delivered to it. The Company
acknowledges that the Purchaser may deliver copies of any such Confidential
Information delivered to it, and disclose any other information disclosed to it,
in connection herewith or the Subsidiary Guaranty to
(i) its directors, officers, employees, agents and
professional consultants who have been informed of the confidential
nature of the information provided,
(ii) any other Noteholder,
(iii) any Person to which it offers to sell any Note held by
it or any part thereof if such Person has agreed to be bound by the
provisions of this paragraph 11J,
(iv) any Person to which it sells or offers to sell a
participation in all or any part of any Note held by it if such Person
has agreed to be bound by the provisions of this paragraph 11J,
(v) any federal or state regulatory authority having
jurisdiction over it,
(vi) the National Association of Insurance Commissioners or
any similar organization, or any nationally recognized rating agency
that requires access to information about its investment portfolio, or
(vii) any other Person to which such delivery or
disclosure may be necessary or appropriate
(a) in compliance with any law, rule, regulation
or order applicable to it,
(b) in response to any subpoena or other legal
process,
(c) in connection with any litigation to which
it is a party, or
(d) in connection with the enforcement or protection
of its rights and remedies under the Notes, this Agreement or
the Subsidiary Guaranty.
Each holder of a Note, by its acceptance of a Note, will be deemed to have
agreed to be bound by and to be entitled to the benefits of this paragraph 11J
as though it were a party to this
Agreement.
11K. SATISFACTION REQUIREMENT. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to the Purchaser or to the Required Holders, the
determination of such satisfaction shall be made by the Purchaser or the
Required Holders, as the case may be, in the sole and exclusive judgment
(exercised in good faith) of the Person or Persons making such determination.
11L. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF
THE STATE OF NEW YORK.
11M. 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.
11N. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
11O. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument.
11P. SEVERALTY OF OBLIGATIONS. No failure by any holder of Notes to perform
its obligations under this Agreement shall relieve any other holder of Notes or
the Company of any of its obligations hereunder, and no holder of Notes shall be
responsible for the obligations of, or any action taken or omitted by, any other
holder of Notes hereunder.
[Remainder of page intentionally blank. Next page is signature page.]
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterparts of this letter and return the same to
the Company, whereupon this letter shall become a binding agreement between the
Company and the Purchaser.
Very truly yours,
RECOTON CORPORATION
By /S/ STUART MONT
Name: Stuart Mont
Title: Secretary
The foregoing Agreement is hereby accepted as of the date first above written.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By /S/ KEVIN J. KRASKA
Name: Kevin J. Kraska
Title: Vice President
<PAGE>
ANNEX 1
INFORMATION AS TO PURCHASER
================================================================================
PURCHASER NAME THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
- --------------------------------------------------------------------------------
Name in Which Note is The Prudential Insurance Company of America
Registered
- --------------------------------------------------------------------------------
Series; Note R-1; $25,000,000
Registration Number;
Principal Amount
- --------------------------------------------------------------------------------
Payment on Account of Note
Method Federal Funds Wire Transfer
Account Information Account No.: 890-0304-391, Prudential
Managed Account
Bank of New York
New York, New York
ABA No.: 021-000-018
- --------------------------------------------------------------------------------
Accompanying Name of Company: RECOTON CORPORATION
Information Description of
Security: Adjustable Rate Senior Notes
due September 1, 2008
Security Number: 756268 A@ 7
Due Date and Application (as among
principal, premium and interest) of the
payment being made.
- --------------------------------------------------------------------------------
Address for Notices The Prudential Insurance Company of America
Related to Payments Three Gateway Center
100 Mulberry Street
Newark, NJ 07102-4077
Attention: Manager, Billings and Collections
Telephone: (973) 802-5260
Fax: (973) 802-8055
with telephonic advice of prepayments to:
Manager, Trade Department
Telephone: (973) 802-7398
Fax: (973) 802-9425
- --------------------------------------------------------------------------------
Address for All Other The Prudential Insurance Company of America
Notices c/o Prudential Capital Group
One Gateway Center, 11th Floor
7-45 Raymond Boulevard West
Newark, NJ 07102-5311
Attention: Managing Director
Telephone: (973) 802-9182
Fax: (973) 802-3200
- --------------------------------------------------------------------------------
Other Instructions THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By________________________________________
Name:
Title:
- --------------------------------------------------------------------------------
Instructions re Robert S.M. Lawrence, Esq.
Delivery of Notes Prudential Capital Group
One Gateway Center
7-45 Raymond Boulevard West, 11th Floor
Newark, NJ 07102-5311
Telephone: (973) 802-2426
Fax: (973) 802-2005
- --------------------------------------------------------------------------------
Tax Identification Number 22-1211670
================================================================================
<PAGE>
ANNEX 2
PAYMENT INSTRUCTIONS AT CLOSING
In accordance with paragraph 2 of the Agreement, the Company authorizes and
directs you to make payment for the Notes being purchased by you by payment by
federal funds wire transfer in immediately available funds of the purchase price
thereof to:
Bank: Chase Manhattan Bank
ABA No.: 021000021
Account No.: 087-024284
Account Name: Recoton Corporation
<PAGE>
ANNEX 3
INFORMATION AS TO COMPANY
PART 6C: FUNDED DEBT (INCLUDING GUARANTEES) EXISTING ON THE 1997 CLOSING DATE.
[TO BE PROVIDED BY THE COMPANY.]
PART 6I(I): LIENS EXISTING ON THE 1997 CLOSING DATE.
[TO BE PROVIDED BY THE COMPANY.]
PART 8A(II): SUBSIDIARIES.
[TO BE PROVIDED BY THE COMPANY.]
PART 8A(III): AFFILIATES.
[TO BE PROVIDED BY THE COMPANY.]
PART 8C: LITIGATION.
[TO BE PROVIDED BY THE COMPANY.]
PART 8G: AGREEMENTS RESTRICTING DEBT.
[TO BE PROVIDED BY THE COMPANY.]
PART 8I: REPAYMENT OF DEBT WITH PROCEEDS OF NOTES.
[TO BE PROVIDED BY THE COMPANY.]
PART 10B-1: INVESTMENTS EXISTING ON THE 1997 CLOSING DATE.
[TO BE PROVIDED BY THE COMPANY.]
PART 10B-2: RESTRICTED SUBSIDIARIES.
[TO BE PROVIDED BY THE COMPANY.]
<PAGE>
EXHIBIT A
FORM OF NOTE
RECOTON CORPORATION
ADJUSTABLE RATE SENIOR NOTE DUE SEPTEMBER 1, 2008
No. R-____ PPN: 756268 A@ 7
$_________ [Date]
FOR VALUE RECEIVED, the undersigned, RECOTON CORPORATION (the "Company"), a
corporation organized and existing under the laws of the State of New York,
hereby promises to pay to ____________________________ or registered assigns,
the principal sum of ________________ DOLLARS ($____________) on September 1,
2008, with interest (computed on the basis of a 360-day year of twelve 30-day
months) (a) on the unpaid balance thereof quarterly on the first day of March,
June, September and December in each year, commencing on the later of December
1, 1998 or the payment date next succeeding the date hereof, until the principal
hereof shall have become due and payable, in accordance with, and computed in
the manner provided in, paragraph 4G of the Note Purchase Agreement (as defined
below) and (b) on any overdue payment (including any overdue prepayment) of
principal, any overdue payment of interest and any overdue payment of any
Yield-Maintenance Amount (as defined in the Note Purchase Agreement), payable
quarterly as aforesaid (or, at the option of the registered holder hereof, on
demand), at a rate per annum from time to time equal to the greater of (i) the
rate provided in paragraph 4G of the Note Purchase Agreement in respect of such
overdue amounts or (ii) 2.0% over the rate of interest publicly announced by
Morgan Guaranty Trust Company of New York from time to time in New York City as
its prime rate.
Payments of principal of, interest on and any Yield-Maintenance Amount
payable with respect to this Note are to be made at the main office of Morgan
Guaranty Trust Company of New York in New York City or at such other place as
the holder hereof shall designate to the Company in writing, in lawful money of
the United States of America.
This Note is one of a series of Adjustable Rate Senior Notes (herein called
the "Notes") issued pursuant to the Note Purchase Agreement, dated as of
September 1, 1998 (as may be amended, restated or otherwise modified from time
to time, the "Note Purchase Agreement"), between the Company and the original
purchaser of the Notes named in the Purchaser Schedule attached thereto and is
entitled to the benefits thereof.
This Note is a registered Note and, as provided in the Note Purchase
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company shall not be affected by any notice to
the contrary.
The Company agrees to make required prepayments of principal on the dates
and in the amounts specified in the Note Purchase Agreement. This Note is also
subject to optional prepayment, in whole or from time to time in part, on the
terms specified in the Note Purchase Agreement.
In case an Event of Default, as defined in the Note Purchase Agreement,
shall occur and be continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner and with the effect provided in
the Note Purchase Agreement.
This Note is intended to be performed in the State of New York and shall be
construed and enforced in accordance with the law of such State.
RECOTON CORPORATION
By
------------------------------
Name:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Financial Condition at September 30, 1998
(Unaudited) and the Condensed Consolidated Statement of Income for the Nine
Months Ended September 30, 1998 (Unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 14,913
<SECURITIES> 0
<RECEIVABLES> 150,868
<ALLOWANCES> 4,020
<INVENTORY> 205,867
<CURRENT-ASSETS> 397,651
<PP&E> 65,611
<DEPRECIATION> 25,556
<TOTAL-ASSETS> 493,088
<CURRENT-LIABILITIES> 134,545
<BONDS> 203,123
0
0
<COMMON> 2,587
<OTHER-SE> 150,767
<TOTAL-LIABILITY-AND-EQUITY> 493,088
<SALES> 455,913
<TOTAL-REVENUES> 456,235
<CGS> 278,284
<TOTAL-COSTS> 278,284
<OTHER-EXPENSES> 151,878
<LOSS-PROVISION> 1,508
<INTEREST-EXPENSE> 11,974
<INCOME-PRETAX> 12,591
<INCOME-TAX> 2,077
<INCOME-CONTINUING> 10,514
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,514
<EPS-PRIMARY> .90
<EPS-DILUTED> .86
</TABLE>
